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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997 Commission File No. 0-21169
IMPERIAL PETROLEUM RECOVERY CORPORATION
-----------------------------------------
(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
- --------------------------------------- ----------
(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
---------------
(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. |X|
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 January 20, 1998 last sale price) was approximately $7,217,522.
As of January 19, 1998, 13,155,421 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 "IPRC") is a
development stage company committed to developing and marketing a proprietary
oil sludge remediation process and equipment that uses high energy microwaves to
separate water, oil and solids. The Company calls the process "Microwave Sludge
Treatment" ("MST"), and believes it can provide an effective, ecologically sound
and economical method of processing crude oil sludge and emulsions. Management
believes the use of microwave energy for sludge remediation and oil recovery
reduces usage of energy, chemical pollutants, reagents and solvents, and will
minimize the generation of by-products or waste streams. Processing time should
be reduced. Laboratory work has shown that the microwave system is 30 times
faster and takes up 90% less space than conventional emulsion cracking systems.
Management believes the MST system offers one of the first truly effective,
economical, and safe methods to address this global problem. The MST process
recovers usable hydrocarbon compounds from material that otherwise would be of
little value or require disposal. Based on prototype testing and demonstrations,
management believes that approximately 50% to 90% of the crude oil recovered
through the MST process can be reclaimed for sale.
In December 1996, new management assumed control of day-to-day
operations of the Company. The new management included Henry H. Kartchner,
Chairman and Chief Executive Officer, and C. Brent Kartchner, who is now
President of the Company. The Company's new management 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.
The Company has not yet recognized sales revenues, although it shipped
an MST unit to a potential customer in August 1997. The Company is concentrating
its marketing efforts on North America. Several potential domestic customers are
reviewing the results of IPRC's field test trials before determining whether to
enter into contracts to acquire the Company's products. Internationally, the
Company has had what management regards as serious discussions with entities in
Kuwait, the Netherlands and Venezuela about using the MST process to clean up
stored sludge or emulsions. No assurances can be given that any of these
activities will result in sales revenues for the Company.
-2-
<PAGE>
Current Product Offerings
The Company currently offers three product lines, each meeting a
specific need within the hydrocarbon reclamation process:
- Microwave Sludge Technology System (MST-4000, MST-2000, MST-1000)
- Sludge Tank/Pit Heating Unit (SMU-60)
- Truck Melting System (TMS-60)
The MST system is the Company's principal product line. An MST unit
includes a computer-controlled microwave sludge remediation system consisting of
all the elements needed to reclaim oil from oil sludge and "rag layer" water
located in tank storage and waste pits. MST systems are modular and can be
conjoined to handle larger capacity requirements as required by the customer.
The core of an MST unit 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 introduced its first MST system in 1996 for remediating oil sludge
to water, marketable oil and solids. One MST system unit was shipped to a
potential customer in August 1997. The unit currently is operating in an oil
reclamation plant in east Texas. The potential customer currently has until
approximately March 15, 1998 to decide whether to acquire the unit.
The sludge tank/pit heating unit (SMU-60) is a low-cost sludge
liquefaction and pumping platform. It is mobile, either trailer or track
mounted, and provides an extended reach capability of up to 60 feet. Requiring
no open flame, this unit employs the Company's MST technology and can turn
sludge into a soluble product for ease of removal.
The truck melting system (TMS-60) is the third line of products
currently offered by IPRC. This unit complements the Company's other product
lines by providing the customer with the means to preheat oil sludge within a
tanker truck to facilitate unloading into an MST system unit or an SMU-60.
All products currently are available for order and have a delivery
schedule of approximately 90 days. Complete parts support and training programs
are available for all products.
The Company intends to assemble its products in its Houston, Texas
facility, using components procured primarily from outside subcontractors and
vendors. The Company intends to manufacture certain items itself and to build
product units to individual customers' specifications. Each unit using the MST
process will vary in size and sophistication in the software modules.
-3-
<PAGE>
The Company offers its products 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 products are to be operated by the customer's or partner's
personnel, after receiving technical training from the Company. IPRC 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 device to assure that the Company and its partners
maintain control of the system and that any usage 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 refined the
MST process based on its extensive testing and feedback from potential customers
and technical experts. Modifications have greatly reduced maintenance costs of
MST units.
The Company receives sludge and emulsion samples for testing at its new
laboratory in Houston. The lab serves as a bench scale testing facility, capable
of processing five to eight samples per day and duplicating the commercial MST
system's process. The laboratory is also used for the development of new
processes and specialized equipment. This lab is adjacent to the company's
manufacturing facility.
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.
Another potential market for the Company's products is oil field waste
management. The Company has developed a marketing plan through which it intends
to attempt to penetrate this market.
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:
- 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
- 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.
