<PAGE>
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 (FEE REQUIRED)
For the Quarterly Period Ended July 31, 2000
Commission file number: 0-21169
Imperial Petroleum Recovery Corporation
(Exact name of registrant as specified in its charter)
Nevada 76-0529110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2325-A Renaissance Drive, Las Vegas, Nevada 89119
(Address of principal executive offices)(Zip Code)
(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 Securities Exchange Act of 1934 during the
preceding 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 16,477,800 shares of the Registrant's $0.001 par value common stock
outstanding as of September 14, 2000.
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TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of July 31, 2000 and
October 31, 1999 3-4
Consolidated Statements of Operations for the Three
and Nine Months Ended July 31, 2000 and 1999 and
Cumulative Amounts Since Inception 5
Consolidated Statements of Cash Flows for the Nine
Months Ended July 31, 2000 and 1999 and Cumulative
Amounts Since Inception 6-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16-18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Financial Data Schedule
2
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PART I. FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS
July 31, 2000 October 31, 1999
(Unaudited) (Audited)
------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 57,199 $ 17,774
Inventory net of reserve of $260,000 at
July 31, 2000 and October 31, 1999 - -
Prepaid expenses 43,080 7,506
---------- ----------
Total Current Assets 100,279 25,280
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $187,923
at July 31, 2000 and $93,963 at
October 31, 1999 respectively 780,862 527,099
OTHER ASSETS, net of accumulated
amortization of $3,563 at July 31, 2000
and $1,540 at October 31, 1999 respectively 256,557 41,262
---------- ----------
$1,137,698 $ 593,641
========== ==========
(Continued)
3
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IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS (Continued)
July 31, 2000 October 31, 1999
(Unaudited) (Audited)
------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITES
Trade accounts payable $ 320,811 $ 270,745
Payables to related parties - 5,829
Accrued liabilities 83,057 115,959
Deferred revenue 54,755 15,764
Note payable related party 80,000 -
Current maturities of long term
obligations 152,056 50,033
----------- -----------
Total Current Liabilities 690,679 458,330
LONG TERM OBILGATIONS -- less 129,648 221,500
current maturities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001; authorized
100,000,000 shares; reserved 12,733,696
shares; issued and outstanding 16,470,823 at
July 31, 2000 and 15,901,597 at October 31,
1999, respectively 16,471 15,902
Additional paid in capital 10,949,656 9,910,983
Common stock subscriptions receivable (6,509) (6,509)
Deficit accumulated during the development
stage (10,642,247) (10,006,565)
----------- -----------
Total Stockholders' Equity (Deficit) 317,371 (86,189)
----------- -----------
$ 1,137,698 $ 593,641
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
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IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Cumulative
Amounts For the three For the nine
Since months ended July 31, months ended July 31,
Inception 2000 1999 2000 1999
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 361,751 $ 78,858 $ 14,000 $ 225,714 $ 50,512
Cost of goods sold 314,036 93,157 - 202,113 -
------------ ---------- ---------- ---------- ----------
Gross profit (loss) 47,715 (14,299) 14,000 23,601 50,512
Operating expenses
General and administrative 7,064,289 272,167 145,863 656,343 496,032
Research and development-
prototype 3,373,436 1,852 36,076 2,095 157,932
Acquired research and
development-prototype 349,500 - - - -
Loss on abandonment of
leased facility 161,918 - - - -
------------ ---------- ---------- ---------- ----------
10,949,143 274,019 181,939 658,438 653,964
------------ ---------- ---------- ---------- ----------
Loss from operations (10,901,428) (288,318) (167,939) (634,837) (603,452)
Other expense including
interest-net (99,070) (8,403) (2,542) (26,979) (12,852)
------------ ---------- ---------- ---------- ----------
Loss before extraordinary
item (11,000,498) (296,721) (170,481) (661,816) (616,304)
Extraordinary item - gain
on extinguishment of debt 358,251 - 71,703 26,134 73,770
------------ ---------- ---------- ---------- ----------
Net loss $(10,642,247) $ (296,721) $ (98,778) $ (635,682) $ (542,534)
