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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996 Commission File No. 0-21169
IMPERIAL PETROLEUM RECOVERY CORPORATION
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(Name of Issuer as Specified in its Charter)
Nevada 76-0529110
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15311 Vantage Parkway West
Suite 160
Houston, Texas 77032
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(Address of Principal Executive offices) (Zip Code)
(281) 987-2828
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(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act:
None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Check if the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
as the issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this report and no such disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
The issuer's revenues for its most recent fiscal year were $0.
The aggregate market value of shares of Common Stock held by non-affiliates
(based on the October 31, 1997 average of bid and asked prices) was
approximately $6.8 million.
As of October 31, 1997, 13,101,421 shares of the issuer's Common Stock were
outstanding.
Transitional small business disclosure format: |_| Yes |X| No
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Imperial Petroleum Recovery Corporation (the "Company" or "Imperial") is
a development stage company committed to developing and marketing a proprietary
oil sludge remediation process and equipment that use high energy microwaves to
separate water, oil and solids. The Company calls the process "MST," which
stands for "Microwave Sludge Treatment," and believes the process can provide an
effective, ecologically sound and economical method of processing crude oil
sludge and emulsions. The process recovers usable hydrocarbon compounds from
material that otherwise would be of little value or require disposal. Based on
prototype testing and demonstrations, the Company believes that approximately
50% to 90% of the crude oil recovered through the remediation process can be
reclaimed for sale.
In December 1996, new management assumed control of day-to-day
operations of the Company. The new management consists of Henry Kartchner,
Chairman and Chief Executive Officer, and C. Brent Kartchner, Secretary/Vice
President of Operations. The Company's new management has implemented a number
of cost-cutting initiatives aimed at continuing to fund the Company's operations
from existing resources and reducing the level of revenue required to operate
the Company. See "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company has not yet recognized sales revenues. It is concentrating
its marketing efforts on North America. Approximately eight potential customers
are awaiting the results of field test trials before determining whether to
enter into contracts to acquire the Company's products.
Internationally, the Company is negotiating with entities in Kuwait, the
Netherlands and Venezuela to use the MST process to clean up stored sludge or
emulsions.
Current Product Offerings
The Company currently has one product offering, the MST-1000, and
intends to offer another product, the MST-500. The model number of each unit
represents the average number of barrels of sludge the unit can process in a
24-hour period. The MST-1000 has been designed primarily for use by oil
refineries and other waste oil processors that have operable crude oil
distillation capacities of between 5,000 and 100,000 barrels per day. Up to
eight MST-1000 units can be joined to work together. The MST-500 has been
designed primarily for use at small refineries and clean-up sites, many of which
are located in developing nations. The Company intends also to offer an MST-2000
and an MST-4000 for larger field applications. These products would consist of,
respectively, two and four MST-1000 units joined together.
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<PAGE>
The core of an MST process consists of a microwave generator, a series
of waveguides, tuners, a computer and computer control instrumentation plus the
actual applicator, where the sludge/emulsion is subjected to microwave energy.
The Company intends to assemble MST units in its Houston, Texas
facility, using components procured primarily from outside subcontractors and
vendors. The Company intends to manufacture a few key items itself and to build
to order to fit each customer's needs. Each unit will vary in size and
sophistication in the software modules.
The Company offers its products and systems for lease directly to end
users. In certain overseas markets, the Company offers its products to existing
oil sludge processors through geographically-specific marketing partnerships.
After leasing, the MST products are to be operated by the customer's or
partner's personnel, after receiving technical training from the Company.
Imperial intends to have technicians available worldwide to service the
Company's products and to monitor and periodically check products in the field.
Each MST System is to be protected by a security system to assure that the
Company and its partners maintain control of the system and that any royalty
payments are calculated accurately.
Research and Development
Principals of the Company began developing the MST process in 1995.
Testing of a prototype unit began in September 1996. The Company has modified
the MST process based on its testing and on reactions to presentations and
demonstrations made to potential customers and technical experts. Modifications
have greatly reduced maintenance costs of MST units.
Marketing
The Company markets its products primarily for remediation of crude oil
sludge and emulsions produced in connection with oil production and refining.
There are approximately 700 oil refineries worldwide, all of which are potential
customers of the Company. The United States has 111 operable petroleum
refineries. The Company is focusing its marketing efforts on refineries located
in the United States and Canada. The Company intends to form strategic alliances
with foreign partners in order to penetrate international markets. The Company
already has formed alliances with the following:
o DuraTherm, Inc., an environmental services and technology firm that
provides thermal desorption, resource recovery, recycling, and waste
minimization for hydrocarbon contaminated materials, primarily for
the petroleum and petrochemical industries; and
o Golden Shahin for General Trading and Contracting Co., a Kuwaiti
company that provides logistical support for the successful
completion of the Kuwait Oil Lakes Remediation Project.
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<PAGE>
The Company believes that the MST process also can be deployed in
shipping lanes and ports to treat sludge from crude oil tankers as they off-load
ballast and clean their tanks before loading. The Company intends to increase
efforts to market the system for this application in the future.
Competition
The Company's competitors are firms that use either incineration or
centrifuge recovery systems to process oil sludge and emulsions. Incineration,
which is still prevalent in developing nations, is easy, low in cost and does
not require sophisticated technology if the process is not subject to
environmental rules and procedures. If done under environmental rules and
regulations, however, incineration is costly. In addition, most incineration
systems destroy the sludge in a way that does not produce usable hydrocarbon
byproducts.
Use of a centrifuge recovery system requires high heat and creates vapor
problems. Fires and explosions are possible, posing a danger to personnel as
well as to the environment. Complete recovery of oil seldom is achieved and
requires the use of chemicals, at additional cost. Moreover, the chemicals are
difficult to eliminate from the sludge, and eventually travel back to the
refinery or into the wastewater system.
The Company believes that the MST process offers significant competitive
advantages over competing oil sludge remediation processes. The Company believes
the MST process is more effective, ecologically more sound, and more economical
than competing systems. In addition, fewer environmental problems appear to be
associated with the MST process. The cost of using the MST process is comparable
to centrifuging, which is between $3 and $15 a barrel plus $.25 to $1.50 a
barrel if chemicals are used. The Company expects the MST process to recover 50%
to 90% of the oil, while centrifuging usually would recover less. The Company
believes that the sale value of the hydrocarbons recovered by the MST process
can offset a portion of the cost of operation.
The Company's competitors include both very large companies engaged in
oil sludge remediation and small operators with portable burners who incinerate
oil sludge and move from site to site.
The Company's largest competitors are:
o Waste Management, Inc., which handles bio-remediation, liquid
solidification, and waste transportation, is a nationwide company
with 25 operating units in the Texas, Oklahoma, and Louisiana
regions.
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<PAGE>
o DuraTherm, Inc., which is the nation's leader in hazardous solid
waste handling, processing and recovery, has a $20 million facility
in Houston, Texas that receives products from all over North
America./1
o Alfa Laval, a manufacturer of remediation equipment, has a worldwide
coverage of centrifuges and other separation equipment, plus a
service company in most oil producing regions.
Many of the companies with which the Company competes are substantially
larger and have substantially greater resources and market recognition and
broader capabilities than the Company. It is also likely that other competitors
will emerge in the future. As a consequence, there is no assurance that the
Company will be able successfully to compete in the marketplace.
Protection of Intellectual Property
The technology used in the MST process is proprietary. The Company does
not now own patents to protect its design. 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. The
Company has filed a patent application relating to its design and may seek
additional patents in the future covering patentable results of research. There
can be no assurance that any patent applications filed by the Company will
result in patents being issued or that any patents that may be owned or licensed
by the Company in the future will afford protection against competitors with
similar technology, will not be infringed upon or designed around by others or
will not be challenged and held to be invalid or unenforceable. In the absence
of patent protection, the business of the Company may be adversely affected by
competitors who independently develop substantially equivalent technology.
Third-party patents relating to technology utilized by the Company may
now exist or be issued in the future. The Company may need to acquire licenses
to, or to contest the validity of, any such patents. Significant funds may be
required to defend any claim that the Company infringes a third-party patent,
and 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 of the Company or the invalidation of any patents the
Company may own in the future. There can be no assurance that any license
required under any such patent would be made available or, if available, would
be available on acceptable terms or that the Company would prevail in any
litigation involving such patent. Any of the foregoing adverse results could
have a material adverse effect on the Company and its results of operations.
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
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(1)Currently, Duratherm is processing solid waste. In the future, however, it
is expected that Duratherm will attempt to expand into the liquid product
remediation area and become one of the Company's competitors.
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<PAGE>
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, that the Company will have adequate
remedies for any breach or that the Company's trade secrets will not otherwise
be disclosed to, or discovered by, competitors. 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 each MST process. 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. The Company does not expect to have such difficulty if and when
sales of MST processes accelerate.