-4-
<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 a variety of processes to
dispose of solid and oily non-hazardous oil field wastes. The following table
provides information on these processes:
<TABLE>
<CAPTION>
Estimated costs
(provided by disposal
companies between
Processes June 1996 and March 1997)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
- -- Recycling $40-$45/hour (tank bottoms)
- -- Chemical treatment/reuse $12-$25/ton
- -- Biological treatment/reuse $12-$28/cubic yard
- -- Landfill $30-$60/ton (liquids may be solidified @
$150/ton and landfilled)
- -- Landspread $95/ton; $38/barrel
- -- Thermal treatment $40-$50/ton; $10.50/barrel
- -- Reuse $52-$77/barrel (tank bottoms)
- -- Incinerator $26-$30/ton (tank bottoms)
- -- Treat/injection $8.50-$11/barrel (depends on oil & gas content)
- -- Cavern $1.95-$2.85/barrel (discounts for high oil content)
- -- Chemical treat/pit $9-$12/barrel
</TABLE>
Management believes that the MST process offers significant competitive
advantages over competing oil sludge remediation processes, in that the MST
process is more effective and more economical than competing systems. In
addition, fewer environmental problems appear to be associated with the MST
process. Heat, pressure, chemical, and centrifuge processes can achieve partial
remediation. But these methods have drawbacks. They are expensive, pose
additional environmental risks of their own, often leave volumes of untreated
hydrocarbons, and usually require the transportation of sludge to special
remediation sites. Use of a centrifuge/chemical 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.
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.
-5-
<PAGE>
Oil sludge remediation services are being provided at over 80 sites
within the 10-state area encompassed by Arizona, California, Colorado,
Louisiana, Mississippi, New Mexico, Nevada, Texas, Utah, and Wyoming. Each
company providing these services is using a technology which has been effective.
Management believes, however, that each of these technologies can be greatly
enhanced by the introduction of IPRC's remediation systems. The Railroad
Commission of Texas has identified 38 permitted reclamation plants within the
state of Texas. Each of these locations represents both a competitor and a
potential customer for IPRC.
The Company's largest competitors are:
- 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.
- 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
- 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 currently own patents to protect its design. 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. Proprietary rights relating to the Company's
products and processes generally will be protected from unauthorized use by
third parties only to the extent that they are covered by valid and enforceable
patents or are maintained in confidence as trade secrets. In the absence of
patent protection, the business of the Company may be adversely affected by
competitors who independently develop substantially equivalent technology.
- --------
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.
-6-
<PAGE>
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 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 its products. Certain components are
currently available only from a few limited sources. To date, the Company has
not had difficulty obtaining parts and components in sufficient quantity in a
timely manner. The Company does not expect to have such difficulty if and when
sales of MST systems 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 January 19, 1998, the Company had 10 full-time employees, five
engaged in testing and manufacturing and five involved in sales and
administration.
-7-
<PAGE>
ITEM 2. PROPERTIES
The Company leases 4,519 square feet of office space and 7,500 square
feet of manufacturing and laboratory space in Houston, Texas under leases that
expire through the year 2000. The total lease payment for the leased space is
approximately $6,300 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;
(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 IPRC owes it $178,845 for
work performed by Continental under two contracts. The claim under one contract
is approximately $100,000. IPRC believes that the claimed sum was not properly
calculated under the contract. The second contract was for programming services
and related hardware. The program did not function properly, however, and the
hardware did not meet safety standards. IPRC intends to defend the claim and to
pay only that portion of the claim ultimately deemed appropriate.
-8-
<PAGE>
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.
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 quarters of fiscal
years 1996, 1997, and 1998.
High and Low Bid Prices
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1996 High Bid Low Bid
------ ---------- ----------
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
1998 High Bid Low Bid
------ ---------- ----------
First Quarter** $ 0.96 $ 0.50
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* From April 16, 1996, when the Company's stock began trading publicly.
** To January 19, 1998.
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<PAGE>
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 January 19, 1998, there were 559 registered holders of the
Company's Common Stock.
Dividends
The Company has not paid cash dividends to date, and does not expect to
pay any cash dividends in the foreseeable future. The Company intends to retain
any earnings to finance its future growth.
Recent Sales of Unregistered Securities
In fiscal year 1997, the Company issued shares of its Common Stock
without registration under the Securities Act of 1933 on several occasions. On
April 1, 1997, the Company issued a stock certificate evidencing 50,000 shares
sold for $40,000 cash to an individual investor at $0.80 per share. On July 3,
1997, September 1, 1997 and September 15, 1997, the Company sold 300,000 shares,
350,000 shares and 1,350,000 shares, respectively, for cash to an individual
investor at an average price of $0.38 per share, with total gross proceeds of
$760,000. On September 15, 1997, the Company issued a stock certificate
evidencing 5,000 shares sold for $2,500 cash to an investor at $0.50 per share.
The Company also issued shares to various consultants for services performed for
the Company, as shown in the following table:
<TABLE>
<CAPTION>
Date of No. of Co. Debt
Stock Certificate Identifier Shares Issued Forgiven Price Per Share
-------------------- ---------- ------------- -------- ---------------
<S> <C> <C> <C> <C>
5/15/97 Consultant 1 200,000 $130,000 $0.65
6/15/97 Consultant 2 5,400 2,700 0.50
7/8/97 Consultant 3 10,000 5,000 0.50
7/14/97 Consultant 2 5,400 2,700 0.50
8/11/97 Consultant 2 5,400 2,700 0.50
8/11/97 Consultant 4 10,000 5,000 0.50
8/11/97 Consultant 5 10,000 5,000 0.50
8/26/97 Consultant 2 3,600 1,800 0.50
9/12/97 Consultant 2 5,400 2,700 0.50
10/28/97 Consultant 6 200,088 62,027.28 0.31
</TABLE>
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<PAGE>
In addition, the Company issued shares of its Common Stock to certain employees
in lieu of cash, as shown in the following table:
<TABLE>
<CAPTION>
Date of No. of Co. Debt
Stock Certificate Identifier Shares Issued Forgiven Price Per Share
----------------- ---------- ------------- -------- ---------------
<S> <C> <C> <C> <C>
6/18/97 Employee 1 34,000 $17,000.00 0.50
6/18/97 Employee 2 5,000 2,500.00 0.50
6/18/97 Employee 3 8,700 4,350.00 0.50
6/18/97 Employee 4 5,833 2,916.50 0.50
6/18/97 Employee 5 500 300.00 0.50
8/11/97 Employee 1 11,667 5,833.50 0.50
8/11/97 Employee 3 8,700 4,350.00 0.50
8/11/97 Employee 4 5,833 2,916.50 0.50
8/11/97 Employee 2 5,000 2,500.00 0.50
8/11/97 Employee 1 22,366 11,183.00 0.50
</TABLE>
In all instances except the 22,366 shares issued to an employee, the debt
forgiven was a debt for salary or wages. In the case of the 22,366 shares, the
debt represented reimbursement for relocation expenses.
