<PAGE>
SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-Q
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1997
[ ] 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 0-9923
IMPERIAL PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-3386019
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
100 NW Second Street
Suite 312
Evansville, Indiana 47708
(Zip Code)
Registrant's telephone number,
including area code (812) 424-7948
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (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 No
---- ----
On October 31, l997, there were 5,237,807 shares of the Registrant's common
stock issued and outstanding.
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IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended October 31, 1997
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
- --------------------
Page
----
Consolidated Balance Sheets as of July 31, 1997 and October 31, 1997 4-5
Consolidated Statements of Operations for the three months 6
ended October 31,1997 and 1996.
Consolidated Statements of Cash Flows for the three months ended 7
October 31, 1997 and 1996
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings, Item 2. 17
Changes in Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security Holders, Item
5. Other Information and Item 6. Exhibits and Reports on Form
8-K have been omitted as either inapplicable or because the answer
thereto is negative.
SIGNATURES 18
2
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PART I
FINANCIAL INFORMATION
3
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - OCTOBER 31, 1997
<TABLE>
<CAPTION>
31-OCT-97 31-JUL-97
--------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ (23,832) $ 1,103
Accounts Receivable -oil & gas 396,090 0
Other current assets 14000 14,000
----------- -----------
Total 386,258 15,103
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Mining properties under development
Mining claims, options and development
costs 289,204 282,934
Mining and milling equipment 17,311 0
Acquisition in progress 300,000 300,000
----------- -----------
Net mining properties 606,515 582,934
----------- -----------
Net property, plant and equipment 606,515 582,934
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OTHER ASSETS
Accounts receivable-related party 47,305 47,305
Deferred organization cost 31250 0
Investments-other 0 0
Investments- securities 77,188 77,188
Investemnt in subsidiaries 0 0
Deposits and other assets 0 0
Total other assets 155,743 124,493
----------- -----------
TOTAL ASSETS $ 1,148,516 $ 722,530
----------- -----------
</TABLE>
4
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - OCTOBER 31, 1997
31-OCT-97 31-JUL-97
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 60,755 $ 60,755
Accounts payable-related party 0 0
Accounts payable-other 85,218 85,218
Accrued expenses 261,604 230,354
Unearned revenue 0 0
Notes payable 0 0
Notes payable-related party 644,108 254,537
---------- ----------
Total current liabilities 1,051,685 630,864
---------- ----------
NON-CURRENT LIABILITIES
Deferred income taxes 0 0
Notes payable, less current portion -25,825 0
---------- ----------
Total non-current liabilities -25,825 0
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STOCKHOLDER'S EQUITY
Common stock 5,283 5,283
Additional paid-in capital 2,514,373 2,514,373
Treasury stock -1,211,313 -1,216,677
Retained earnings -1,185,687 -1,211,313
Unrealized loss on marketable securities 0 0
---------- ----------
Total stockholder's equity 122,655 91,666
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,148,516 $ 722,530
---------- ----------
5
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
THREE MONTHS ENDING
-------------------------
31-OCT-97 31-OCT-96
-----------
OPERATING INCOME:
Oil and gas revenue $ 0 $ 15,955
Oil and gas lease operations 0 0
----------- -----------
Total operating income 0 15,955
OPERATING EXPENSES:
Oil and gas lease operations 0 7,389
Dry Hole costs 0 0
Mining operating expense 17,831 16,569
General and administrative expense 110,175 30,517
Depreciation and depletion 0 6,857
----------- -----------
Total operating expense 128,006 61,332
----------- -----------
INCOME/LOSS FROM OPERATIONS -128,006 -45,377
OTHER INCOME/EXPENSE
Interest expense 0 -3,499
Interest income 0 0
Gold certificate income-net 158,996 67,425
Loss on marketable securities 0 0
Gain on retirement of debt 0 0
Loss on write-down of mining equipment 0 0
Gain/ loss on sale of assets 0 0
-----------
Total other income/expense 158,996 63,926
-----------
NET INCOME (LOSS) BEFORE TAX 30,990 18,549
----------- -----------
PROVISION FOR INCOME TAXES
Current 0 0
Deferred 0 0
----------- -----------
Total benefit from income taxes 0 0
----------- -----------
NET INCOME/LOSS $ 30,990 $ 18,549
----------- -----------
INCOME/LOSS PER SHARE $ 0.006 $ 0.000
----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 5,283,164 31,426,841
----------- -----------
6
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDING
31-OCT-97 31-OCT-96
--------- ---------
Net cash provided by (used in) operations $55,721 $34,944
Net cash provided by (used in) investing activities:
Capital additions and property acquisitions -23,581 97,473
Dispositions 0 0
Other -31,250 0
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Total -54,831 97,473
Net cash provide by (used in) financing activities:
Repurchase of common stock 0 0
Issuance of common stock 0 -166,961
Notes payable -25,825 -1,299
Notes payable-related party 0 23,580
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Total -25,825 -144,680
Decrease in cash and equivalents -24,935 -12,263
Cash and cash equivalents at beginning of year -1,103 9,041
Cash and cash equivalents at end of period -23,832 -3,222
Supplemental disclosures of Cash Flow Information
Interest 0 3,499
Cash paid Income taxes 0 0
For the purposes of cash flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
7
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PART I - FINANCIAL INFORMATION
- ------ ---------------------
IMPERIAL PETROLEUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
OCTOBER 31, 1997
(1) GENERAL
The accompanying interim condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the periods presented are
not necessarily indicative of the results which may be expected for the year
ending July 31, 1998. These condensed interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended
July 31, 1997.
