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EX-31.1 - IMPERIAL PETROLEUM RECOVERY CORPex31-1.htm
EX-10.6 - IMPERIAL PETROLEUM RECOVERY CORPex10-6.htm
EX-32.1 - IMPERIAL PETROLEUM RECOVERY CORPex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 2006, October 31, 2007, October 31, 2008, October 31, 2009 and October 31, 2010
or
o   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 000-21169
 
IMPERIAL PETROLEUM RECOVERY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
Nevada
 
76-0529110
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
     
61 S. Concord Forest Circle
   
The Woodlands, Texas 77381
 
(713) 542-7440
(Address of Principal Executive Offices)(Zip Code)
 
(Registrant’s Telephone Number, including Area Code)
 
Securities Registered Pursuant to Section 12(b) of the Act: None
 
Securities Registered Pursuant to Section 12(g) of the Act:
 
(Title of Each Class)
 
Common Stock, $0.001 par value
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes þ  No
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes þ  No
 
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.      o  Yes  þ  No
 
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      o  Yes  þNo
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
o Large Accelerated Filer
o Accelerated Filer
   
o Non-Accelerated Filer (Do not check if a smaller reporting company)
þ Smaller Reporting Company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).o Yes þ No

 
 

 
 
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter, April 30, 2010: $686,749
 
The number of shares of common stock outstanding as of October 18, 2011:  Common Stock, $0.001 Par Value — 48,478,180 shares
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
ANNUAL REPORT ON FORM 10-K
For the Year Ended October 31, 2010
 
TABLE OF CONTENTS
 
    Page
PART I
   
     
Item 1.
Business
1
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
12
Item 2.
Properties
12
Item 3.
Legal Proceedings
12
Item 4.
(Removed and Reserved)
 
     
PART II
   
     
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and
 
 
Issuer Purchases of Equity Securities
13
Item 6.
Selected Financial Data
15
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
20
Item 8.
Financial Statements and Supplementary Data
20
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
20
Item 9A.
Controls and Procedures
21
Item 9B.
Other Information
22
     
PART III
   
     
Item 10.
Directors, Executive Officers and Corporate Governance
23
Item 11.
Executive Compensation
24
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Referred Shareholder Matters
25
Item 13.
Certain Relationships and Related Transactions, and Director Independence
25
Item 14.
Principal Accounting Fees and Services
26
     
PART IV
   
     
Item 15.
Exhibits and Financial Statement Schedules
27


 
 

 

EXPLANATORY NOTE
 
Imperial Petroleum Recovery Corporation (“IPRC”, the “Company”, “we,” “us” or “our”) is filing this comprehensive Annual Report on Form 10-K (“Comprehensive Form 10-K”) for the fiscal years ended October 31, 2010, 2009, 2008, 2007, and 2006 and the interim periods within 2009 and 2010. It is being filed by us in order to become current in our filing obligations under the Securities Exchange Act of 1934, as amended (“Exchange Act”). This is our first periodic filing with the Securities and Exchange Commission (the “SEC”) since the filing of our Quarterly Report on Form 10-Q for the quarter ended April 30, 2006.

In January 2008, the management agreement between IPRC and Agribiofuels, LLC, an entity in which we own a 20% interest (“ABF”), was terminated.   Upon the termination of the management agreement with ABF, we decided to deconsolidate ABF from our corporate structure because we lacked any ability to control the operating and financial decisions and policies of the entity.  Therefore, the discussions in this Compressive Form 10-K will only include the activities of ABF until January 25, 2008, which is the date of deconsolidation

Included in this Comprehensive Form 10-K are the Company’s audited financial statements for the fiscal years ended October 31, 2010, 2009, 2008, 2007, and 2006 which have not been previously filed with the SEC. In addition, the Comprehensive Form 10-K also includes select, unaudited quarterly financial information of the Company for 2010 and 2009.  This Comprehensive Form 10-K should be read together and in connection with the other reports filed by us with the SEC for a comprehensive description of our current financial condition and operating results. In the interest of complete and accurate disclosure, we have included current information in this annual report for all material events and developments that have taken place through the date of filing of this annual report with the SEC.
 
 
 
 
 
 
 
 
 
 

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements in this Comprehensive Form 10-K or in other materials we have filed or will file with the SEC are forward-looking in nature as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “may,” “can,” “could,” “might,” “will” and similar expressions identify forward-looking statements, including statements that relate to the effects of economic conditions; the availability of capital; the dependence on key customers; competitive conditions; and the various risks associated with developing and marketing a new process/technology which could cause actual results to differ materially from those expressed in or implied by the statements herein.
 
Forward-looking statements are not historical facts or guarantees of future performance but instead represent only our beliefs at the time the statements were made regarding future events, which are subject to significant risks, uncertainties, and other factors, many of which are outside of our control and certain of which are listed above. Any or all of the forward-looking statements included in this Comprehensive Form 10-K and in any other materials incorporated by reference herein may turn out to be materially inaccurate. This can occur as a result of incorrect assumptions, in some cases based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions, or as a consequence of known or unknown risks and uncertainties. Many of the risks and uncertainties mentioned in this Comprehensive Form 10-K, such as those discussed in Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations will be important in determining whether these forward-looking statements prove to be accurate. Consequently, neither our shareholders nor any other person should place undue reliance on our forward-looking statements and should recognize that actual results may differ materially from those anticipated by us.
 
All forward-looking statements made in this Comprehensive Form 10-K are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Comprehensive Form 10-K will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise. However, we may make further disclosures regarding future events, trends and uncertainties in our subsequent reports on Forms 10-K, 10-Q and 8-K to the extent required under the Exchange Act. The above cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business include factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed above or in Item 3. Legal Proceedings below, including factors unknown to us and factors known to us which we have not determined to be material, could also adversely affect us.
 
 

 
 

 
 
PART I
 
Item 1.
Business
 
General

IPRC was founded in 1990 as a Nevada corporation.  Since 1995 our primary business has been the development, marketing and distribution of our Microwave Separation Technology.  The Company’s offices are located in The Woodlands, Texas.  Our common stock currently listed for quotation on the Pink OTC Markets, Inc. Pink Exchange under the trading symbol “IREC”.

We are a provider of microwave technology to the petroleum and biofuels industries.  We have developed a proprietary, patented process using high-energy microwaves, called Microwave Separation Technology (“MST”), which is designed to treat and eliminate hydrocarbon emulsions.  Our goal is to become a leader in developing and marketing innovative commercial radio frequency (“RF”) energy applications, including MST, that can be used within the petroleum, energy and other industries to treat emulsions containing oil, water, and solids, using our patented technology to recover the oil, enhance process efficiency and improve our customers’ financial performance.

In 2005, we determined it was in best interest of IPRC to focus its business on using its MST technology in the bio-diesel industry.  In connection therewith, IPRC acquired a 20% ownership interest in Agribiofuels, LLC (“ABF”).  In connection, with the acquisition of the ownership interest, IPRC licensed the use of MST to ABF for production in biodiesel production and entered into a management agreement with ABF.  Pursuant to the management agreement with ABF, IPRC licensed its MST technology to ABF and agreed to provide certain general business, financial consultation and advice and management services to ABF in connection with the operation of its business and to provide technology and training in operating MST in the manufacture of biodiesel products.  In January 2008 the license and management agreement with ABF was terminated by ABF   Between 2006 and January 2008, our only source of revenues was pursuant to the management and license agreement with ABF.  Upon the termination of the management agreement with ABF, we decided to deconsolidate ABF from our corporate structure.

We have decided to re-focus our technology to the use by oil and gas refineries. Between January 2008 and August 2009 our  operations were nominal.  In August 2009, IPRC entered into a technical service agreement with Petroleo Barsileiro S.A. (“Petrobras”) pursuant to which IPRC agreed to provide a 16 month demonstration project of the MST technology at various locations throughout Brazil. The technical services agreement with Petrobras provided that IPRC would operate a MST 150 unit at a refinery in Brazil and to conduct various tests of emulsions as determined by the technical staff of Petrobras.  Petrobras has agreed to pay in installment payments as follows: the first installment of $230,930 is due upon acceptance of the pre-test report, the second installment of $346,395 is due upon acceptance of the first test report, the third installment of $346,395 is due upon acceptance of the second test report and the fourth installment of $230,930 is due upon the acceptance of the final test report.

In fiscal 2009, Petrobras accepted our pre-test report and remitted the first installment of $230,930 to us on November 17, 2009.  In September 2010, Petrobras accepted our first technical report and remitted the second installment of $346.395.  IPRC is currently working on the second technical report and expects to submit this report no later than November 30, 2011. The third technical report is expected to be completed and submitted by December 31, 2011.  Petrobras has the option to purchase the MST unit, purchase additional units at set prices and/or manufacture the MST unites for use in Brazil.

Due to delays associated with the original shipment and customs release, the MST 150 was not released to Petrobras until May 2010, which represented a delay of about 4 months.  The parties agreed to an amendment to the technical service agreement due to the delay, which included an additional installment payment to IPRC of $281,000 which is due upon approval by Petrobras and an extension of the original contract term until November 2011.

 
-1-

 
Fiscal Year 2006 Events 

ABF. In connection with the management services agreement with ABF, IPRC received a monthly management fee from ABF of $75,000 from August 2005 through December 2006, which was raised to $120,000 per month effective January 2006.  In 2006, ABF acquired 25 acres of land in Dayton Texas.  IPRC relocated its corporate offices to the Dayton site in June 2006 and construction of the biodiesel plant began in August 2006.  The plant was completed December 8, 2006.

Forbearance Agreement.   Effective as of January 1, 2006, we entered into a second forbearance agreement in connection with a marketing agreement, dated October 6, 1999, between the Company and Mobil Technology Company (“MTC”), pursuant to which we owe the successor in interest to MTC a principal amount of $1,000,000.  Pursuant to the 1999 agreement, MTC provided IPRC a $1,000,000 security deposit, which IPRC was to repay on August 10, 2003.   Pursuant to the first forbearance agreement, dated June 8, 2004, if the Company entered into a contract for the sale, or license of one or more MST units by October 31, 2004, the Company was obligated to pay off the security deposit in six (6) quarterly installments.  If IPRC failed to enter into a contract for the sale, or license of one or more MST units by October 31, 2005 or failed to payoff the security deposit by December 31, 2005, then IPRC would accrue interest on the unpaid security deposit plus any accrued interest, at a rate equal to the prime rate of Citibank (New York) at the close of business on the last business day of the calendar year immediately preceding each respective year plus 4%.  Under the second forbearance agreement, we agreed to pay the successor in interest of MTC a total of $500,000 by December 31, 2006, of which $200,000 shall be paid on or before March 1, 2006, $75,000 on or before March 31, 2006, $75,000 on or before June 30, 2006, $75,000 on or before September 30, 2006 and $75,000 on or before December 31, 2006.  As long as this second forbearance agreement is not in default the successor shall waive the remaining principal balance as well as any accrued interest that may have been owed under the agreement.
 
Closing of Private Placement.  In 2005 and 2006, we closed on a private placement consisting of convertible notes, convertible into shares of common stock at a price of $.15 per share (none of which have been converted as of the date hereof), from which we raised gross proceeds of $2,175,000.  The sale and issuance of the securities in the private placement were made pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation.  Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.

Bonus and Equity Awards.  In May 2006, our board of directors approved the payment of year-end bonuses to our executive officers totaling approximately $18,000.  In addition, the salaries of our chief executive officer and chief financial officer were increased to $224,400 per year and $108,000 per year, respectively, each effective January 1, 2007.  In addition, the Company issued 813,151 shares to former officers to settle accrued but unpaid salaries.

Fiscal Year 2007 Events 

Biodiesel Subsidies.  During the third quarter of fiscal year 2007, key funding from the State of Texas in the form of a subsidy for biodiesel production was withdrawn from ABF.  This had a dramatic impact on our and ABF’s ability to secure the necessary funding to complete the biodiesel production program.  Without the additional funding to expand ABF’s plant, the incorporation of the MST technology became economically infeasible.
 
