Imperial Resources, Inc. - FORM 10-Q/A

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Imperial Resources, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION - Imperial Resources, Inc.	ex321.htm
EX-31.1 - CERTIFICATION - Imperial Resources, Inc.	ex311.htm
EX-32.2 - CERTIFICATION - Imperial Resources, Inc.	ex322.htm
EX-31.2 - CERTIFICATION - Imperial Resources, Inc.	ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

Commission File Number 333-152160

IMPERIAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada	83-0512922
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

106 E. 6th ST. Suite 900, Austin, TX 78701

(Address of principal executive offices)

(512) 332-5740

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). xYes ¨ No

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if smaller

reporting company)

Smaller Reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 17, 2012: 42,894,561 common shares

EXPLANATORY NOTE

This Amendment No. 1 to our Quarterly Report on Form 10-Q/A (“Amendment No. 1”) is being filed to amend our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on February 21, 2012 (“Original Filing”). The amendments are set forth below:

The Company restated the financial statements for the quarter ended September 30, 2011 due to the Company’s change in treatment for convertible promissory note totaling $450,000. The derivative liability regarding Legion convertible debt bifurcated form note was misstated. The effect of this misstatement was an incorrect presentation of derivative liability, interest expense and gain or loss on mark to market.

Except to the extent required to reflect the above-referenced revisions, this Amendment No. 1 continues to describe the Company as of the date of the Original Filing, and does not update disclosures to reflect events that occurred after the date of the Original Filing. Accordingly, this Amendment No.1 should be read in conjunction with the Original Filing and with our other filings made with the Securities and Exchange Commission subsequent to the filing of the Original Filing, including any amendments to those filings.

INDEX
		Page No.(s)
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of December 31, 2011 (unaudited) and March 31, 2011	5

	Consolidated Statements of Operations for the three and nine months ended December 31, 2011 and 2010 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and 2010 (unaudited)	7

	Notes to Consolidated Financial Statements	8 to 20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	27

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	[RESERVED]	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

SIGNATURES		29

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

NOTE: These consolidated financial statements reflect the Company’s Consolidated Balance Sheets at December 31, 2011 (unaudited) and March 31, 2011, the Unaudited Consolidated Statements of Operations for the three and nine months ended December 31, 2011 and 2010, and unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and 2010.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Restated) December 31, 2011			March 31, 2011
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	43,953		$	364,891
Accounts receivable		6,292			28,503
Total Current Assets		50,245			393,394

Investment in oil and gas properties, net		332,885			322,126
Property and equipment-Salt Water Disposal Facility, net		1,730,558			-
Oil and gas properties held for sale		210,770			-
Total Assets	$	2,324,458		$	715,520

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued liabilities	$	551,655		$	82,697
Current portion of notes payable		94,300			-
Total Current Liabilities		645,955			82,697

Notes Payable, net of discount of $391,032		1,105,402			-
Derivative liability		402,760
Total Liabilities		2,154,117			82,697

Stockholders’ equity:

500,000,000 shares authorized, $0.001 par value; 42,894,561 and 42,362,100 shares issued and outstanding at December 31, 2011 and March 31, 2011, respectively		42,894			42,362
Additional paid-in capital		1,913,324			1,763,858
Accumulated deficit		(1,785,877	)		(1,173,397	)
Total Stockholders’ Equity		170,341			632,823
Total Liabilities and Stockholders’ Equity	$	2,324,458		$	715,520

The accompanying notes are an integral part of these consolidated financial statements.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

For the three and nine months ended December 31, 2011 and 2010

(Unaudited)

		(Restated) Three months ended			Three months ended		(Restated) Nine months ended			Nine months ended
		December 31, 2011			December 31, 2010		December 31, 2011			December 31, 2010

REVENUES
Oil and gas revenue	$	11,828		$	20,423		$	59,759		$	88,057

Operating Expenses:
Lease operating costs		8,771			24,973			27,365			68,796
Depreciation		37,976			-			78,333			-
Depletion		5,408			1,288			16,644			3,864
Professional Fees		30,815			37,537			135,384			43,037
Directors fees		45,000			-			72,000			-
Other Administrative Expenses		15,081			25,021			51,402			33,801
Total Operating Expenses		143,051			88,819			381,128			149,498

LOSS FROM OPERATIONS		(131,223	)		(68,396	)		(321,369	)		(61,441	)

Other Income (Expense):
Loss on debt extinguishment		-			(276,260	)		-			(276,260	)
Interest expense		(102,537	)		(11,250	)		(354,298	)		(33,750	)
Gain on derivative liability		87,230						220,749
Total Other Expenses		(15,307	)		(287,510	)		(133,549	)		(310,010	)

Net Loss Before Extraordinary Items		(146,530	)		(355,906	)		(454,918	)		(371,451	)

Extraordinary loss due to lightning strike		-			-			(157,562	)		-

NET LOSS	$	(146,530	)	$	(355,906	)	$	(612,480	)	$	(371,451	)

Net (loss) income before extraordinary items per common share (basic and diluted)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)
Extraordinary loss per common share (basic and diluted)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Net loss per common share (basic and diluted)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)