============ ========== ========== ========== ==========
Net loss per common share -
basic and diluted
Loss before extraordinary
item $ (.98) $ (.02) $ (.01) $ (.04) $ (.04)
Extraordinary item .03 - - - -
------------ ---------- ---------- ---------- ----------
Net loss $ (.95) $ (.02) $ (.01) $ (.04) $ (.04)
============ ========== ========== ========== ==========
Weighted average common
shares outstanding -
basic and diluted 11,254,867 16,452,845 15,358,766 16,195,656 14,972,269
============ ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
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IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Cumulative
amounts
since Nine months ended July 31,
inception 2000 1999
------------ ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities
Net loss $(10,642,247) $ (635,682) $ (615,572)
Adjustments to reconcile net loss
to net cash used in operating
activities
Contributed capital for services
rendered and liabilities paid 71,023 45,000 6,023
Gain on extinguishment of debt (358,251) (26,134) (731)
Depreciation and amortization 191,815 95,983 17,249
Non-cash charge associated with
acquisition 349,500 - -
Accrued loss on abandonment of
leased facility 161,918 - -
Charges associated with stock
issuances to employees, vendors,
related parties 775,107 - -
Non-cash expenses incurred by affiliate 661,677 - -
Loss on disposal of property and
equipment 13,177 - -
Changes in assets and liabilities
Prepaid expenses (12,574) (12,574) 7,221
Other assets (266,086) (217,318) (140,172)
Trade accounts payable 1,237,945 76,940 (8,723)
Payable to related parties (5,829) (5,829) -
Accrued liabilities 211,399 (32,902) 10,338
Accrued lease obligations (2,618) - -
Deferred revenue 54,755 38,991 75,000
------------ ---------- ----------
Total adjustments 3,082,958 (37,843) (33,795)
------------ ---------- ----------
Net cash used in operating
activities (7,559,289) (673,525) (649,367)
------------ ---------- ----------
Cash flows from investing activities
Cash paid for acquisition (94,000) - -
Purchases of property and equipment (973,218) (337,106) (1,636)
------------ ---------- ----------
Net cash used in investing
activities (1,067,218) (337,106) (1,636)
------------ ---------- ----------
(Continued)
</TABLE>
6
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IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued
<TABLE>
<CAPTION>
Cumulative
amounts
since Nine months ended July 31,
inception 2000 1999
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from issuance of common stock
and warrants 6,573,500 970,500 924,999
Proceeds from issuance of long term
obligations 2,701,569 80,000 100,000
Principal payments on long term
obligations (591,363) (444) (9,710)
------------ ---------- ----------
Net cash provided by financing
activities 8,683,706 1,050,056 1,015,289
------------ ---------- ----------
Net increase (decrease) in cash
and cash equivalents 57,199 39,425 364,286
Cash and cash equivalents at beginning
of period - 17,774 49,342
------------ ---------- ----------
Cash and cash equivalents at end of
period $ 57,199 $ 57,199 $ 413,628
============ ========== ==========
Supplemental disclosure of cash flow
information
Cash paid during the period for
interest $ 114,139 $ 10,000 $ 10,000
============ ========== ==========
</TABLE>
Noncash investing and financing activities
The following noncash activities occurred during the nine month period ended
July 31,
2000
----
In February 2000, an extraordinary gain was recognized on the forgiveness of
an obligation to a vendor in the amount of $26,134.
On March 2, 2000, the Company issued 10,000 shares of Common Stock valued at
$23,000 to a vendor as a deposit for future services to be rendered.
On May 30, 2000, a capital lease obligation of $10,615 was incurred when the
Company entered into a lease for new equipment.
(Continued)
7
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IMPERIAL PETROLEUM RECOVERY CORPORATION and SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued
Noncash investing and financing activities - Continued
2000 - Continued
----------------
On June 15, 2000, the Company issued 450 shares of Common Stock valued at $742
to a vendor in satisfaction of an accounts payable.
1999
----
In December 1998, 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.
In December 1998, 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.
In January 1999, 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.
In 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.
Extraordinary gains were realized on the forgiveness of various accounts
payable to vendors totaling approximately $6,754.