Government Regulation
The Company's products are subject to government regulation by the
United States Environmental Protection Agency, local and state environmental
agencies, and local health departments. The Company believes that its products
meet or exceed all applicable safety and environmental regulations.
Employees
As of October 31, 1997, the Company had 10 full-time employees, five
engaged in testing and manufacturing and five involved in sales and
administration.
ITEM 2. PROPERTIES
The Company leases 4,519 square feet of office space and 7,500 square
feet of manufacturing space in Houston, Texas, on a month to month basis. The
total lease payment for the leased space is $6,265.83 per month.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit involving the Company was filed on February 9, 1995. The
defendant, Thermal Wave International Inc. (TWI), filed third-party claims
against third-party defendants, including the Company, on August 20, 1996. TWI
alleged that the company:
(1) is misrepresenting itself as the exclusive source of a
technology designed to perform oil sludge remediation through treatment
by microwave radiation, but that such technology was actually acquired
and developed by TWI;
(2) has disclosed and/or made commercial use of TWI's trade
secrets;
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<PAGE>
(3) has violated ss. 43 (a) of the Lanham Act;
(4) has violated ss. 16.29 of the Texas Business and Commerce
Code;
(5) has engaged in unfair competition, false advertising and
misappropriation of proprietary information under the common law of
Texas; and
(6) has engaged in a conspiracy to misappropriate, misrepresent
and wrongfully exploit technology of TWI.
TWI sought the following remedies, inter alia, against the Company: (1)
actual damages of an unspecified amount; (2) disgorgement of profits; (3)
punitive damages of an unspecified amount; (4) an order to enjoining the Company
from (a) using trade secrets or other proprietary information belonging to TWI;
(b) acts of unfair competition, and (c) false advertising, and (5) requirements
that the Company (a) make appropriate disclosures to correct alleged false or
misleading statements, and (b) disclose to TWI all details of alleged false or
misleading statements.
Management believes that TWI's claims are without merit and is
vigorously defending the Company. The Company denies that it has utilized or
misappropriated any trade secrets of TWI. Due to the uncertainties of the
litigation, no outcome can be predicted at this stage.
Continental Electronics Corporation claims Imperial owes it $178,845 for
work performed by Continental under two contracts. The claim under one contract
is approximately $100,000. Imperial believes that the claimed sum was not
properly calculated under the contract. The second contract was for programing
services and related hardware. The program did not functioned properly, however,
and the hardware did not meet safety standards. Imperial intends to defend the
claim and to pay only that portion of the claim ultimately deemed appropriate.
The Company is subject to other litigation from time to time arising
from its operations and receives occasional letters alleging infringement of
patents owned by third parties. Management does not believe that any such
litigation and claims that have arisen have merit or that they will have a
material effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board Market
under the symbol "IREC."
The following table sets forth the range of high and low bid quotations
for the Company's common stock for each of the calendar quarters of 1996 and
1997 from the commencement of public trading in the stock on April 16, 1996.
High and Low Bid Prices
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1996 High Bid Low Bid
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Second Quarter* $ 3.62 $ 0.87
Third Quarter $ 8.375 $ 5.1875
Fourth Quarter $ 6.00 $ 4.375
1997 High Bid Low Bid
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First Quarter $ 4.56 $ 2.62
Second Quarter $ 2.62 $ 0.62
Third Quarter $ 0.75 $ 0.43
Fourth Quarter $ 0.96 $ 0.31
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* From April 16, 1996.
The quotations in the table above reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
Holders
As of October 31, 1997, there were 540 registered holders of the
Company's Common Stock.
Dividends
The Company has not paid cash dividends to date, and it is not expected
that any cash dividends will be paid in the foreseeable future. The Company
intends to retain any earnings to finance its future growth.
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<PAGE>
Recent Sales of Unregistered Securities
During the fiscal year ended October 31, 1996, the Company sold shares
of its Common Stock for cash without registration under the Securities Act of
1933 on 16 different dates, as detailed in the following table:
<TABLE>
<CAPTION>
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No. of Aggregate No. of
Date Purchasers Purchase Price Price per Share* Shares Sold*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/01/95 1 $8,000 $2.00 4,000
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11/15/95 1 2,000 2.00 1,000
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12/13/95 14 51,200 2.00 25,600
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12/23/95 1 12,000 2.00 6,000
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01/07/96 9 22,400 2.00 11,200
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01/07/96 1 500 4.00 125
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01/07/96 1 1,500 3.00 500
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01/11/96 2 65,000 4.00 16,250
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01/23/96 9 204,305 2.00 102,150.5
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01/24/96 4 92,000 2.00 46,000
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01/26/96 1 50,000 2.00 25,000
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01/31/96 1 8,000 2.00 4,000
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01/31/96 6 21,200 2.50 8,480
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02/05/96 2 3,000 3.00 1,000
- ------------------------------------------------------------------------------------------------
02/14/96 2 9,000 3.00 3,000
- ------------------------------------------------------------------------------------------------
02/16/96 1 3,000 3.00 1,000
- ------------------------------------------------------------------------------------------------
04/18/96 1 12,000 3.00 4,000
- ------------------------------------------------------------------------------------------------
05/10/96 1 40,000 2.00 20,000
- ------------------------------------------------------------------------------------------------
05/10/96 3 40,000 2.50 16,000
- ------------------------------------------------------------------------------------------------
05/10/96 4 102,000 3.00 34,000
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08/15/96 1 5,000.00 6.00 833
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TOTAL 66** $752,105 330,138.5
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</TABLE>
* Numbers have not been adjusted toect .03 for 1 stock dividend of November
22, 1996.
** Total is not sum of column because some purchasers purchased more
than once.
In addition to the sales reflected in the table above, the Company
issued 10,345 shares of Common Stock to 15 individuals on September 4, 1996 and
4,938 shares of Common Stock to four individuals on October 30, 1996. All of
these individuals were employees of either the Company, NSA, Inc., which was
providing administrative support services to the Company at the time, or Food
Development Corporation, which was also providing services to the Company at the
time. See "Item 12. Certain Relationships and Related Transactions." Shares of
Common Stock were issued to these individuals in lieu of other compensation. The
Company also issued 25,000 shares of Common Stock to a lawyer providing services
to the Company in lieu of other compensation on January 24, 1996.
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<PAGE>
Current management believes that prior management relied upon the
exemption provided in Section 4(2) of the Securities Act, which covers
"transactions by an issuer not involving any public offering," to issue the
shares discussed and identified in the table above without registration under
the federal Securities Act of 1933. Except in the case of the issuance to the
lawyer and to employees, purchasers of the shares were business associates,
family members and friends of officers and directors of the Company. The
certificates representing the shares sold were marked with a legend indicating
that transfer of the shares was restricted because they had not been sold in a
registered offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Since its inception in 1995, the Company has been actively developing
its petroleum sludge treatment technology. From inception Imperial has sustained
cumulative losses of approximately $4,804,746. The losses include expenses for
the following:
(a) The purchase of Phonon Technologies, a microwave and chemical
research and development company, in the amount of $349,500;
(b) Costs of approximately $1,795,324 to fund the research and
development of Imperial's MST process for treating oil sludge and
further improving its present technologies; and
(c) General and administrative (G&A) expenses, which include the
international and domestic marketing of Imperial's microwave technology
and oil sludge remediation product line.
The above losses have been funded in part by private sales of common
stock which have resulted in net cash proceeds of approximately $3,620,000.
In December 1996, the Company effected a significant number of
cost-cutting initiatives aimed at continuing to fund its operations from
existing resources and reducing the level of revenue required to achieve a
break-even/cash flow position. The Board of Directors relocated corporate
headquarters to Houston, Texas. This relocation has saved the Company money by
consolidating management and operations into the same area for better
coordination and communication. The relocation also provided a strategic benefit
by placing the Company in the oil capital of the world, thus exposing it to
hundreds of Houston-based companies involved in the petro-chemical industry. The
relocation should better enable the Company to meet directly with interested
parties and interface with oil industry executives in a position to make
decisions to further the goals of the Company.
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<PAGE>
In December 1996, a management re-organization also was instituted.
Since that time, Imperial has substantially completed its capital expenditure
program, field tested its MST-1000, and built an inventory of key components.
Current management has instituted a complete set of internal policies on cost
control. These have resulted in major cost reductions to date.
The Company recognizes the key to success at this time requires
extensive promotion. Management intends to implement a strategic marketing plan
with the following objectives:
o Position the Company as a leader in microwave technology both domestically
and internationally.
o Increase awareness and name recognition of Imperial among petroleum
industry clients.
o Generate qualified sales leads and potential joint venture partners.
o Increase, through market research, significant information to create
immediate and long-term marketing plans.
o Expand sales materials, emphasizing use of a product video and the
Company's website.
o Continue to contact media groups to further establish an image as a highly
professional organization interested in helping solve environmental
problems while improving customer's bottom line.
o Communicate on a regular basis with editors of major trade, business and
local petroleum-related publications to increase coverage of the Company's
technology.
o Create an internal/external newsletter to serve as an informational piece
for internal personnel, shareholders, key clients and media sources.
o Increase communication with the financial community, including brokers and
potential investors.
o Join industry and environmental organizations to further corporate goals.
