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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 1998
or
// TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-21169
Imperial Petroleum Recovery Corporation
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(Exact name of registrant 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
- ----------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(281) 987-2828
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) has filed all reports
Required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
YES_____ NO __X__
The Number of Shares Of The Registrant's Common Stock, $.001 Par Value Per
Share, Outstanding as of January 31, 1998 was 13,567,300
Transitional Small Business Disclosure Format (check one):
Yes____ No__X__
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<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of January 31, 1998 and October 31, 1997 1-2
Statements of Operations for the three months ended January 31,
1998 and 1997 3
Statements of Stockholders' Deficit as of January 31, 1998 4
Statements of Cash Flows for the three months ended
January 31, 1998 and 1997 5
Note to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submision of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
January 31, 1998 October 31, 1997
---------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 154,958 $ 30,498
Prepaid expenses 15,934 32,266
---------- ---------
Total Current Assets 170,892 62,764
Property and equipment, net of accumulated depreciation
of $32,354 as of January 31, 1998 138,671 137,614
Other assets 10,032 10,032
---------- ----------
$ 319,595 $ 210,410
========== ==========
1
</TABLE>
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets--Continued
<TABLE>
<CAPTION>
January 31, 1998 October 31, 1997
---------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 497,122 $ 507,744
Accrued expenses 18,654 8,735
Salaries and related 34,338 71,414
Notes payable, stockholders 77,423 77,923
Note payable, other 11,915 11,748
Note payable, equipment 1,953 4,811
---------- ----------
Total Current Liabilities 641,405 682,375
Note Payable--FDC, related party 303,774 228,781
Accrued Lease Obligation--noncurrent 100,000 100,000
Stockholders' Deficit
Common stock--authorized 100,000,000 shares; $.001
par value; issued and outstanding 13,567,300 13,567 12,567
Common stock subscribed (6,909) (6,909)
Additional paid-in capital 7,025,367 6,622,614
Deficit accumulated during the development stage (7,757,609) (7,429,018)
--------- ----------
Total Stockholders' Deficit (725,584) (800,746)
---------- -------------
$ 319,595 $ 210,410
========== =============
2
</TABLE>
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations (Unaudited)
Three Months Ended January 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue $ $
Cost of Goods Sold
----------- -----------
Gross Profit
Operating Expenses
Research and development expenses--prototype 16,340 318,369
General and administrative expenses
Internal administration, selling and marketing
expense 301,916 848,519
----------- ------------
Loss from Operations 318,256 1,166,888
Other (Income) Expense
Gain on debt settlement (119,900)
Other (11,930)
Interest expense 10,335
----------- ------------
10,335 (131,830)
----------- ------------
Net Loss $ 328,591 $ 1,035,058
----------- -----------
Loss per Share $ .02 $ .12
=========== ===========
</TABLE>
3
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Stockholders' deficit (Unaudited)
As of January 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
No. of Stock Paid in Retained Stockholders'
Shares Amount Subscriptions Capital Deficit Deficit
------ ------ ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1997 12,567,300 $12,567 ($6,909) $6,622,614 $7,429,018 ($800,745)
Sale of common stock
& additional paid in
capital 1,000,000 $ 1,000 $ 402,753 $400,000
Net loss $ 328,591 ($324,839)
--------- ------- -------- ----------- ----------- -----------
Balance, January 31, 1998 13,567,300 $13,567 ($6,909) $7,025,367 $7,757,609 ($725,584)
========== ======= ======== =========== =========== ===========
</TABLE>
4
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows (Unaudited)
Three Months Ended January 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $ (328,591) $ (1,035,059)
----------- -------------
Adjustments to reconcile net loss to net
cash used in operating activities
Changes in assets and liabilities
Depreciation 3,145
Decrease in prepaid expenses 16,333
Decrease in notes receivable 104,550
Decrease in accrued liabilities (27,156) (145,057)
Decrease in accounts payable (10,622) 468,767
------------ -------------
Total Adjustments (18,300) 428,260
----------- -------------
Net Cash Used in Operating Activities (346,891) (606,799)
----------- -------------
Cash Flows from Investing Activities
Additions to property and equipment (4,202) (3,576)
----------- -------------
Net Cash Used in Investing Activities (4,202) (3,576)
----------- -------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock and
Additional paid in capital 403,753 2,138,117
Proceeds from loans from affiliated entities 74,991 86,262
Payments on notes payable from affiliated entities (500)
(1,990,872)
Payments on notes payable (7,691) (21,987)
Proceeds from notes payable 5,000 243,686
----------- -------------
Net Cash Provided by Financing Activities 475,553 455,206
----------- -------------
Net Increase (decrease) in Cash 124,460 (155,169)
Cash and Cash Equivalents, Beginning of Period 30,498 39,934
----------- -------------
Cash and Cash Equivalents, End of Period $ 154,958 $ (115,235)
=========== =============
</TABLE>
5
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
JANUARY 31, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of
Imperial Petroleum Recovery Corporation (the "Company"). Such statements have
been prepared in conformity with generally accepted accounting principles for
interim financial information and pursuant to the regulations of the Securities
and Exchange Commission; accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. The results of operations for the quarter ended January 31, 1998
are not necessarily indicative of the results for the fiscal year ending October
31, 1998. The accompanying unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on form 10-KSB for the fiscal year ended October 31,
1997.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and the Company's Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1997.