-11-
<PAGE>
Also in fiscal year 1997, the Company issued shares of its Common Stock
without registration under the Securities Act of 1933 to certain parties for the
purposes shown in the following table.
<TABLE>
<CAPTION>
Date of No. of
Stock Certificate Shares Issued Purpose of Issuance Financial Terms
----------------- ------------- ------------------- ---------------
<S> <C> <C> <C>
12/9/96 450,139 Loan repayment Debt of $1,884,004
cancelled ($4.185 per
share)
4/9/97 109,939 Loan repayment Debt of $450,000
cancelled ($4.09 per
share)
6/3/97 10,000 Loan repayment Debt of $10,000
cancelled ($0.30 per
share)
6/18/97 3,000 Loan repayment Debt of $1,000 cancelled
($0.30 per share)
7/21/97 147,200 Reimbursement for expenses Debt of $73,600
advanced cancelled ($0.50 per
share)
7/24/97 100,000 Settlement of claim for Settlement amount of
abandonment of leased $63,500 ($0.635 per
premises share)
7/24/97 3,000 Loan repayment Debt of $1,000 cancelled
($0.30 per share)
7/29/97 326,425 Reimbursement for expenses Debt of $163,212.33
advanced cancelled ($0.50 per
share)
8/11/97 56,070 Debt settlement Settlement amount of
$28,035 ($0.50 per
share)
9/25/97 100,000 Settlement of claims of Settlement amount of
Phonon Technologies $62,500 ($0.625 per
share)
</TABLE>
-12-
<PAGE>
The Company 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 securities discussed above without registration under
the Securities Act of 1933. The Company made a determination in each case that
the person to whom the securities were issued did not need the protections that
registration would afford. The certificates representing the securities issued
were marked with a legend indicating that transfer of the securities 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
The Company has sustained substantial losses from operations since
inception, and such losses have continued since October 31, 1997. In addition,
the Company has used, rather than provided, cash in its operations.
The Company has taken steps to revise its operating and financial
requirements. Management believes these steps are sufficient to provide the
Company with the ability to continue operations.
Management has aggressively sought to restructure the Company's
liabilities to reduce near-term cash requirements. Such restructuring activities
include the following:
- 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.
- 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.
- As of 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, to settle IPRC's outstanding debt obligations
to FDC. The agreement required the Company to issue a promissory note due
no earlier than November 2, 1998 in the principal amount of approximately
$236,000. The note agreement followed a significant reduction of the amount
due to FDC through the issuance of Common Stock.
- The Company negotiated a settlement of amounts due to NSA, Inc. and its
owner, the former President of the Company, under which NSA and the owner
contributed the balance of certain notes and liabilities to the capital of
the Company and agreed to exchange the remaining balance for 100,000 shares
of Common Stock in the Company.
-13-
<PAGE>
The combined effect of these and other actions has reduced the
liabilities of the Company by approximately $2.8 million as of October 31, 1997
as compared to 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.
In mid-1997, the Company completed development and demonstration of a
redesigned MST-1000 unit and began field testing.
In early 1998, the Company added a new laboratory, adjacent to its
manufacturing plant, to receive and process sludge emulsion samples from around
the world. The laboratory also serves as a bench scale testing facility, capable
of processing five to eight samples per day and duplicating the commercial MST
system's process.
Fiscal Year Ended October 31, 1997 Compared to Fiscal Year Ended October 31,
1996
Operating expenses in fiscal 1997 were $ 2,818,599 as compared to
$4,105,683 in fiscal 1996, a decrease of 31.3%. The decrease is partially
attributable to management's aggressiveness in restructuring the Company's
liabilities to reduce near-term cash requirements and to completion of the
development and demonstration of a prototype MST system. Research and
development expenses in fiscal 1997 were $280,476 as compared to $1,355,324 in
fiscal 1996, a decrease of 79.3%. During fiscal 1997, the Company's research and
development staff continued to make improvements in the MST-4000 model of its
MST system and to create an MST-1000 model. By the end of fiscal 1997, the
MST-1000 was completed and a majority of the improvements had been perfected.
Management does not believe further improvements requiring the expenditure of
significant funds will be necessary.
General and administrative expenses in fiscal 1997 totaled $2,538,123
as compared to $2,238,941 in fiscal 1996, an increase of 13.4%. The increase was
primarily attributable to the performance of promotion and marketing efforts
internally as opposed to prior years when affiliated entities performed these
functions.
The Company realized gains from the settlement of liabilities during
fiscal year 1997 of $207,086.