THE COMPANY
Imperial Petroleum, Inc., a Nevada corporation ("the Company"), is a diversified
energy, and mineral mining company headquartered in Evansville, Indiana. The
Company has historically been engaged in the production and exploration of crude
oil and natural gas in Oklahoma and Texas and has diversified its business
activities to include mineral mining, with a particular emphasis on gold mining.
The Company has sold its oil and gas operations and intends to focus on its
mining activities.
HISTORICAL BACKGROUND
The Company was incorporated on January 16,1981 and is the surviving member of a
merger between itself, Imperial Petroleum, Inc., a Utah corporation incorporated
on June 4, 1979 (" Imperial-Utah"), and Calico Exploration Corp., a Utah
corporation incorporated on September 27, 1979 ("Calico"). On August 11, 1982,
Petro Minerals Technology, Inc. ("Petro"), a 94%-owned subsidiary of Commercial
Technology Inc. ("Comtec") acquired 58% of the Company's common stock. Petro
assigned to the Company its interests in two producing oil and gas properties in
consideration for 5,000,000 shares of previously authorized but unissued shares
of common stock of the Company and for a $500,000 line of credit to develop
these properties. Petro has since undergone a corporate reorganization and is
now known as Petro Imperial Corporation. On August 1,1988 in an assumption of
assets and liabilities agreement, 58% of the Company's common stock was acquired
from Petro by Glauber Management Co., a 100% owned subsidiary of Glauber Valve
Co., Inc.
Change of Control. Pursuant to an Agreement to Exchange Stock and Plan of
Reorganization dated August 27, 1993 (the "Stock Exchange Agreement"), as
amended by that certain First Amendment to Agreement to Exchange Stock and Plan
of Reorganization dated as of August 27,
8
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1993, (the "First Amendment"), between Imperial Petroleum, Inc. (the "Company"),
Glauber Management Company, a Texas corporation, ("Glauber Management"), Glauber
Valve Co Inc., a Nebraska corporation, ("Glauber Valve"), Jeffrey T. Wilson
("Wilson"), James G. Borem ("Borem") and those persons listed on Exhibit A
attached to the Stock Exchange Agreement and First Amendment (the "Ridgepointe
Stockholders"); the Ridgepointe Stockholders agreed to exchange (the
"Ridgepointe Exchange Transaction") a total of 12,560,730 shares of the common
stock of Ridgepointe Mining Company, a Delaware corporation ("Ridgepointe"),
representing 100% of the issued and outstanding common stock of Ridgepointe, for
a total of 12,560,730 newly issued shares of the Company's common stock,
representing 59.59% of the Company's resulting issued and outstanding common
stock. Under the terms of the Stock Exchange Agreement, (i) Wilson exchanged
5,200,000 shares of Ridgepointe common stock for 5,200,000 shares of the
Company's common stock representing 24.67% of the Company's issued and
outstanding common stock, (ii) Borem exchanged 1,500,000 shares of Ridgepointe
common stock for 1,500,000 shares of the Company's common stock representing
7.12% of the Company's issued and outstanding common stock, and (iii) the
remaining Ridgepointe Stockholders in the aggregate exchanged 5,860,730 shares
of Ridgepointe common stock for 5,860,730 of the Company's issued and
outstanding common stock, representing, in the aggregate, 27.81% of the
Company's issued and outstanding common stock. The one for-one ratio of the
number of shares of the Company's common stock exchanged for each share of
Ridgepointe common stock was determined through arms length negotiations between
the Company, Wilson and Borem.
The Ridgepointe Exchange Transaction was closed on August 27, 1993. As a result,
Ridgepointe is now a wholly, owned subsidiary of the Company. At the time of
acquisition, Ridgepointe was engaged in the development of a copper ore mining
operation in Yavapai County, Arizona and, through its wholly owned subsidiary,
I.B. Energy, Inc., an Oklahoma corporation ("I.B Energy"), in the exploration
for and production of oil and gas in the Mid-continent and Gulf Coast regions of
the United States.
In connection with the closing of the Ridgepointe Exchange Transaction, each
member of the Board of Directors of the Company resigned and Wilson, Borem and
Dewitt C. Shreve ("Shreve") were elected Directors of the Company. In addition,
each officer of the Company resigned and the Company's new Board of Directors
elected Wilson as Chairman of the Board, President and Chief Executive Officer,
Borem as Vice President and Cynthia A. Helms as Secretary of the Company. Ms.