Forbearance Agreement.  Final payment under the second forbearance agreement between the Company and MTC was made on December 31, 2006 and MTC waived the remainder of the monies owed under the marketing agreement with MTC.  See discussion in Fiscal Year 2006 Events.
 
Default on 2004-2005 Convertible Notes.  In fiscal 2004 and 2005, we issued notes in the principal amount of $2,175,000.  The notes initially accrued interest at 12% per annum and were due and payable at various times during the fiscal year ended October 31, 2007.  None of the convertible notes were converted or paid in full as of October 31, 2007.   The Company extended notes with the aggregate original principal amount of   $575,000 to June 1, 2008 and one note in the original principal amount of $50,000 was further extended to January 1, 2010.  As of the fiscal year ended October 31, 2007, the Company was in default on the remaining notes which represent the aggregate original principal amount of $1,600,000. None of the holders of the convertible notes has made demand on the notes.   Per the agreement upon default the notes accrue interest at the rate of 15% per annum.
 
Expiration of  2004-2005 Warrants.  In connection with the issuance of convertible notes in fiscal 2004 and 2005, we issued warrants to purchase 7,250,000 shares of the Company's common stock at an exercise price of $0.15 per share.  None of these warrants were exercised.  These warrants expired during the fiscal year ended October 31, 2007.

 
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Fiscal Year 2008 Events 

Termination of ABF Management Agreement and License.  In January 2008, ABF terminated the management agreement with IPRC, and continues to operate the biodiesel plant independently of IPRC.  IPRC is still a 20% equity owner of ABF, but deconsolidated ABF from its corporate structure due to the lack of operating and financial control.

Resignation of Chief Financial Officer and Director.  Effective January 25, 2008, Ed Gaiennie resigned as chief financial officer of IPRC.  On February 4, 2008, A.V. McGraw resigned as a member of the board of directors, leaving Mr. Springer and James Hammond as the remaining members of the board.

Employment Agreements.  Effective Feb 8, 2008, IPRC and Alan Springer, Chairman and chief executive officer of the Company, entered into a new three year employment agreement.  Mr. Springer’s base salary for was increased to $275,000, with another increase to $325,000 per year effective on the third anniversary of the new employment agreement.   The Agreement specified that if operations are not sufficient to generate sufficient cash flow to meet all payroll obligations, the gross amount will be accrued and paid in full when funding is available.
 
Issuance of 2008 Convertible Notes.  During the fiscal year ended October 2008, the Company issued convertible notes in the aggregate principal amount of $200,000, which are convertible into our common stock at $0.15 per shares.  The notes initially accrued interest at 12% per annum and were due and payable at various times during the fiscal year ended October 31, 2010. In connection with the issuance of these convertible notes in the fiscal year ended October 31, 2008, we issued warrants to purchase 666,666 shares of the Company's common stock at an exercise price of $0.15 per share.  These warrants expired during the fiscal year ended October 31, 2010.   The sale and issuance of the securities in the private placement were made pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation.  Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved
 
 Default on 2004-2005 Convertible Notes.  Of the $2,175,000 convertible notes originally issued in fiscal 2004 and 2005 and due and payable in fiscal 2007, holders of the notes with an aggregate original principal amount of $575,000 agreed to extend the maturity date to June 1, 2008.  None of these notes were paid on June 1, 2008 and the Company is currently in default.   None of the holders of the convertible notes has made demand on the notes.   Per the agreement upon default these notes accrue interest at the rate of 15% per annum.
 
Pay off of 3 year note in the original principal amount of $96,315.  As of October 31, 2008, we paid in full a 3 year note we entered into in October 2004 to settle what was a current accounts payable.  The note  accrued interest at 7.5% and required monthly payments of principal and interest and principal of $2,996.  The note was secured by our demo trailer and skid.

Equity Awards. On June 30, 2008, IPRC awarded Alan Springer 700,000 shares of common stock and James Hammond 100,000 shares of common stock.  We also issued to third parties an aggregate of 300,000 shares of our common stock for services rendered.

Fiscal Year 2009 Events 

Petrobras Agreement.  In August 2009, we entered into an agreement with Petrobras (the “Petrobras Agreement”) pursuant to which we agreed to conduct a 16 month demonstration project of the MST at various locations in Brazil.  The total value of the agreement was initially $1,154,650 payable in 4 installments: the first installment of $230,930  is due upon acceptance of the pre-test report, the second installment of $346,395 is due upon acceptance of the first test report, the third installment of $346,395 is due upon acceptance of the second test report and the fourth installment of $230,930 is due upon the acceptance of the final test report.    The agreement also provided Petrobras with an option to acquire up to $54 million of various MST units over a 24 month period at preferential pricing; thereafter they would be given the right to manufacture in Brazil for additional units with IPRC providing the technical proprietary applicators.  Petrobras was also granted a separate option to acquire the MST-150 demonstration unit for $1,766,880 at the conclusion of the demonstration program. In November 2009, we received the first installment of $230,930 for the acceptance of the pre-test report.

Equity Awards.  In August 2009, IPRC awarded Alan Springer 850,000 shares of common stock and James Hammond 350,000 shares of common stock.  We also issued to third parties an aggregate of 335,000 shares of our common stock for services rendered.

Fiscal Year 2010 Events and Recent Developments

Equity Awards.  In June 2010, IPRC awarded Alan Springer 850,000 shares of common stock and James Hammond 350,000 shares of common stock.  IPRC also issued to third party consultants an aggregate of 270,000 shares of common stock for services rendered.  In addition, on September 29, 2010, IPRC awarded Alan Springer 1 million shares of common stock and James Hammond 350,000 shares of common stock.  IPRC also issued to two employees an aggregate of 300,000 shares of common stock, and to third party consultants an aggregate of 200,000 shares of common stock.  The issuances of IPRC common stock in September 2010 to officers, directors, employees, and consultants all related to the successful commissioning of the MST 150 unit in Brazil.

 
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Petrobras Agreement.  Due to delays associated with the original shipment and customs release, the MST 150 was not released to Petrobras until May 2010, which represented a delay of about 4 months.  The parties agreed to an amendment to the technical service agreement due to the delay, which included the increase of the total purchase price from $1,154,650 to $1,435,650 and extended the contract term until November 2011.  Pursuant to the amendment, Petrobras agreed to an additional installment payment of $281,000 caused by the delays in custom for a total of 5 installment payments..  Pursuant to the amendment, the first installment of $230,930 is due upon acceptance of the pre-test report, the second installment of $346,395 is due upon acceptance of the first test report, the third installment of $281,000 for the delay in customs is due upon approval of Petrobras, the fourth installment of $346,395 is due upon acceptance of the second test report and the fifth installment of $230,930 is due upon the acceptance of the final test report.

In September 2010, we received the second installment payment of $346,395 for the completion of the first test.
 
Default on 2004-2005 Convertible Notes.  Of the $2,175,000 convertible notes originally issued in fiscal 2004 and 2005 and due and payable in fiscal 2007, a holder of a note with an original principal amount of $50,000 agreed to extend the maturity date to January 1, 2010.  This note was not paid on January 1, 2010 and the Company is currently in default.   None of the holders of the convertible notes has made demand on the notes.   Per the agreement upon default the notes accrue interest at the rate of 15% per annum.
 
Default on 2008 Convertible Notes.  During fiscal 2008, the Company issued convertible notes in the aggregate principal amount of $200,000, which are convertible into our common stock at $0.15 per shares.  The notes initially accrued interest at 12% per annum and were due and payable during the fiscal year ended October 31, 2010.   None of the convertible notes were converted or paid in full as of October 31, 2010.    As of the fiscal year ended October 31, 2010, the Company is in default on these notes. None of the holders of the convertible notes has made demand on the notes.   Per the agreement upon default these notes accrue interest at the rate of 15% per annum.
 
Expiration of Warrants.  In connection with the issuance of these convertible notes 2008, we issued warrants to purchase 666,666 shares of the Company's common stock at an exercise price of $0.15 per share.  These warrants expired during the fiscal year ended October 31, 2010.  None of these warrants were exercised.

Capital Raise.  During the fiscal 2010, we issued 75,000 shares of common stock in consideration of receipt of cash proceeds of $12,500. The sale and issuance of the securities in the private placement were made pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation.  Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved

Our Current Business
 
General

We currently offer MST to the oil field industry and are developing the use of MST in the marine industry and in the production of biodiesel.  MST technology uses RF to separate water and oil emulsions. Emulsions are homogenous mixtures of oil and water components (or other normally immiscible components).

Oil and Gas Industry

Produced oil contains water that is costly to transport and damaging to infrastructure.  MST applies RF energy to separate the water and oil emulsions, allowing the removal of the water and solids and enhancing the production of the oil.  The RF energy breaks the emulsion by preferentially heating the water inside the oil matrix, which creates differences in surface tension and viscosity.  After RF energy is applied, the materials are pumped into a separation tank. If immediate separation is required, a centrifuge can be utilized.  The separated oil is then pumped into holding tanks for shipment to customers.  The separated water and sediments can be handled in accordance with the customer’s environmental regulations.

The oil and gas industry is a complex, multi-disciplinary sector that varies greatly across geographies. As a heavily regulated industry, operating conditions are subject to political regimes and changing legislation. Governments can either induce or deter investment in exploration and production, depending on legal requirements, fiscal and royalty structures and regulation.  In addition, Oil and gas prices determine the commercial feasibility of a project.  Certain projects may become feasible with higher prices or, conversely, may falter with lower prices. Volatility in the price of oil, gas and other commodities has increased during the last few years, complicating the assessment of revenue projections.  Most governments have enforced strict regulations to uphold high standards of environmental awareness; thus, holding companies to a high degree of responsibility vis à vis protecting the environment.

 
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We have designed several different MST systems to be used in the oil and gas industry to facilitate the separation of water and oil emulsions; the MST-1000, MST-2000, MST-4000 and MST-5000.  These systems are designed to process between 1000 barrels per day (bpd) up to 5000 bpd.  We also have designed a self-contained mobile system, the MST 150, which has its own power and separation capabilities.  This allows it to be deployed to remote areas and operate independently.  Because it is a mobile system, the MST 150 can assists us in demonstrating to possible customers the effectiveness of the large scale MST 1000 series in resolving various emulsion or process applications.

The stated goal of our finished oil recovered from the emulsions is a product that is 98% free of water and solids; e.g., refinery grade crude.  Each MST system is computer-controlled and contains all the elements needed to reclaim oil from oil emulsion and “rag layer” water located in refineries, tank storage and waste pits. In its initial refinery application, the MST system has been used to improve the efficiency of desalination operations.  MST systems are modular and can be conjoined to handle larger capacity requirements as required by the customer.

Each MST system includes the following components:

·  
A patented microwave applicator;
·  
A microwave transmitter;
·  
Waveguides and auto tuner;
·  
Instrumentation and computer automation;
·  
Pumps and drives;
·  
If required, a separation unit; and
·  
Safety monitors and failsafe interlocking system.

The Company offers its products for sale or lease directly to end-users or can provide the services to an end-user through a specific marketing partnership.

Marine Industry

We currently have a provisional patent  for the use of MST in marine on-board systems.  The Marine Industry MST is under development to improve the efficiency of bilge water handling aboard large ships.  Bilge water is a mixture of water and a very small percentage of oil that probably is inadvertently diverted from the engine.  Companies that have ships typically try to have systems on-board to capture this small percentage of oil (<1%) so that they avert the risk of heavy fines should the bilge with oil be accidentally discharged since it causes significant environmental problems.

Testing has conducted employing the existing laboratory MST to treat bilge samples taken from several cruise ships ported in Galveston, Texas.  Initial tests were extremely successful in demonstrating the application of the MST to enhance the separation of existing on-board bilge water processing systems.  While the Company intends to continue to research,  develop and/or refine marketing plans to penetrate the marine industry, MST use in the marine industry is in its early stages of development and there is no guarantee that it will be successful.

