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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 1999
or
// TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-21169
Imperial Petroleum Recovery Corporation
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(Exact name of registrant as specified in its charter)
Nevada 76-0529110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2325-A Renaissance Drive, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 798-6800
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) has filed all
reports Required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
periods that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days
YES X NO
--
The Number of Shares Of The Registrant's Common Stock, $.001 Par Value Per
Share, Outstanding as of March 8, 1999 was 15,211,645
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Balance Sheets as of January 31, 1999 and October 31, 1998 1-2
Statements of Operations for the Three Months Ended January 31, 1999 and 1998 3
Statements of Stockholders' Deficit as of January 31, 1999 4
Statements of Cash Flows for the Three Months Ended January 31, 1999 and 1998 5
Notes 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 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
Financial Data Schedule 14
</TABLE>
<PAGE>
1
Item 1. Financial Statements
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
January 31, 1999 October 31,1998
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 58,298 $ 49,342
Inventory - net of reserve of $260,000 as of
January 31, 1999 and October 31, 1998 - -
Prepaid expenses - 7,221
-----------------------------------------
Total Current Assets 58,298 56,563
Property and equipment - net of accumulated depreciation
of $55,354 and $49,342 as of January 31, 1999 and
October 31, 1998 respectively 138,700 144,712
Other assets 18,504 15,413
-----------------------------------------
$ 215,502 $ 216,688
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets--Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
January 31, 1999 October 31, 1998
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(Unaudited) (Audited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 222,746 $ 175,471
Payables to related parties 9,710 252,605
Accrued liabilities 59,862 94,990
Current maturities of long-term obligations 127,015 363,775
- ------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 419,333 886,841
Long-term Obligation - net current maturites 221,500 221,500
Commitments and contingencies - -
Stockholders' Deficit
Common stock - par value $0.001: authorized 100,000,000 shares; reserved
11,575,000; issued and outstanding 15,091,645 and 13,731,421 shares at
January 31, 1999 and
October 31, 1998, respectively 15,092 13,732
Additional paid-in capital 8,537,227 7,855,470
Common stock subscribed (6,509) (6,509)
Deficit accumulated during the development stage (8,971,141) (8,754,346)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (425,331) (891,653)
-----------------------------------------
$ 215,502 $ 216,688
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</TABLE>
2
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations (Unaudited)
Three Months Ended January 31, 1999 and 1998
<TABLE>
<CAPTION>
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1999 1998
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<S> <C> <C>
Revenue $ 22,512 $ -
Cost of Goods Sold - -
----------------------------------------
Gross Profit 22,512 -
----------------------------------------
Operating Expenses
Research and development expenses--prototype 66,357 53,199
General and administrative expenses
Internal administration, selling and marketing
expense 163,757 265,057
---------------------------------------
Loss from Operations (207,602) (318,256)
Other Income (Expense)
Interest expense (9,193) (10,335)
---------------------------------------
Net loss $ (216,795) $ (328,591)
- ----------------------------------------------------------------------------------------------------------------------
Loss per common share - basic $ (.02) $ (.02)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Stockholders' Deficit (Unaudited)
As of January 31, 1999
<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, 1998 13,731,421 $13,732 ($6,509) $7,855,470 ($8,754,346) ($ 891,653)
Sale of common stock
& additional paid in
capital 1,360,224 1,360 681,757 683,117
Net loss ( 216,795) ( 216,795)
---------- ------- --------- ---------- ----------- ---------
Balance, January 31, 1999 15,091,645 $15,092 ($6,509) $8,537,227 ($8,971,141) ($ 425,331)
========== ======= ====== ========= ========== =========
</TABLE>
4
<PAGE>
6
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows (Unaudited)
Three Months Ended January 31, 1999 and 1998
<TABLE>
<CAPTION>
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1999 1998
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<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $ (216,795) $ (328,591)
--------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities
Changes in assets and liabilities
Depreciation 6,012 3,145
Decrease in prepaid 7,221 16,333
Increase in other assets (3,091) -
Increase (Decrease) in accounts payable 47,274 (10,622)
Increase (Decrease) in accrued liabilities 18,335 (27,156)
---------------------------------------
Total Adjustments 75,751 (18,300)
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Net Cash Used in Operating Activities (141,044) (346,891)
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Cash Flows from Investing Activities
Additions to property and equipment - (4,202)
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Net Cash Used in Investing Activities - (4,202)
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Cash Flows from Financing Activities
Proceeds from issuance of common stock and
Additional paid in capital 150,000 403,753
Proceeds from loans from affiliated entities - 74,491
Payments on notes payable - (7,691)
Proceeds from notes payable - 5,000
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Net Cash Provided by Financing Activities 150,000 475,553
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Net Increase in Cash 8,956 124,460
Cash and Cash Equivalents, Beginning of Period 49,342 30,498
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Cash and Cash Equivalents, End of Period $ 58,298 $ 154,958
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash activities:
The Company issued 614,021 shares of Common Stock to an officer of the Company
in exchange for relief of an outstanding debt in the amount of $268,327.