Even though the Company has been restricted by cash flow, marketing
efforts have been ongoing. Management believes that the interest generated in
the MST technology thus far indicates solid demand for products utilizing the
technology. In an effort to produce MST sales, the Company is continuing with
product testing efforts and has targeted several large volume users. Management
currently is hopeful that an order for an MST-1000 will be placed in the first
fiscal quarter of 1998, and that orders for two MST-1000 units will be placed in
the second quarter of fiscal year 1998. The Company's plan of operations
envisions the placement of two to three orders per quarter in the remainder of
fiscal year 1998.
The foregoing discussion contains certain forward looking statements
which involve risks and uncertainties. Imperial's actual results could differ
materially from the results anticipated in such statements.
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<PAGE>
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31,
1995
The Company has sustained substantial losses from operations since
inception, and such losses have continued since October 31, 1996. In addition,
the Company has used, rather than provided, cash in its operations.
The Company has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the Company
with the ability to continue operations.
A change in management occurred in December 1996, wherein the number of
administrative and marketing personnel was reduced, operations were relocated to
less costly facilities, and marketing and promotion costs were lowered.
In mid-1997, the Company completed development and demonstration of a
redesigned MST-1000 and began field testing.
Management has aggressively sought to restructure its liabilities to
reduce near-term cash requirements. Such restructuring activities include the
following:
o In July 1997, an agreement was reached to settle the remaining obligations
resulting from the Company's acquisition of assets from Phonon
Technologies, Inc., by issuing 100,000 shares of common stock and
reassigning the rights to certain technologies previously acquired.
o In June 1997, the Company settled its commitment under a long-term lease in
Las Vegas, Nevada, which carried a monthly commitment in excess of $25,000,
by issuing 100,000 shares of common stock and by agreeing to pay the
landlord $100,000 in June 1998.
o In August 1997, the Company reached an agreement with Food Development
Corporation (FDC), a company which is owned by the Chairman of the
Company's Board of Directors and which has funded operations of the Company
since inception. The agreement required the Company to repay $703,000 on
May 1, 1998. Of this sum, $661,000 was outstanding at October 31, 1996.
The Company has been in the development stage since operations commenced
in 1995 with substantially all of management's attention focused on developing
products based upon its sludge remediation process, promoting the Company within
its targeted industries, and raising capital to finance operations. As such, the
Company has not realized any sales since operations began in 1995.
Operating expenses in fiscal 1996 were $4,105,683 as compared to
$700,749 in fiscal 1995, an increase of 486%. The increase is partially
attributable to fiscal 1995 containing only four months of operations in which
the Company had reduced staff levels and had outsourced the
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<PAGE>
initial development phase of the first prototype. Research and development
expenses in fiscal 1996 were $1,355,324 as compared to $440,000 in fiscal 1995,
an increase of 208%. This increase was due to continued development of an
MST-4000 prototype unit which was outsourced in 1995 and then bought in-house in
1996. By the end of fiscal 1996, the first unit was completed and demonstrable.
Therefore, management does not expect development expenditures in fiscal 1997 to
be as significant as they were in fiscal 1996.
In August 1996, the Company acquired certain assets consisting primarily
of patents and technology from Phonon Technologies, Inc. A charge of $349,500
was recorded in the fiscal 1996 financial statements associated with this
acquisition to expense the portion of the purchase price related to technology
and patents which the Company has reassigned.
General and administrative expenses in fiscal 1996 totaled $2,283,941 as
compared to $260,749 in fiscal 1995, which as discussed above constituted only a
partial year of operations. Of these expenses, $846,283 in fiscal 1996 were
funded or incurred by National Security Analysts, Inc. or Food Development
Corporation, both entities controlled by stockholders of the Company. Such
expenses consisted of administrative support, marketing, technology development,
and management salaries necessary due to lack of existing infrastructure within
the Company. Management has curtailed significantly such expenses in fiscal 1997
as internal management has increased its involvement in the administrative,
product development and selling and marketing functions of the Company. Other
general and administrative expenses in fiscal 1996 include non-cash charges of
approximately $340,000 associated with the issuance of common stock to employees
and a vendor for services rendered to the Company.
In fiscal 1997, management entered into a lease in Las Vegas, Nevada for
space intended to be used for production and manufacturing. However, due to
delays in bringing its products to market and the relocation by new management
to Texas in late 1996, the facility was abandoned by the Company. As a result of
abandonment, the Company recorded a charge of $161,918 for the cost attributable
to a settlement reached with the landlord in July 1997.
Liquidity and Capital Resources
Imperial's business is capital intensive. The Company has funded its
operations principally from the private placement of common stock and debt
financing that has subsequently been converted into common stock. On October 31,
1996, Imperial's aggregate liabilities were approximately $2,005,804 and the
Company had negative working capital of approximately $400,555. By mid-November
1996, Imperial had no available cash or marketable securities.
In December 1996, Barry Meuse, President/CEO, Richard Wiewiorka, Vice
President, and Joseph Meuse, Secretary resigned their positions as officers and
members of the Board of Directors.
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<PAGE>
The following officers/directors remained: Henry Kartchner,
Chairman/CEO; Larry Taylor, President; Brent Kartchner, Secretary/Vice President
of Operations. Mr. Taylor resigned from the presidency and Board of Directors of
the Company late in fiscal year 1997.
Beginning in December l996, Imperial, under new management, began a
major effort to restructure its operations and reorganize its business focus
that enabled the Company to continue to fund its operations. The efforts to
reduce costs and expenses included closing Imperial's large corporate offices in
Alexandria, Virginia and its leased facility in Las Vegas, Nevada. This move
allowed the consolidation of both facilities in Houston, Texas. Additionally, by
reducing staff, eliminating costly consultants, focusing R&D and streamlining
office activities, management estimates that monthly expenses have been reduced
by approximately 40%.
These factors enabled Imperial to continue to fund operations from its
existing sources and reduce the revenue required to achieve break-even. Imperial
has not yet completed a laboratory in Houston and estimates that it will require
$75,000 near-term capital to complete this facility.
Since the re-organization started in December 1996, Imperial has
struggled to stabilize its financial condition by raising capital through
private placements of equity and debt.
ITEM 7. FINANCIAL STATEMENTS
Please see attached.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not required because previously reported.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers.
The current directors and executive officers of the Company are Henry H.
Kartchner, 73, and C. Brent Kartchner, 51.
Henry Kartchner has served as a director and Chairman of the Board of
the Company since December 1995 and as Chief Executive Officer since December
1996. Mr. Kartchner also is Chief Executive Officer of Food Development
Corporation, an international agribusiness, which he founded in 1975. Under his
leadership, FDC grew to annual revenues of $75 million.
-14-
<PAGE>
In 1970, he founded Desert Magic, Inc., an agribusiness that included 10,000
acres of irrigated land, processing plants and a nationwide marketing system.
During the 1960's, Mr. Kartchner was an executive with the H.J. Heinz company
and responsible for the fastest growing food sector of the Company.
Brent Kartchner has been Vice President of Operations and Secretary of
the Company since December 1996 and a director of the Company since September
1995. He also was a Vice President of the Company from September 1995 to
December 1996. From 1992 to 1994, Mr. Kartchner was General Manager and co-owner
of Pacific Northwest Farming--Oregon Potato Processing Center, a 12,000 acre
agribusiness that included production and marketing and a transportation
division, plus the nation's largest potato dehydrating factories. From 1987 to
1992, Mr. Kartchner was Vice President of Marketing of Sunkyong Limited, one of
the largest grain/foodstuff importers into South Korea. Mr. Kartchner received a
Bachelor of Science degree in agronomy and business management from Brigham
Young University in 1971. Brent Kartchner is the son of Henry Kartchner.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
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-KSB 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.
All executive officers, directors and 10% beneficial owners of the
Company's Common Stock who were such on October 7, 1996, the date on which the
Company's Common Stock became registered under the Act, were required under
Section 16(a) to file an initial statement of beneficial ownership on Form 3
within 10 days of that date. Mr. Henry Kartchner and Mr. Brent Kartchner did not
file their initial statements of beneficial ownership until August 11, 1997. To
the Company's knowledge, Mr. Barry Meuse, Mr. Larry Taylor and Mr. Richard
Wieworka, who were executive officers, directors and 10% beneficial owners at
the time, and Mr. Owen K. Stephenson, who was a 10% beneficial owner, have not
yet filed their initial statements of beneficial ownership.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid or accrued by Imperial, to or on behalf of the Imperial's
Chief Executive Officer and other executive officers determined for services
provided in the fiscal years indicated.