On behalf of the Company, a related party paid approximately $84,206 to
various vendors for satisfaction of accounts payable. As such, a liability in
the amount of $84,206 has been recorded in long term debt.
The accompanying notes are an integral part of these financial statements.
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTNG POLICIES
1. Basis of Presentation
The consolidated financial 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 and nine month periods ended July 31,
2000 are not necessarily indicative of the results for the fiscal year ending
October 31, 2000. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended October 31, 1999.
2. Organization and business activity
Imperial Petroleum Recovery Corporation and Subsidiary (a development stage
company incorporated in Nevada) ("the Company") has been in the development
stage since commencement of operations in fiscal year 1995 and is committed to
developing and marketing a proprietary oil sludge remediation process and
equipment (MST units) that uses high energy microwaves to separate water, oil
and solids. Company operations take place in Texas. The Company's corporate
offices are in Nevada.
3. Principles of consolidation and financial statement presentation
During 1999, the Company created a wholly-owned subsidiary, Petrowave
Corporation, into which it transferred certain assets.
The consolidated financial statements include the accounts and operations of
the Company and its wholly-owned subsidiary. Significant intercompany
transactions and balances have been eliminated in the consolidation.
4. Inventories
Inventory is valued at lower of cost or market. Cost is determined using the
first-in, first-out method.
Inventory consists of the following:
July 31, 2000 October 31, 1999
------------- ----------------
Raw materials $ 260,000 $ 260,000
Less reserve for net realizable value (260,000) (260,000)
---------- ----------
Total $ - $ -
========== ==========
9
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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTNG POLICIES (Continued)
4. Inventories (Continued)
The recoverability of inventory is dependent upon the Company entering into
agreements to lease the completed MST units.
5. Certain reclassifications
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles for interim financial information,
which contemplates continuation of the Company as a going concern. However,
the Company is a development stage company, has generated limited revenue
through July 31, 2000 and has sustained substantial losses from operations
since inception. In addition, as of July 31, 2000, its current liabilities
exceeded its current assets by $590,400. In addition, the Company has used
cash in, rather than provided cash from, 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
consolidated 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:
* As of July 31, 2000, the Company had leased certain equipment expiring
through 2002.
* During fiscal year 1999, the Company entered into a 24-month Worldwide
Marketing Agreement with an oil company to provide the Company with
marketing and sales assistance. The two companies have agreed to share
certain of the revenue related to this agreement
* During fiscal year 2000, the Company issued 558,776 shares of Common
Stock and 242,625 warrants for cash in the amount of $970,500.
* During fiscal year 2000, a stockholder and director of the Company
loaned $80,000 to the Company in exchange for a 12% note payable. This
loan was repaid with interest on August 18, 2000.
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NOTE B - GOING CONCERN (Continued)
* During August, 2000, the Company received a $1,000,000 refundable
security deposit from a customer in exchange for a 100% secured interest
in an existing MST Unit. The deposit has been earmarked to fund
operations as well as fund the completion of the new MST Unit currently
under construction. The deposit must be refunded without interest by
August 14, 2003.
NOTE C - LOSS PER COMMON SHARE
The following data show the shares used in computing net loss per common
share:
<TABLE>
<CAPTION>
Cumulative
amounts Three Months
since Ended July 31, Nine months ended July 31,
inception 2000 1999 2000 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Common shares outstanding
during the entire period - 15,901,597 13,731,421 15,901,597 13,731,421
Weighted average common
shares issued during the
period 11,254,867 551,248 1,627,345 294,059 1,240,848
---------- ---------- ---------- ---------- ----------
Weighted average number common
shares used in basic EPS 11,254,867 16,452,845 15,358,766 16,195,656 14,972,269
Dilutive effect of stock
options and warrants - - - - -
---------- ---------- ---------- ---------- ----------
Weighted average number of
common shares and dilutive
potential common stock used
in diluted EPS 11,254,867 16,452,845 15,358,766 16,195,656 14,972,269
========== ========== ========== ========== ==========
</TABLE>
The average shares relating to warrants granted and potentially convertible
debt instruments were not included in the computation of diluted loss per
share because their inclusion would have been antidilutive for all periods.