Biodiesel

We currently have a provisional pending for the use of MST in the production of biodiesel.  In 2005, we began laboratory and field trials to determine the value of employing MST technology to enhance the throughput and settling times for existing biodiesel production processes, in response to the Federal Directives outlined in the US Energy Policy Act of 2005 and related legislation in the United States and the European Union.

The State of Texas’ elimination of  its tax subsidies related to production of bio-diesel has made the current pursuit of the use of our MST technology for the production of bio-diesel fuels infeasible.  If the economic situation is changed by rule of law or otherwise, the Company will review whether or not to re-enter the bio-diesel fuels market.

Research and Development

Our research and development costs for the fiscal years ended October 31, 2006, October 31, 2007, October 31, 2008, October 31, 2009 or October 31, 2010 was nominal.  We incurred no research and development costs for the first years ended October 31, 2010 and October 31, 2009.  We incurred research and development costs of $17,245, $153, $78,479 for October 31, 2008, October 31, 2007 and October 31, 2006, respectively.

 
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Customers

We intend to market our technology by entering into strategic partnerships with third parties who can market and sell our products world-wide.  We have established working relationships with several prominent engineering companies that are currently working within the petroleum industry.  It is our intent to establish suitable joint ventures (JV) with one or more of these companies as a means to penetrate these industries.

Currently, we have only leased two MST units and sold one MST unit.  However, there are more than 700 oil refineries worldwide with 149 of these located in the United States]. Each is a potential customer of the Company.  The Company’s marketing strategy is to:

·  
Focus on commercialization of microwave technology
·  
Concentrate initially on the 45 refineries in Texas and Louisiana
·  
Execute existing pipeline of contacts and leads.

Competition

Oil and Gas Industry

The Company's competitors are firms that employ heat, pressure, chemical and centrifuge processes to dispose of solid and oily non-hazardous oil field wastes.  We believe that our products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks.

We believe that our most significant competitors are fully integrated oil and gas processing companies. Smaller companies may also be significant competitors, particularly through collaborative arrangements with oil and gas industry companies. The Company’s competitors are national, regional and local, including recognizable companies such as BJ Services, Baker Hughes and Suez.  The Company anticipates that it will face additional competition from new entrants that provide significant performance, price, creative or other advantages over those offered by the Company.  Many of these competitors have greater name recognition and resources than the Company.

Marine Industry

Currently, the marine industry uses systems that are on board consisting of water/oil separators; centrifuge systems; chemical systems that add specific chemical compounds to help separate the oil from the bilge water.  Almost without exception these on-board systems do not collect all the oil in the bilge which results in the ships having to pump out the bilge when they get to port and have the bilge transported to a facility that specializes in these processes using heat, chemicals and centrifuges.   We believe that our products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks.

The Company believes that some of its current competitors have significantly greater resources, experience and research and development capabilities.

Protection of Intellectual Property

The technology used in the MST process is proprietary.  The Company has been issued three United States patents to protect its design, has 2 provisional patents for the use of MST in the marine industry and in the production of biodiesel and may seek additional patents in the future.  There can be no assurance that any future patent applications will result in patents being issued. Likewise, there can be no assurance that the Company’s patents will afford protection against competitors with similar technology.  In addition, there can be no guarantee that the patents will not be infringed upon, designed around by others, or challenged and held to be invalid or unenforceable.  Proprietary rights relating to the Company's products and processes generally will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets.  In the absence of patent protection, competitors who independently develop substantially equivalent technology may adversely affect the Company’s business.

Third-party patents relating to technology utilized by the Company may now exist or may be issued in the future.  The Company may need to acquire licenses or contest the validity of any such patents.  Significant funds may be required to defend against third party claims of patent infringement. Any such claim could adversely affect the Company until the claim is resolved.  Furthermore, any such dispute could result in a rejection of any patent applications or the invalidation of any patents the Company owns.  There can be no assurance that any license required under any such patent would be available to the Company or, if available, available on acceptable terms.  In addition, there is no guarantee that the Company would prevail in any litigation involving such patent.  Any of the foregoing could have a material adverse effect on the Company and its results of operations.

 
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The Company seeks to protect the technology used in the MST process in part by confidentiality agreements with its advisors, employees, consultants, suppliers and vendors.  The Company also protects its technology by building interlocking security measures into its products.  There can be no assurance, however, that these agreements and security measures will not be breached or that competitors will not discover the Company’s trade secrets.  In addition, there can be no assurance that persons or institutions providing research to the Company will not assert rights to intellectual property arising out of such research.

Suppliers

The Company primarily uses standard parts and components from a variety of suppliers to produce the hardware for its products.  Certain components are currently available only from a few limited sources.  To date, the Company has not had difficulty obtaining parts and components in sufficient quantity in a timely manner.  Several Houston-based fabrication companies have been identified to manufacture MST systems as required.  These firms meet the fabrication standards required by petroleum companies worldwide.  The Company does not expect to have difficulty fabricating, testing and delivering machines if and when sales of MST systems accelerate.

Government Regulation

The Company’s products are subject to various federal, local, state and international laws and regulations as well as regulations relating to occupational health and safety and the environment including regulations from the U.S. Environmental Protection Agency.   Failure to comply with these occupational health and safety and environmental laws and regulations or associated permits may result in the assessment of fines and penalties and the imposition of investigatory and remedial obligations.  The Company believes that its products meet or exceed all applicable safety and environmental regulations.  All units will be manufactured to meet United States, Canadian and European standards for construction and safety.

Governmental provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, have had, and will continue to have, an effect on us and on our operations. Under some environmental laws, we may be jointly and severally liable for the costs of environmental contamination on or emanating from our properties and at off-site locations where we disposed or arranged for the disposal or treatment of regulated materials, and may also incur liability for damages to natural resources. We do not believe that compliance with environmental protection laws and regulations will have a material effect upon our capital expenditures, revenues (if any) or competitive position, although there can be no assurance to that effect. We believe that any liability that may result from the resolution of environmental matters for which sufficient information is available to support cost estimates will not have a material adverse effect on our financial position or results of operations. However, we cannot predict the effect on our financial position of expenditures for aspects of certain matters for which there is insufficient information. In addition, we cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters or future environmental requirements on our financial position, results of operations, liquidity or cash flow.

We are also subject to a variety of regulations relating to the production and handling of our products, as well as the conduct and condition of our production facilities. We do not believe that these regulatory requirements will have a material effect on capital expenditures, earnings or competitive position.

Employees

As October 31, 2006, we had 8 full time employees.  As of October 31, 2007, we had 8 full time employees.  As of October 31, 2008, we had 1 full time employee and 1 part time consultant.  As of October 31, 2009, we had 1 full time employee and 1 part time consultant.  As of October 31, 2010, we had an employee and 1 part time consultant.
 
Where You Can Find Additional Information
 
You may access and read our SEC filings, including this Comprehensive Form 10-K, through the SEC’s website (http:www.sec.gov).  This site contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.  This registration statement, including the exhibits and schedules filed as a part of the registration statement, may be inspected at the public reference facility maintained by the SEC at its public reference room 100 F Street NE, NW, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office.  You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.
 
 
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Additionally, we will provide copies of any of this information free of charge upon written request to, Imperial Petroleum Recovery Corporation., Investor Relations, 61 S. Concord Forest Circle, The Woodlands, 77381.  We also maintain information about our company on our website, www.irpc.com.

Item 1A.    Risk Factors

An investment in our common stock involves various risks. When considering an investment in IPRC, one should consider carefully all of the risk factors described below, as well as other information included and incorporated by reference in this report. There may be additional risks, uncertainties and matters not listed below, that we are unaware of, or that we currently consider immaterial. Any of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our Company.

Risks Related to our Industry
 
Demand for oil and natural gas is subject to factors beyond our control, which may adversely affect our operating results. The continuing weakness or further deterioration of the global economy or credit market could reduce our customers’ spending levels and reduce our revenues and operating results.

Demand for oil and natural gas, as well as the demand for our services, is highly correlated with global economic growth.  The slowdown in global economic growth and recession in the developed economies has resulted in reduced demand for oil and natural gas, increased spare productive capacity and lower energy prices. The continuing weakness or further deterioration of the global economy or credit market could reduce our customers’ spending levels and reduce our revenues and operating results. In addition, demand for oil and natural gas could be impacted by environmental regulation or carbon taxes targeting reduction of greenhouse gas emissions or the cost for carbon capture and sequestration related regulations.

Volatility of oil and natural gas prices can adversely affect demand for our products and services.

Volatility in oil and natural gas prices can also impact our customers’ activity levels and spending for our products and services. Current energy prices are important contributors to cash flow for our customers and their ability to fund exploration and development activities. Expectations about future prices and price volatility are important for determining future spending levels.  Lower oil and gas prices generally lead to decreased spending by our customers. While higher oil and natural gas prices generally lead to increased spending by our customers, sustained high energy prices can be an impediment to economic growth, and can therefore negatively impact spending by our customers. Our customers also take into account the volatility of energy prices and other risk factors by requiring higher returns for individual projects if there is higher perceived risk. Any of these factors could affect the demand for oil and natural gas and could have a material adverse effect on our results of operations.

Many of our customers’ activity levels and spending for our products and services and ability to pay amounts owed us may be impacted by deterioration in the credit markets.
     
Access to capital is dependent on our customers’ ability to access the funds necessary to develop economically attractive projects based upon their expectations of future energy prices, required investments and resulting returns. Limited access to external sources of funding has caused many customers to reduce their capital spending plans to levels supported by internally-generated cash flow.  In addition, the combination of a reduction of cash flow resulting from declines in commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may impact the ability of our customers to pay amounts owed to us.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency any jurisdiction where we might conduct our business activities, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.  The actions, policies or regulations, or changes thereto, of any government body or regulatory agency or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate profitably.
Risks Associated with our Company

If we do not receive the future payments pursuant to the Petrobras Agreement, as expected, it will have a materially adverse impact on our results of operation and financial condition.

Currently, our only revenue is from the Petrobras Agreement.   If the payments by Petrobras are not made, will have no revenues which would materially impact our financing condition.  We would either need to raise funds from third parties, lease or sale or technology to another third party or curtail operations.  Currently, we do not have any agreements for third party funding or for the sale or lease of our technology.

 
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Because our continuation as a going concern is in doubt, we will be forced to cease business operations unless we can generate profitable operations in the future.

We have incurred losses since our inception resulting in an accumulated deficit of $20,514,383 at October 31, 2010.   As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and to obtain the necessary financing and equity to meet our obligations and repay our liabilities arising from normal business operations when they come due. If we cannot raise funds to meet our obligations, we will become further insolvent and will cease business operations.

We derive all of our revenues from foreign sales, which pose additional risks including economic, political and other uncertainties.

All of our revenue is from the Petrobras Agreement, which is related to the use of MST technology in Brazil. We believe that export sales will remain a significant percentage of our revenue. Our sales contracts are denominated in U.S. dollars. Fluctuations in foreign exchange rates could make it more difficult for our overseas customers to meet their U.S. dollar obligations. In addition, sales of our products to customers operating in foreign countries that experience political/economic instability or armed conflict could result in difficulties in delivering and installing complete seismic energy source systems within those geographic areas and receiving payment from these customers. Furthermore, restrictions under the Foreign Corrupt Practices Act or similar legislation in their countries, or trade embargoes or similar restrictions imposed by the U.S. or other countries could limit our ability to do business in certain foreign countries. These factors could materially adversely affect our results of operations and financial condition.
 
There can be no assurance the Company will successfully implement its plans.

For the fiscal year ended October 31, 2010 we had net losses of $777,923  Our accumulated deficit at October 31, 2010 was $20,514,383.  We expect losses in the future periods.  Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business which seeks to obtain funds to finance its operations in a highly competitive environment.  There can be no assurance that we will successfully implement any of its plans in a timely or effective manner or that we will ever be profitable.