-15-
<PAGE>
Annual Compensation
Name Other
and Annual
Principal Salary Bonus Compensation
Position Year ($) ($) ($)
--------------------------------------------------------------------
Henry Kartchner 1996 12,000 0 0
Chairman 1995 - 0 0
Barry Meuse 1996 35,000 0 0
CEO/President 1995 10,000 0 0
Brent Kartchner 1996 17,500 0 0
Vice President 1995 - 0 0
Larry Taylor 1996 58,600 0 0
Vice President 1995 23,000 0 0
Richard Wiewiorka 1996 46,500 0 0
Vice President 1995 23,000 0 0
Compensation of Directors
Directors receive no compensation or fees for their services rendered in
such capacity.
Employment Contracts
There were no written employment contracts for any Imperial employees in
the fiscal year ended October 31, 1996 and have been none since then.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of October 31, 1997 the persons (including any "group") named in the
table below were believed by the management of the Company to be beneficial
owners of more than five percent of the Common Stock of the Company under SEC
Rule 13d-3. Under that Rule, beneficial ownership of a security consists of sole
or shared voting power (including the power to vote or direct the voting) and/or
sole or shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract, arrangement,
understanding, relationship or otherwise. Unless otherwise indicated, management
believes that each person indicated above has sole power to vote, or dispose or
direct the disposition, of all shares beneficially owned, subject to applicable
community property laws.
-16-
<PAGE>
Five-Percent Owners and Management Holdings(1)
----------------------------------------------------------------------
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership(2) Percent of Class
---------------------------------------------------------------------
C. Brent Kartchner 1,098,041 8.38%
57 Quail Run Rd.
Henderson, NV 89014
Henry Kartchner 2,585,705(3) 18.65%
3216 S. Everett Place
Kennewick, WA 99336
Rex H. Lewis 2,000,000 15.27%
2325-A Rennaissance Dr.
Las Vegas, NV 89119
Larry Taylor 1,297,665(4) 9.90%
12250 S. Kirkwood #625
Stafford, TX 77477
All Officers & Directors 3,683,746 26.57%
as a Group(5)
---------------
(1) Another person or person may own beneficially 5% or more of the
Company's Common Stock without management's having sufficient
evidence to conclude that such an ownership position currently
exists.
(2) All shares are held directly except that (i) Mr. Henry Kartchner's
beneficial holdings include 1,348,341 shares held directly, 473,625
shares held by Food Development Corporation, which he controls, and
exercisable options to acquire 763,739 shares at $0.31 per share held
by Food Development Corporation, and (ii) Mr. Lewis' shares are held
by Maya LLC, an entity he controls.
(3) Mr. Henry Kartchner has agreed to return 250,000 shares to the
Company for cancellation, which would reduce his beneficial ownership
to 2,335,705 shares or 17.16% of the outstanding class.
(4) Since October 31, 1997, Mr. Taylor has returned 600,000 shares to the
Company for cancellation, reducing his total beneficial ownership to
429,665 shares, or 3.28% of the outstanding class.
(5) Includes two individuals, Mr. Henry Kartchner and Mr. Brent
Kartchner.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1995, the following six individuals entered into an
agreement of which the Company was a third-party beneficiary: C. Brent
Kartchner, Henry H. Kartchner, Barry Meuse, Owen K. Stephenson, Larry D. Taylor
and Richard Wieworka. Under the agreement, Mr. Stephenson, who represented that
he controlled 6,961,000, or 99.4 %, shares of the Company's 7,000,000
outstanding shares of Common Stock, was to convey 1,066,000 of the shares to
each of the other parties to the agreement. In exchange, the other parties
promised to provide the consideration set forth opposite each of their names
below:
-17-
<PAGE>
Party Consideration
- ----- -------------
C. Brent Kartchner Agreement to provide operational and fabrication
services to the Company for minimal compensation to
be agreed upon.
Henry H. Kartchner Economic support and credit required to fabricate
and test the initial MST-4000 prototype for minimal
compensation.
Barry Meuse Agreement to provide management services to the
Company, for compensation to be agreed upon.
Larry D. Taylor Agreement to act as marketing representative for the
Company, for compensation to be agreed upon.
Richard Wieworka Agreement to provide corporate development services
to the Company, for compensation to be agreed upon.
Mr. Stephenson agreed to, and in connection with consummation of the
transactions provided for in the agreement did, transfer and assign the
consideration provided by each of the parties listed in the table above to the
Company. In addition, in order to induce such parties to enter into the
agreement, Mr. Stephenson agreed to provide consulting services to assist in
transforming the Company into a public company with its shares of Common Stock
eligible for public trading in the United States. The Company did not record any
value for the assets transferred and assigned to it by Mr. Stephenson in the
transaction.
The Company has engaged in transactions with NSA, Inc. ("NSA"), an
entity controlled by Mr. Barry Meuse, who at the time of the transactions was a
more-than-5% stockholder, officer and director of the Company. During the fiscal
year ended December 31, 1996, the Company incurred liabilities to NSA of
$244,880 for administrative support services, travel and other associated costs;
$93,571 for office rent; and $257,023 in noninterest bearing advances or
payments to Company vendors to fund working capital needs. As of October 31,
1996, $138,637 of the aggregate of these amounts had not been paid. The Company
increased its liability to NSA by $265,363 for additional costs, rent and
advances in November and December of 1996. Mr. Meuse ceased to be an officer and
director of the Company in December 1996.
The Company is disputing claims of NSA for $671,194 in additional costs
and charges allegedly incurred, including $478,184 in salary for Mr. Meuse from
September 1995 to December 1996, 1997 rent of $100,000, and interest of $93,010
on the outstanding balance.
The Company also has engaged in transactions with Food Development
Corporation ("FDC"), an entity controlled by Henry H. Kartchner, the Company's
Chairman of the Board. During the fiscal year ended October 31, 1996, the
Company reimbursed FDC $275,000 for research and development expenses it had
incurred on behalf of the Company. In addition, in August 1997 the Company
executed a note for $703,282 to FDC to cover the reimbursement of
-18-
<PAGE>
other research and development expenses incurred by FDC on behalf of the
Company, including an additional $183,407 in fiscal year 1995, $469,770 in
fiscal year 1996, and $661,677 in fiscal year 1997. The note bears interest at
10% annually, and is due no later than May 1, 1998.