'
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This portion of the Form 10-QSB contains "forward-looking statements" within
the meaning of the federal securities laws, including statements concerning
anticipated revenues, future marketing plans for the MST-1000, 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 availability of capital; the dependence on key
customers; competitive conditions; and the various risks associated with
developing and marketing a new process/technology which could cause actual
results to differ materially from those expressed in or implied by such
forward-looking statements, which speak only as of the date hereof. Readers
should also refer to the Company's Annual Report on Form 10-KSB for the fiscal
year ended October 31, 1999.
Overview
The new millennium has seen Imperial Petroleum Recovery Corporation (IPRC)
make significant strides in marketing the Microwave Separation Technology
(MST) throughout the petroleum and petrochemical industries. Although these
two areas form the basis for the application of the MST under the current
field of use, the Company is exploring alternative opportunities in waste
remediation and oil production enhancement. The first commercial MST
installed at the ExxonMobil Refinery in Torrance, California continues to
perform well. The merger of Mobil and Exxon has provided IPRC with the
world's largest and finest petroleum and petrochemical marketing partner in
ExxonMobil Research and Engineering (EMRE). Through the efforts of EMRE,
papers discussing the merits of the MST were presented at the American
Institute of Chemical Engineers (AICHE) in Atlanta, Georgia and at the 2000
Annual National Petroleum Refiners Association meeting in San Antonio, Texas.
This latter meeting was especially exciting for IPRC as ExxonMobil showcased
the Company's technology along with other select companies whose technology
they represented.
The trailer mounted MST Demonstration Unit has returned to Houston from its
extended operation in Torrance, California for a refit and upgrading. This
upgrade includes replacement of the original applicator with a newly designed
unit and installation of a revolutionary designed computer system, with touch
screen controls and total system monitoring from the operator's computer
station. Also, with just a modem connection the MST can be monitored and
analyzed from the Company's Houston offices. Both of these enhancements were
installed on the MST unit in Torrance. These systems now provide IPRC's
operators and customers with more precise, instant information to best
determine how, where, and when to use this technology in the field or
refinery. The MST Demonstration Unit is mounted on a special 50-foot
semi-trailer, which is capable of transporting and positioning it at any
location within a very short time. The Unit is a complete MST-1000, equipped
for operation in the field or refinery, needing only electrical power and raw
product hooked to its connections on site. Within a matter of a few hours,
the Unit can be processing up to 1000 barrels of oil product per day.
A second MST-1000 skid mounted unit is under construction in the Company's
Houston manufacturing facility. This unit is being built now in anticipation
of successful completion of EMRE's marketing efforts to place additional
12
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MST-1000s with major refineries. ExxonMobil's May 15, 2000 announcement
confirming their finalization of a "worldwide marketing and technology
development agreement for a revolutionary emulsion-breaking technology" with
IPRC has been well received within ExxonMobil and the petroleum industry.
IPRC's marketing group has received numerous requests for information from
some of the world's largest refiners and petroleum producers. These inquiries
have translated into confirmed scheduling of the MST-1000 Demonstration Unit
for the balance of the year 2000 at sites in Texas and Canada. Additionally,
prospective customers have been encouraged to submit samples of their
emulsions to the Company for analysis in its unique microwave laboratory.
Marketing efforts are focused on both Upstream and Downstream applications,
primarily in the United States and Canada. IPRC is working very closely with
ExxonMobil's Sales and Licensing Team to coordinate visits with prospective
customers to discuss the MST application to their specific needs.
This quarter IPRC's stock registration (Blue Sky registration) was expanded
from 8 states to 36 states and the District of Columbia. On May 26, 2000
Standard & Poor's Corporation Records began coverage of IPRC in its Investor
Relations Program. The Company is working to expand its registration to
include all 50 states. This expanded registration, together with the
ExxonMobil Marketing Agreement announcement, has resulted in interest from a
number of petroleum industry financial and journalistic organizations. Equity
analysts from several of the largest banks in America visited IPRC to discuss
the technology and learn more about its financing needs. A local television
station, KC3TV, interviewed Board Chairman, Henry Kartchner, and broadcast the
interview over the cable affiliate for two weeks. Writers for World Oil
Magazine, The American Oil & Gas Reporter, Houston Business Journal and Oil
and Gas Journal's Online Magazine have reported on IPRC's technology. Within
ExxonMobil's Research and Engineering organization, several internal articles
have been released to expand their organization's understanding of the
Company's technology and its relationship to ExxonMobil.