We have a history of losses and expect to continue to incur losses and negative operating cash flows for the foreseeable future, and we may never achieve or maintain profitability.

We had $346,395 in gross revenues during the fiscal year ended October 31, 2010, related solely to the Petrobras agreement.  As of October 31, 2010, the Company had cash of $64,927.  The Company's current burn rate is $20,000 per month.   As the operations of the Company continue to ramp up, our burn rate is expected to increase to $28,000 per month.  There can be no assurance that the Company’s operations will be able to generate sufficient capital from operations.  Further, there can be no assurance that the Company will be able to raise sufficient funds from financings to fund its working capital requirements, or if financings occur, that they would be completed on terms favorable to the Company.  Failure to raise necessary working capital will cause us to curtail operations.

We have a limited operating history on which to base an evaluation of our business.

Any investment in us should be considered a high-risk investment because investors will be placing funds at risk in a development stage business with unforeseen costs, expenses, competition, a history of operating losses and other problems. Investors should not invest in us unless they can afford to lose their entire investment.  Your investment must be considered in light of the risks, expenses, and difficulties encountered in establishing a new technology in a highly competitive and mature industry.  We anticipate that we will continue to incur operating costs without realizing any profits for the foreseeable future.

Current economic conditions and capital markets are in a period of disruption and instability which could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.
 
The current economic conditions and financial crisis have had, and will continue to have, a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity. The shortage of liquidity and credit combined with substantial losses in worldwide equity markets could lead to an extended worldwide recession. We may face significant challenges if conditions in the capital markets do not improve. Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future financial disruptions or how long the current market conditions may continue.
 
 
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Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business.

We may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems.

If we are unable to manage growth effectively, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.

Local legal and regulatory systems in which we operate may create uncertainty regarding our rights and operating activities, which may harm our ability to do business.
 
We are a company organized under the laws of the State of Nevada and are subject to United States laws and regulations. The jurisdictions in which we intend to operate our exploration, development and production activities may have different or less developed legal systems than the United States, which may result in risks such as:

·  
effective legal redress in the courts of such jurisdictions, whether in respect of a breach of law or regulation, or, in an ownership dispute, being more difficult to obtain;
·  
a higher degree of discretion on the part of governmental authorities;
·  
the lack of judicial or administrative guidance on interpreting applicable rules and regulations;
·  
inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; and
·  
relative inexperience of the judiciary and courts in such matters.

In certain jurisdictions the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licenses and agreements for business. These licenses and agreements may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. Property right transfers, joint ventures, licenses, license applications or other legal arrangements pursuant to which we operate may be adversely affected by the actions of government authorities and the effectiveness of and enforcement of our rights under such arrangements in these jurisdictions may be impaired.

We operate in a highly competitive environment, which may adversely affect our ability to succeed.

We operate in a highly competitive environment for marketing energy related technology and services. Companies with more resources than we have available will be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services, and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do. They may also be able to devote greater resources to the development, promotion and sale of their products than we can. Increased competition could require us to reduce the price for our product.  We cannot assure you that we will be able to distinguish ourselves in a competitive market. To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition would be materially adversely affected.

Uninsured claims and litigation could adversely impact our operating results.

Since January 2008 we do not have insurance coverage against operating hazards, including product liability claims and personal injury claims related to our products and services. As a result, we could be impacted by the outcome of pending litigation as well as unexpected litigation or proceedings. Whenever possible, we obtain agreements from customers that limit our liability, however such agreements do not provide complete protection against losses and risks.  In the event we are subject to litigation or liabilities arising from our products or services, our business, operating results and financial condition would be materially adversely affected.

 
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The loss of Alan Springer, our Chief Executive Officer and Chairman, could adversely impact the Company.

The nature of our business, including our ability to continue our development of MST application, depends, in large part, on the efforts of Alan Springer.  The loss of Mr. Springer could have a material adverse effect on our business.

Risks Related to our Common Stock

Our failure to timely file certain periodic reports with the SEC poses significant risks to our business, each of which could materially and adversely affect our financial condition and results of operations.

We failed to file our Annual Reports on Form 10-K for the fiscal years ended October 31, 2010, 2009, 2008, 2007, and 2006, and our Quarterly Reports on Form 10-Q for the periods ended January 31, 2007, April 30, 2007, July 31, 2007, January 31, 2008, April 30, 2008, July 31, 2008, January 31, 2009, April 30, 2009, July 31, 2009, January 31, 2010, April 30, 2010, and July 31, 2010.  Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act.  Our failure to timely file those and possibly future periodic reports with the SEC could subject us to enforcement action by the SEC and shareholder lawsuits.  Any of these events could materially and adversely affect our financial condition and results of operations and our ability to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders.  Additionally, our failure to file our past periodic reports and future periodic reports has resulted in and could result in investors not receiving adequate information regarding the Company with which to make investment decisions.
 
We do not expect to be able to access the public U.S. capital markets until all of its periodic reporting with the SEC is up to date.

We will be unable to register our common stock with the SEC to access the U.S. public securities markets until we have filed its prior periodic reports and financial statements with the SEC. This precludes us from raising debt or equity financing in registered transactions in the U.S. public capital markets to support growth in its business plan.
 
Our common stock is quoted on the OTC “pink sheets” market which does not provide investors with a meaningful degree of liquidity.

Bid quotations for our common stock are available on the OTC “pink sheets,” an electronic quotation service for securities traded over-the-counter. Bid quotations on the pink sheets can be sporadic and the pink sheets do not provide any meaningful liquidity to investors. An investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of the common stock. There can be no assurance that our common stock will be listed on a national exchange such as The NASDAQ Stock Market, the New York Stock Exchange or another securities exchange once we become current in our filing obligations with the SEC.
 
The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

·  
changes in earnings or variations in operating results;
·  
changes in the value of our portfolio of investments;
·  
any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;
·  
changes in accounting principles or changes in interpretations of existing principles, which could affect our financial results;
·  
changes in legislation or regulatory policies, practices, or actions;
·  
the commencement or outcome of material litigation involving our company, our general industry or both;
·  
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
·  
actual or expected sales of our common stock by our stockholders;
·  
departure of our investment adviser’s key personnel; and
·  
general economic trends and other external factors.
  
A low market price may severely limit the potential market for the Company’s common stock.

An equity security that trades below a certain price per share is subject to SEC rules requiring additional disclosures by broker-dealers.  These rules generally apply to any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”).  Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors.  For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale.  The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market.  Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer.

 
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Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  In the event our common stock trades at a price of less than $5.00 per share, the additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.

The Company will not pay dividends on its common stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Control by current shareholders.

The current shareholders have elected the directors and the directors have appointed current executive officers to serve the Company.  The voting power of these shareholders could also discourage others from seeking to acquire control of us through the purchase of our common stock which might depress the price of our common stock. 

If we raise additional cash through the sale of equity, this will dilute existing shareholders.

Any sale of new common shares will result in dilution of existing shareholders, which will result in a further decrease in share value. We have issued large numbers of unregistered, restricted common shares to acquire our participation interests and as an inducement for debt investors.  We have also sold unregistered restricted, common shares and used shares to pay various expenses.  The only other anticipated alternative for the financing of our development cost is through additional debt financing; however, we do not have any commitments from third parties to provide such financing. Because we have limited revenues, and no profits or cash flow, we do not have access to traditional credit markets.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are and will be met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Item 1B.  Unresolved Staff Comments

None.

Item 2.   Properties

As of the fiscal year ended October 31, 2010, our primary executive and administrative offices were located at 61 S. Concord Forest Circle, The Woodlands, Texas 77381. This facility, which is leased rent free to IPRC from Mr. Springer.  We consider these facilities to be adequate for our operating needs.

Item 3.  Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve the Company which, in the opinion of the management of the Company, could reasonably be expected to have a material adverse effect on its business or financial condition.  There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to that of the Company.

Item 4.  (Removed and Reserved)

 
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PART II

Item 5.   Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the Pink OTC Markets, Inc. OTC Market (“OTC:PK”) under the trading symbol “IREC.” The following table sets forth the high and low bid quotations of the Company’s common stock as reported as composite transactions on the OTC:PK for each of the quarters during the two most recent fiscal years. The bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Fiscal Year 2010
 
High
   
Low
 
Quarter ended October 31, 2010
  $ 0.045     $ 0.02  
Quarter ended July 31, 2010
  $ 0.07     $ 0.012  
Quarter ended April 30, 2010
  $ 0.70     $ 0.022  
Quarter ended January 31, 2010
  $ 0.08     $ 0.01  
                 
Fiscal Year 2009
 
High
   
Low
 
Quarter ended October 31, 2009
  $ 0.14     $ 0.01  
Quarter ended July 31, 2009
  $ 0.03     $ 0.003  
Quarter ended April 30, 2009
  $ 0.025     $ 0.002  
Quarter ended January 31, 2009
  $ 0.04     $ 0.002  

On October 18, 2011, the last reported bid quotation of our common stock on the OTC:PK was $.02 per share. There were approximately 720 shareholders as of October 18, 2011.
 
Dividends
 
We have not paid any cash dividends on our equity security and our board of directors has no present intention of declaring any cash dividends.  We are not prohibited from paying any dividends pursuant to any agreement or contract.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
In April 2004, the board of directors authorized a Restricted Stock Program to provide up to 7,754,120 shares of the Company’s common stock to the Company’s employees, officers and directors.  Awards under the Restricted Stock Program are granted as determined by the Company’s board of directors.  In October 2005, the Company awarded and issued 2,040,000 shares of the Company’s common stock to certain employees, officers and directors.  In addition, the Company issued 2,000,000 shares previously awarded during fiscal year 2004 that vested in May 2005.

 
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The following table sets forth for each of our equity compensation plans, the number of shares of our common stock subject to outstanding stock options and stock rights, the weighted-average exercise price of outstanding options, and the number of shares remaining available for future award grants as of October 31, 2010, 2009, 2008, 2007, and 2006:

Plan Category
 
Number of Securities to be Issued upon Exercise of Outstanding
Options, Warrants and Rights
(a)
   
Weighted- average Exercise Price of Outstanding Options, Warrants and Rights
 (b)
   
Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans, Excluding Securities Reflected in
Column (a)
(c)
As of October 31, 2010:
                     
Equity compensation plans approved by security holders
           
       
Equity compensation plans not approved by security holders
                   
3,714,120
Total
           
     
3,714,120
                       
As of October 31, 2009:
                     
Equity compensation plans approved by security holders
           
       
Equity compensation plans not approved by security holders
                   
3,714,120
Total
           
     
3,714,120
                       
As of October 31, 2008:
                     
Equity compensation plans approved by security holders
           
       
Equity compensation plans not approved by security holders
                   
3,714,120
Total
           
     
3,714,120
                       
As of October 31, 2007:
                     
Equity compensation plans approved by security holders
           
       
Equity compensation plans not approved by security holders
                   
3,714,120
Total
           
     
3,714,120
                       
As of October 31, 2006:
                     
Equity compensation plans approved by security holders
           
       
Equity compensation plans not approved by security holders
                   
3,714,120
Total
           
     
3,714,120
 
 
-14-

 

Recent Sales of Unregistered Securities
 
The following table describes all securities we issued between the fiscal years ended October 31, 2006 through 2010 without registering the securities under the Securities Act and that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K.