From March to October 1996, Phoenix Financial and Eagle Trust, entities
believed to have been controlled by Owen K. Stephenson, whom management believes
was a more-than-5% beneficial owner of the Company's Common Stock at the time,
loaned the Company $1,884,004, with no provision being made for the payment of
interest. In December 1996, the Company issued 450,139 shares of Common Stock
(equal to $4.185 per share) to repay the loans in full. The same entities loaned
the Company an additional $450,000 in early fiscal year 1997, with no provision
being made for the payment of interest. The Company repaid this amount in April
1997 by issuing 109,939 shares of Common Stock (equal to $4.09 per share).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Financial Statements
The following financial statements are included in this report:
Report of Independent Certified Public Accountants
Balance Sheets as of October 31, 1995 and 1996
Statements of Operations for the years ended October 31, 1995 and 1996
Statements of Stockholder's Deficit for the years ended October 31, 1995
and 1996
Statements of Cash Flows for the years ended October 31, 1995 and 1996
Notes to Financial Statements
Exhibits
The exhibits to this report are identified in the Exhibit Index,
which appears immediately after the signature page and is incorporated in this
Item 13 by this reference.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year covered by this report.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
November 24, 1997.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By /s/ Henry H. Kartchner
------------------------------------
Henry H. Kartchner
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Henry H. Kartchner November 24, 1997
- --------------------------------------
Henry H. Kartchner
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ C. Brent Kartchner November 24, 1997
- --------------------------------------
C. Brent Kartchner
Vice President and Director
-20-
<PAGE>
IMPERIAL PETROLEUM RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Financial Statements and Report of
Independent Certified Public
Accountants
October 31, 1996 and 1995
- ---------------------------------------------
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Contents
- -------------------------------------------------------------------------------
Report of Independent Certified Public Accountants 3
Financial Statements
Balance Sheets 4-5
Statements of Operations 6
Statements of Stockholders' Deficit 7
Statements of Cash Flows 8
Notes to Financial Statements 9-16
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Imperial Petroleum Recovery Corporation
(a development stage company)
We have audited the accompanying balance sheets of Imperial Petroleum Recovery
Corporation (a development stage company) (a Nevada corporation) as of October
31, 1996 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for the years then ended and for cumulative
amounts since inception. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Imperial Petroleum Recovery
Corporation (a development stage company) as of October 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended and
for cumulative amounts since inception in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has incurred cumulative net losses of approximately $4,804,746 since
inception of operations and as of October 31, 1996, the Company's current
liabilities exceeded its current assets by $400,555 and its total liabilities
exceeded its total assets by $3,009,535. These factors, among others, as
discussed in Note A to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
GRANT THORNTON LLP
Vienna, Virginia
June 9, 1997, except for Note D,
as to which the date is July 9, 1997; Note E, as to which the date is August
15, 1997; and Note G, as to which the date is July 7, 1997
3
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
October 31, 1996 1995
- -------------------------------------------------------------------------------------------------
(as restated;
see Note H)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ - $208,339
Officer and employee advances 146,884 15,000
Inventory 132,000 -
Deposits - 1,989
----------------------------------
Total Current Assets 278,884 225,328
Property and Equipment, net of accumulated depreciation
of $3,362 at October 31, 1996 158,501 -
Technology Rights--held for note settlement 339,500 -
----------------------------------
$776,885 $225,328
- -------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets--Continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
October 31, 1996 1995
- -------------------------------------------------------------------------------------------------
(as restated;
see Note H)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current Liabilities
Bank overdraft $ 51,934 $ -
Notes payable--Phonon acquisition--current portion 20,000 -
Accounts payable--trade 341,707 -
Accounts payable--National Security Analysts, Inc. 138,638 458,407
Accrued employee expense reimbursements 124,542 50,661
Current portion of abandoned lease obligation 2,618 -
----------------------------------
Total Current Liabilities 679,439 509,068
Note Payable--Phonon acquisition--noncurrent 339,500 -
Note Payable--Food Development Corporation 661,677 -
Accrued Lease Obligation--noncurrent 100,000 -
Obligations to Be Settled in Stock
Loans from affiliated entities 1,884,004 -
Abandoned lease obligation 59,300 -
Phonon acquisition 62,500 -
----------------------------------
2,005,804 -
Commitments and Contingencies - -
Stockholders' Deficit
Common stock--authorized 100,000,000 shares; $.001
par value; issued and outstanding 8,315,080 and
7,884,372 shares at October 31, 1996 and 1995,
respectively 8,315 7,882
Common stock subscribed (7,730) (7,730)
Additional paid-in capital 1,794,626 416,348
Deficit accumulated during the development stage (4,804,746) (700,240)
----------------------------------
Total Stockholders' Deficit (3,009,535) (283,740)
----------------------------------
$ 776,885 $ 225,328
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Cumulative
Amounts Year ended October 31,
Since ----------------------
Inception 1996 1995
- ----------------------------------------------------------------------------------------------------------
(as restated;
see Note H)
<S> <C> <C> <C>
Revenue $ - $ - $ -
Cost of Goods Sold - - -
--------------------------------------------------
Gross Profit - - -
Operating Expenses
Research and development expenses--prototype 1,795,324 1,355,324 440,000
Acquired research and development--Phonon
Technologies 349,500 349,500 -
General and administrative expenses
Internal administration, selling and marketing
expense 1,508,062 1,430,720 77,342
Administrative and operating support costs--
related parties 991,628 808,221 183,407
Loss on abandonment of leased facility 161,918 161,918 -
--------------------------------------------------
Loss from Operations (4,806,432) (4,105,683) (700,749)
Other Income
Interest income 1,686 1,177 509
--------------------------------------------------
Net Loss $ (4,804,746) $(4,104,506) $ (700,240)
- ----------------------------------------------------------------------------------------------------------
Loss per Share $ (.46) $ (.41)
- ----------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 8,980,081 7,679,126
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Years ended October 31, 1996 and 1995
- ---------------------------------------------------------------------------------------------------------------------
Common
Price per Common Stock
Date Share Shares Subscribed
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Balance, November 1, 1994 7,729,702 $(7,730)
Issuance of Common Stock for Cash September 1995-October 1995 $1.94 89,812 -
September 1995-October 1995 3.85 62,858 -
Net Loss - -
--------------------------
Balance, October 31, 1995 7,882,372 (7,730)
Issuance of Common Stock for Cash November 1995-April 1996 1.94 158,734 -
November 1995-April 1996 2.41 13,794 -
November 1995-April 1996 3.17 21,626 -
November 1995-April 1996 3.88 60,044 -
November 1995-April 1996 4.86 11,890 -
November 1995-April 1996 5.07 7,366 -
July 1996 3.00 83,333 -
September 1996 4.34 11,513 -
Issuance of Common Stock to Vendor
for Services Rendered August 1996 5.94 25,750 -
Issuance of Common Stock to Employees
for Services Rendered October 1996 4.84 38,658 -
Net Loss - -
--------------------------
Balance, October 31, 1996 8,315,080 $(7,730)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage
----- ------- -----
<S> <C> <C> <C>
Balance, November 1, 1994 $7,730 $ - $ -
Issuance of Common Stock for Cash 90 174,310 -
62 242,038 -
Net Loss - - (700,240)
-------------------------------------------
Balance, October 31, 1995 7,882 416,348 (700,240)
Issuance of Common Stock for Cash 159 308,067 -
14 33,351 -
22 68,478 -
60 233,120 -
12 57,822 -
7 37,393 -
83 249,917 -
12 49,989 -
Issuance of Common Stock to Vendor
for Services Rendered 26 152,974 -
Issuance of Common Stock to Employees
for Services Rendered 38 187,167 -
Net Loss - - (4,104,506)
-------------------------------------------
Balance, October 31, 1996 8,315 $1,794,626 $(4,804,746)
- ------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Cumulative
Amounts Year ended October 31,
Since ----------------------
Inception 1996 1995
- ----------------------------------------------------------------------------------------------------------
(as restated;
see Note H)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $(4,804,746) $(4,104,506) $(700,240)
-------------------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 3,360 3,360 -
Noncash charge associated with acquisition 349,500 349,500 -
Accrued loss on abandonment of leased facility 161,918 161,918 -
Charges associated with stock issuances to
vendor 153,000 153,000 -
Related party expenses included in note
payable 661,677 661,677 -
Changes in assets and liabilities
Increase in inventory (132,000) (132,000) -
Decrease (increase) in deposits - 1,989 (1,989)
Increase in officer and employee advances (146,884) (131,884) (15,000)
Increase in accrued liabilities 124,542 73,881 50,661
Increase in accounts payable 480,345 21,938 458,407
-------------------------------------------------
Total Adjustments 1,655,458 1,163,379 492,079
-------------------------------------------------
Net Cash Used in Operating Activities (3,149,288) (2,941,127) (208,161)
-------------------------------------------------
Cash Flows from Investing Activities
Cash paid for acquisition (94,000) (94,000) -
Additions to property and equipment (161,863) (161,863) -
-------------------------------------------------
Net Cash Used in Investing Activities (255,863) (255,863) -
-------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 1,642,213 1,225,713 416,500
Proceeds from loans from affiliated entities 1,884,004 1,884,004 -
Payments on notes payable (173,000) (173,000) -
Proceeds from bank overdraft 51,934 51,934 -
-------------------------------------------------
Net Cash Provided by Financing Activities 3,405,151 2,988,651 416,500
-------------------------------------------------
Net (Decrease) Increase in Cash - (208,339) 208,339
Cash and Cash Equivalents, Beginning of Period - 208,339 -
-------------------------------------------------
Cash and Cash Equivalents, End of Period $ - $ - $ 208,339
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE A--REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial losses from operations since inception, and such losses have
continued since October 31, 1996. In addition, the Company has used, rather
than provided, cash in its operations.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet is financing
requirements on a continuing basis, to maintain present financing and to
succeed in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
The Company has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the
Company with the ability to continue in existence.
A change in management occurred in December 1996, wherein the number of
administrative and marketing personnel was reduced, operations were relocated
to less costly facilities, and marketing and promotion costs were lowered.
The Company's senior management continues to forego cash-based compensation
until cash flow improves.
In mid-1997, the Company completed development and demonstration of a
prototype unit, and is prepared to begin production for interested customers.
Management has aggressively sought to restructure its liabilities to reduce
near-term cash requirements. Such restructuring activities include the
following:
o In July 1997, an agreement was reached to settle the remaining
obligation resulting from the Company's acquisition of assets from Phonon
Technologies, Inc., by issuing 100,000 shares of common stock and
reassigning the rights to certain medical technology previously acquired.
o In June 1997, the Company settled its commitment under a long-term lease
in Las Vegas, Nevada, which carried a monthly commitment in excess of
$25,000, by issuing 100,000 shares of common stock and by agreeing to pay
the landlord $100,000 in June 1998.
o In August 1997, the Company reached an agreement with Food Development
Corporation (FDC), a company which is owned by the chairman of the
Company's board of directors and which has funded operations since
inception. The agreement required the Company to repay $703,000, of which
$661,000 was outstanding at October 31, 1996, no earlier than May 1,
1998. The note is convertible by FDC into common stock anytime prior to
payment.