LIQUIDITY & CAPITAL RESOURCES
In the quarter ended January 31, 1998, the Company received net proceeds of
approximately $403,753 from the sale of restricted common stock and additional
paid in capital. The company used approximately ($328,591) in cash flows from
operating activities, excluding changes in assets and liabilities, during the
fiscal quarter ended January 31, 1998, compared to approximately ($1,035,058)
for the corresponding quarter of 1997. The total net cash used by operating
activities was approximately ($346,891) for the first quarter ended January 31,
1998, compared to approximately ($606,798) for the corresponding quarter of
1997.
Cash used by investing activities totaled approximately $4,202 for the
first quarter ended January 31, 1998 as compared to approximately $3,576 for the
corresponding quarter of 1997.
Cash provided by financing activities totaled approximately $475,553
compared to approximately $455,205 for the corresponding quarter of 1997. The
company successfully completed a private placement in April 1996, which yielded
net proceeds of approximately $748,505.
The Company expects to continue to make investments in the future to
support its overall growth. Currently, it is anticipated that ongoing operations
will be financed primarily from net proceeds of restricted stock sales and
additional paid in capital. The Company presently has cash and cash equivalents
on hand and believes that these will be sufficient to meet short-term cash
requirements as needed. However, as indicated in the Company's most recent
Annual Report on Form 10-KSB, that while continued sale of restricted stock may
provide the cash in certain periods, to the extent the Company experiences
growth in the near future, the Company anticipates that its operating and
product development activities may use cash and, consequently, such growth may
require the Company to obtain additional sources of financing. There can be no
assurances that unforeseen events may not require more working capital that the
Company currently has at its disposal.
FUTURE OPERATING RESULTS
The preceding paragraph and the following discussion include
forward-looking statements regarding the Company's future financial position and
results of operations. Actual financial position and results of operations may
differ materially from the statements.
The Company has invested significant amounts in the research and
development and the initial marketing of the MST unit. The emphasis, attention,
and dedication of the Company's limited resources for the MST system have caused
and, in management's view, will continue to cause the negative operating
earnings experienced to date. However, the Company believes that the value and
sales potential of the MST system outweigh the risk of continued operating
losses. The first product of the MST product line became generally available
during the fourth quarter of fiscal year 1997 and the Company believes that
revenues will begin to grow as contracts are finalized in fiscal year 1998.
The Company does not expect revenue growth to occur ratably over the 1998
fiscal year; instead, the Company expects that the major impact of the MST
product introduction on revenues and earnings will occur during the second half
of the year. Revenue growth in the third quarter of fiscal 1998 will depend to a
large extent on the timing of the Company's rollout of the MST unit.
The Company's ability to achieve its revenue and profitability objectives
in fiscal year 1998 will depend on many factors not entirely within the
Company's control. These include the timing and market acceptance of the MST
unit and other new products and features announced and introduced by the Company
and its competitors, and the extent to which the Company is successful in
placing an MST unit in strategic facilities to gain broader acceptance of the
technology. Other factors include rapid changes in technologies and standards
relating to sludge production and remediation of existing sludge in tanks and
ponds.
7
<PAGE>
The foregoing forward-looking statements involve a number of risks and
0uncertainties. In addition to the factors discussed above, among the factors
that could cause actual results to differ materially are those listed in the
Company's most recent Annual Report of Form 10-KSB under the headings Item
1-"Description of Business-Forward Looking and Cautionary Statements" and Item
6-"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Because of the uncertainties discussed above affecting the Company's future
operation results, past performance should not be reliable indicator of future
performance. The use of historical trends to anticipate results or trends in
future periods may not be inappropriate. In addition, the Company's
participation in a highly dynamic industry may result in significant volatility
in the price of the Company's common stock.
The Company cautions that the preceding list of cautionary statements is
not exclusive.