Liquidity and Capital Resources
IPRC's operations have been capital intensive. The Company has funded
operations principally from the private placement of equity securities,
primarily common stock, and debt financing that subsequently was converted into
common stock. On October 31, 1997, IPRC's aggregate liabilities were
approximately $1,011,000 and the Company had (negative) working capital of
approximately $660,000.
-14-
<PAGE>
During fiscal year 1997, management utilized extensively the Common
Stock of the Company to settle may of IPRC's liabilities and obligations. These
activities resulted in a reduction of the Company's liabilities during fiscal
1997 by approximately $2,800,000 and contributed, in part, to an increase in
stockholders' equity of the Company by approximately $2,200,000. In addition, in
December 1997, the Company raised approximately $400,000 from the sale of
1,004,000 shares of its Common Stock. These funds are expected to satisfy
immediate and near-term cash flow requirements. Additional funding and/or cash
flow from the sale of the Company's products will be needed in 1998, however, to
sustain the operations of the Company.
The foregoing discussion contains certain forward looking statements
which involve risks and uncertainties. IPRC's actual results could differ
materially from the results anticipated in such statements.
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. 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.
-15-
<PAGE>
Brent Kartchner has been President of the Company since January 1998,
Vice President of Operations since September 1995, and a director of the Company
since September 1995. 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.
Scott Jensen, 26, was elected Secretary and Treasurer of the Company in
January 1998. He had served as Controller of the Company since December 1996,
and had worked for the Company since 1995. Mr. Jensen has been involved in many
aspects of the Company's business, including manufacturing, accounting, finance,
and operations. He aided in the manufacture of the Company's first MST unit. Mr.
Jensen received a bachelor's degree in business management from Brigham Young
University, Hawaii, in 1995.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Act")
requires the Company's executive officers and directors and any persons who own
beneficially more than 10% of the Company's Common Stock to file initial reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") as well as to furnish the Company with a copy of each such
report. Additionally, SEC regulations require the Company to identify in its
proxy statement and Annual Report on Form 10-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.
During the fiscal year ended October 31, 1997, Henry H. Kartchner,
Chairman and Chief Executive Officer of the Company, failed to file a Form 4
under Section 16(a) to report the purchase on November 26, 1996 for $1.87 per
share and sale on December 9, 1996 for $2.50 per share, both in the open market,
of 10,000 shares of the Company's Common Stock. Mr. Kartchner also failed to
report on Form 4 his acquisition from the Company of 20,812 shares of Common
Stock in April 1997. These were shares Mr. Kartchner believes he should have
received in September 1995, in exchange for a commitment to provide economic
support and credit required to fabricate and test the Company's initial MST-4000
system prototype for minimal compensation. Mr. Kartchner also failed to report
on Form 4 acquisitions by Food Development Corporation ("FDC"), an entity he
controls, of 147,200 shares of Common Stock from the Company on July 1, 1997 in
exchange for FDC's cancellation of a debt for $73,600, 326,425 shares of Common
Stock from the Company on July 21, 1997 in exchange for FDC's cancellation of a
debt for $163,212.33, and the right to acquire 541,783 shares of Common Stock
for $0.437 per share upon conversion of a promissory note that accrues interest
from August 25, 1997, which the Company issued to FDC in exchange for FDC's
release of a claim for $236,759.18 for research and development expenses FDC had
incurred on behalf of the Company.
-16-
<PAGE>
Although Henry Kartchner failed to report these transactions on Form 4,
he reported them on a Schedule 13D filed with the SEC on January 16, 1998.
Moreover, Mr. Kartchner intends to file Form 4's to report these transactions in
the very near future.
Also during the fiscal year ended October 31, 1997, C. Brent Kartchner,
a director and executive officer of the Company, failed to report his
acquisition from the Company of 20,812 shares of Common Stock in April 1997.
These were shares Mr. Kartchner believes he should have received in September
1995 in exchange for a commitment to provide operational and fabrication
services to the Company for minimal compensation. Mr. Kartchner intends to file
a Form 4 to report this transaction in the very near future.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid or accrued by IPRC to or on behalf of the Company's Chief
Executive Officer and other executive officers for services provided in the
fiscal years indicated.
Annual Compensation
Name Other
and Annual
Principal Salary Bonus Compensation
Position Year ($) ($) ($)
-----------------------------------------------------------------------
Henry Kartchner, 1997 0 0 0
Chairman & CEO 1996 12,000 0 0
1995 - - -
Brent Kartchner, 1997 120,000 0 0
Vice President 1996 17,500 0 0
1995 - - -
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 IPRC executive
officers in the fiscal year ended October 31, 1997 and have been none since
then.
-17-
<PAGE>
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 named in the table below has sole power to vote, or
dispose or direct the disposition, of all shares beneficially owned, subject to
applicable community property laws.
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 1,118,853 8.5%
57 Quail Run Rd.
Henderson, NV 89014
Henry H. Kartchner 2,113,749 15.4%
3216 S. Everett Place
Kennewick, WA 99336
Rex H. Lewis 6,000,000 35.1%
2325-A Renaissance Dr.
Las Vegas, NV 89119
All Executive Officers 3,232,602 23.6%(4)
& Directors
as a Group(3)
---------
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 473,625 shares held directly by Food
Development Corporation, which he controls, and a convertible
promissory note held by Food Development Corporation that entitles
the holder to acquire 541,783 shares at $0.437 per share, and (ii)
Mr. Lewis' beneficial holdings are held by Maya LLC, an entity he
controls, and include options to acquire 3,500,000 shares of the
Company's Common Stock for $1.00 per share until Dec. 11, 2001.