On July 15, 2000 IPRC completed its office/shop consolidation by moving to a
new industrial area (Greenpoint) in Houston, Texas. The new facility contains
the administrative offices, technical lab and mechanical shop at one location.
This move allows IPRC to provide its customers, future customers and
shareholders with a much faster response to their inquiries and needs. The
new location is 1970 South Starpoint Drive, Houston, Texas 77032. The new
telephone numbers are 281-821-1110 (office), 281-821-1118 (fax).
For the remainder of the year IPRC's main focus is to secure new contracts and
formalize vendor support relationships. The Company is working hard to
finalize enough contracts to move IPRC into a profitable operating position.
Bringing a new technology to a conservative industry has been slower than
initially forecasted, but the hard work and contacts of the past and the new
relationships being created, are beginning to bear fruit. Success seems to
come slowly in the oil business, but IPRC feels that it owns the best
technology for recovering emulsions at a very competitive cost and as a
result, the industry is starting to find its way to the Company's doors.
13
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Results of Operations
Three and Nine Months Ended July 31, 2000 Compared to Three and Nine Months
Ended July 31, 1999
Revenue
During the nine month period ended July 31, 2000, the Company recognized
$225,714 in revenue compared to $50,512 in 1999. The third quarter 2000
revenue was comprised of lease revenue earned from leases of the MST-1000.
During the third quarter 1999, the revenue represented fees charged to
reimburse set-up costs incurred by the Company to demonstrate the MST-1000 at
various locations.
During the three month period ended July 31, 2000, the Company recognized
$78,858 in revenue compared to $14,000 in 1999. The third quarter 2000 revenue
was comprised of lease revenue earned from leases of the MST-1000. During the
third quarter 1999, the revenue represented fees charged to reimburse set-up
costs incurred by the Company to demonstrate the MST-1000 at various
locations.
Cost of Goods Sold and Gross Profit
During the nine month period ended July 31, 2000, the Company incurred
$202,113 in costs that were specifically identified to contract revenue. The
costs were primarily comprised of $91,177 for payroll and related costs and
$58,336 for costs incurred to set-up and support equipment leases.
Additionally, the Company recorded a charge of $52,600 against income for
depreciation of the leased equipment. For the nine month period ended July 31,
1999, the Company incurred costs of $106,892 to transport and set-up the MST
Demonstration Unit at prospective customers' locations. The Company
underestimated its demonstration costs, which resulted in a negative gross
profit for the third quarter 1999. The Company has since revised the
demonstration fee schedule.
During the three month period ended July 31, 2000, the Company incurred
$93,157 in costs that were specifically identified to contract revenue. The
costs were primarily comprised of approximately $47,391 for payroll and
related costs and $21,911 for costs incurred to set-up and support equipment
leases. Additionally, the Company recorded a charge of $23,855 against
income for depreciation of the leased equipment. For the three month period
ended July 31, 1999, the Company incurred costs of $25,939 to transport and
set-up the MST Demonstration Unit at prospective customers' locations.
General and Administrative & Research and Development Expenses
General and administrative expenses for the nine month period ended July 31,
2000 totaled $656,343 compared to $496,032 for same period in 1999. A net
increase of $160,311 in general and administrative costs was primarily
comprised of a decrease of $22,460 in travel and lodging expense and increases
of $21,190 in insurance, $55,000 in consulting fees, $10,750 in lab fees,
$15,560 in advertising costs, $10,915 in office supplies and $24,800 in
depreciation. The Company incurred research and development costs of $2,095
for the nine month period ended July 31, 2000 compared to $51,040 for the nine
14
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month period ended July 31, 1999. This decrease was a result of the Company
beginning to make a transition from primarily a research and development
company to a manufacturing and marketing entity.