WEIGHTED AVERAGE OUTSTANDING SHARES
Basic and diluted		42,894,561			40,555,586			42,704,811			40,185,869

The accompanying notes are an integral part of these consolidated financial statements

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the nine months ended December 31, 2011 and 2010

(Unaudited)

	(Restated) Nine Months ended December 31, 2011			Nine Months ended December 31, 2010



Cash flows from operating activities:
Net Loss	$	(612,480	)	$	(371,451	)
Add back extraordinary loss		157,562			-
Net loss before extraordinary loss		(454,918	)		(371,451	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Capital contributions - expenses		-			7,800
Loss on debt extinguishment		-			276,260
Amortization of discount and interest expense		232,478			-
Gain on derivative liability		(220,750)
Depletion and depreciation expense		94,977			3,864
Changes in operating assets and liabilities:
Changes in accounts receivable		22,211			757
Changes in accounts payable and accrued expenses		468,958			100,705
Net cash provided by operating activities		142,956			17,935

Cash flows used in investing activities:
Investments in oil and gas properties		(238,173	)		-
Purchase of fixed assets-salt water disposal well		(1,466,453	)		-
Purchase of saltwater disposal facility		(50,000	)		-
Net cash used in investing activities		(1,754,626	)		-

Cash flows from financing activities:
Proceeds from sale of common stock		150,000			-
Notes payable		1,200,000			-
Repayments of notes payable		(59,268	)		-
Net cash provided by financing activities		1,290,732			-

Net decrease in cash and cash equivalents		(320,938	)		17,935
Cash and cash equivalents at the beginning of period		364,891			-
Cash and cash equivalents at the end of period	$	43,953		$	17,935

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	32,010		$	-
Supplemental Disclosure of Noncash Investing and Financing Activities:
Derivative liability	$	623,510
Purchase of salt water disposal facility through issuance of note payable	$	450,000			-
Issuance of 1,625,059 shares of common stock for extinguishment of note payable carrying value of $900,000, plus accrued interest of $42,534	$	-			1,218,794

The accompanying notes are an integral part of these consolidated financial statements

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

1.	ORGANIZATION AND BASIS OF PRESENTATION

Imperial Resources, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on August 2, 2007 with the authorized capital stock of 500,000,000 shares at $0.001 par value.

The Company was organized for the purpose of acquiring and exploring a mineral property and later abandoned it. The Company has decided to focus its core activities on development and exploration of oil and gas assets in the United States through its wholly-owned subsidiary Imperial Oil & Gas Inc. (“Imperial Oil” or “IOG”) which was formed under the laws of the State of Delaware on January 8, 2010. Big Dig Operating, Inc., (“Big Dig”) was formed June 13, 2011 for the purpose of operating a salt water disposal facility, and is a wholly owned subsidiary of Imperial Oil & Gas, Inc. In addition, Green Tide Water Disposal, Ltd. (“Green Tide”) was formed on June 15, 2011, as a limited partnership with Imperial owning a 99% limited partnership interest, and Big Dig owning a 1% general partnership interest. Green Tide has obtained a promissory note, the funds from which shall be applied solely for the purpose of bringing the salt water disposal facility back in to commercial operations, servicing associated liabilities existing at time and marketing services of the facility.

The Company is engaged in the exploration and development of oil and natural gas properties. The Company acquires the oil and gas interests in various manners, by purchasing them or via a farm-in whereby we earn our interests by developing the acreage of another. The Company acquires fee simple determinable interests in the oil and gas properties in either acquisition scenario. In addition, the Company has purchased a salt water disposal facility.

In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of March 31, 2011 was derived from audited financial statements. The results of operations for the three and nine months ended December 31, 2011 are not necessarily indicative of the results to be expected for the year ending March 31, 2012.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED)

The consolidated financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

(a)	Basis of Consolidation

The accompanying financial statements present the consolidated accounts of the Company and its subsidiaries. All intercompany account balances and transactions have been eliminated.

(b)	Nature of Operations

The Company’s focus is on the acquisition, development and exploitation of long-lived oil and natural gas reserves and, to a lesser extent, exploration for new oil and natural gas reserves. The Company’s business activities are currently carried out in New Mexico, Oklahoma and Texas.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) - cont'd
(c)	Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of unsecured accounts receivable from unaffiliated crude oil purchasers and the well operator. A substantial portion of the Company’s oil reserves are exposed to the impact of delays or interruptions of production from these wells due to mechanical problems, damages to the current producing reservoirs and significant governmental regulation, including any curtailment of production or interruption of transportation of oil or natural gas produced from the properties.

(d)	Investments in Oil and Gas Properties and Property and Equipment-Saltwater Disposal Facility

Investment in Oil and natural gas properties:

The Company follows the successful efforts method of accounting and will capitalize successful wells and related leasehold costs. Acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole costs are expensed. Development costs, including costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized.

These costs are amortized using the unit of production method. Dry hole and related leasehold costs are expensed.

