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, 1997
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
(Exact name of registrant as specified in its charter)
Nevada 76-0529110
(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
(Registrant's telephone number, including area code)
Not Applicable
(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_
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of January 31, 1997 and October 31, 1996 1-2
Statements of Operations for the three months ended January 31, 1997 and 1996 3
Statements of Stockholders' Deficit as of January 31, 1997 4
Statements of Cash Flows for the three months ended January 31, 1997 and 1996 5
Note to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10-11
Signatures 12
Exhibit Index 13
Financial Data Schedule 14
</TABLE>
<PAGE>
Item 1. Financial Statements
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
==============================================================================================
January 31, 1997 October 31, 1996
- ----------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ -- $ --
Officer and employee advances 42,334 146,884
Inventory 132,000 132,000
-------------------------------
Total Current Assets 174,334 278,884
Property and equipment, net of accumulated depreciation
of $3,362 as of January 31, 1997 162,076 158,501
Other assets
Intangible asset - Phonon Technology 339,500 339,500
-------------------------------
$675,910 $776,885
--------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets--Continued
<TABLE>
<CAPTION>
=====================================================================================================================
January 31, 1997 October 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current Liabilities
Bank overdraft $ 115,235 $ 51,934
Note payable- Phonon acquisition- current portion -- 20,000
Notes payable, other 4,712 --
Accounts payable-trade 789,960 341,707
Accounts payable-National Security Analysts, Inc. 84,615 138,638
Accrued employee expense reimbursements -- 124,542
Current portion of abandoned lease obligation 2,618 2,618
--------------------------------
Total Current Liabilities 997,140 679,439
Note Payable--FDC, related party 732,937 661,677
Note Payable--NSA, related party 291,009 --
Note Payable--Phonon Technology 339,500 339,500
Accrued Lease Obligation--non-current 100,000 100,000
Obligations to Be Settled in Stock
Loans from affiliated entities -- 1,884,004
Abandoned lease obligation 59,300 59,300
Phonon acquisition 62,500 62,500
--------------------------------
121,800 2,005,804
Commitments and contingencies -- --
Stockholders' Deficit
Common stock--authorized 100,000,000 shares; $.001 par value; issued and
outstanding 8,765,130 and 8,315,080 shares at January 31, 1997 and
October 31, 1996, respectively 8,765 8,315
Common stock subscribed (7,730) (7,730)
Additional paid-in capital 3,932,293 1,794,626
Deficit accumulated during the development stage (5,839,804) (4,804,746)
--------------------------------
Total Stockholders' Deficit (1,906,476) (3,009,535)
--------------------------------
$ 675,910 $ 776,885
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations (Unaudited)
Three Months Ended January 31, 1997 and 1996
<TABLE>
<CAPTION>
===============================================================================================
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ $
Cost of Goods Sold
- ----------------------------------------------------------------------------------------------
Gross Profit
Operating Expenses
Research and development expenses--prototype 318,369 447,327
Acquired research and development - Phonon
Technologies -- 23,448
General and administrative expenses
Internal administration, selling and marketing
expense 848,519 558,871
--------------------------------
Loss from Operations (1,166,888) (1,029,646)
Other income 11,930 --
Extraordinary gain on debt settlement 119,900 --
--------------------------------
Net loss $(1,035,058) $(1,029,646)
- ----------------------------------------------------------------------------------------------
Loss per share $ (.13) $ (.46)
Extraordinary gain per share $ .01 $ --
Loss per share $ (.12) $ (.46)
- ----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Stockholders' deficit (Unaudited)
As of January 31, 1997
<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, 1996 8,315,080 $8,315 ($7,730) $1,794,626 ($4,804,746) ($3,009,535)
Sale of common stock
& additional paid in capital 450,050 450 $2,137,667 $2,138,117
Net loss ($1,035,058) ($1,035,058)
--------- ------- -------- ---------- ----------- ------------
Balance, January 31, 1997 8,765,130 $8,765 ($7,730) $3,932,293 ($5,839,804) ($1,906,476)
========= ======= ======== ========== =========== ============
</TABLE>
4
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows (Unaudited)
Three Months Ended January 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $(1,035,058) $(1,029,646)
--------------------------
Adjustments to reconcile net loss to net
cash used in operating activities
Changes in assets and liabilities
Decrease in deposits -- 1,989
Decrease in notes receivable 104,550 --
Decrease in accrued liabilities (124,542)
-
Decrease in accounts payable 394,230 256,359
--------------------------
Total Adjustments 374,238 258,348
--------------------------
Net Cash Used in Operating Activities (660,820) (771,298)
--------------------------
Cash Flows from Investing Activities
Additions to property and equipment (3,575) --
--------------------------
Net Cash Used in Investing Activities (3,575) --
--------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock and
Additional paid in capital 254,113 534,105
Proceeds from loans from affiliated entities 362,269 75,000
Payments on notes payable (15,288) --
Proceeds from bank overdraft 63,301 --
--------------------------
Net Cash Provided by Financing Activities 664,395 609,105
--------------------------
Net Increase (decrease) in Cash -- (162,193)
Cash and Cash Equivalents, Beginning of Period -- 208,339
--------------------------
Cash and Cash Equivalents, End of Period $ -- $46,146
- --------------------------------------------------------------------------------
5
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
================================================================================
JANUARY 31, 1997
- --------------------------------------------------------------------------------
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, 1997
are not necessarily indicative of the results for the fiscal year ending October
31, 1997. 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,
1996.