Date
Description
Number
Purchaser
Proceeds
($)
Consideration
Exemption
(A)
             
2006
Convertible Notes
15,333,333
shares underlying the notes
Accredited Investors
$2,300,000
   Cash
Sec. 4(2)
             
May 2006
Common Stock
4,040,000
Employees and consultants
Nil
Services rendered
Rule 701
June 2008
Common Stock
1,100,000
Employees and consultants
Nil
Services rendered
Rule 701
December 2007/March 2008
 
Convertible Notes(B)
1,333,333
shares underlying the notes
 
Accredited Investors
$200,000
Cash
Sec. 4(2)
December 2007/March 2008
 
Warrants(B)
666,666
shares underlying the warrants
 
Accredited Investors
nil
Cash
Sec. 4(2)
August 2009
 
Common Stock
1,535,000
Employees and consultants
Nil
Services rendered
Rule 701
April 2010
Common Stock
75,000
Accredited Investors
$12,500
Cash
Sec. 4(2)
June 2010
 
Common Stock
1,200,000
Employees and consultants
Nil
Services rendered
Rule 701
September/October 2010
Common Stock
2,120,000
Employees and consultants
Nil
Services rendered
Rule 701

(A)  
With respect to sales designated by “Sec. 4(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.
(B)  
The Company issued convertible notes with the aggregate purchase price of $200,000, which were convertible at $0.15 per share. In connection, with the issuance of the convertible notes the Company issued warrants to the purchase 666,666 of our common stock at an exercise price of $0.15 per share.

Item 6.    Selected Financial Data

Not applicable to smaller reporting companies.
 
 
-15-

 

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.

Plan of Operation

We intend to complete the current transaction with Petrobras for the sale of our MST technology, to continue to market our MST technology in the oil and gas and marine industries and to strive to become current in our SEC filings.

Between July 2006 and January 2008, our only revenue was from our management agreement with ABF, which was terminated in January 2008.   Our only revenue since January 2008 was earned from our agreement with Petrobras, which was entered into in August 2009.

Liquidity and Capital Resources

At October 31, 2010, the Company has current assets of $65,071, current liabilities of $5,302,816, and a working capital deficit of $5,237,745.  We have no credit facilities.  During the fourth quarter of fiscal 2010, we received $346,395 in revenues from agreement with Petrobras.  We expect to conduct limited business operations until it finalize the transaction with Petrobras or sales, leases or licenses to another third party.  Other than salary under Mr. Springer’s employment agreement, the Company does not contemplate any other material operations in the near future.

During fiscal 2010, we received cash of $12,500from the sale of our unregistered, restricted common shares in a private placement. The Company has no other sources of financing and will continue to rely on best efforts equity, equity equivalent, or debt financings and borrowings from shareholders. There are no additional commitments from or assurances that we will be able additional capital on terms favorable to the Company or at all.  Our auditors have issued a going concern opinion for our financial statements due to their substantial doubt about our ability to continue as a going concern.

Results of Operations

Fiscal Year Ended October 31, 2010 Compared to Fiscal Year Ended October 31, 2009

Revenues for the fiscal year ended October 31, 2010 totaled $346,395, an increase of $115,465 or 50% compared to the fiscal year ended October 31, 2009.  The increase was due to the revenue earned pursuant to the Petrobras agreement.

Gross Profit for the fiscal year ended dated October 31, 2010 was $346,395, an increase of $115,465 or 50% compared to the fiscal year ended October 31, 2009.  The increase was due to the revenue earned pursuant to the Petrobras agreement.

Operating expenses for the fiscal year ended October 31, 2010 increased by $225,442 or 42% compared to the fiscal year ended October 31, 2009.   These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for fiscal year ended October 31, 2010 increased by $226,050 or 50%.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $12,774 or 3% for the fiscal year ended October 31, 2010 compared to the fiscal year ended October 31, 2009.  Other expenses consist of interest expenses associated with our interest on outstanding convertible notes and the decrease was related to lower amortization of the debt discount due to the maturity of the $200,000 convertible notes in fiscal year 2010.

The above mentioned factors resulted in net loss for the fiscal year ended October 31, 2010 of $777,923 compared to net loss of $680,720 for the fiscal year ended October 31, 2009.

Fiscal Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31, 2008

Revenues for the fiscal year ended October 31, 2009 totaled $230,930, a decrease of $1,112,235 or 83% compared to the fiscal year ended October 31, 2008.  The decrease was due to the termination of the management agreement with ABF in January 2008 and subsequent deconsolidation of ABF.

 
-16-

 
Gross profit for the fiscal year ended dated October 31, 2009 was $230,930 , a decrease of $90,862 or 28% compared to the fiscal year ended October 31, 2008.  The decrease was due to the termination of the management agreement with ABF in January 2008 and subsequent deconsolidation of ABF.

Operating expenses for the fiscal year ended October 31, 2009 decreased by $329,543 or 38% compared to the fiscal year ended October 31, 2008.  These operating expenses consist of selling, general and administrative expenses, research and development and depreciation expenses.  The selling, general and administrative expenses for fiscal year ended October 31, 2009 decreased by $311,274 or 41%, compared to the fiscal year ended October 31, 2008.  The decrease was due to the termination of the management agreement with ABF in January 2008 and subsequent deconsolidation of ABF.  There were no research and development costs in 2009, compared to research and development costs for the fiscal year ended October 31, 2008 of $17,245.  The research and development costs for the fiscal year ended October 31, 2008 were associated with the development or provisional patents for use of our technology in the marine biology and agribiofuels industries.

For the fiscal year ended October 31, 2009, the Company incurred other expenses of $370,823 compared to other income of $766,415 for the fiscal year ended October 31, 2008, a 148% decrease.  The change is due to the recognition of $1,134,295 in other income related to a gain in the deconsolidation of ABF in fiscal year 2008.

The above mentioned factors resulted in net loss for the fiscal year ended October 31, 2009 of $680,720 compared to net income of $325,471 for the fiscal year ended October 31, 2008.

Fiscal Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31, 2007

Revenues for the fiscal year ended October 31, 2008 totaled $1,341,165 a decrease of $4,319,543  or 76% compared to the fiscal year ended October 31, 2008.  The decrease was due to the termination of the management agreement with ABF in January 2008 and subsequent deconsolidation of ABF.

Gross profit for the fiscal year ended dated October 31, 2008 was $321,792, an increase of $420,922 or 425% compared to the fiscal year ended October 31, 2007.  The increase was due to the decrease in the Company’s cost of goods sold resulting from the termination of the management agreement with ABF in January 2008 and subsequent deconsolidation of ABF.

Operating expenses for the fiscal year ended October 31, 2008 decreased by $1,372,404 or 61% compared to the fiscal year ended October 31, 2007.  These operating expenses consist of selling, general and administrative expenses, research and development and depreciation expenses.  The selling, general and administrative expenses for fiscal year ended October 31, 2008 decreased by $1,214,024 or 61% compared to the fiscal year ended October 31, 2007.  The decrease was due to the elimination of the Company’s expenses related to its obligations under the management agreement with ABF, which was terminated in January 2008.   Research and development costs for the fiscal year ended October 31, 2008 was $17,245 compared to research and development costs of $153 for fiscal year ended October 31, 2007, an increase of $17,092 or 112%.  The Company’s depreciation and amortization expense for the fiscal year ended October 31, 2008 decreased by $175,472 or 66%, compared to the fiscal year ended October 31, 2007.  The decrease was due to the removal of certain assets from the Company’s consolidated financial statements in connection with the deconsolidation of ABF.

For the fiscal year ended October 31, 2008, the Company incurred other income of $766,415 compared to other income of $395,785 for the fiscal year ended October 31, 2007, an increase of $370,630 or 94%.    Other income consists of income and expenses related to interest, extinguishment of debt, and gain on sale of assets, rental income, gain on deconsolidation and other income.  The increase was due to the recognition of income of $1,134,295 related to the gain on the deconsolidation of ABF.   In addition, the Company’s interest expense decreased by $703,635 or 65% from October 31, 2008 compared to October 31, 2007.  The decrease was due to the elimination of interest related to certain short term debt and accounts payable that was eliminated from the Company’s consolidated financial statement due to the deconsolidation of ABF from the Company.  In addition, the Company reduced its interest expenses related to debt of $500,000 when it was extinguished during the fiscal year ended October 31, 2007  upon  the Company making final payment to the third party lender pursuant to a forbearance agreement entered into between the lender and the Company on January 1, 2006, as amended on September 20, 2006.  Lastly, the Company did not recognize any income related to the extinguishment of debt, the sale of assets or other income in the fiscal year ended October 31, 2008, compared to the Company recognizing a gain on extinguishment of debt of $821,129, a gain on sale of assets of $60,000 and other income of $590,734 in the fiscal year ended October 31, 2007.  The other income of $590,734 was related to subsidy payments received from the Texas Department of Agriculture related to the work of ABF.

The above mentioned factors resulted in net income for the fiscal year ended October 31, 2008 of $325,471 compared to net loss of $330,357 for the fiscal year ended October 31, 2007.

Fiscal Year Ended October 31, 2007 Compared to Fiscal Year Ended October 31, 2006

 
-17-

 
Revenues for the fiscal year ended October 31, 2007 totaled $5,662,708, an increase of $5,662,708 or 100% compared to the fiscal year ended October 31, 2007.  The increase is due to the start of ABF’s operations in December 2006.  The revenues in fiscal 2007 were substantially from ABF’s sale of biodiesel.

Gross loss for the fiscal year ended dated October 31, 2007 was $99,130, an increase of $99,130 or 100% compared to the fiscal year ended October 31, 2006.  The increase was due to no revenues being generated in the fiscal year ended October 31, 2006 compared to the revenues generated by ABF from the sale of biodiesel in the fiscal year ended October 31, 2007.  As of October 31, 2007, ABF had been operating for approximately 10 months.

Operating expenses for the fiscal year ended October 31, 2007 decreased by $552,609 or 20% compared to the fiscal year ended October 31, 2006.  These operating expenses consist of selling, general and administrative expenses, research and development, depreciation expenses and gain on write-off of payables.  The selling, general and administrative expenses for fiscal year ended October 31, 2007 decreased by $825,730 or 29% compared to the fiscal year ended October 31, 2006.  This decrease is due in part to the additional legal and professional expenses incurred by the Company in the fiscal year ended October 31, 2006 in connection with the Company’s efforts in the fiscal year ended October 31, 2006 to become current in its SEC filings as well as settling various claims with vendors and former employees.  Additionally, the Company incurred larger engineering, fabrication and permitting expenses in fiscal 2006 compared to fiscal 2007.  Research and development costs for the fiscal year ended October 31, 2007 was $153 compared to research and development costs of $78,479 for fiscal year ended October 31, 2006, a decrease of $78,326 or 99%.  The decrease was due research and development costs incurred in the fiscal year ended October 31, 2006 related to the use of the MST technology in the bio-diesel industry. The Company’s depreciation and amortization expense for the fiscal year ended October 31, 2007 increased by $113,688 or 74%, compared to the fiscal year ended October 31, 2006.  The increase was due to the acquisition of additional property and equipment related to ABF in the fiscal year ended October 31, 2007. The Company incurred a gain of $237,759 related to the write-off of certain payables in the fiscal year ended October 31, 2006.  The Company did not have any comparable expense during the fiscal year ended October 31, 2006.   This gain is related to  settlement of certain liabilities with shares of the Company’s common stock and settlement of claims..

For the fiscal year ended October 31, 2007, the Company incurred other income of $395,785 compared to other expense of $681,111 for the fiscal year ended October 31, 2006, an increase of $1,076,896 or 158%.    Other income consists of income and expenses related to interest, extinguishment of debt, and gain on sale of assets, rental income, gain on deconsolidation and other income.  The increase was due mostly to the recognition of a gain on extinguishments of debt and an increase in other income in the fiscal year ended October 31, 2007 as compared to the fiscal year ended October 31, 2006.  The Company recognized a gain of $821,129 in the fiscal year ended October 2007 related to the extinguishment of debt that occurred upon the Company making final payment to a third party lender pursuant to a forbearance agreement entered into between the lender and the Company on January 1, 2006, as amended on September 20, 2006.  For the fiscal year ended October 31, 2007, the Company recognized an increase in other income of $512,398 as compared to the fiscal year ended October 31, 2006.  This increased was related to subsidy payments received in the fiscal year ended October 31, 2007 from the Texas Department of Agriculture related to the work of ABF with no comparable payments in the fiscal year ended October 31, 2006.