Property and Equipment-Salt Water Disposal Facility:

Property plant and equipment is recorded at its original cost of construction or fair value of assets purchased. Expenditures that extend the useful life or increase the expected output of property, plant and equipment, as well as major improvements are capitalized. Repair and maintenance costs are expensed as incurred.

Depreciation is computed using the following estimated useful lives:


Disposal wells	10 years
Machinery and equipment	7 years

Upon retirement or disposition of assets other than oil and natural gas properties, the cost and related accumulated depreciation are removed from the accounts with the resulting gains or losses, if any, recognized in income. Depreciation of other property and equipment is computed using the straight-line method based on the estimated useful lives of the property and equipment.

(e)	Impairment of Long-Lived Assets

The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable. When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) - cont'd

(f)	Oil and Gas Properties Held For Sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. For this to be the case the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. For the sale to be highly probable, (i) the Corporate Executive Board must be committed to a plan to sell the asset, (ii) an active program to locate a buyer and complete the plan must have been initiated, (iii) the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale should be expected to be completed within one year and (v) actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Non-current assets (or disposal groups) classified as held for sale are measured at the lower of the asset’s carrying amount and the fair value less costs to sell. Depreciation or amortization of an asset ceases when it is classified as held for sale.

(g)	Income Taxes

The Company accounts for federal incomestatement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on previously recorded deferred tax assets and liabilities resulting from a change in tax rates is recognized in operating results in the period in which the change is enacted.

(h)	Basic and Diluted Net Loss Per Share

Net loss per share is presented in accordance FASB ASC Topic No. 260 Earnings Per Share. Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period. There are no potentially dilutive common stock equivalents such as stock options or warrants outstanding, and as such basic and diluted net loss per share is the same.

(i)	Use of Estimates in the Preparation of Consolidated Financial Statements

Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The oil and natural gas reserve estimates, and the related future net cash flows derived from those reserves, are used in the determination of depletion expense and the full cost ceiling test and are inherently imprecise. Actual results could differ from those estimates.

(j)	Fair value of financial instruments

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt are presented in the following Notes.

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (RESTATED) - cont'd

(k)	Derivative Instruments

The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments with embedded conversion features of debt that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for the related embedded conversion feature is determined using the Black-Scholes Option Pricing Model. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.

(l)	Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, money market accounts and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.

(m)	Revenue Recognition

Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and natural gas sold to purchasers. The Company did not have any oil or natural gas imbalances recorded. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

(n)	Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

(o) Recent Accounting Pronouncements

The Company does not expect the adoption of any recent accounting pronouncements to have a material impact on its financial statements.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

3.	INVESTMENTS IN OIL AND GAS PROPERTIES AND SALT WATER DISPOSAL FACILITY

Investments in oil and gas properties-

The Company has $332,885 in investments in oil and gas properties as of December 31, 2011, as follows:

	Balance as of March 31, 2011			Additions			Balance as of December 31, 2011
Producing Well	$	313,266		$	-		$	313,266
Accumulated depletion on producing well		(70,900	)		(16,643	)		(87,543	)
Net producing well		242,366			(16,643	)		225,723
Exploratory Wells		79,760			238,172			317,932
Oklahoma exploratory well transferred to held for sale		-			(210,770)			(210,770)
Total oil and gas	$	322,126		$	10,759		$	332,885

Greater Garwood Project and Cochran #1 Well

Oklahoma Project

On July 12, 2010, Imperial Oil entered into a participation agreement, four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provided for a 50% working interest in horizontal oil and gas drilling projects. As of March 31, 2011, there were no costs incurred. As of December 31, 2011, the Company had incurred $152,197 in purchasing the acreage and $58,573 in additional cost related to the acreage acquisition.

On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of the participation agreement and area of mutual interest (AMI) agreement in Oklahoma entered into on July 12, 2010. As such, the Oklahoma Project was reclassified as Assets Held for Sale, as of December 31, 2011.

Nunnelly #1 Project

On January 10, 2011, the Company entered into an Oil and Gas lease with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The lease agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. As of December 31, 2011, $47,162 is capitalized relating to surface preparation work at the site.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

3.	INVESTMENTS IN OIL AND GAS PROPERTIES AND SALT WATER DISPOSAL FACILITY- Continued

Stateline

On January 25, 2011, the Company entered into a Farm out Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement required the Company’s subsidiary to pay a spud fee of $60,000, and to drill between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled.

The Company developed a plan to exploit additional reserves by using a three well horizontal drilling plan as opposed to the originally intended 4 vertical wells. As of December 31, 2011, the Company has invested $60,000 related to the farm out agreement fee. The Company’s capital expenses for the first well are estimated to be approximately $3,000,000. The company bid for the necessary neighboring property from the State of New Mexico and was outbid by another oil and gas company. The timeline for the farmout agreement has run its course, however the Company is attempting to negotiate a farmout agreement with the winning bidder. If it is successful, the Company believes it can resurrect the farmout agreement through renegotiation.

Salt Water Disposal Facility

On April 27, 2011, Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 42 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The note is secured over the SWDF assets.