3. Includes two individuals, Mr. Henry Kartchner and Mr. Brent
Kartchner.
4. Does not equal the sum of individual holdings percentages because,
under SEC rules, different denominators are used to calculate
certain individual percentages.
-18-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engaged in transactions with NSA, Inc. ("NSA"), an entity
controlled by Mr. Barry Meuse, during the time that Mr. Meuse was a more-than-5%
stockholder, officer and director of the Company. During the fiscal year ended
October 31, 1996, the Company incurred liabilities to NSA of $236,986 for
administrative support services, travel and other associated costs. Mr. Meuse
ceased to be an officer and director of the Company in December 1996. In January
1998, the Company settled all of its contractual claims against Mr. Meuse and
all of Mr. Meuse's contractual claims against the company. See Note C to
Financial Statements.
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 fiscal year 1996 and early fiscal year 1997, FDC
incurred expenses on behalf of the Company amounting to $76,261 and $469,770,
respectively. In addition, $275,000 associated with prototype development costs
funded by FDC were included in the Company's research and development expense in
fiscal year 1995. In fiscal 1997, the Company issued 473,625 shares of its
Common Stock, valued at $236,338, to FDC in partial satisfaction of the balance
due. In addition, the Company and FDC agreed to reduce the amount due to FDC by
approximately $132,000. This reduction has been reflected as an extraordinary
gain in the accompanying financial statements. In January 1998, the amount due
was captured in a promissory note payable to FDC which bears interest at 10% and
is due no earlier than November 2, 1998. As of October 31, 1997, the outstanding
balance on the note was $228,780. FDC may convert the remaining balance due
anytime into shares of the Company's Common Stock at $0.437 per share.
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).
In April 1997, the Company issued 20,812 shares of its Common Stock to
each of Henry Kartchner and Brent Kartchner. At the time, Henry and Brent
Kartchner constituted two of the three members of the Board of Directors of the
Company. It was the position of Henry and Brent Kartchner that each of their
holdings of Company Common Stock should be increased by 20,812 shares because
their original agreement to acquire Common Stock in the Company in September
1995 called for their receipt of such shares.
-19-
<PAGE>
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
Statements of Operations
Statement of Stockholders' Deficit
Statements of Cash Flows
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.
-20-
<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
January 29, 1998.
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 January 29, 1998
- ------------------------------------
Henry H. Kartchner
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ C. Brent Kartchner January 29, 1998
- ------------------------------------
C. Brent Kartchner
President and Director
-21-
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
IMPERIAL PETROLEUM RECOVERY
CORPORATION
October 31, 1997 and 1996
<PAGE>
C O N T E N T S
Page
-----------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 5
STATEMENTS OF OPERATIONS 6
STATEMENT OF STOCKHOLDERS' DEFICIT 7
STATEMENTS OF CASH FLOWS 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11
<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, 1997 and 1996, and the related statements of operations, changes in
stockholders' deficit 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.
3
<PAGE>
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 $7,400,000 since
inception of operations and as of October 31, 1997, the Company's current
liabilities exceeded its current assets by $659,611 and its total liabilities
exceeded its total assets by $(800,745). 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
Houston, Texas
January 22, 1998
4
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
BALANCE SHEETS
October 31,
ASSETS 1997 1996
------------ ----------
CURRENT ASSETS
Cash and cash equivalents $ 30,498 $ -
Officer and employee advances - 146,884
Inventory, net of reserve - 132,000
Prepaid expenses 32,266 -
--------- -------
Total current assets 62,764 278,884
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $29,209 and $3,362 at
1997 and 1996 137,614 158,501
DEPOSITS 10,032 -
TECHNOLOGY RIGHTS - held for note settlement - 339,500
----------- -----------
$ 210,410 $ 776,885
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 51,934
Notes payable - current portion 16,559 20,000
Accounts payable - trade 525,667 341,707
Accounts payable - National Security Analysts, Inc. - 138,638
Accrued liabilities 80,149 124,542
Current portion of abandoned lease obligation 100,000 2,618
----------- -----------
Total current liabilities 722,375 679,439
NOTE PAYABLE - Phonon acquisition - noncurrent - 339,500
NOTE PAYABLE - concurrent 288,780 661,677
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 12,567,421 and
8,315,080 shares at 1997 and 1996 12,568 $ 8,315
Common stock subscribed (6,909) (7,730)
Additional paid-in capital 6,622,614 1,794,626
Deficit accumulated during the development (7,429,018) (4,804,746
stage ----------- -----------
Total stockholder's equity (800,745) (3,009,535)
----------- -----------
$ 210,410 $ 776,885
=========== ===========
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 Year ended October 31,
Amounts Since -----------------------------
Inception 1997 1996
--------------- ---------- -----------
<S> <C> <C> <C>
Revenue $ - $ - $ -
Costs of goods sold - - -
------------------- ---------------- ------------
Gross profit - - -
Operating expenses
Research and development expenses -
prototype 2,075,800 280,476 1,355,324
Acquired research and development -
Phonon Technologies 349,500 - 349,500
General and administrative expenses
Internal administration, selling and
marketing expense 3,732,938 2,224,876 1,430,720
Administrative and operating support
costs - related parties 1,304,875 313,247 808,221
Loss on abandonment of leased facility 161,918 - 161,918
------------ ------------ ----------
Loss from operations (7,625,031) (2,818,599) (4,105,683)
Other income (expense), including interest (11,073) (12,759) 1,177
----------- ------------ ----------
Loss before extraordinary gain (7,636,104) (2,831,358) (4,104,506)
Extraordinary gain from settlement of
liabilities 207,086 207,086 -
----------- ----------- -----------