9
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Imperial Petroleum Recovery Corporation (a development stage company
incorporated in Nevada) (the Company) has been in the development stage since
commencement of operations in fiscal year 1995. Operations to date comprise
developing and marketing crude oil sludge, recovery process technology. Since
December 1996, principal operations have been conducted in Texas.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided for using the straight-line method. Property and equipment are
depreciated over the estimated economic lives estimated to be five years.
Research and Development Expenses
Costs incurred in connection with developing a prototype and demonstration
model of a system designed for crude oil sludge, recovery process technology
have been expensed as incurred. Certain costs incurred for components of the
system have been capitalized as inventory because they have alternative
future uses.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in checking and money market
accounts, and short-term investments with original maturity dates of three
months or less.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. Management believes the Company is not
exposed to any significant credit risk on cash and cash equivalents.
Fair Value of Financial Instruments
Financial instruments in the accompanying financial statements principally
consist of notes payable. Such notes include the following:
o An obligation to FDC which at October 31, 1996, amounted to
approximately $661,000. Management is unable to estimate its fair value
because the amount is due to a related party and market information on
notes of this type is unavailable;
10
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
o An obligation to the seller of certain assets acquired in August 1996 is
stated at 1) the value of common stock issued in July 1997 in partial
satisfaction of the note and 2) the remaining amount of the note of
$339,500 which was settled by reassigning certain technology to the
seller.
Income Taxes
The Company has not provided for a deferred tax asset associated with net
operating losses generated to date because of uncertainty as to realization
of the related tax benefits. As of October 31, 1996, the Company has a net
operating loss carryforward of approximately $2,100,000 which is available to
be applied against taxable income generated through 2011. Additional costs
totaling approximately $2,700,000 incurred through October 31, 1996, are
being classified as start-up costs for income tax reporting purposes, and
will be amortized over a five-year period beginning in fiscal year 1997. Upon
a change in control of the Company, the use of all or a portion of the net
operating loss carryforward may be limited.
Loss per Share
The computation of the loss per share is based upon the weighted average
number of common shares outstanding in each period and gives retroactive
effect to a stock dividend in December 1996.
- -------------------------------------------------------------------------------
NOTE C--NOTES AND LOANS PAYABLE
Phonon Acquisition
In connection with the purchase of certain assets from Phonon Technologies,
Inc., in August 1996 (as described in Note G), the Company executed a
noninterest bearing, non-recourse note payable to the seller in the amount of
$595,000. Through October 31, 1996, the Company made payments totaling
$173,000 against this obligation. In November 1996, the Company paid an
additional $20,000 on the note. In a settlement agreement reached in July
1997, the Company has committed to retire a portion of the remaining
principal outstanding by issuing 100,000 shares of common stock in August
1997. The obligation of $62,500 related to the stock issuance has been
classified as a noncurrent liability in the accompanying 1996 financial
statements, pending issuance of the stock. In addition, the Company agreed to
reassign the rights to certain technology acquired in the purchase in
satisfaction of the remaining balance.
Affiliated Entities
From March through October 1996, the Company was loaned $1,884,004 from two
entities affiliated with a stockholder of the Company. The loans bore no
interest. In December 1996, the Company issued 450,139 shares of common stock
to repay the loans in full. The loans have been classified as noncurrent
liabilities in the accompanying balance sheet pending issuance of the stock,
and interest was not imputed because of the short time the loans were
outstanding.
11
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE C--NOTES AND LOANS PAYABLE--Continued
The Company received approximately $450,000 from the same entities as
additional loans in early 1997. The loans were repaid in April 1997 when the
Company issued 109,939 shares of common stock.
- -------------------------------------------------------------------------------
NOTE D--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and research facility in Stafford, Texas,
under a month-to-month operating lease. During fiscal year 1996 and through
December 1996, the Company leased office space from NSA, Inc. (see Note E),
for which it paid approximately $12,500 per month. Upon the relocation of
operations to Texas in December 1996, such lease payments ceased.
In July 1996, the Company entered into a 62-month lease for offices
manufacturing and research space in Las Vegas, Nevada. The Company did not
commence operations in the leased facility because of delays in bringing its
products to market and has since attempted to locate a subtenant or
replacement tenant. As a result of the abandonment, the Company recorded a
charge to operations of $161,918, which is the cost attributable to a
settlement reached in July 1997. The settlement provides for the payment of
$100,000 plus interest of 10% in July 1998, the issuance of 100,000 shares of
common stock, and a cash payment at settlement of $2,618. The stock issuance
commitment has been valued using the value of the Company's stock at the
settlement date, and the associated liability has been classified as a
noncurrent obligation pending issuance of the stock.
Total rent expense, excluding the loss from the abandoned lease described
above, for the year ended October 31, 1996, was approximately $351,000.
Litigation and Asserted Claims
A lawsuit involving the Company was filed on February 9, 1995. The defendant,
Thermal Wave International, Inc. (TWI), filed third-party claims against
third-party defendants, including the Company, on August 20, 1996. TWI
alleged that the Company (1) is misrepresenting itself as the exclusive
source of a technology designed to perform oil sludge remediation through
treatment by microwave radiation despite that such technology was allegedly
acquired and developed by TWI; (2) has disclosed and/or made commercial use
of TWI's trade secrets; (3) has violated ss. 43(a) of the Lanham Act; (4) has
violated ss. 16.29 of the Texas Business and Commerce Code; (5) has engaged
in unfair competition, false advertising and misappropriation of proprietary
information under the common law of Texas; and (6) has engaged in a
conspiracy to misappropriate, misrepresent and wrongfully exploit technology
of TWI.
12
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE D--COMMITMENTS AND CONTINGENCIES--Continued
TWI sought the following remedies against the Company: (1) actual damages of
an unspecified amount; (2) disgorgement of profits; (3) punitive damages of
an unspecified amount; (4) attorneys' fees of an unspecified amount; (5) pre-
and post-judgment interest; (6) costs of court; (7) a permanent injunction to
enjoin (a) use of trade secrets or other proprietary information allegedly
belonging to TWI, (b) acts of unfair competition, (c) false advertising, (d)
acts constituting violations of ss. 16.29 of the Texas Business and Commerce
Code, and (e) competing with TWI; and (8) to require (a) the Company to make
appropriate disclosures to correct alleged false or misleading statements,
and (b) the Company disclose to TWI all details of alleged false or
misleading statements.
Management believes the claims against it are without merit and is vigorously
defending itself. Management is unable to predict the possible outcome of
this matter.
The Company has been presented with another claim in the amount of $250,000
associated with a customer's deposit for a contract. The Company issued
83,333 shares as collateral for the deposit and has classified the proceeds
received as an addition to stockholders' equity in the accompanying financial
statements, as management believes the amount is nonrefundable. The Company's
Board of Directors and management vigorously dispute the customer's right to
the refund under several defenses which they believe are meritorious; they do
not believe the ultimate outcome of this matter will have a material, adverse
impact on the Company's financial statements.
The Company is involved in other litigation incident to the ordinary conduct
of its business. Management believes the claims are without merit and is
unable to predict the possible outcome of these matters.
- -------------------------------------------------------------------------------
NOTE E--RELATED PARTY TRANSACTIONS
NSA, Inc.
The Company engages in several transactions with NSA, Inc. (NSA), an entity
controlled by a stockholder and former director of the Company. These
transactions are summarized as follows:
<TABLE>
<CAPTION>
Amounts for the
Year Ended
October 31,
1996
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Administrative support services, travel and other associated costs $244,880
Office rent 93,571
Noninterest bearing advances or payments to Company vendors to fund
working capital needs 257,023
------------
$595,474
------------
</TABLE>
13
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE E--RELATED PARTY TRANSACTIONS--Continued
The Company has recorded a liability to NSA at October 31, 1996, of $138,637.
Subsequent to October 31, 1996, the Company has increased the liability by
$265,363 for additional costs, rent, and advances in November and December
1996. However, the Company is disputing $671,194 in additional costs and
charges sought by NSA associated with salary and overhead for an officer of
NSA (who was part of the Company's management through December 1996) of
$478,184; interest on the outstanding balance of $93,010; and 1997 rent of
$100,000 on certain office space. Because a definitive settlement agreement
has not been reached with NSA regarding the Company's obligation, further
negotiations may result in a liability different than that recorded in the
financial statements. The effect of such a change will be recorded in the
period a settlement is reached.
During the year ended October 31, 1996, an agreement was executed providing
for the Company to acquire NSA, Inc., in an exchange of securities.
Subsequent to executing the agreement, the Board of Directors of the Company
voided the merger, believing it was not in the best interest of the Company
to merge with NSA. All shares of common stock issued in connection with the
merger were subsequently returned to the Company and not reflected as
outstanding shares in the accompanying financial statements.