Green Tide obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity. As of December 31, 2011, $1,200,000 in proceeds had been received.

The Company deepened the well to a depth currently approved by the Texas Railroad Commission, As of December 31, 2011, the Company incurred $1,466,453 in capitalized costs related to the deepening of the well. The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011. A significant portion of the surface equipment- was lost and this has been reflected as an extraordinary loss in the Statement of Operations as of December 31, 2011, totaling $157,562. The Company purchased most of the replacement tanks on January 27, 2012 and will install same upon completion of the clean up of the site. The Company hopes to bring the facility back and open in a limited capacity 2nd quarter, 2012.

	December 31, 2011
Purchase of salt water facility	$	500,000
Additions to well		1,466,453
Loss of equipment due to lightning strike		(157,562	)
Depreciation expense and accumulated depreciation		(78,333	)
Total property and equipment related to salt water facility	$	1,730,558

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

4.	OILAND GAS PROPERTIES HELD FOR SALE

Oklahoma Project

On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. There was no revenue, expenses or impairment on the related properties sold. As of December 31, 2011, the Company had incurred $152,197 in purchasing the acreage and $58,573 in additional cost related to the acreage acquisition.

5.	NOTES PAYABLE (RESTATED)

Legion Note

On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.

The note is repayable monthly at $9,529.59 for fifty four months at a 6% fixed interest rate, commencing on September 1, 2011. The outstanding principal balance plus any accrued interest under the Note was convertible into common shares six months after execution of the agreement upon the option of the Holder. The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 15% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period. In addition, the conversion is limited to at least $25,000 in principal and accrued unpaid interest with a maximum of $75,000 in any one calendar month.

Legion Note Derivative Liability

The above embedded conversion feature was determined to be a derivative liability, and such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The fair value was determined using the Black-Scholes Option Pricing Model using the following assuptions at each measurement date: risk-free interst rates ranging from .83% to 2.74%; expected life of 3.58 to 4.25 years; and, expected volatility of 166% based on historical stock prices of the Company. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.

The fair value of the derivative liability at April 27, 2011 was $623,510; and at December 31, 2011, $402,760. The Company has categorized its derivative liability measured at fair value into the three-level fair value hierarchy based upon the priority of inputs to respective valuation techniques. Liabilities included within level 3 of the fair value hierarchy include a share conversion feature on convertible debt. The valuation methodology for liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value. The debt discount related to the derivative liability totaled $450,000 at April 27, 2011. Discount amortization totaled $58,968 for the nine month period ended December 30, 2011.

Quarry Bay Note

On June 15, 2011, the Green Tide Water Disposal, Ltd., was formed as a limited partnership with Imperial Oil & Gas, Inc. being a limited partner owning 99% and Big Dig Operating, Inc., a wholly owned subsidiary of Imperial Oil & Gas, Inc., being the general partner and owning 1%, and obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity. As of December 31, 2011, $1,200,000 in proceeds had been received. Interest expense of $104,850 was accrued on the note and is included in total interest expense of $354,298 in the Statement of Operations for the nine months ended December 31, 2011. There was determined to be no beneficial conversion feature at the date of the note.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

5.	NOTE PAYABLE - Continued

As of December 31, 2011, notes payable are summarized as follows:

Description	Amount

Legion Note	$	390,734
Quarry Bay Note		1,200,000
Total borrowings		1,590,734
Less Current Portion		(94,300	)
Less debt discount		(391,032	)
Long term notes payable as of December 31, 2011		1,105,402

6.	STOCKHOLDERS’ EQUITY

On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with the accredited investor, by subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor. Following the issuance the total number of issued shares of the Company’s common stock was 42,894,561.

7.	GOING CONCERN

The Company intends to seek business opportunities that will provide a profit. However, the Company does not have the working capital necessary to be successful in this effort and to service its debt, which raises substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional loans and equity funding, which will enable the Company to operate for the coming year.

8.	INCOME TAXES (RESTATED)

At December 31, 2011, the Company has accumulated operating losses totaling approximately $1,786,000. The net operating loss carry forwards will begin to expire in 2027 if not utilized. The Company has recorded net operating losses in each year since its inception through December 31, 2011. Based upon all available objective evidence, including the Company’s loss history, management believes it is more likely than not that the net deferred assets will not be fully realized. Therefore, the Company has provided a valuation allowance against its deferred tax assets as of December 31, 2011.

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

9.	COMMITMENTS AND CONTINGENCIES

Stateline

On January 25, 2011, the Company entered into a Farm out Agreement with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement required the Company’s subsidiary to pay a fee of $60,000 for the farm out agreement and to drill between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled. As of December 31, 2011, the Company has invested $60,000 related to the spud fee. The Company’s capital expenses for the first well are estimated to be $3,000,000. The company bid for the necessary neighboring property from the State of New Mexico and was outbid by another oil and gas company. The timeline for the farmout agreement has run its course, however the Company is attempting to negotiate a farmout agreement with the winning bidder. If it is successful, the Company believes it can resurrect the farmout agreement through renegotiation.