NOTE B - ORGANIZATION AND USE OF ESTIMATES
Organization
Imperial Petroleum Recovery Corporation (a development stage company
incorporated in Nevada) has been in the development stage since commencement of
operations in fiscal year 1995. Operations to date have been comprised of
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.
NOTE C - 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. In addition, the Company has used,
rather than provided, cash in its operations.
8
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements - Continued
================================================================================
JANUARY 31, 1997
- --------------------------------------------------------------------------------
NOTE C - REALIZATION OF ASSETS - Continued
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 its 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.
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. These initiatives included centralizing operations in Houston, Texas,
re-organizing management and instituting a complete set of internal cost control
policies.
9
<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, 1996.
LIQUIDITY & CAPITAL RESOURCES
In the quarter ended January 31, 1997, the Company received net proceeds of
approximately $2,138,117 from the sale of restricted common stock and additional
paid in capital. The company used approximately ($1,035,058) in cash flows from
operating activities, excluding changes in assets and liabilities, during the
fiscal quarter ended January 31, 1997, compared to approximately ($1,029,646)
for the corresponding quarter of 1996. The total net cash used by operating
activities was approximately ($660,820) for the first quarter ended January 31,
1997, compared to approximately ($771,298) for the corresponding quarter of
1996.
Cash used by investing activities totaled approximately $3,575 for the
first quarter ended January 31, 1997 as compared to no investing activities for
the corresponding quarter of 1996.
Cash provided by financing activities totaled approximately $664,395 for
the first quarter ended January 31, 1997 compared to approximately $609,105 for
the corresponding quarter of 1996. 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. 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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
FUTURE OPERATING RESULTS - Continued
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.
The foregoing forward-looking statements involve a number of risks and
uncertainties. 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 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 appropriate. In addition, the Company's participation
on 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, 1997, the
same as recorded for the corresponding quarter of 1996.
Operating Expenses
Selling, general and administrative expenses for the first quarter ended
January 31, 1997, were approximately $848,519 an increase over the approximately
$558,871 recorded for the corresponding quarter of 1996.
Research and development expenses for the first quarter ended January
31, 1997, were approximately $318,369, a decrease over the approximately
$470,775 recorded for the corresponding quarter of 1996. The $470,775 recorded
in the corresponding quarter of 1996 included $23,448 of cost related to
acquired research and development.
Interest and Financing Expenses
Total other income (expense) for the first quarter ended January 31, 1997,
was approximately $131,830, which included a one-time charge associated with the
gain on debt settlement. The Company recorded no other income (expense) for the
corresponding quarter of 1996.
Other
To date, inflation and seasonality has not had a material impact on the
Company's results of operations.
11
<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 information under the caption "Recent Sales of Unregistered Securities"
in Item 5 of the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1997 is incorporated herein by reference.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -Continued
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period covered
by this report.
12
<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: April 14, 1998 /s/ C. Brent Karchner
---------------------
C. Brent Karchner
President and Chief Executive Officer
(Duly Authorized Officer and Principal Financial Officer)
13
<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)
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, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001020448
<NAME> Imperial Petroleum Recovery Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 174,334
<PP&E> 162,076
<DEPRECIATION> 3,362
<TOTAL-ASSETS> 675,910
<CURRENT-LIABILITIES> 997,140
<BONDS> 0
0
0
<COMMON> 8,765
<OTHER-SE> (1,915,241)
<TOTAL-LIABILITY-AND-EQUITY> 675,910
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,166,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,035,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,035,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 119,900
<CHANGES> 0
<NET-INCOME> (1,035,058)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