NET LOSS $(7,429,018) $(2,624,272) $(4,104,506)
========== ========== ==========
Loss per share before extraordinary gain $ (.29) (.46)
Extraordinary gain per share .02 -
---------- ------------
Net loss per share $ (.27) $ (.46)
========== =============
Weighted average shares outstanding 9,708,850 8,890,081
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Common Additional Deficit accumulated
Price Common stock Common paid-in during the
Date per share shares subscribed stock capital development stage
---------------------------- --------- --------- ---------- ------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1994 7,729,702 (7,730) $7,730 $ $ -
-
Issuance of common stock September 1995-October 1995 $1.94 89,812 - 90 174,310 -
for cash
September 1995-October 1995 3.85 62,858 - 62 242,038 -
Net loss - - - (700,240)
- -
--------- -------- -------- --------- ---------
Balance at October 31, 1995 7,882,372 (7,730) 7,882 416,348 (700,240)
Issuance of common stock November 1995-April 1996 1.94 158,734 - 159 308,067 -
for cash
November 1995-April 1996 2.41 13,794 - 14 33,351 -
November 1995-April 1996 3.17 21,626 - 22 68,478 -
November 1995-April 1996 3.88 60,044 - 60 233,120 -
November 1995-April 1996 4.86 11,890 - 12 57,822 -
November 1995-April 1996 5.07 7,366 - 7 37,393 -
July 1996 3.00 83,333 - 83 249,917 -
September 1996 4.34 11,513 - 12 49,989 -
Issuance of common stock to
vendor for services
rendered August 1996 5.94 25,750 - 26 152,974 -
Issuance of common stock to
employees for services October 1996 4.84 38,658 - 38 187,167 -
rendered
Net loss - - (4,104,506)
--------- --------- -------- ---------- ----------
Balance at October 31, 1996 8,315,080 (7,730) 8,315 1,794,626 (4,804,746)
Issuance of common stock for April 1997 0.80 50,000 - 50 39,950 -
cash
July 1997 0.40 300,000 - 300 119,700 -
August 1997 0.34 350,000 - 350 119,650 -
September 1997 0.40 1,000,000 - 1,000 399,000 -
September 1997 0.34 350,000 - 350 119,650 -
</TABLE>
7
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT - CONTINUED
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Deficit
accumulated
Common Additional during the
Price Common stock Common paid-in development
Date per share shares subscribed stock capital stage
---- --------- ------ ---------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Contribution of capital by stock-
holders $ 821 $ - $ 678,738 $ -
Issuance of common stock to affiliated
entities in satisfaction of loans
and accounts payable December 1996 3.19 766,659 - 767 2,448,544 -
April 1997 2.26 100,000 - 100 225,962 -
July 1997 0.50 473,625 - 474 236,338 -
Issuance of common stock to employees
in satisfaction of loans payable June 1997 0.30 33,000 - 33 10,967 -
July 1997 0.30 3,000 - 3 997 -
August 1997 0.50 22,366 - 22 11,161 -
Issuance of common stock to vendor in
satisfaction of accounts payable August 1997 0.50 58,070 - 58 28,978 -
September 1997 0.50 5,000 - 5 4,995 -
Issuance of common stock in
satisfaction of lease obligation July 1997 0.59 100,000 - 100 59,200 -
Issuance of common stock in
satisfaction of acquisition
liability September 1997 0.63 100,000 - 100 62,400 -
Issuance of common stock to
vendors for services rendered April 1997 0.65 200,000 - 200 129,800 -
July 1997 0.50 20,800 - 21 10,379 -
August 1997 0.50 29,000 - 29 14,471 -
September 1997 0.50 5,400 - 5 2,695 -
October 1997 0.31 200,088 - 200 61,827 -
</TABLE>
8
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT - CONTINUED
Years ended October 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Deficit
accumulated
Common Additional during the
Price Common stock Common paid-in development
Date per share shares subscribed stock capital stage
---- --------- ------ ---------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
employees for services rendered June 1997 0.50 54,133 $ - $ 55 $ 27,018 $ -
August 1997 0.50 31,200 - 31 15,568 -
Net loss - - - - (2,624,272)
---------- ------- ------- ---------- -----------
Balance at October 31, 1997 12,567,421 $(6,909) $12,568 $6,622,614 $(7,429,018)
========== ======= ======= ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
9
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative Year ended October 31,
Amounts Since --------------------------------
Inception 1997 1996
------------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(7,429,018) $(2,624,272) $(4,104,506)
Adjustments to reconcile net earnings to net
loss to net cash used in operating activities
Gain on settlement of liabilities (207,086) (207,086) -
Depreciation 31,080 27,720 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 employees and vendors 415,299 262,299 153,000
Noncash expenses incurred by affiliate 661,677 - 661,677
Loss on disposal of fixed assets 13,177 13,177 -
Changes in assets and liabilities
Decrease (increase) in inventory - 132,000 (132,000)
Decrease (increase) in prepaid expenses
and deposits (42,298) (42,298) 1,989
Decrease (increase) in officer and
employee advances - 146,884 (131,884)
(Decrease) increase in accrued liabilities 80,149 (44,393) 73,881
Increase in accounts payable 862,672 382,327 21,938
(Decrease) increase in accrued lease
obligations (2,618) (2,618) -
----------- ----------- -----------
Net cash used in operating activities (5,105,548) (1,956,260) (2,941,127)
Cash flows from investing activities
Cash paid for acquisition (94,000) - (94,000)
Additions to property and equipment (181,873) (20,010) (161,863)
----------- ----------- -----------
Net cash used by investing activities (275,873) (20,010) (255,863)
Cash flows from financing activities
Proceeds from issuance of common stock 3,481,158 1,838,945 1,225,713
Proceeds from loans 2,516,569 632,565 1,884,004
Payments on notes payable (585,808) (412,808) (173,000)
Proceeds from bank overdraft - (51,934) 51,934
----------- ---------- -----------
Net cash provided by financing activities 5,411,919 2,006,768 2,988,651
----------- ---------- -----------
Net (decrease) increase in cash 30,498 30,498 (208,339)
Cash and cash equivalents at beginning of period - - 208,339
----------- ---------- -----------
Cash and cash equivalents at end of period $ 30,498 $ 30,498 $ -
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
October 31, 1997 and 1996
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, 1997. 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 significant steps in 1997 to revise its operating and
financial requirements. However, additional capital or funds generated from
the sale of the Company's products will be needed in order 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.