10.	SIGNIFICANT TRANSACTIONS WITH RELATED PARTY

On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC (“Sydney”), a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil. Imperial’s CEO owns an interest in and controls Sydney. At December 31, 2011, no royalties have been paid.

Director’s fees totaling $45,000 were incurred for the nine months ended December 31, 2011, of which $27,000 is included in accounts payable and other accrued liabilities as of December 31, 2011.

11.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

The Company has restated its previously issued financial statements for matters related to the following previously reported items:

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

(Unaudited)

11.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued

This note was originally accounted for using ASC 470-20 by recording a discount on the note payable based on the related intrinsic value. However, this instrument should have been accounted for under ASC 815-15, whereby the Company bifurcates the conversion feature and records it at its fair value, with changes in fair value being reported in the statement of operations. The effects of this change on the Balance Sheet, Statement of Operations, and Cash Flows Statement, are shown below:

Consolidated Balance Sheet
	December 31, 2011
		Previously Reported			Adjustments			As Restated

Assets
Current assets:
Cash and cash equivalents		$	43,953					$	43,953
Accounts receivable			6,292						6,292
Total Current Assets			50,245						50,245

Investment in oil and gas properties, net			332,885						332,885
Property and equipment – Salt Water Disposal Facility, net			1,730,558						1,730,558
Oil and gas properties held for sale			210,770						210,770

Total Assets			2,324,458						2,324,458

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable and accrued liabilities		$	551,655		$			$	551,655
Current portion of notes payable			94,300						94,300
Total Current Liabilities			645,955						645,955
Notes payable , net of discount of $391,032			1,435,252			(329,850	)		1,105,402
Derivative Liability			-			402,760			402,760

Total Liabilities			2,081,207			72,910			2,154,117

Stockholders’ equity:

500,000,000 shares authorized, $0.001 par value, ; 42,894,561 and 42,362,100 shares issued and outstanding at December 31, 2011and March 31, 2011			42,894						42,894
Additional-paid-in capital			1,995,144			(81,820)			1,913,324
Accumulated deficit			(1,794,787	)		8,910			(1,785,877	)
Total Stockholders' Equity			243,251			(72,910	)		170,341

Total Liabilities and Stockholders' Equity		$	2,324,458		$	-		$	2,324,458

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

11.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Operations
	Three Months Ended December 31, 2011									Nine Months Ended December 31, 2011
	Previously Reported			Adjustments			As Restated			Previously Reported			Adjustments			As Restated


REVENUES		-

Oil and gas revenue		11,828						11,828			59,759						59,759

Operating Expenses:
Lease operating costs		6,506			2,265			8,771			16,287			11,078			27,365
Depreciation		37,976						37,976			78,333						78,333
Depletion		5,407			1			5,408			16,643			1			16,644
Professional Fees		22,559			8,256			30,815			128,463			6,921			135,384
Directors fees		45,000						45,000			90,000			(18,000)			72,000
Other Administrative Expenses		21,448			(6,367	)		15,081			51,402						51,402
Total Operating Expenses		138,896						143,051			381,128						381,128

(LOSS) INCOME FROM OPERATIONS		(127,068	)		4,155			(131,223	)		(321,369	)					(321,369	)

Other Income (Expense):
Interest expense		(85,894	)		(16,643	)		(102,537	)		(142,456	)		(211,842	)		(354,298	)
Gain on derivative liability		-			87,230			87,230			-			220,749			220,749
Total Other Income (Expense)		(85,894	)					(15,307	)		(142,456	)					(133,549	)

Net Loss Before Extraordinary Items		(212,962	)		66,432			(146,530	)		(463,825	)		8,907			(454,918	)

Extraordinary loss due to fire		-						-			(157,562	)					(157,562	)

NET LOSS		(212,962	)		66,432			(146,530	)		(621,387	)		8,907			(612,480	)

Net (loss) income before extraordinary items per common share (basic and diluted)		(0.00	)					(0.00	)		(0.01	)					(0.01	)
Extraordinary loss per common share (basic and diluted)		(0.00	)					(0.00	)		(0.00	)					(0.00	)
Net loss per common share (basic and diluted)		(0.01	)					(0.01	)		(0.01	)					(0.01	)

WEIGHTED AVERAGE OUTSTANDING SHARES
Basic and diluted		42,894,561						42,894,561			42,704,811						42,704,811

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

11.	RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS - Continued

Consolidated Statement of Cash Flows
	Nine Months Ended December 31, 2011
		Previously Reported			Adjustments		As Restated



Cash flows from operating activities:
Net Loss		$	(621,387	)	$	8,907	$	(612,480	)
Add back extraordinary loss			157,562					157,562
Net loss before extraordinary loss			(463,825	)		8,907		(454,918	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of discount and interest expense			20,635			211,843		232,478
Gain on derivate liability			-			(220,750)		(220,750)
Depletion and depreciation expense			94,976			1		94,977
Changes in accounts receivable			22,211					22,211
Changes in accounts payable			468,958					468,958
Net cash used in operating activities			142,955					142,956