General and administrative expenses for the three month period ended July 31,
2000 totaled $272,167 compared to $145,862 for same period in 1999. A net
increase of $126,305 in general and administrative costs was primarily
comprised of an increase of $14,907 in legal fees, an increase of $12,888 in
insurance, $25,000 in consulting fees, $15,315 in lab fees and $8,763 in
advertising costs. The Company incurred $1,852 of research and development
costs for the three month period ended July 31, 2000 compared to $10,138 for
the same period in 1999 which was primarily comprised of salary expense.
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 warrants exercisable for common stock. As of July
31, 2000, IPRC's aggregate current liabilities were $690,679 compared to
$458,330 at October 31, 1999. At third quarter ended July 31, 2000, the
Company had negative working capital of $590,400 compared to negative working
capital of $433,050 at October 31, 1999.
Although the Company continues to use cash in, rather than supply cash from,
its operations, management feels it has identified sufficient sources to fund
operations in the near term. During August 2000, the Company received a
refundable advance of $1,000,000 that has been earmarked to fund operations
and the completion of the new MST Unit currently under construction.
Additionally, the Company expects to generate revenue from fees charged to
demonstrate the MST-1000 to potential customers during the last quarter of
2000 and from payments from existing equipment leases. Also, the Company
plans to continue raising capital through the sale of its common stock and
warrants exercisable for common stock. There can be no assurance that such
additional sales of common stock or warrants will occur, or if they occur,
that they can be completed on terms favorable to the Company.
15
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A lawsuit involving the Company was filed on July 20, 2000 in the 334th
District Court of Harris County, Texas. Plaintiff, a former employee, filed
claims against several defendants, including the Company and Henry Kartchner,
the Company's Chairman and Chief Executive Officer. Plaintiff alleged that
the Company:
1. has breached the Plaintiff's employment contract and owes Plaintiff
the benefit of that contract from June 1997 through August 2001
including unpaid salary and specified fees in relation to the Company
filing and receiving patents which were the direct or indirect result
of Plaintiff's work product. In addition, Plaintiff asserted that he
had a perfected security interest in certain assets acquired by the
Company and is entitled to his share of the proceeds traded for the
encumbered assets in the form the Company's stock.
2. has breached a royalty contract assumed by the Company and owes
Plaintiff 2-1/2 percent of all consideration received by the Company
for the sale or licensing of the MST System.
3. has been unjustly enriched as a result of the Company not adequately
compensating Plaintiff for intellectual property he provided and that
the Company perpetrated fraud by making oral promises on which the
Company had no intention of acting. Plaintiff asserted that the
Company owes him specified damages as a result of its conduct.
Management feels that Plaintiff's claims are without merit and plans to
vigorously defend its position. The lawsuit is in the early stage of
development and the ultimate outcome cannot be determined at this time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following are the changes in equity securities since October 31, 1999:
On November 12 1999, the Company issued 14,394 shares of Common Stock plus
6,250 warrants at $0.20 per warrant to an investor for $25,000 in cash. The
warrants bear a strike price of $3.00 and expire on November 12, 2002.
On November 12, 1999, the Company issued 28,788 shares of Common Stock plus
12,500 warrants at $0.20 per warrant to an investor for $50,000 in cash. The
warrants bear a strike price of $3.00 and expire on November 12, 2002.
On November 12, 1999, the Company issued 28,788 shares of Common Stock plus
12,500 warrants at $0.20 per warrant to an investor for $50,000 in cash. The
warrants bear a strike price of $3.00 and expire on November 12, 2002.
On November 30, 1999, the Company issued 14,394 shares of Common Stock plus
6,250 warrants at $0.20 per warrant to an investor for $25,000 in cash. The
warrants bear a strike price of $3.00 and expire on November 30, 2002.
On February 2, 2000, the Company issued 14,394 shares of Common Stock plus
6,250 warrants at $0.20 per warrant to an investor for $25,000 in cash. The
warrants bear a strike price of $3.00 and expire on February 2, 2003.