In 1997, the Company completed development and demonstration of a prototype
unit, and sales of units to third parties are anticipated to begin in 1998.
Management has aggressively sought to restructure its liabilities to reduce
near-term cash requirements. In 1997, these activities contributed to a
reduction of total liabilities by approximately $1,000,000. 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.
11
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE A - REALIZATION OF ASSETS - Continued
o The Company has reached an agreement with Food Development Corporation
(FDC), a company which is owned by the chairman of the Company's board of
directors to settle amounts outstanding by issuing a note in the amount
of approximately $236,000, due no earlier than November 2, 1998. The note
agreement follows a significant reduction of the amount due to FDC
through the issuance of common stock. Similarly, the Company has
negotiated a settlement of amounts due to NSA, Inc. and its owner, a
former stockholder of the Company, wherein NSA and the stockholder
contributed the balance of certain notes and liabilities to the capital
of the Company and agreed to exchange the remaining balance for 100,000
of common stock.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. 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 where the
Company is headquartered.
2. 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.
3. Inventories
Inventories consist of components to be integrated into the Company's
products to be sold to customers. Inventory is a valued at cost using a
first-in, first-out flow assumption. However, due to the fact orders from
customers have not yet been received by the Company as of January 1998,
management has recorded of reserve of $260,000 against the value of inventory
on hand, all of which was purchased in fiscal 1996. The recoverability of
inventory is dependent upon the Company generating sales which require the
use of such inventory. Management anticipates product sales to commence in
1998.
4. 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 to ten
years.
12
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. 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.
6. 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.
7. Fair Value of Financial Instruments
Financial instruments in the accompanying financial statements principally
consist of notes payable due to related parties for which 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.
8. 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, 1997, the Company has a net
operating loss carryforward of approximately $5,300,000 which is available to
be applied against taxable income generated through 2012. Additional costs
totaling approximately $2,127,938 incurred through October 31, 1996, are
being classified as start-up costs for income tax reporting purposes, and are
being amortized over a five-year period beginning in fiscal 1997, the period
in which the Company's products became available for sale to third party
customers. Upon a change in control of the Company, the use of all or a
portion of the net operating loss carryforward and deductibility of start-up
costs may be limited. The annual amount of usable net operating losses and
deductible start-up costs would be based upon a calculation of the value of
the Company multiplied by a Treasury rate in effect at the date of the change
in control.
9. Loss per Share
The computation of the loss per share is based upon the weighted average
number of common shares outstanding in each period. The fiscal 1996 weighted
average share computation gives retroactive effect to a stock dividend in
December 1996.
13
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 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 F), 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 retired a portion of the remaining principal outstanding by
issuing 100,000 shares of common stock in September 1997. The remaining
obligation was settled by the issuance of common stock and the assignment of
the rights to certain technology acquired in the purchase.
Affiliated Entities
Affiliates of Stockholder
From March through October 1997, the Company was loaned $1,884,004 from two
entities affiliated with a stockholder of the Company. The loans bore no
interest. The Company received approximately $450,000 from the same entities
as additional loans in early 1998. In December 1996 and April 1997, the
Company issued 450,139 and 316,520 shares of common stock, respectively, to
repay the loans in full.
National Security Analysts, Inc.
In fiscal 1996 and through December 1996, the Company was provided with
administrative support services and office space by National Security
Analysts, Inc. (NSA), an entity controlled by a stockholder and former
director of the Company. Such amounts totaled $236,986 and $338,451 for the
years ended October 31, 1997 and 1996, respectively. In addition, the Company
received non-interest bearing loans in fiscal 1997 totaling approximately
$335,000 and non-interest bearing advances to fund working capital needs
totaling $257,023 in fiscal 1996.
The Company's liability to NSA at October 31, 1996 was $138,637. In January
1998, the Company entered into a settlement agreement (the terms of which are
reflected in the accompanying financial statements) wherein NSA agreed to
contribute approximately $600,000 of amounts due to the capital of the
Company as consideration for amounts due from NSA's principal shareholder of
common stock issued in 1995. In addition, the remaining balance due was
exchanged for 100,000 shares of common stock. The reduction in the amount due
to NSA resulting from the settlement of approximately $600,000 has been
credited to additional paid in capital.