Cash flows used in investing activities:
Investments in oil and gas properties			(238,173	)				(238,173	)
Purchase of fixed assets-salt water disposal well			(1,466,453	)				(1,466,453	)
Purchase of saltwater disposal facility			(50,000	)				(50,000	)
Net cash used in investing activities			(1,754,626	)				(1,754,626	)

Cash flows from financing activities:
Proceeds from sale of common stock			150,000					150,000
Notes payable			1,200,000					1,200,000
Repayments of notes payable			(59,268	)				(59,268	)
Net cash provided from financing activities			1,290,732					1,290,732

Net decrease in cash and cash equivalents			(320,938	)		-		(320,938)
Cash and cash equivalents at the beginning of period			364,891					364,891
Cash and cash equivalents at the end of period			43,953					43,953

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest			32,010					32,010
Supplemental Disclosure of Noncash Investing and Financing Activities:
Derivative Liability						623,510		623,510
Purchase of saltwater disposal facility through issuance of note payable			450,000					450,000

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

12.	SUBSEQUENT EVENTS

On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI elsewhere in Oklahoma. The terms of the new AMI provide for the Company to operate and to retain a 90% working interest in any properties that are leased in the new AMI.

On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Following the issuance the total number of issued shares of the Company’s common stock will be 42,969,714.

In addition, the Company obtained three convertible promissory notes on March 6, 2012, May 28, 2012 and June 18, 2012, totaling $125,000, $50,000, and $60,000 respectively. The notes provide that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The notes were to continue to complete and open the SWDF.

On July 31, 2012, Imperial Resources, Inc., entered into a Securities Purchase Agreement with an accredited investor, by subscribing $100,000 for 506,483 shares of common stock at a 15% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.1974 per share, as mutually agreed between the Company and the accredited investor. Following the issuance the total number of issued shares of the Company’s common stock will be 43,476,197.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern our anticipated results and developments in our operations in future periods, planned exploration and development of our properties, plans related to our business and matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

●	risks related to our limited operating history; including security and conversion arrangements over Notes payable;

●	risks related to our financing and development activities;

●	risks related to the historical losses and expected losses in the future;

●	risks related to our dependence on our executive officers;

●	risks related to fluctuations in oil and natural gas prices, and the price for salt water disposal;

●	risks related to exploratory activities, drilling for and producing oil and natural gas, and the drilling of salt water disposal wells;

●	risks related to the operation of salt water disposal facilities;

●	risks related to liability claims from oil and gas, and salt water disposal operations;

●	risks related to accessing the oil and natural gas, and salt water disposal markets;

●	risks related to the statutory regulation of the drilling for and producing of oil and natural gas, and the disposal of salt water;

●	risks related to legal and reporting compliance costs and the ongoing accreditation of our auditors by the PCAOB;

●	risks related to the unavailability of drilling equipment and supplies;

●	risks related to competition in the oil and natural gas industry, including the disposal of salt water;

●	risks related to period to period comparison of our financial results;

●	risks related to our securities and the general public markets;

●	risks related to our ability to raise capital or enter into joint venture or working interest arrangements on acceptable terms.

We qualify all the forward-looking statements contained in this Quarterly Report by the foregoing cautionary statements.

Overview and Plan of Operation

Producing Wells

Cochran #1 Well

On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”). The Project included one producing well known as the Cochran #1 Well. The well-produced and sold 4.4 Mmcfe, net during the three months ended December 31, 2011, and 13.66 Mmcfe net to Imperial for the nine months ended December 31, 2011. Remaining natural gas reserves are estimated to be 185.28 mmcfe as of December 31, 2011. All revenues for the three and nine months ended December 31, 2011 and 2010 are from the Cochran Well. The investment as of December 31, 2011 totaled $225,723.

Exploratory Wells

Nunnelly #1 Project

On January 10, 2011, the Company entered into an Oil and Gas lease (“Agreement”) with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The Agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. The Company obtained an evaluation from an independent registered petroleum engineer indicating net probable recoverable oil reserves of approximately 17 Mbbls. As of December 31, 2011, $47,162 was capitalized, relating to surface preparation work at the site.

Stateline

On January 25, 2011, the Company entered into a Farm out Agreement with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico, targeting the San Andres Formation. The Agreement calls for drilling between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled. As of December 31, 2011, the Company has invested $60,000 related to the farm out agreement fee. The Company’s capital expense for the first well is expected to be around $3,000,000 as the company is in discussions with the farmor to drill three horizontal wells rather than 4 vertical wells on the property. The company bid for the necessary neighboring property from the State of New Mexico and was outbid by another oil and gas company. The timeline for the farmout agreement has run its course, however the Company is attempting to negotiate a farmout agreement with the winning bidder. If it is successful, the Company believes it can resurrect the farmout agreement through renegotiation.