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On February 7, 2000, the Company issued 14,394 shares of Common Stock plus
6,250 warrants at $0.20 per warrant to an investor for $25,000 in cash. The
warrants bear a strike price of $3.00 and expire on February 7, 2003.
On February 10, 2000, the Company issued 48,939 shares of Common Stock plus
21,250 warrants at $0.20 per warrant to an investor for $85,000 in cash. The
warrants bear a strike price of $3.00 and expire on February 10, 2003.
On February 16, 2000, the Company issued 17,274 shares of Common Stock plus
7,500 warrants at $0.20 per warrant to three investors for $30,000 in cash.
The warrants bear a strike price of $3.00 and expire on February 16, 2003.
On February 22, 2000, the Company issued 5,758 shares of Common Stock plus
2,500 warrants at $0.20 per warrant to an investor for $10,000 in cash. The
warrants bear a strike price of $3.00 and expire on February 22, 2003.
On February 25, 2000, the Company issued 5,758 shares of Common Stock plus
2,500 warrants at $0.20 per warrant to an investor for $10,000 in cash. The
warrants bear a strike price of $3.00 and expire on February 25, 2003.
On March 2, 2000, the Company issued 10,000 shares of Common Stock valued at
$23,000 to a vendor as a deposit for future services to be rendered.
On March 7, 2000, the Company issued 20,439 shares of Common Stock plus 8,875
warrants at $0.20 per warrant to two investors for $35,500 in cash. The
warrants bear a strike price of $3.00 and expire on March 7, 2003.
On March 8, 2000, the Company issued 11,515 shares of Common Stock plus 5,000
warrants at $0.20 per warrant to an investor for $20,000 in cash. The
warrants bear a strike price of $3.00 and expire on March 8, 2003.
On March 10, 2000, the Company issued 11,515 shares of Common Stock plus 5,000
warrants at $0.20 per warrant to an investor for $20,000 in cash. The
warrants bear a strike price of $3.00 and expire on March 10, 2003.
On March 13, 2000, the Company issued 34,546 shares of Common Stock plus
15,000 warrants at $0.20 per warrant to two investors for $60,000 in cash.
The warrants bear a strike price of $3.00 and expire on March 13, 2003.
On March 15, 2000, the Company issued 5,758 shares of Common Stock plus 2,500
warrants at $0.20 per warrant to an investor for $10,000 in cash. The
warrants bear a strike price of $3.00 and expire on March 15, 2003.
On March 21, 2000, the Company issued 11,515 shares of Common Stock plus 5,000
warrants at $0.20 per warrant to an investor for $20,000 in cash. The
warrants bear a strike price of $3.00 and expire on March 21, 2003.
On April 10, 2000, the Company issued 215,909 shares of Common Stock plus
93,750 warrants at $0.20 per warrant to four investors for $375,000 in cash.
The warrants bear a strike price of $3.00 and expire on April 10, 2003.
On May 24, 2000, the Company issued 28,788 shares of Common Stock plus 12,500
warrants at $0.20 per warrant to an investor for $50,000 in cash. The
warrants bear a strike price of $3.00 and expire on May 24, 2003.
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On June 15, 2000, the Company issued 450 shares of Common Stock valued at $742
to a vendor in satisfaction of an account payable.
On June 19, 2000, the Company issued 20,152 shares of Common Stock plus 8,750
warrants at $0.20 per warrant to two investors for $35,000 in cash. The
warrants bear a strike price of $3.00 and expire on June 19, 2003.
On June 29, 2000, the Company issued 5,758 shares of Common Stock plus 2,500
warrants at $0.20 per warrant to an investor for $10,000 in cash. The
warrants bear a strike price of $3.00 and expire on June 29,2003.
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
paragraphs 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 Warrants 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.
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 quarter ended July
31, 2000.
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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
September 14, 2000.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By:/s/ Henry H. Kartchner
Date: September 14, 2000 Henry H. Kartchner
Chairman and Chief Executive Officer
(Duly Authorized Officer and Principal
Executive Officer)
By:/s/ C. Brent Kartchner
Date: September 14, 2000 C. Brent Kartchner
President and Director
(Duly Authorized Officer and Principal
Financial Officer)
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