Food Development Corporation
The Company engages in several transactions with Food Development Corporation
(FDC), an entity controlled by a stockholder and director of the Company. In
addition, included in research and development expense in fiscal year 1995 is
$275,000 associated with prototype development costs funded by FDC.
For the years ended October 31, 1996 and 1995, FDC incurred expenses on
behalf of the Company amounting to $469,770 and $183,407, respectively. As of
October 31, 1996, the Company recorded a liability of $661,677 to FDC. In
August 1997, the Company executed a note payable to FDC in the amount of
$703,282, which includes the October 31, 1996, liability and expenses of
$76,261 incurred subsequent to October 31, 1996. The note bears interest at
10%, computed prospectively from August 15, 1997, and is due no earlier than
May 1, 1998. FDC may convert the balance due anytime into an equivalent
number of shares of common stock at the market value on the date of the
conversion.
- -------------------------------------------------------------------------------
NOTE F--STOCKHOLDERS' EQUITY
In December 1996, the Company declared a 3% stock dividend issuable to
stockholders of record as of the declaration date. As a result, the
accompanying financial statements retroactively give effect to the dividend.
14
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE F--STOCKHOLDERS' EQUITY--Continued
In August 1996, the Company issued 25,750 shares of common stock to an
attorney for legal services rendered on behalf of the Company. Legal expenses
were charged for $153,000 to record the fair value of the shares issued based
upon the trading price of the shares.
In September and October 1996, the Company issued 38,658 shares of common
stock to certain employees of the Company, NSA and FDC. Compensation expense
recorded as a result of the stock issuance was $187,205 based upon the
trading price of the shares at the date of issuance.
- -------------------------------------------------------------------------------
NOTE G--SIGNIFICANT TRANSACTIONS
In August 1996, the Company acquired certain assets consisting of technology,
patents and furniture and laboratory equipment from Phonon Technologies, Inc.
(PTI), a Houston, Texas, based research and development company, engaged in
the development of microwave chemistry technologies. The purchase price for
the assets was $689,000, of which $94,000 was paid at closing and the
remainder financed by a non-recourse note payable collateralized only by the
technology and assets acquired. The Company allocated $349,500 of the
purchase price to acquired research and development costs which were expensed
in the statement of operations. The remaining $339,500 related to other
technology was capitalized. As described in Note C, the Company reached an
agreement in July 1997 to restructure the remaining balance due on the note
payable. The settlement included reassigning the capitalized technology to
the seller in satisfaction of the remaining balance on the note of $339,500.
PTI had not realized any revenue from the acquired technologies prior to the
acquisition and the Company did not hire any permanent employees or occupy
facilities of PTI. As such, the Company does not believe this acquisition
constitutes a business acquired and has, therefore, omitted pro forma
disclosures required for business combinations.
- -------------------------------------------------------------------------------
NOTE H--RESTATEMENT
The 1995 financial statements have been restated to properly reflect expenses
incurred on behalf of the Company by an affiliated entity and to reflect
certain cash activity not previously reflected. The effect of the restatement
was to increase the deficit accumulated during the development stage as of
October 31, 1995, by $674,068 and to increase net loss for the year ended
October 31, 1995, by $674,068.
15
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
- -------------------------------------------------------------------------------
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE I--SUPPLEMENTAL INFORMATION ON NON-CASH FINANCING AND INVESTING
ACTIVITIES
As discussed in Notes C and G, the Company acquired certain assets in part by
issuing a promissory note in the amount of $595,000.
- -------------------------------------------------------------------------------
NOTE J--SUBSEQUENT EVENTS
Sale of Inventory
In June 1997, the Company sold a prototype component carried as inventory at
original cost of $132,000 in the accompanying financial statements for
$234,000, payable in 36 monthly installments.
Notes Payable
In April and May 1997, the Company was loaned $346,067 by stockholders who
are former officers of the Company. The obligations bear interest at 10% and
are payable no later than one year from the origination date of each loan.
16
<PAGE>
Imperial Petroleum Recovery Corporation
Exhibit Index to Form 10-KSB
Exhibit No. Identification of Exhibit
- ----------- -------------------------
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-SB filed with the
Commission on August 8, 1996, Commission File No.
0-21169)
3.2 Bylaws of the Company
27 Financial data schedule
Exhibit 3.2
BYLAWS
OF
IMPERIAL PETROLEUM RECOVERY CORP.
A Nevada Corporation
ARTICLE I
Offices
Section 1. The registered office of this corporation shall be in the
County of Clark, State of Nevada.
Section 2. The corporation may also have offices at such other places
both within and without the State of Nevada as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. All annual meetings of the stockholders shall be held at the
registered office of the corporation at such other place within or without the
State of Nevada as the directors shall determine. Special meetings of the
stockholders may be held at such time and place within or without the State of
Nevada as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of the stockholders, commencing with the
year 1996, shall be held on the 21st day of January each year if not a legal
holiday and, if a legal holiday, then on the next secular day following, or at
such other time as may be set by the Board of Directors from time to time, at
which the stockholders shall elect by vote a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. Special meetings of the Stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the President or the Secretary by resolution of
the Board of Directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
President or a Vice President or the Secretary or an Assistant Secretary or by
such other person or persons as the directors shall designate. Such notice shall
state the purpose or purposes for which the meeting is called and the time and
the place, which may be within or without this State, where it is to be held. A
copy of such notice shall be either delivered personally to or shall be mailed,
postage prepaid, to each stockholder of record entitled to vote at such meeting
not less than ten nor mare than sixty days before such meeting. If mailed, it
shall be directed to a stockholder at his address as it appears upon the records
of the corporation and upon such mailing of any such notice, the service thereof
shall be complete and the time of the notice shall begin to run from the date
upon which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery of such notice of and prior to the
holding of the meeting it shall not be necessary to deliver or mail notice of
the meeting to the transferee.
<PAGE>
Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 6. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall be sufficient to elect directors or to
decide any question brought before such meeting, unless the question is one upon
which by express provision of the statutes or of the Articles of Incorporation,
a different vote is required in which case such express provision shall govern
and control the decision of such question.
Section 8. Each stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the corporation. Upon the demand of any
stockholder, the vote for directors and the vote upon any question before the
meeting shall be by ballot.
2
<PAGE>
Section 9. At any meeting of the stockholders any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two or
more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No proxy or
power of attorney to vote shall be used to vote at a meeting of the stockholders
unless it shall have been filed with the secretary of the meeting when required
by the inspectors of election. All questions regarding the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by the inspectors of election who shall be appointed by the Board of
Directors, or if not so appointed, then by the presiding officer of the meeting.
Section 10. Any action which may be taken by the vote of the
stockholders at a meeting may be taken without a meeting if authorized by the
written consent of stockholders holding at least a majority of the voting power,
unless the provisions of the statutes or of the Articles of Incorporation
require a greater proportion or voting power to authorize such action in which
case such greater proportion of written consents shall be required.
ARTICLE III
Directors
Section 1. The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 2. The number of directors which shall constitute the whole
board shall be fifteen (15). The number of directors may from time to time be
increased or decreased to not less than one nor more than fifteen by action of
the Board of Directors. The directors shall be elected at the annual meeting of
the stockholders and except as provided in Section 2 of this Article, each
director elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 3. Vacancies in the Board of Directors including those caused
by an increase in the number of directors, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until his successor is elected at
an annual or a special meeting of the stockholders. The holders of two thirds of
the outstanding shares of stock entitled to vote may at any time peremptorily
terminate the term of office of all or any of the directors by vote at a meeting
called for such purpose or by a written statement filed with the secretary or,
in his absence, with any other officer. Such removal shall be effective
immediately, even if successors are not elected simultaneously and the vacancies
on the Board of Directors resulting therefrom shall be filled only by the
stockholders.
3
<PAGE>
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in case of the death, resignation or removal of any directors, or if the
authorized number of directors be increased, or if the stockholders fail at any
annual or special meeting of stockholders at which any director or directors are
elected to elect the full authorized number of directors to be voted for at that
meeting.
The stockholders may elect a director or directors at any time to file
any vacancy or vacancies not filled by the directors. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future time,
the Board or the stockholders shall have power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
ARTICLE IV
Meetings of the Board of Directors
Section 1. Regular meetings of the Board of Directors shall be held at
any place within or without the State which has been designated from time to
time by resolution of the Board or by written consent of all members of the
Board. In the absence of such designation regular meetings shall be held at the
registered office of the corporation. Special meetings of the Board may be held
either at a place so designated or at the registered office.
Section 2. The first meeting of each newly elected Board of Directors
shall be held immediately following the adjournment of the meeting of
stockholders and at the place thereof. No notice of such meeting shall be
necessary to the directors in order legally to constitute the meeting, provided
a quorum be present. In the event such meeting is not so held, the meeting may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors.