The Sawyer Field was discovered in 1947 with the establishment of oil and natural gas production from the dolomites of the San Andres Formation. Well spacing is currently 40 acres, allowing selective infill drilling on a smaller spacing basis. Similar fields in New Mexico and Texas are currently being infill drilled on 20 and 10 acre spacing, which would present additional upside to Stateline. Planned infill wells are relatively shallow at < 5,000 feet and are expected to produce oil and gas. The Company is developing a plan to exploit additional reserves by using a three well horizontal drilling plan as opposed to the originally intended 4 vertical. An independent evaluation has been carried out indicating primary proven undeveloped reserves (P90) of 360,000 barrels and secondary reserves of 582,700 barrels showing combined reserves of 942,700 barrels.

Oil and Gas Properties Held for Sale

Oklahoma Project

In July of 2010, Imperial Oil entered into a participation agreement in an area of mutual interest (AMI) agreement and joint operating agreement to acquire a 50% working interest in leases on up to 5,000 acres in Oklahoma. As of December 31, 2011, the Company had incurred $152,197 in purchasing the acreage and $58,573 in additional cost related to the acreage acquisition.

On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI elsewhere in Oklahoma. The terms of the new AMI provide for the Company to opertate and retain a 90% working interest in any properties that are leased in the new AMI.

Salt Water Disposal Facility

On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 42 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas. The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The Note is secured over the SWDF assets. In addition, the Company has obtained $1,200,000 in proceeds from a convertible promissory note related to costs to complete the well. The Company plans to deepen the well to a depth currently approved by the Texas Railroad Commission, conduct initial marketing operations and to reopen the Facility to dispose of up to 15,000 barrels of salt water a day. As of December 31, 2011, the Company incurred $1,466, 453 in capitalized costs related to the deepening of the well. The well was near completion when the SWDF was struck by lightning on November 8, 2011. A significant portion of surface equipment was lost and this has been reflected as an extraordinary loss in the Statement of Operations as of December 31, 2011 totaling $157,562.

Following are amounts incurred related to the project.

	December 31, 2011
Purchase of salt water facility	$	500,000
Cost to complete and deepen well		1,466,453
Loss of equipment due to lightning strike		(157,562	)
Depreciation expense and accumulated depreciation		(78,333	)
Total property and equipment related to salt water facility	$	1,730,558

The Salt Water Disposal Facility is in the process of being rebuilt following the lightning strike and fire in November, 2011.The profitable sale of the Company’s land position in Oklahoma (with the concurrent entry into a new and substantial Area of Mutual Interest targeting the same formation) as announced on January 17, 2012, has permitted the Company to apply funds to the repair of the SWDF. No damage was caused to the newly completed well bore, wellhead, land and roadway infrastructure which form the majority portion of the SWDF assets, along with the value of the disposal permit.

Regarding the destroyed and damaged equipment the Company has purchased replacement tanks for most of those destroyed on January 27, 2012 at an excellent price and is in the process of remediating and re-grading the site prior to the arrival and installation of the tanks. The damaged pumps will be repaired and / or replaced with the intention of opening for business as soon as possible, so as to generate immediate cash flow to support further improvements to the SWDF to maximize its disposal capacity. Demand for disposal in the area continues to be very strong.

The SWDF is located in the heart of the Barnett Shale, the largest gas play by number of wells, in Texas. The SWDF is conveniently located for the disposal of large volumes of salt water generated from essential fracture (“frac”) stimulation operations on Barnett Shale gas wells, some of which have been frac’ed up to four times. There are approximately 6,000 wells within 20 miles of the Facility. Disposal rates in the area range from approximately $0.40 to $0.60 per barrel of water, even at less attractive, generally more distant facilities. In addition to disposal revenues the Company expects to benefit from materially additional revenues generated by the facility from the recovery and re-sale of oil contained in frac water.

The deepening of the well has successfully found one of the major lost circulation zones containing high porosity strands targeted in the Ellenburger formation, ideal for the planned disposal volumes of water, and the well is now at the final total depth. The Ellenburger is the favoured formation for disposal purposes in this part of Texas as it is separated by thousands of feet of rock from any fresh water bearing formations. The Ellenburger is a thick formation more than 2,000 feet thick in the subject location capable of sustaining constant input of huge amounts of disposal water without contamination risk to other oil and gas producing formations or ground water. The Company has a perpetual license to dispose of 15,000 barrels of contaminated water per day with a strong possibility to increase its permit to 30,000 per day after a satisfactory period of operations.

Comparison of Fiscal nine months ended December 31, 2011 and 2010, respectively:

	Nine Months Ended			Nine Months Ended			Amount of Increase
	December 31, 2011			December 31, 2010			(Decrease)
Revenues
Oil and gas revenue	$	59,759		$	88,057		$	(28,298	)

Operating Expenses:
Lease operating costs		27,365			68,796			(41,431	)
Depreciation		78,333			-			78,333
Depletion		16,644			3,864			12,780
Professional Fees		135,384			43,037			92,347
Directors fees		72,000			-			72,000
Other Administrative Expenses		51,402			33,801			17,601
Total Operating Expenses		381,128			149,498			231,630

LOSS FROM OPERATIONS		(321,369	)		(61,441	)		259,928

Other Expenses:
Loss on debt extinguishment		-			(276,260	)		276,260
Interest on promissory notes		(354,298	)		(33,750	)		(320,548	)
Gain on derivative liabilities		220,749						220,749
Total other expenses		(133,549	)		(310,010	)		176,461