The Company issued 32,923 shares of its Common Stock to an officer and various
employees as bonuses for the fiscal year 1999. The fair value of the bonuses was
approximately $21, 900.
The Company issued 485,790 shares of Common Stock to an officer of the Company
in exchange for relief of an outstanding debt in the amount of $242,895.
The Company issued 2,490 shares of its Common Stock to a vendor for
satisfaction of an account payable in the amount of $1,494.
5
<PAGE>
7
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
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January 31, 1999
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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 three month period ended
January 31, 1999 are not necessarily indicative of the results for the fiscal
year ending October 31, 1999. 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, 1998.
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. The Company is committed to developing and
marketing a proprietary oil sludge remediation process and equipment that uses
high energy microwaves to separate water, oil and solids. Principal operations
are conducted in Texas. The Company's corporate offices are in Nevada.
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.
6
<PAGE>
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements - Continued
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January 31, 1999
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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.
During December 1998, the Company reached agreements with certain related party
creditors to settle debt in exchange for common stock.
During the first quarter 1999, the Company extended an agreement with a major
petroleum company for the utilization of its technology.
During the first quarter 1999, management was conducting discussions with a
petroleum company concerning a long-term contract for the use of the Company's
technology.
7
<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, 1998.
LIQUIDITY & CAPITAL RESOURCES
During the three month period ended January 31, 1999, the Company
received net proceeds of approximately $150,000 from the sale of restricted
common stock and additional paid in capital. The Company used approximately
($216,795) in cash flows in its operations, excluding changes in assets and
liabilities, during the three month period ended January 31, 1999, compared to
approximately ($328,591) for the corresponding period of 1998. The total net
cash used in operations was approximately ($141,044) for the three month period
ended January 31, 1999, compared to approximately ($346,891) for the
corresponding period of 1998.
No cash used in investing activities for the three month period ended
January 31, 1999 as compared to approximately ($4,202) for the corresponding
period of 1998.
Cash provided by financing activities totaled approximately $150,000
for the three month period ended January 31, 1999 compared to approximately
$475,553 for the corresponding period of 1998.
During the second quarter of 1999, the Company raised approximately
$150,000 from the sale of 120,000 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 1999, however, to sustain the operations of the Company.
Management feels that it has identified sufficient funds to manufacture
the required MST Systems and has devised arrangements to introduce new, related
products which are expected to increase revenues. The Company anticipates steady
growth and a strong fiscal second quarter.
FUTURE OPERATING RESULTS
The following discussion includes forward-looking statements regarding
the Company's future financial position and results of operations. Actual
developments, financial position and results of operations may differ materially
from the statements.
The expansion of the Company's introduction of the MST system to major
refineries and petroleum producers has continued with the most recent
performance at Texaco Oil Company's Upstream Unit at Bakersfield California.
During this test, Imperial Petroleum Recovery Corporation's equipment was pitted
against other current technologies that promote the concept of increased
production at reduced costs. The Texaco test is currently on-going and should
conclude by the end of March 1999. Texaco agreed to defray the expenses of the
test.
Requests for additional demonstrations by potential customers are being
reviewed and scheduled by Company management. Selections are based on a number
of criteria including location, budgets, benefits; and time limitations for both
the Company's equipment and personnel.
Company management is estimating that by the end of March 1999 the
first contract for the fabrication and delivery of a MST System will be
executed. The necessary agreement is presently being prepared. The fabrication
of this MST 1000 will commence immediately upon the execution of the contract
and will take place in the Company's shop in Houston Texas.
The Company has recently introduced a smaller system, the MST 500, to
the marketplace. The introduction has generated a large number of inquiries from
prospective customers to which the Company is responding. This smaller system
was designed and engineered by Company management and will soon be tested at the
Company's laboratory.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--CONTINUED
FUTURE OPERATING RESULTS - CONTINUED
The worldwide energy sector has been through a difficult period. The
price of crude oil has reached a twenty year low. This factor has resulted in
the consolidation of a number of major energy companies. In addition, in an
effort to save costs, the oil industry has downsized and reduced expenditures.
This has effected those companies, including Imperial Petroleum Recovery
Corporation, that supply equipment and services to the industry.