The Company’s gain on sale of assets increased by $48,300 in the fiscal year ended October 31, 2007 as compared to October 31, 2008.  The Company’s interest expense increased during the fiscal year ended October 31, 2007 by $251,989 or 30% compared to the fiscal year ended October 31, 2006.  The increase in interest expenses was related to the increase in short term debt related to ABF.  Lastly, the Company’s interest income and rental income decreased by $32,442 or 88% and $20,500 or 100% in the fiscal year ended October 31, 2007 as compared to the fiscal year ended October 31, 2006.

The above mentioned factors resulted in net loss for the fiscal year ended October 31, 2007 of $330,357 compared to net loss of $1,114,741 for the fiscal year ended October 31 2006.

Fiscal Year Ended October 31, 2006 Compared to Fiscal Year Ended October 31, 2005

We had no revenues or gross profit for the fiscal year ended October 31, 2006; a decrease of $5,000 compared to the fiscal year ended October 31, 2005.  The Company received no revenues in connection with the sale or lease of its MST technology in fiscal year ended October 31, 2006 or October 31, 2005.

Operating expenses for the fiscal year ended October 31, 2006 increased by $1,735,577 or 164% compared to the fiscal year ended October 31, 2005.  These operating expenses consist of selling, general and administrative expenses, research and development, depreciation expenses and gain on write-off of payables.  The selling, general and administrative expenses for fiscal year ended October 31, 2006 increased by 1,736,544 or 163% compared to the fiscal year ended October 31, 2005.  This increase is due in part to the additional legal and professional expenses incurred by the Company in the fiscal year ended October 31, 2006 in connection with the Company’s efforts in the fiscal year ended October 31, 2006 to become current in its SEC filings as well as settling various claims with vendors and former employees, as well as to certain relocation and renovation expenses and additional employees being added during the period.   Research and development costs for the fiscal year ended October 31, 2006 was $78,749 compared to research and development costs of $30,633 for fiscal year ended October 31, 2006, an increase of $47,846 or 156%.  The increase was due research and development costs incurred in the fiscal year ended October 31, 2006 related to the use of the MST technology in the bio-diesel industry. The Company incurred a gain of $237,759 related to the write-off of certain payables in the fiscal year ended October 31, 2006, compared to a gain of $160,320 in the fiscal year ended October 31, 2005.

 
-18-

 
For the fiscal year ended October 31, 2006, the Company incurred other expense of $681,111 compared to other income of $1,478,282 for the fiscal year ended October 31, 2007, a decrease of $2,159,393 or 146%.    Other income consists of income and expenses related to interest, extinguishment of debt, and gain on sale of assets, rental income, gain on deconsolidation and other income.  The decrease was due mostly to the recognition of a gain on extinguishments of debt of $2,148,808 in the fiscal year ended October 31, 2005, with no comparable gain in the fiscal year ended October 31, 2006.
 
The above mentioned factors resulted in net loss for the fiscal year ended October 31, 2006 of $1,114,741 compared to net gain of $602,699 for the fiscal year ended October 31 2005.

Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009

There were no revenues for the three months ended January 31, 2010 and the three months ended January 31, 2009.

Operating expenses for the three months ended January 31, 2010 were $113,856, an increase of $15,055 compared to the three months ended January 31, 2009 in which operating expenses were $98,801.  These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for three months ended January 31, 2010 increased by $15,207.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $885 for the three months ended January 31, 2010 compared to the three months ended January 31, 2009.

The net loss for the three months ended January 31, 2010 was $205,037 compared to a net loss of $190,867 for the three months ended January 31, 2009.

Three Months Ended April 30, 2010 Compared to Three Months Ended April 30, 2009

There were no revenues for the three months ended April 30, 2010 and the three months ended April 30, 2009.

Operating expenses for the three months ended April 30, 2010 were $163,673, an increase of $39,852 compared to the three months ended April 30, 2009 in which operating expenses were $123,821.  These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for three months ended April 30, 2010 increased by $40,004.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $1,708 for the three months ended April 30, 2010 compared to the three months ended April 30, 2009.

The net loss for the three months ended April 30, 2010 was $251,525 compared to a net loss of $213,381 for the three months ended April 30, 2009.

Three Months Ended July 31, 2010 Compared to Three Months Ended July 31, 2009

There were no revenues for the three months ended July 31, 2010 and the three months ended July 31, 2009.

Operating expenses for the three months ended July 31, 2010 were $146,725, an increase of $44,899 compared to the three months ended July 31, 2009 in which operating expenses were $101,826.  These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for three months ended July 31, 2010 increased by $45,051.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $4,667 for the three months ended July 31, 2010 compared to the three months ended July 31, 2009.

The net loss for the three months ended July 31, 2010 was $236,233 compared to a net loss of $196,001 for the three months ended July 31, 2009.

 
-19-

 
Six Months Ended April 30, 2010 Compared to Six Months Ended April 30, 2009

There were no revenues for the six months ended April 30, 2010 or the six months ended April 30, 2009.

Operating expenses for the six months ended April 30, 2010 were $277,529, an increase of $54,907 compared to the six months ended April 30, 2009 in which operating expenses were $222,622.  These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for six months ended April 30, 2010 increased by $55,211.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $2,593 for the six months ended April 30, 2010 compared to the six months ended April 30, 2009.

The net loss for the six months ended April 30, 2010 was $456,562 compared to a net loss of $404,248 for the six months ended April 30, 2009.

Nine Months Ended July 31, 2010 Compared to Nine Months Ended July 31, 2009

There were no revenues for the nine months ended July 31, 2010 or the nine months ended July 31, 2009.

Operating expenses for the nine months ended July 31, 2010 were $424,254, an increase of $99,806 compared to $324,448 for the nine months ended July 31, 2009.  These operating expenses consist of selling, general and administrative expenses and depreciation expenses.  The selling, general and administrative expenses for nine months ended July 31, 2010 increased by $100,262.  The increase was due to the increase in costs associated with the Petrobras agreement.

Other expenses decreased by $7,260 for the nine months ended July 31, 2010 compared to the nine months ended July 31, 2009.

The net loss for the nine months ended July 31, 2010 was $692,795 compared to a net loss of $600,249 for the nine months ended July 31, 2009.

Going Concern

As shown in the accompanying consolidated financial statements, the Company has incurred recurring losses and has an accumulated deficit as of $20,514,383 as of October 31, 2010 and a negative working capital of $5,237,745 as of the same date.  The Company generated minimal revenues in its operations in 2010 and the Company continues to be dependent on its ability to generate future revenues, positive cash flows and additional financing. There can be no guarantee that the Company will be successful in generating future revenues, in obtaining additional debt or equity financing or that such additional debt or equity financing will be available on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
Contractual Obligations

The Company currently has no long term contractual obligations.

Off Balance Sheet Arrangements

For the fiscal years ended October 31, 2006, October 31, 2007, October 31, 2008, October 31, 2009 and October 31, 2010, the Company did not have any off-balance-sheet arrangements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 8.   Financial Statements and Supplementary Data

The information required by this Item 8 is incorporated herein by reference to Imperial Petroleum Recovery Corporation’s Consolidated Financial Statements and Independent Auditors’ Report beginning at page F-1 of this Comprehensive Form 10-K.

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 
-20-

 
Item 9A.  Controls and Procedures

Overview
 
With the assistance of consultants and outside counsel, current management has focused its resources on undertaking the project of completing all of IPRC’s delinquent periodic reports and the related financial statements as soon as practicable. Given our lack of resources, the evaluation of the Company’s disclosure controls and procedures and management’s assessment of its internal control over financial reporting was not conducted until April 2011. As a result of this evaluation, the Company has determined that its assessments and evaluations of its disclosure controls and procedures and internal control over financial reporting for purposes of this Comprehensive Form 10-K will be based upon the evaluations and assessments made as of April 2011.
 
Evaluation of Disclosure Controls and Procedures
 
IPRC conducted an evaluation of the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of October 31, 2010, carried out under the supervision and with the participation of our Chief Executive Officer (“CEO”), who also serves as our principal financial officer. Based upon that evaluation, our CEO concluded that because of the material weakness in our internal control over financial reporting, described below, as well as our inability to timely file our annual and quarterly financial statements and periodic reports with the SEC, that the Company’s disclosure controls and procedures were not effective as of October 31, 2010. Additionally, although no such evaluation was performed as of October 31, 2009, 2008, 2007, and 2006, periods that are covered by this Comprehensive Form 10-K, management believes that based upon the evaluation made as of October 31, 2010 that the Company’s disclosure controls and procedures were not effective as of October 31, 2009, 2008, 2007, and 2006.
 
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the periodic reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the company’s management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control Over Financial Reporting
 
Overview of Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is intended to be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting is expected to include those policies and procedures that management believes are necessary that:

·  
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
·  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
·  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the controls and procedures. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management’s Assessment of the Effectiveness of Internal Control Over Financial Reporting. As of October 31, 2010, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Commission guidance on conducting such assessments by smaller reporting companies and non-accelerated filers.
 
 
-21-

 
Based on that assessment, management concluded that such internal controls and procedures were not effective as of October 31, 2010 and that a material weakness in internal control over financial reporting existed as more fully described below. Additionally, although no such assessment was performed for October 31, 2009, 2008, 2007, and 2006, periods that are covered by this Comprehensive Form 10-K, management believes the material weakness identified in the internal control over financial reporting as of October 31, 2010 also existed as of those prior periods as well.
 
As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following internal control over financial reporting deficiency that represented a material weakness as of October 31, 2010:
 
Control Environment. The Company did not maintain an effective overall control environment, which is the foundation for effective internal control over financial reporting. As a result of the termination of our involvement with ABF and the significant reduction in certain other business operations, we had minimal staff able to handle accounting operations during the periods covered by this Comprehensive Form 10-K. Additionally, during this period, the Company did not maintain a sufficient number of financial and accounting staff personnel with the appropriate level of accounting knowledge and experience in order to timely provide accurate and reliable financial statements of the Company that were prepared and reviewed in accordance with GAAP. Because of the control environment weakness described above:

·  
the Company was not able to effectively maintain its accounting and financial reporting for the years 2010, 2009, 2008, 2007, and 2006 on a timely basis. Specifically, the Company did not have processes in place to provide timely  preparation or supervisory review of its financial statements and significant accounting transactions during these periods; and

·  
the Company did not maintain an accounting policy function that was timely in the review and updating of Company accounting policies and procedures and the evaluation of significant Company transactions during the period from 2006 to 2010.

Until our material weaknesses are remediated, there is a reasonable possibility that a material misstatement of the Company’s financial statements would not be prevented or detected on a timely basis.  We have engaged experienced financial and accounting consultants to assist in the preparation of the financial statements for the periods covered by this Comprehensive Form 10-K, as well as the Company’s other delinquent periodic reports. We expect to engage new, experienced accounting and finance employees to oversee the accounting function on a go-forward basis.
 
Notwithstanding the assessment that the Company’s internal control over financial reporting was not effective and that there was a material weakness as identified in this Comprehensive Form 10-K, the Company believes that the financial statements contained in this Comprehensive Form 10-K, fairly and accurately present the financial position, results of operations and cash flows for each of the years ended October 31, 2010, 2009, 2008, 2007 and 2006, in all material respects.
 
Changes in Internal Control Over Financial Reporting
 
During the period covered by this Comprehensive 10-K, there were no changes in our internal control over financial reporting, other than the material weakness as described above, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.     Other Information

           None.
 
 
-22-

 
PART III


Item 10.  Directors, Executive Officers and Corporate Governance

Management and Board of Directors

The following table sets forth the name, age and position of each of our directors and executive officers as of the date of this Comprehensive Form 10-K:
 
Name
Age
Position(s) With the Company
Alan B. Springer
66
Chairman and Chief Executive Officer
James Hammond
75
Director

Alan B. Springer.  Mr. Springer has served as a director of the Company since April 2003.  Mr. Springer assumed the role of Chairman of the Board and Chief Executive Officer in of 2004.Mr. Springer graduated from the University of Akron with a Bachelor of Science in industrial engineering and from the University of Utah with an MBA.  Postgraduate studies include the Naval Post Graduate School in Monterey, California and the Air War College in Montgomery, Alabama both during his military career.