Net Loss Before Extraordinary Items		(454,918	)		(371,451	)		(83,467	)

Extraordinary loss due to lightning strike		(157,562	)		-			(157,562	)

Net Loss	$	(612,480	)	$	(371,451	)	$	(241,029	)

The Cochran #1 well produced and sold 13.66 Mmcfe, net during the nine months ended December 31, 2011, and 9.38 Mmcfe net to Imperial for the nine months ended December 31, 2010. All revenues and lease operating expenses are from the Cochran Well. In addition, the Company was in the Development Stage for the three and nine months ended December 31, 2010. The decline in revenues and lease operating costs are primarily due to the decreases in natural gas prices during the 2011 year.

Depreciation expense totaling $78,333 was incurred for the salt water disposal facility for the nine months ended December 31, 2011 compared to none in 2010.

Accounting fees, professional fees, director’s fees and other general and administrative expenses all increased from 2010 primarily as a result of increased investments and operations in oil and gas and related properties.

Interest expense increased as a result of increased borrowings related to the salt water disposal facility borrowings during the nine months ended December 31, 2011.

The well was near completion when the facility was struck by lightning on November 8, 2011. A significant portion of the surface equipment was lost and this has been reflected as an extraordinary loss in the Statement of Operations as of December 31, 2011 totaling $157,562. Costs to replace the equipment are estimated to be approximately $530,000.

A comparison of the three months ended December 31, 2010 and 2011 has not been presented as the Company was in the development stage as of December 31, 2010.

Liquidity and Capital Resources

We reported total current assets of $50,245 as of December 31, 2011, consisting of $43,953 in cash and $6,292 of accounts receivable. Current liabilities of $645,955 related to vendor payables of $551,655 and current portion of long term notes totaling $94,300. Stockholders’ equity was $170,341 at December 31, 2011.

For the nine months ended December 31, 2011, cash provided by operating activities was $142,956, compared to cash provided by operations of $17,935 for the nine months ended December 31, 2010. The Company was in the Development Stage as of December 31, 2010, and had debt forgiveness totaling $276,260. For the same periods we used $1,754,626 and $0, respectively in cash for oil and gas and the salt water disposal property in 2011. We received $1,200,000 in proceeds from a promissory note for the nine months ended December 31, 2011, compared to $0 received in 2010.

On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with this accredited investor, it subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.

On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI covering 144 square miles elsewhere in Oklahoma. The terms of the new AMI provide for the Company to retain a 90% working interest in any properties that are leased in the new AMI.

Over the last 12 months the Company has raised capital and debt of approximately $2,400,000 in difficult capital markets.

We funded our operations from equity and debt financing and from our oil and gas revenues. We plan to continue to seek financings, and we believe that this will provide sufficient working capital to fund our operations for at least the next twelve months. This and other exploration activities, increased expenses, additional acquisitions, or other events, may require us to raise a significant amount of capital through equity or debt financings. There can be no assurance that we will be successful in raising additional funds and, if unsuccessful, our plans for expanding operations and business activities may have to be curtailed. Any attempt to raise funds, through debt or equity financing, would likely result in dilution to existing stockholders.

We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital.

Critical Accounting Policies

Use of Estimates in the Preparation of Consolidated Financial Statements

Property and Equipment:

Oil and natural gas properties:

These costs are amortized using the unit of production method. Dry hole and related leasehold costs are expensed.

Impairment of Long-Lived Assets:

Oil and Gas Properties Held For Sale

Fair value of financial instruments

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, who are responsible for conducting an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the quarterly period covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed, under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this assessment, management has determined that our internal control over financial reporting was not effective for the reason described herein.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) inadequate segregation of duties consistent with control objectives, and (2) lack of technical expertise to account for complex financial instruments. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2011.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparations and presentations. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This quarterly report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide on management’s report on this quarterly report.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2011 we have implemented additional controls and procedures designed to ensure that the disclosure provided by us meets the then current requirements of the applicable filing made under the Exchange Act. To address our inadequate segregation of duties and lack of sufficient accounting technical expertise, we have retained an outside consultant to act as our Chief Financial Officer, and we retained additional accounting technical expertise. Other than these there have been no changes in our internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A

RISK FACTORS

The description of the risk factors associated with the Company is incorporated into this Item 1A by reference to the description of risk factors set forth under the heading “Risk Factors” in Item 1A of Part I of our annual report on Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with this accredited investor, it subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

RESERVED

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

The following exhibits are included as part of this report by reference:

101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	IMPERIAL RESOURCES, INC.

Date: February 28, 2013	By:	/s/ Rob Durbin
		Rob Durbin President, Chief Executive Officer and Director (Principal Executive Officer)
Date: February 28, 2013	By:	/s/ Bob Bintliff
		Bob Bintliff Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Imperial Resources, Inc. - FORM 10-Q/A - March 1, 2013

Attached files

Imperial Resources, Inc. Reports