<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Three Months Ended April 30, 1999
Commission File Number: 0-21169
IMPERIAL PETROLEUM RECOVERY CORPORATION
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(Exact Name of Issuer as Specified in its Charter)
NEVADA 76-0529110
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
2325-A Renaissance Drive, Las Vegas, Nevada 89119
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(Address of Principal Executive Offices)
(702) 798-6800
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) has 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 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 [ ]
There were 15,211,645 shares of the Registrant's $.001 par value common stock
outstanding as of June 3, 1999.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of April 30, 1999 and October 31, 1998 3
Statements of Operations for the Six Months Ended
April 30, 1999 and 1998 4
Statements of Cash Flows for the Six Months Ended
April 30, 1999 and 1998 5-6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
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Item 1. Financial Statements
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
April 30, October 31,
1999 1998
(Unaudited) (Audited)
Assets
Current Assets
Cash and cash equivalents $ 42,358 $ 49,342
Accounts receivable 14,000 -
Inventory - net of reserve of $260,000
as of April 30, 1999 and October 31, 1998 - -
Prepaid expenses - 7,221
-------- --------
Total Current Assets 56,358 56,563
Property and equipment - net of accumulated
depreciation of $61,466 and $49,342 as of
April 30, 1999 and October 31, 1998,
respectively 134,309 144,712
Other assets 20,588 15,413
-------- --------
$211,255 $216,688
======== ========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 136,901 $ 175,471
Payables to related parties 7,803 252,605
Accrued liabilities 87,572 94,990
Current maturities of long-term
obligations 259,542 363,775
----------- -----------
Total Current Liabilities 491,818 886,841
Long-term Obligation - net current
maturities 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 15,211,645 and
13,731,421 shares at April 30, 1999 and
October 31, 1998, respectively 15,212 13,732
Additional paid-in capital 8,687,356 7,855,470
Common stock subscribed (6,509) (6,509)
Deficit accumulated during the development
stage (9,198,122) (8,754,346)
----------- -----------
Total Stockholders' Deficit (502,063) (891,653)
----------- -----------
$ 211,255 $ 216,688
=========== ===========
3
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Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations (Unaudited)
Six Months Ended April 30, 1999 and 1998
1999 1998
Revenue $ 36,512 $ -
Cost of Goods Sold - -
--------- ---------
Gross Profit 36,512 -
--------- ---------
Operating Expenses
Research and development expenses-
prototype 121,856 142,372
General and administrative expenses
Internal administration, selling and
marketing expense 350,346 486,525
--------- ---------
Loss from Operations (435,690) (628,897)
Other Income (Expense)
Interest income - 3,562
Interest expense (10,153) -
Extraordinary gain on debt settlement 2,067 73,484
--------- ---------
Net loss $(443,776) $(551,851)
========= =========
Loss per share - basic $ (.03) $ (.05)
Extraordinary gain per share - .01
Loss per common share - basic $ (.03) $ (.04)
========= =========
4
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Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows (Unaudited)
Six Months Ended April 30, 1999 and 1998
1999 1998
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $ (443,776) $ (551,851)
Adjustments to reconcile net loss to
net cash used in operating activities
Changes in assets and liabilities
Depreciation and amortization 12,538 10,067
Increase in accounts receivable (14,000) -
Increase in interest receivable -
Maya LLC - (1,136)
Increase in inventory - (27,487)
Decrease in prepaid 7,221 24,299
Increase in other assets (5,591) -
Increase (Decrease) in accounts payable 71,978 (53,921)
Decrease in salaries and related expenses - (71,414)
Increase (Decrease) in accrued liabilities 18,272 20,803
---------- ----------
Total Adjustments 90,418 (98,789)
---------- ----------
Net Cash Used in Operating Activities (353,358) (650,640)
Cash Flows from Investing Activities
Additions to property and equipmen (1,719) (2,231)
---------- ----------
Net Cash Used in Investing Activities (1,719) (2,231)
---------- ----------
Cash Flows from Financing Activities
Proceeds from issuance of common stock and
Additional paid in capital 300,000 601,328
Proceeds from loans from affiliated entities 50,000 78,585
Payments on notes payable to related parties (1,907) -
Payments on notes payable - (11,776)
---------- ----------
Net Cash Provided by Financing Activities 348,093 668,137
---------- ----------
Net Increase (Decrease) in Cash (6,984) 15,266
Cash and Cash Equivalents, Beginning of Period 49,342 30,498
---------- ----------
Cash and Cash Equivalents, End of Period $ 42,358 $ 45,764
========== ==========
(Continued)
5
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Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows (Unaudited) - Continued
Six Months Ended April 30, 1999 and 1998
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.
An extraordinary gain was realized on the forgiveness of accounts payable to
vendors in the amount of approximately $2,067.
On behalf of the Company, a related party paid approximately $82,530 to
various vendors for satisfaction of accounts payable.
6
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Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
April 30, 1999
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 six
month period ended April 30, 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.
7
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Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements - Continued
April 30, 1999
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 of 1999, the Company extended an agreement with a
major petroleum company for the utilization of its technology.
During the third quarter of 1999, management executed a long-term lease with a
large petroleum company for the use of the Company's technology.
8
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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.
This portion of the Form 10-QSB contains "forward-looking statements"
within the meaning of the federal securities laws, including statements
concerning anticipated revenues, the installation plans for the MST-1000 at
Mobile Oil Company's Torrance, California facility, and similar statements
concerning anticipated future events and expectations that are not historical
facts. The forward-looking statements in this portion of the Form 10-QSB are
subject to numerous risks and uncertainties, including the effects of economic
conditions; the availabiilty of capital to finance the manufacturing of MST
Systems and to provide working capital; the dependence on key customers;
competitive conditions; and the various risks associated with developing and
marketing a new procss/technology which could cause actual results to differ
materially from those expressed in or implied by the statements herein.