Section 3. Regular meetings of the Board of Directors may be held
without call or notice at such time and at such place as shall from time to time
be fixed and determined by the Board of Directors.
Section 4. Special meetings of the Board of Directors may be called by
the Chairman or the President or by any Vice-President or by any two directors.
4
<PAGE>
Written notice of the time and place of special meetings shall be
delivered personally to each director, or sent to each director by mail or by
other form of written communication, charges prepaid, addressed to him at his
address as it is shown upon the records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held. In case such
notice is mailed or telegraphed, it shall be deposited in the United States mail
or delivered to the telegraph company at least forty eight (48) hours prior to
the time of the holding of the meeting. In case such notice is delivered as
above provided, it shall be so delivered at least twenty four (24) hours prior
to the time of the holding of the meeting. Such mailing, telegraphing or
delivery as above provided shall be due, legal and personal notice to such
director.
Section 5. Notice of the time and place of holding an adjourned meeting
need not be given to the absent directors if the time and place be fixed at the
meeting adjourned
Section 6. The transactions of any meeting of the Board of Directors,
however called and noticed or wherever held, shall be as valid as though had at
a meeting duly held after regular call and notice, if a quorum be present, and
if, either before or after the meeting, each of the directors not present signs
a written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 7. A majority of the authorized number of directors shall be
necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, unless a greater
number be required by law or by the Articles of Incorporation. Any action of a
majority, although not act a regularly called meeting, and the record thereof,
if assented to in writing by all of the other members of the Board shall be as
valid and effective in all respects as if passed by the Board in regular
meeting.
Section 8. A quorum of the directors may adjourn any directors meeting
to meet again at a stated day and hour; provided, however, that in the absence
of a quorum, a majority of the directors present at any directors meeting,
either regular or special, may adjourn from time to time until the time fixed
for the next regular meeting of the Board.
5
<PAGE>
ARTICLE V
Committees of Directors
Section 1. The Board of Directors may, by resolution adopted by a
majority of the whole Board, designate one or more committees of the Board of
Directors, each committee to consist of two or more of the directors of the
corporation which, to the extent provided in the resolution, shall have and may
exercise the power of the Board of Directors in the management of the business
and affairs of the corporation and may have power to authorize the seal of the
corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by the Board of Directors. The members of any such committee present at any
meeting and not disqualified from voting may, whether or not they constitute a
quorum, unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any absent or disqualified member. At meetings of
such committees, a majority of the members or alternate members shall constitute
a quorum for the transaction of business, and the act of a majority of the
members or alternate members at any meeting at which there is a quorum shall be
the act of the committee.
Section 2. The committees shall keep regular minutes of their
proceedings and report the same to the Board or Directors.
Section 3. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members of the Board of
Directors or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
ARTICLE VI
Compensation of Directors
Section 1. The directors may be paid their expenses of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
6
<PAGE>
ARTICLE VII
Notices
Section 1. Notices to directors and stockholders shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed, and at
such meeting any business may be transacted which is not excepted from the
written consent or to the consideration of which no objection for want of notice
is made at the time, and if any meeting be irregular for want of notice or of
such consent, provided a quorum was present at such meeting, the proceedings of
said meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting; and such consent or approval of stockholders
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.
Section 3. Whenever any notice whatever is required to be given under
the provisions of the statutes, of the Articles of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VIII
Officers
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a President, a Secretary and a Treasurer. Any person
may hold two or more offices.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chairman of the Board who shall be
a director, and shall choose a President, a Secretary and a Treasurer, none of
whom need be directors.
Section 3. The Board of Directors may appoint a Vice Chairman of the
Board, Vice Presidents and one or more Assistant Secretaries and Assistant
Treasurers and such other officers and agents as it shall deem necessary who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
7
<PAGE>
Section 4. The salaries and compensation of all officers of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office at the
pleasure of the Board of Directors. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. Any
vacancy occurring in any office of the corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors.
Section 6. The Chairman of the Board shall preside at meetings of the
stockholders and the Board of Directors, and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
Section 7. The Vice chairman shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties as the Board of
Directors may from time to time prescribe.
Section 8. The President shall be the chief executive officer of the
corporation and shall have active management of the business of the corporation.
He shall execute on behalf of the corporation all instruments requiring such
execution except to the extent the signing and execution thereof shall be
expressly designated by the Board of Directors to some other officer or agent of
the corporation.
Section 9. The Vice President shall act under the direction of the
President and in the absence or disability of the President shall perform the
duties and exercise the powers of the President. They shall perform such other
duties and have such other powers as the President or the Board of Directors may
from time to time prescribe. The Board of Directors may designate one or more
Executive Vice Presidents or may otherwise specify the order of seniority of the
Vice Presidents. The duties and powers of the President shall descend to the
Vice Presidents in such specified order of seniority.
Section 10. The Secretary shall act under the direction of the
President. Subject to the direction of the President he shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record the proceedings. He shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the President or the Board of
Directors.
8
<PAGE>
Section 11. The Assistant Secretaries shall act under the direction of
the President. In order of their seniority, unless otherwise determined by the
President or the Board of Directors, they shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary. They
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time prescribe.
Section 12. The Treasurer shall act under the direction of the
President. Subject to the direction of the President he shall have custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the President or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 13. If required by the Board of Directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 14. The Assistant Treasurers in the order of their seniority,
unless otherwise determined by the President or the Board of Directors, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer. They shall perform such other duties and have such
other powers as the President or the Board of Directors may from time to time
prescribe.
ARTICLE IX
Certificates of Stock
Section 1. Every stockholder shall be entitled to have a certificate
signed by the President or a Vice President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him in the corporation. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of the various classes of stock
or series thereof and the qualifications, limitations or restrictions of such
rights, shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such stock.
9
<PAGE>
Section 2. If a certificate is signed (a) by a transfer agent other
than the corporation or its employees or (2) by a registrar other than the
corporation or its employees, the signatures of the officers of the corporation
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall cease to be such officer
before such certificate is issued, such certificate may be issued with the same
effect as though the person had not ceased to be such officer. The seal of the
corporation, or a facsimile thereof, may, but need not be, affixed to
certificates of stock.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation, if it is satisfied that all provisions of the laws
and regulations applicable to the corporation regarding transfer and ownership
of shares have been complied with, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 5. The Board of Directors may fix in advance a date not
exceeding sixty (60) days nor less than ten (10) days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining the consent of stockholders for any purpose, as a record date for the
determination of the stockholders entitled to notice of and to vote at any such
meeting, and any adjournment thereof, or entitled to receive payment of any such
dividend, or to give such consent, and in such case, such stockholders, and only
such stockholders as shall be stockholders of record on the date so fixed, shall
be entitled to notice of and to vote at such meeting, or any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
10
<PAGE>
Section 6. The corporation shall be entitled to recognize the person
registered on its books as the owner of shares to be the exclusive owner for all
purposes including voting and dividends, and the corporation shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE X
General Provisions
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the Articles of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends or for
repairing or maintaining any property of the corporation or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
Section 5. The corporation may or may not have a corporate seal, as nay
from time to time be determined by resolution of the Board of Directors. If a
corporate seal is adopted, it shall have inscribed thereon the name of the
corporation and the words "Corporate Seal" and "Nevada". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
11
<PAGE>
ARTICLE XI
Indemnification
Every person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith. The expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or an behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which may
be enforced in any manner desired by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the corporation would have the power to indemnify
such person.
The Board of Directors may from time to time adopt further Bylaws with
respect to indemnification and may amend these and such Bylaws to provide at all
times the fullest indemnification permitted by the General Corporation Law of
the State of Nevada.
12
<PAGE>
ARTICLE XII
Amendments
Section 1. The Bylaws may be amended by a majority vote of all the
stock issued and outstanding and entitled to vote at any annual or special
meeting of the stockholders, provided notice of intention to amend shall have
been contained in the notice of the meeting.
Section 2. The Board of Directors by a majority vote of the whole Board
at any meeting may amend these Bylaws, including Bylaws adopted by the
stockholders, but the stockholders may from time to time specify particular
provisions of the Bylaws which shall not be amended by the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations in the
Compnay's Annual Report on For 10-KSB as of and for the year ended October 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001020448
<NAME> IMPERIAL PETROLEUM RECOVERY CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-START> Nov-1-1995
<PERIOD-END> Oct-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 132,000
<CURRENT-ASSETS> 278,884
<PP&E> 158,501
<DEPRECIATION> 3,362
<TOTAL-ASSETS> 776,885
<CURRENT-LIABILITIES> 679,439
<BONDS> 0
0
0
<COMMON> 8,315
<OTHER-SE> (3,001,220)
<TOTAL-LIABILITY-AND-EQUITY> 776,885
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,806,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,804,746)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,804,746)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,804,746)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