James W. Hammond.  Mr. Hammond has served as a director since July 2001.  In 1986, Mr. Hammond co-founded Administaff, one of the largest professional employer organizations in the United States.  In 1997, Mr. Hammond retired from Administaff as a director and as Senior Vice President, after its initial public offering.  Prior to founding Administaff, Mr. Hammond held several positions at Exxon in a wide range of activities including research, refining, new ventures, chemicals, production, pipelines, transportation, sales and marketing, and corporate planning.  Presently, he holds management and advisory positions in five private companies and serves on the Board of Directors of three national charities and a university.  Mr. Hammond received a Bachelor of Science degree in chemical engineering from Virginia Tech and did post graduate work in economics at the University of Houston.

Audit Committee
 
The Company’s Audit Committee is comprised of the entire board of directors.  The Audit Committee is responsible for, among other things, overseeing the Company’s accounting and financial reporting processes and audits of the Company’s financial statements.  There are currently no members of the Audit Committee who qualify as an “audit committee financial expert.”  Mr. Hammond qualifies as an “independent” director as defined in federal securities laws.  The Company intends to add additional members to the Board of Directors, and the Audit Committee, that would qualify as a financial expert and as independent.  However, the Company cannot make assurances as to whether, or when, it will succeed in adding additional members to its board.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the “Act”) requires the Company’s executive officers and directors and any persons who own beneficially more than 10% of the Company’s Common Stock to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”) as well as to furnish the Company with a copy of each such report.  Additionally, SEC regulations require the Company to identify in its proxy statement and Annual Report on Form 10-K those individuals for whom one or more of these reports required under Section 16 was not filed on a timely basis during the most recent fiscal year or prior fiscal years.  Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the fiscal years ended October 31, 2010, 2009, 2008, 2007, and 2006, except as follows:

Name
Form Type
Number of late reports
Number of transactions reported late
Alan B. Springer
4
4
4
James Hammond
4
4
4

Code of Ethics
 
The Company has adopted a Code of Ethics that applies to all of its directors, officers (including its chief executive officer, chief financial officer, chief accounting officer and any person performing similar functions) and employees.

 
-23-

 
Item 11.   Executive Compensation

The following tables contain compensation data for our named executive officers as of the fiscal years ended October 31, 2010, 2009, 2008, 2007, and 2006:

Summary Compensation Table
Name and Principal Position
Year
Salary
Bonus
Stock Awards
Stock Option Awards
All Other Compensation
Total
Alan B. Springer
Chief Executive Officer
2010
$316,667 (1)
 
$59,000(2)
   
$375,667
 
2009
$266,370
 
$34,000(3)
   
$300,570
 
2008
$202,692
 
$35,000(4)
   
$237,682
 
2007
$43,611
       
$43,611
 
2006
$82,460
$11,500
     
$82,460
Ed Gaiennie
Former Chief Financial Officer
2010
-
-
-
-
-
-
 
2009
-
-
-
-
-
-
 
2008
$20,769
       
$20,769
 
2007
$50,204
       
$50,204
 
2006
$85,888
$4,615
     
$85,888
               
(1)  
Of which, only $27,500 has been paid in cash the remaining is accrued but unpaid salary.
(2)  
In June 2010, Mr. Springer was awarded 850,000 shares of common stock.   In September 2010, Mr. Springer was awarded 1 million shares of common stock.
(3)  
In September 2009, Mr. Springer was awarded 850,000 shares of common stock.
(4)  
In June 2008, Mr. Springer was awarded 700,000 shares of common stock.

Directors Compensation

On June 30, 2008, IPRC awarded James Hammond 100,000 shares of common stock.   In September 2009, IPRC awarded Mr. Hammond 350,000 shares of common stock.  In June 2010, we awarded Mr. Hammond 350,000 shares of common stock.  In September 2010, we awarded Mr. Hammond 350,000 shares of common stock.

Employment Agreements

Effective Feb 8, 2008, IPRC and Alan Springer, Chairman and chief executive officer of the Company, entered into a new three year employment agreement.  Mr. Springer’s base salary for was increased to $275,000, with another increase to $325,000 per year effective on the third anniversary of the new employment agreement.   The Agreement specified that if operations are not sufficient to generate sufficient cash flow to meet all payroll obligations, the gross amount will be accrued and paid in full when funding is available.

Outstanding Equity Awards at Fiscal-Year End

The Company issued options to purchase 1,225,000 shares of our common stock at an exercise price of $.20 per shares to certain employees and consultants during the fiscal year ended October 31, 2004.  The options have a term of 10 years.  None of the options have been exercised and all are still outstanding.
 
Compensation Committee Interlocks and Insider Participation

The Company does not have a separately standing compensation committee, and therefore such role is assumed by the entire board of directors.  None of the Company’s executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on the Company’s board of directors or Compensation Committee.  No member of the Company’s board of directors is an executive officer of a company in which one of the Company’s executive officers serves as a member of the board of directors or compensation committee of that company.
 
 
-24-

 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Referred Shareholder Matters.
 
As of October 18, 2011, 48,478,180 shares of common stock were issued and outstanding.  The following table sets forth, as of October 18, 2011, certain information with respect to shares beneficially owned by: (a) each person who is known to be the beneficial owner of more than 5% of our outstanding shares of common stock, (b) each director or nominee for director, (c) each named executive officers, and (d) all current directors and executive officers as a group.

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act.  Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option) within sixty days of the date as of which the information is provided.  In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights.  As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date.

To the Company’s knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.  The address of each of the individuals listed is 61 S. Concord Forest Circle, The Woodlands, Texas 77381, except where footnoted.

 
Shares Beneficial Owned
Beneficial Owner
Shares of Common Stock
Percent of Class
Named Executive Officers and Directors
   
Alan B. Springer
5,000,000
10.3%
James Hammond
2,420,544
5.0%
All current directors and executive officers as a group (2 persons)
7,420,544
15.3%
Beneficial Owners of more than 5% of our common stock
   
All Safe, LLC
6,670,205
10.32%
 
Item 13.   Certain Relationships and Related Transactions, and Director Independence

The Company had related party transactions relating to the following:

a)  
Non-interest bearing advances from the Company’s CEO and a director starting in fiscal year 2008.  The outstanding balance of such advances as of October 31, 2010, 2009 and 2008 amounted to $107,332, $139,254 and $30,900, respectively.

b)  
Management fees billed to and collected from Agribiofuels that were not eliminated as of the date of deconsolidation amounting to $272,800 for the year ended October 31, 2008.

c)  
An entity owned by the CEO and former CFO of IPRC provided benefits to certain employees utilizing a professional employment organization (“PEO”).  Also, the employees covered were paid a portion of their salaries through the PEO Company.  The outstanding balance from this related party as of October 31, 2007, 2006 and 2005 amounted to $146,610, $51,423 and $0, respectively.  In fiscal year 2008, due to the deconsolidation of Agribiofuels, the above arrangement was terminated and the remaining amount of $35,790 was forgiven and written off to additional paid in capital.

 
-25-

 
Item 14.   Principal Accounting Fees and Services

In Jun 2011, the Audit Committee approved MaloneBailey, LLP(“MB”) to be IPRC’s independent registered public accounting firm for the fiscal years ended October 31, 2010, 2009, 2008, 2007 and 2006, to audit the consolidated financial statements of IPRC and to make a report thereon to the stockholders and the Board of Directors.

   
For the Fiscal Years Ended October 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Audit Fees
  $ 7,500     $ 7,500     $ 10,000     $ 20,000     $ 20,000  
Audit Related Fees
    -       -       -       -       -  
Tax Fees
    -       -       -       -       -  
All Other Fees
    -       -       -       -       -  
Total
  $ 7,500     $ 7,500     $ 10,000     $ 20,000     $ 20,000  
 

In the above table, in accordance with the Commission’s definitions and rules, Audit fees are related to the audit of IPRC’s annual financial statements for the years ended October 31, 2010, 2009, 2008, 2007 and 2006 by MaloneBailey, LLP.   “Tax Fees” would be fees for tax compliance, tax analysis, tax advice and tax planning
 
The Audit Committee pre-approved all audit services and non-auditing services to be performed by the independent auditor. Such pre-approval was given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor, on an individual basis or pursuant to policies and procedures established by the Audit Committee in accordance with Section 2-01 of Regulation S-X of the Commission.
 
 
 
 

 
 
-26-

 
PART IV


Item 15.   Exhibits and Financial Statement Schedules

(a)(1) and (a)(2) and (c) Financial Statements and Schedules. Reference is made to the “Index to Consolidated Financial Statements” filed as part of this Annual Report.
 
(a)(3) and (b) Exhibits.
 
Exhibit No.
 
Description
3.1
 
Articles of Incorporation of the Company (incorporated by reference to Exhibits 2 and 2.1 to the Company’s registration statement on Form 10-KSB filed with the SEC on August 8, 1996, file No. 0-21169).
 
3.2
 
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-KSB for the fiscal year end October 31, 1996 filed with the Commission with a filing date of November 26, 1997, Commission File No. 0-21169)
     
10.1
 
Management Agreement, effective August 1, 2005, between IPRC and Agribiofuels,  LLC(incorporated by reference to Exhibit 10.13 to the  Company's  10K filed with the  Commission  of  December  1, 2005).
     
10.2
 
Form of Note  Agreement,  executed  in  2005,  between  IPRC and investors  (incorporated  by reference  to Exhibit  10.15 to the Company's 10K filed with the Commission of December 1, 2005).
     
10.3
 
Form of Registration Right Agreement,  executed in 2005, between IPRC and investors  (incorporated  by reference to Exhibit 10.16 to the  Company's  10K filed with the  Commission of December 1, 2005).
     
10.4
 
Form of Warrant  Agreement,  executed in 2005,  between IPRC and investors  (incorporated  by reference  to Exhibit  10.17 to the Company's 10K filed with the Commission of December 1, 2005).
     
10.5
 
Strategic  Marketing   Manufacturing  and  Technology  Licensing Agreement  (incorporated  by reference  to Exhibit  10.18 to the Company's 10K filed with the Commission of December 1, 2005).
     
10.6
 
Technical Services Agreement between Petroleo Brasileiro S.A. – Petrobras and IPRC dated 2009  (1)
     
21.1
 
Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 to the Company's 10K filed with the  Commission of December 1, 2005).
     