Readers should also refer to the Company's most recent Form 10-KSB.
LIQUIDITY & CAPITAL RESOURCES
At April 30, 1999, the Company had a working capital deficit of $435,460
as compared to a working capital deficit of $830,278 at October 31, 1998.
During the six month period ended April 30, 1999, the Company received
net proceeds of approximately $300,000 from the sale of restricted common
stock and additional paid in capital. During this same period, the Company
used approximately ($443,776) in cash flows in its operations, excluding
changes in assets and liabilities, compared to approximately ($551,851) for
the corresponding period of 1998. The total net cash used in operations was
approximately ($353,358) for the six month period ended April 30, 1999,
compared to approximately ($650,640) for the corresponding period of 1998.
During the six month period ended April 30, 1999, the Company used cash
in the amount of ($1,719) in investing activities compared to approximately
($2,231) for the corresponding period of 1998.
Cash provided by financing activities totaled approximately $348,093 for
the six month period ended April 30, 1999 compared to approximately $668,137
for the corresponding period of 1998.
During the third quarter of 1999, the Company signed a long-term lease
for its MST System with a major oil refinery. The income stream from these
funds is 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 that are expected to increase revenues. The Company
anticipates steady growth and a strong fiscal third quarter.
9
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FUTURE OPERATING RESULTS
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 Paramount Petroleum Company's refinery at Paramount,
California. The Paramount test is currently on going and should conclude by
the end of June 1999. To date, the MST-1000 has established new production
and dependability levels beyond those previously projected by Management,
thereby supporting the Company's premise that the MST-1000 can promote
increased production at reduced costs.
Requests for demonstrations of the MST-1000 System are being submitted by
prospective customers in ever-increasing numbers. Potential customers submit
oil samples to the Company's test laboratory. Test results are then discussed
with each prospective customer and an appropriate course of action is
determined for each situation. In addition to the test results being used as
a planning tool to determine potential customers' needs, the Company is
archiving these test results to create a comprehensive database that will
ultimately be used to enable Management to project the performance of the
Company's technology on various types of emulsions and in various oil regions
and fields of production.
As expected, on May 10, 1999 the Company executed a three-year lease
agreement with Mobil Oil Company for the use of the MST-1000 at its Torrance,
California facility. The MST-1000 is currently being manufactured in Houston,
Texas and is expected to be installed and operational at the Mobil facility by
September, 1999.
The worldwide energy sector, which has been through a difficult period
recently, is beginning to show some improvement. The price of crude oil, which
recently reached a twenty-year low, is on the rise. However, due to an
emphasis to cut costs, major energy companies continue to consolidate. This
desire to cut costs of production and recover marketable products from waste
streams has prompted the numerous inquiries into the MST System and ultimately
resulted in the contract with Mobil.
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 the past month.
Experts now estimate that during the summer of 1999 demand for fuel will be
the highest in history. As a result of this high demand, the price of crude
oil could be driven to the $20 per barrel range. The Company's management
believes that the improved oil prices will result in continued interest among
the major users of the MST type equipment.
RESULTS OF OPERATIONS
Net Sales
For the six month period ended April 30, 1999, the Company recorded net
sales of $36,512 from the rental of the MST system to a major refinery
compared to no net sales recorded for the corresponding period of 1998.
10
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Operating Expenses
Selling, general and administrative expenses for the six month period
ended April 30, 1999, were approximately $350,346, compared to approximately
$486,525 for the corresponding period of 1998
Research and development expenses for the six month period ended April
30, 1999, were approximately $121,856, a decrease of approximately $20,516 for
the corresponding period of 1998.
Interest and Financing Expenses
Total other income (expense) for the six month period ended April 30,
1999 was approximately $(10,153), which was comprised of interest expense. For
the corresponding period in 1998, the Company recorded other income (expense)
of approximately $3,562.
To date, inflation and seasonality has not had a material impact on the
Company's results of operations.
11
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PART II
ITEM 1. LEGAL PROCEEDINGS
None.
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, 1998 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.
During February 1999, the Company sold a total of 120,000 shares of its
Common Stock to two investors for $100,000 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 above, without
registration under that Act. The Company made a determination that the
investors 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
None
ITEM 5. OTHER INFORMATION
None
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description Location
27 Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the period
covered by this report.
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: June 10, 1999 By:/s/ C. Brent Kartchner
C. Brent Kartchner
President and Chief Executive Officer
(Duly Authorized Officer and Principal
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-Q for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 42,358
<SECURITIES> 0
<RECEIVABLES> 14,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,358
<PP&E> 134,309
<DEPRECIATION> 12,122
<TOTAL-ASSETS> 211,255
<CURRENT-LIABILITIES> 491,818
<BONDS> 0
<COMMON> 15,212
0
0
<OTHER-SE> (517,275)
<TOTAL-LIABILITY-AND-EQUITY> 211,255
<SALES> 36,512
<TOTAL-REVENUES> 36,512
<CGS> 121,856
<TOTAL-COSTS> 472,202
<OTHER-EXPENSES> 10,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,153
<INCOME-PRETAX> (445,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (445,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,067
<CHANGES> 0
<NET-INCOME> (443,776)
<EPS-BASIC> (.03)
<EPS-DILUTED> 0
</TABLE>