The fact that the Company has been able to negotiate a contract and
continue to demonstrate its technology in the current market, once again
indicates the desire of the oil industry to seek a method to reduce current
operating costs and recover marketable products from waste streams.
Industry experts are stating that the glut of oil will not continue.
The recent trend of reduced production and the rapid decline of U. S. supplies
of crude has resulted in crude prices that have surged 17% in February 1999.
Experts now estimate that crude oil prices could rise 25% within the next three
months. The Company's management believes that improved oil prices will result
in increased activities among the major users of the MST System.
The foregoing forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, other 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" and Item 6-"Management's Discussion and Analysis or
Plan of Operations."
The Company cautions that the preceding list of cautionary statements
is not exclusive.
RESULTS OF OPERATIONS
Net Sales
For the three month period ended January 31, 1999, the Company recorded
net sales of $22,512 from the rental of the MST system to a major refinery
compared to no net sales recorded for the corresponding period of 1998.
Operating Expenses
Selling, general and administrative expenses for the three month period
ended January 31, 1999, were approximately $163,757, a decrease over the
approximately $265,057 recorded for the corresponding period of 1998.
Research and development expenses for the three month period ended
January 31, 1999, were approximately $66,357, an increase over the approximately
$53,199 recorded for the corresponding period of 1998.
Interest and Financing Expenses
Total other income (expense) for the three month period ended January
31, 1999 was approximately $(9,193), which was comprised of interest expense.
For the corresponding period in 1998, the Company recorded other income
(expense) of $(10,335).
To date, inflation and seasonality has not had a material impact on the
Company's results of operations.
9
<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
On December 10, 1998 the Company sold 125,000 shares of its Common
Stock and a Warrant to purchase 875,000 shares of its Common Stock to Maya, LLC
for $100,000 in cash. The Warrant is exercisable for $1.00 per share and expires
on December 8, 2002.
On December 11, 1998 the Company issued 614,021 shares of its Common
Stock to Food Development Corporation, a related party, in exchange for relief
of a portion of outstanding debt in the amount of $268,327.
On December 16, 1999 the Company issued 485,790 shares of its Common
Stock to an officer of the Company in exchange for relief of an outstanding
liability in the amount of $242,895.
On January 4, 1999 the Company issued 32,923 shares of its Common Stock
to an officer and various employees as bonuses for the fiscal year 1999.
During January 1999, the Company issued 2,490 shares of its Common
Stock to a vendor for satisfaction of an account payable in the amount of
$1,494.
During January 1999, the Company sold 100,000 shares of its Common
Stock to an investor for $50,000 in cash.
The Company relied upon the exemption provided in Section 4(2) of the
Securities Act of 1933, which covers "transactions by an issuer not involving
any public offering," to issue the securities discussed in the previous
paragraph without registration under that Act. The Company made a determination
that the investor to whom the securities were issued did not need the
protections that registration would afford. The certificates representing the
shares of Common Stock issued and the Warrant were marked with legends
indicating that transfer of the securities is restricted because they were not
sold in a registered offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the period covered by this report.
10
<PAGE>
PART II - CONTINUED
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index, which is
incorporated herein by reference.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period
covered by this report.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Imperial Petroleum Recovery Corporation
(Registrant)
Date: March 12, 1999 /s/ C. Brent Kartchner
----------------------
C. Brent Kartchner
President and Chief Executive Officer
(Duly Authorized Officer and Principal
Financial Officer)
12
<PAGE>
Imperial Petroleum Recovery Corporation
Exhibit Index to Form 10-QSB
Exhibit No. Identification of Exhibit
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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 Warrant for the Purchase of Shares of Common Stock dated
as of December 8, 1998 issued by the Company to Maya, LLC
(incorporated by reference to Exhibit 1 to the Schedule
13D/A filed by Maya, LLC with the Commission with a
filing date of December 8, 1998, Commission File
No. 0-21169)
27* Financial data schedule
* Filed herewith.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
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, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001020448
<NAME> Imperial Petroleum Recovery Corporation
<MULTIPLIER> 1
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 58,298
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,298
<PP&E> 138,700
<DEPRECIATION> 6,012
<TOTAL-ASSETS> 215,502
<CURRENT-LIABILITIES> 419,333
<BONDS> 0
0
0
<COMMON> 15,092
<OTHER-SE> (440,423)
<TOTAL-LIABILITY-AND-EQUITY> 215,502
<SALES> 22,512
<TOTAL-REVENUES> 22,512
<CGS> 66,357
<TOTAL-COSTS> 230,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,193
<INCOME-PRETAX> (216,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216,795)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,795)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