RESULTS OF OPERATIONS
Net Sales
There were no net sales for the first quarter ended January 31, 1998, the
same as recorded for the corresponding quarter of 1997.
Operating Expenses
Selling, general and administrative expenses for the first quarter ended
January 31, 1998, were approximately $301,916 a decrease over the approximately
$848,519 recorded for the corresponding quarter of 1997. The dollar decrease in
these expenses over the prior year reflected the efforts of management to
minimize overhead. These efforts include consolidating all company operations in
Houston, Texas and reduction of personnel.
Research and development expenses for the first quarter ended January 31,
1998, were approximately $16,340, a decrease over the approximately $318,369
recorded for the corresponding quarter of 1997. The $318,369 recorded in the
corresponding quarter of 1997 represented research and development while the
Company moved to Houston, Texas.
Interest and Financing Expenses
Total other income (expense) for the first quarter ended January 31, 1998,
were approximately $10,335, an increase over the approximately ($131,830)
recorded for the corresponding quarter of 1997. In the first quarter ended
January 31, 1997, the Company's other income (expense) included a one-time
charge associated with the gain on debt settlement.
Other
To date, inflation and seasonality have not had a material impact on the
Company's results of operations.
8
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
During the period covered by this report, no legal proceedings required to
be reported became reportable events, and there were no material developments in
or terminations of any previously reported proceedings.
The Company is subject to routine litigation from time to time arising from
its operations. Management believes that any such pending litigation will not
have a material effect on the Company's financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company sold 500,000 shares of its Common Stock and a Warrant to
purchase 3,500,000 shares of its Common Stock to Maya LLC as of December 11,
1997 for a combined purchase price of $400,000 in cash. The Warrant is
exercisable for $1.00 per share and expires on December 11, 2001. The 500,000
shares of Common Stock purchased and the shares underlying the Warrant enjoy
certain registration rights under a Registration Rights Agreement between the
Company and Maya LLC dated as of December 11, 1997.
The Company relied upon the exemption provided in Section 4(2) of the
Securities Act of 1933, which covers "transactions by an issuer not involving
any public offering," to issue the securities discussed in the previous
paragraph without registration under the Act. The Company made a determination
that the investor to whom the securities were issued did not need the
protections that registration would afford. The certificates representing the
shares of Common Stock issued and the Warrant were marked with legends
indicating that transfer of the securities is restricted because they were not
sold in a registered offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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 period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index, which
is incorporated herein by reference.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Imperial Petroleum Recovery Corporation
(Registrant)
Date: March 17, 1998 /s/ C. Brent Karchner
-------------------------------------
C. Brent Karchner
President and Chief Executive Officer
(Duly Authorized Officer and Principal
Financial Officer)
<PAGE>
Imperial Petroleum Recovery Corporation
Exhibit Index to Form 10-QSB
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 with a filing
date of August 8, 1996, Commission File No. 0-21169)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1996, filed with the Commission with a filing
date of November 26, 1997, Commission File No. 0-21169)
10.1 Convertible Promissory Note of the Company, bearing interest from
August 25, 1997, to Food Development Corporation (incorporated by
reference to Exhibit 1 to the Schedule 13D filed by Henry H.
Kartchner with the Commission with a filing date of January 20,
1998, CIK No. 0001047620)
10.2 Warrant for the Purchase of Shares of Common Stock dated as of
December 11, 1997 issued by the Company to Maya LLC (incorporated
by reference to Exhibit 1 to the Schedule 13D/A filed by Maya LLC
with the Commission with a filing date of December 22, 1997, CIK
No. 0001020448)
10.3 Registration Rights Agreement dated as of December 11, 1997
between the Company and Maya LLC (incorporated by reference to
Exhibit 2 to the Schedule 13D/A filed by Maya LLC with the
Commission with a filing date of December 22, 1997, CIK No.
0001020448)
27* Financial data schedule
---------------
* Filed herewith.
<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
Company's Quarterly Report on Form 10-QSB as of and for the fiscal quarter ended
January 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Nov-1-1997
<PERIOD-END> Apr-30-1998
<EXCHANGE-RATE> 1.0000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 170,892
<PP&E> 138,671
<DEPRECIATION> 32,354
<TOTAL-ASSETS> 319,595
<CURRENT-LIABILITIES> 614,405
<BONDS> 0
0
0
<COMMON> 13,567
<OTHER-SE> (3,009,535)
<TOTAL-LIABILITY-AND-EQUITY> 319,595
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 318,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (328,591)
<INCOME-TAX> 0
<INCOME-CONTINUING> (328,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,591)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