31.1
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. (1)
     
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. (1)
 
(1) Filed herewith
 
 
-27-

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
   
   
Pages
     
Report of Independent Registered Public Accounting Firm
 
F-2
     
Consolidated Financial Statements:
   
     
Consolidated Balance Sheets as of October 31, 2010, 2009, 2008, 2007 and 2006
  F-3
     
Consolidated Statements of Operations for the years ended October 31, 2010, 2009, 2008, 2007 and 2006
  F-4
     
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended October 31, 2010, 2009, 2008, 2007 and 2006
  F-5
     
Consolidated Statements of Cash Flows for the years ended October 31, 2010, 2009, 2008, 2007 and 2006
  F-6
     
Consolidated Balance Sheets for the Quarters Ended July 31, 2010, April 30, 2010, January 31, 2010, July 31, 2009, April 30, 2009, and January 31, 2009
  F-7
     
Consolidated Statements of Operations for the Quarters Ended July 31, 2010, April 30, 2010, January 31, 2010, July 31, 2009, April 30, 2009, and January 31, 2009
  F-8
     
Consolidated Statements of Cash Flows for the Quarters Ended July 31, 2010, April 30, 2010, January 31, 2010, July 31, 2009, April 30, 2009, and January 31, 2009
  F-9
     
Notes to Consolidated Financial Statements
  F-10
 

 
 
F-1

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 



The Board of Directors
Imperial Petroleum Recovery Corporation
Woodlands, Texas


We have audited the accompanying consolidated balance sheets of Imperial Petroleum Recovery Corporation and its Subsidiaries  (collectively the “Company”) as of October 31, 2010, 2009, 2008, 2007, 2006 and 2005 and the related consolidated statement of operations, changes in stockholders’ deficit and cash flows for each of the years then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 Recovery Corporation as of December 31, 2010, 2009, 2008, 2007, 2006 and 2005, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
October 19, 2011

 
F-2

 

Imperial Petroleum Recovery Corporation and Subsidiaries
 
Consolidated Balance Sheets
 
                                     
   
As of October 31
 
   
2010
   
2009
   
2008
   
2007
   
2006
   
2005
 
ASSETS
                                   
Current assets
                                   
Cash and cash equivalents
  $ 64,927     $ 46     $ 23,636     $ 91,602     $ 213,789     $ 1,506,515  
Short-term investment
    -       -       -       105,164       100,000       -  
Accounts receivable
    144       184,903       144       497,662       3,144       3,344  
Inventory
    -       -       -       1,225,690       111,538       -  
Prepaid expenses
    -       -       -       22,042       32,231       -  
Total current assets
    65,071       184,949       23,780       1,942,160       460,702       1,509,859  
                                                 
Property and equipment, net
    225,293       307,949       391,213       3,119,882       2,552,064       615,668  
Intangible assets, net
    20,944       28,332       35,720       47,358       50,499       46,316  
Other assets
    115,450       46,171       -       -       -       -  
Total assets
  $ 426,758     $ 567,401     $ 450,713     $ 5,109,400     $ 3,063,265     $ 2,171,843  
                                                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                               
Current liabilities
                                               
Accounts payable
  $ 244,773     $ 313,273     $ 288,093     $ 1,447,534     $ 749,181     $ 599,025  
Accounts payable – related parties
    -       -       -       158,540       51,723       -  
Accrued liabilities
    2,500,269       1,884,025       1,296,846       1,173,238       905,947       877,716  
Advances-related parties
    107,332       139,254       30,900       -       -       -  
Short term debt - related parties
    -       -       -       1,543,640       -       -  
Current maturities of long-term debt, net of  discount
    2,450,442       2,446,534       2,200,442       2,256,378       2,310,529       1,107,889  
Total current liabilities
    5,302,816       4,783,086       3,816,281       6,579,330       4,017,380       2,584,630  
Long-term debt net of discount, less current maturities
    -       -       230,797       -       5,936       1,057,796  
Total liabilities
    5,302,816       4,783,086       4,047,078       6,579,330       4,023,316       3,642,426  
                                                 
Stockholders' Deficit
                                               
Common stock, par value $0.001; authorized 100,000,000 shares; shares issued and outstanding 46,928,180, 43,575,680, 42,040,680, 40,940,680, 40,898,180 and 40,085,029 for the years ended 2010, 2009, 2008, 2007, 2006 and 2005, respectively
    46,929       43,577       42,042       40,942       40,899       40,085  
Additional paid-in capital
    15,591,396       15,477,198       15,417,333       15,297,637       15,290,880       15,104,668  
Accumulated deficit
    (20,514,383 )     (19,736,460 )     (19,055,740 )     (19,381,211 )     (19,050,854 )     (17,936,113 )
Total IPRC stockholders’ deficit
    (4,876,058 )     (4,215,685 )     (3,596,365 )     (4,042,632 )     (3,719,075 )     (2,791,360 )
Noncontrolling interest
    -       -       -       2,572,702       2,759,024       1,320,777  
Total stockholders’ deficit
    (4,876,058 )     (4,215,685 )     (3,596,365 )     (1,469,930 )     (960,051 )     (1,470,583 )
Total liabilities and stockholders’ deficit
  $ 426,758     $ 567,401     $ 450,713     $ 5,109,400     $ 3,063,265     $ 2,171,843  
                                                 
See accompanying notes to consolidated financial statements
 
 
F-3

 
Imperial Petroleum Recovery Corporation and Subsidiaries
 
Consolidated Statements of Operations
 
                                     
   
For the years ended October 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
   
2005
 
                                     
Revenues
  $ 346,395     $ 230,930     $ 1,343,165     $ 5,662,708     $ -     $ 5,000  
Cost of goods sold
    -       -       1,021,373       5,761,838       -       -  
Gross profit (loss)
    346,395       230,930       321,792       (99,130 )     -       5,000  
                                                 
Operating expenses
                                               
Selling, general and administrative expenses
    676,225       450,175       761,449       1,975,473       2,801,203       1,064,659  
Research and development
    -       -       17,245       153       78,479       30,633  
Depreciation and amortization expense
    90,044       90,652       91,676       267,148       153,460       124,834  
Gain on write-off payables
                    -       -       (237,759 )     (160,320 )
Total operating expenses
    766,269       540,827       870,370       2,242,774       2,795,383       1,059,806  
                                                 
Loss from operations
    (419,874 )     (309,897 )     (548,578 )     (2,341,904 )     (2,795,383 )     (1,054,806 )
                                                 
Other income (expense)
                                               
Interest income
    -       -       1,620       4,557       36,999       2,161  
Gain on extinguishment of debt
    -       -       -       821,129       -       2,148,808  
Gain on sale of assets
    -       -       -       60,000       11,700       11,466  
Rental income
    -       -       7,500       -       20,500       -  
Other income
    -       -       -       590,734       78,336       -  
Interest expense
    (358,049 )     (370,823 )     (377,000 )     (1,080,635 )     (828,646 )     (684,153 )
Gain on deconsolidation
    -       -       1,134,295       -       -       -  
      (358,049 )     (370,823 )     766,415       395,785       (681,111 )     1,478,282  
                                                 
Net income (loss)
    (777,923 )     (680,720 )     217,837       (1,946,119 )     (3,476,494 )     423,476  
Net loss attributable to noncontrolling interest
    -       -       107,634       1,615,762       2,361,753       179,223  
Net income (loss) attributable to IPRC
  $ (777,923 )   $ (680,720 )   $ 325,471     $ (330,357 )   $ (1,114,741 )   $ 602,699  
                                                 
Earnings (loss) per share
                                               
Basic
  $ (0.02 )   $ (0.02 )   $ 0.01     $ (0.01 )   $ (0.03 )   $ 0.02  
Diluted
    (0.02 )     (0.02 )     0.01       (0.01 )     (0.03 )     (0.00 )
Weighted average shares outstanding
                                               
Basic
    42,138,029       41,874,851       41,782,331       40,907,262       40,820,207       35,574,303  
Diluted
    42,138,029       41,874,851       41,782,331       40,907,262       40,820,207       42,601,508  
                                                 
See accompanying notes to consolidated financial statements
 
 
 
F-4

 
Imperial Petroleum Recovery Corporation and Subsidiaries
 
Consolidated Statements of Changes in Stockholders' Deficit
 
   
               
Additional
               
Total
 
   
Common stock
   
paid-in
         
Noncontrolling
   
Stockholders
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Interest
   
Deficit
 
                                     
Balances as of October 31, 2004
    20,845,687     $ 20,846     $ 11,762,008     $ (18,538,812 )   $ -     $ (6,755,958 )
Issuance of common stock in satisfaction of debt
    14,055,105       14,055       1,391,455       -       -       1,405,510  
Issuance of common stock in satisfaction of guaranteed
                                               
    investment contract liability
    682,301       682       88,017       -       -       88,699  
Capital contributions from noncontrolling interest members
    -       -       -       -       1,500,000       1,500,000  
Debt discount
    -       -       1,407,496       -       -       1,407,496  
Issuance of common stock in satisfaction of
                                               
    deferred salaries
    461,936       462       45,732       -       -       46,194  
Issuance of common stock for services
    4,040,000       4,040       409,960       -       -       414,000  
Net income
    -       -       -       602,699       (179,223 )     423,476  
Balances as of October 31, 2005
    40,085,029       40,085       15,104,668       (17,936,113 )     1,320,777       (1,470,583 )
Issuance of common stock in satisfaction of liabilities
    813,151       814       186,212       -       -       187,026  
Capital contributions from noncontrolling interest members
    -       -       -       -       3,800,000       3,800,000  
Net loss
    -       -       -       (1,114,741 )     (2,361,753 )     (3,476,494 )
Balances as of October 31, 2006
    40,898,180       40,899       15,290,880       (19,050,854 )     2,759,024       (960,051 )
Issuance of common stock for services
    42,500       43       6,757       -       -       6,800  
Capital contributions from noncontrolling interest members
    -       -       -       -       1,429,440       1,429,440  
Net loss
    -       -       -       (330,357 )     (1,615,762 )     (1,946,119 )
Balances as of October 31, 2007
    40,940,680       40,942       15,297,637       (19,381,211 )     2,572,702       (1,469,930 )
Issuance of common stock for services
    1,100,000       1,100       54,900       -       -       56,000  
Debt discount
    -       -       29,006       -       -       29,006  
Write off of payable to related party
    -       -       35,790       -       -       35,790  
Deconsolidation of Agribiofuels
    -       -       -       -       (2,572,702 )     (2,572,702 )
Net income
    -       -       -       325,471       -       325,471  
Balances as of October 31, 2008
    42,040,680       42,042       15,417,333       (19,055,740 )     -       (3,596,365 )
Issuance of common stock for services
    1,535,000       1,535       59,865       -       -       61,400  
Net loss
    -       -       -       (680,720 )     -       (680,720 )
Balances as of October 31, 2009
    43,575,680       43,577       15,477,198       (19,736,460 )     -       (4,215,685 )
Issuance of common stock for services
    3,320,000       3,320       101,730       -       -       105,050  
Issuance of common stock for cash
    75,000       75       12,425       -       -       12,500  
Cancellation of shares
    (42,500 )     (43 )     43       -       -       -  
Net loss
    -       -       -       (777,923 )     -       (777,923 )
Balances as of October 31, 2010
    46,928,180     $ 46,929     $ 15,591,396     $ (20,514,383 )   $ -     $ (4,876,058 )
                                                 
See accompanying notes to consolidated financial statements
 
 
 
F-5

 
Imperial Petroleum Recovery Corporation and Subsidiaries
 
Consolidated Statements of Cash Flows
 
                                     
   
For the years ended October 31
 
   
2010
   
2009
   
2008
   
2007
   
2006
   
2005
 
                                     
Cash flows from operating activities:
                                   
Net income (loss)
  $ (777,923 )   $ (680,720 )   $ 325,471     $ (1,946,119 )   $ (3,476,494 )   $ 423,476  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                               
Depreciation and amortization expense
    90,044       90,652       91,676       267,148       153,460       124,834  
Share-based compensation
    105,050       61,400       56,000       6,800       -       214,000  
Amortization of debt discount
    3,908       15,295       9,803       612,932       533,227       261,337  
Interest accretion on guaranteed investment contract
    -       -       -       -       -       73,197  
Write off of property and equipment
    -       -       -       -       761,781       -  
Gain on settlement of debt for stock
    -       -       -       -       -       (2,148,808 )
Gain on extinguishment of debt
    -       -       -       (821,129 )     -       -  
Gain on write-off of accounts payable and accrued liabilities
    -       -       -       -       (237,759 )     (160,320 )
(Gain)/loss on disposal of property and equipment
    -       -       -       (60,000 )     (11,700 )     (11,466 )
Bad debt expense
    -       -       -       -       753,000       -  
Gain on deconsolidation
    -       -       (1,134,295 )     -       -       -  
Changes in operating assets and liabilities:
    -       -       -       -       -       -  
Accounts receivable
    184,759       (184,759 )     12,125       (494,518 )     (2,800 )     (644 )
Inventory
    -       -       -       (1,114,152 )     368,852       (480,390 )
Prepaid and other current assets
    -       -       16,624       10,189       (32,231 )     4,000  
Other assets
    (69,279 )     (46,171 )     -       -       9,100