14
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE C - NOTES AND LOANS PAYABLE - Continued
Food Development Corporation
During fiscal 1996 and early fiscal 1997, Food Development Corporation (FDC),
an entity controlled by a stockholder and director of the Company, incurred
expenses on behalf of the Company amounting to $76,261 and $469,770,
respectively. In addition, included in research and development expense in
fiscal year 1995 is $275,000 associated with prototype development costs
funded by FDC.
In fiscal 1997, the Company issued 473,625 shares of common stock valued at
$236,338 to FDC in partial satisfaction of the balance due. In addition, the
Company and FDC agreed to reduce the amount due to FDC by approximately
$132,000. This reduction has been reflected an extraordinary gain in the
accompanying financial statements. In January 1998, the amount due was
captured in a note payable to FDC which bears interest at 10% and is due no
earlier than November 2, 1998. As of October 31, 1997, the outstanding
balance on the note is $228,780. FDC may convert the remaining balance due
anytime into shares of common stock at $.44 per share.
Other Notes Payable
As of October 31, 1997, the Company owes an attorney, who is also a
stockholder of the Company, $60,000 under a note payable which bears interest
at 10% and becomes due on November 2, 1998. The note balance is convertible
at any time into common stock at a conversion rate of $.31 per share.
The Company is obligated under three other notes payable under which the
Company owes the lenders an aggregate amount of approximately $16,000 at
October 31, 1997. All amounts due under these notes mature in fiscal 1998 and
bear interest at rates ranging from eight to ten percent.
Notes payable as of October 31, 1997 mature as follows:
Year ended
October 31, Amount
----------- --------
1997 $ 16,559
1998 288,780
--------
$305,339
=========
15
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE D - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space, a production and lab facility and
automobiles under operating leases which expire through the year 2000. The
Company's commitment under these leases expires as follows:
Year ended
October 31, Amount
----------- -------
1998 $77,812
1999 51,058
2000 42,402
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 in its fiscal 1996 financial statements of $161,918,
which is the cost attributable to a settlement reached in July 1997. The
settlement provided 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 was valued using the value of the
Company's stock at the settlement date.
Total rent expense for the years ended October 31, 1997 and 1996, was
approximately $159,000 and $351,000, respectively.
Litigation and Asserted Claims
The Company is a third party defendant in litigation. The third party
plaintiff, Thermal Wave International, Inc. (TWI) claims that the Company has
misappropriated and utilized to its benefit trade secrets of TWI. TWI also
claims that the Company has used false advertising in marketing the Company's
technology and equipment.
16
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
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 is involved in other litigation, principally seeking the payment
of certain accounts payable. The Company has provided for the amount expected
to be paid upon final settlement of these matters in the accompanying
financial statements. Management is disputing such claims which it believes
are without merit and but is unable to predict the possible outcome of these
matters.
NOTE E - STOCKHOLDERS' EQUITY
Stock dividend
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.
Other transactions
For the years ended October 31, 1997 and 1996, the Company issued 200,088 and
25,750 shares of common stock, respectively, to an attorney and consultants
for services rendered on behalf of the Company. Expenses associated with
these issuances was $219,627 and $153,000, respectively, to record the fair
value of the shares issued based upon the trading price of the shares.
In fiscal 1997 and 1996, the Company issued 85,333 and 38,658 shares,
respectively, of common stock to certain employees of the Company for
services rendered. Compensation expense recorded as a result of these stock
issuances in the years ended October 31, 1997 and 1996 was $42,586 and
$187,205, respectively, based upon the trading price of the shares at the
date of issuance.
17
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE F - ASSET PURCHASE
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 G - SUBSEQUENT EVENT
In December 1997, the Company sold 1,004,000 shares of common stock for
$402,200.
NOTE H - ACCOUNTING STANDARDS
1. Earnings Per Share
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share,"
effective for periods ending after December 15, 1997. This Statement
establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, "Earnings per Share," and makes
them comparable to international EPS standards. It replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Since
the Company does not have any securities or other contracts to issue common
stock, no significant impact to the Company's financial statements is
expected.
18
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
October 31, 1997 and 1996
NOTE H - ACCOUNTING STANDARDS - Continued
2. Reporting Comprehensive Income
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS 130
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income
for the period in that financial statement. The Statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company will comply with the disclosure
requirements of SFAS 130 in fiscal year 1999.
3. Disclosures about Segments of an Enterprise and Related Information
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information," effective for periods
beginning after December 15, 1997. This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
Statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly bye the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. This Statement requires that
a public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. Since this
Company is still considered a development stage company and no segments have
been identified by management, no significant impact to the Company's
financial statements is expected.
19
<PAGE>
Imperial Petroleum Recovery Corporation
Exhibit Index to Form 10-KSB
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
----------- ---------------------------------
<S> <C>
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)
27* Financial data schedule
</TABLE>
- -------------
* 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 Annual Report on Form 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-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 30,498
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,764
<PP&E> 137,614
<DEPRECIATION> 29,209
<TOTAL-ASSETS> 210,410
<CURRENT-LIABILITIES> 722,375
<BONDS> 0
0
0
<COMMON> 12,568
<OTHER-SE> (813,313)
<TOTAL-LIABILITY-AND-EQUITY> 210,410
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,818,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,759
<INCOME-PRETAX> (2,831,358)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,831,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 207,086
<CHANGES> 0
<NET-INCOME> (2,624,272)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