Helms subsequently resigned and Kathryn H. Shepherd was elected Secretary. Mr.
Borem, Mr. Shreve and Ms. Shepherd subsequently resigned and Mr. Malcolm W.
Henley and Mrs. Stacey D. Smethers were elected to the Board. The Board of
Directors further authorized the move of the Company's principal executive
offices from Dallas, Texas to its current offices in Evansville, Indiana.
As a condition to closing the Ridgepointe Exchange Transaction, the Company
received and canceled 7,232,500 shares of the Company's common stock from the
Company's former partner, Glauber Management, and 100,000 shares of the common
stock of Tech-Electro Technologies, Inc from an affiliate of Glauber Management
and Glauber Valve. In addition, pursuant to the terms of the First Amendment,
Glauber Management or Glauber Valve, or their affiliates, were to transfer to
the Company 75,000 shares of common stock of Wexford Technology, Inc. (formerly
Chelsea Street Financial Holding Corp.) no later than October 31, 1993, such
transfer subsequently occurred.
9
<PAGE>
Acquisition of Premier. Pursuant to a Stock Exchange Agreement dated October 4,
1993 (the "Premier Stock Exchange Agreement"), between the Company and the
holders of the issued and outstanding common stock of Premier Operating Company,
a Texas corporation ("Premier") (such persons are sometimes referred to herein
as the ("Premier Stockholders") The Premier Stockholders agreed to exchange (the
"Premier Exchange Transaction") an aggregate of 749,000 shares of the common
stock of Premier, consisting of 252,000 shares of Class A voting common stock
and 497,000 shares of non-voting Class B common stock, representing 100% of the
issued and outstanding common stock of Premier, for a total of 749,000 shares of
newly issued shares of the Company's common stock representing 3.62% of the
Company's resulting issued and outstanding common stock. The one-for-one ratio
of the number of shares of the Company's common stock exchanged for each share
of Premier common stock was determined through arms length negotiations between
the Company and the Premier Stockholders.
The Premier Exchange Transaction was closed on October 4, 1993. As a result,
Premier became a wholly owned subsidiary of the Company. Premier is an oil and
gas company whose principal assets consist of oil and gas properties located in
the Mid-continent and Gulf Coast regions of the United States.
In connection with the closing of the Premier Exchange Transaction, each member
of the Board of Directors of Premier resigned and Wilson and Borem were elected
Directors of Premier. In addition, each officer of Premier resigned and
Premier's new Board of Directors elected Wilson as Chairman of the Board,
President and Chief Executive Officer, Borem as Vice President and Kathryn H.
Shepherd as Secretary of the Company. Mr. Borem and Ms. Shepherd subsequently
resigned.
In December 1993, Ridgepointe had agreed to acquire a 50% interest in two gold
mining claims located in the Sierra Madre mountains of Mexico. Under the terms
of the transaction, at closing Ridgepointe agreed to pay $50,000 and the Company
agreed to issue 500,000 shares of newly-issued shares of the Company's
restricted common stock and agreed to provide $200,000 in working capital to
develop these mining claims. The Company has funded the working capital
requirements under the terms of the letter agreement to construct roads and
install equipment to develop the claims. As a result of its efforts, the Company
is entitled to acquire an additional 5% interest in the project. Testing of the
mining claims has been completed with very favorable results, and significant
expenditures have been made to construct roads and a test facility for the
mining project. Due to the magnitude of the remaining capital requirements, the
Company has delayed any further efforts in developing the mining properties
until such time as sufficient capital is available to allow continuous
operations.
In August 1994 the Company acquired certain gold mining claims "Gold Nugget
Mine" in the Quartzite area of Arizona comprising some 1200 acres from Kenneth
Shephard et al. In connection with the transaction the Company issued to Mr.
Shephard et al. shares of its restricted common stock, a one year note payable
of $750,000 and assumed an equipment leasing agreement with Darr Equipment Co.
concerning the associated mining equipment for approximately $440,000. During
the period from September 1994 through April 1995, the Company constructed
additional processing equipment and completed a water well on the property to
initiate placer mining operations. After initiating operations in several areas
of the property, the Company determined the quantity of gold varied too greatly
across the property to establish permanent facilities commensurate with its long
range corporate objections. As a result the Company unwound the acquisition in
August 1995.
10
<PAGE>
In February 1995 the Company agreed to participate with Financial Surety
International Ltd. ("FSI") and Merrion Reinsurance Corp. ("Merrion") of London,
England in a program to provide a financial instrument to be utilized for
collateral enhancement in certain financial transactions. The basis for the
collateral enhancement is the Company's in-ground gold reserves and a promissory
note (certificate of deposit) for the delivery by the Company of specified
volumes of refined gold at the end of five years subject to payment to the
Company (by the holder) for the gold to be delivered based upon the then current
price of gold. The note is delivered into escrow to be held during its term and
is insured against default by Merrion. The note is subject to annual renewal
during the term by the payment of rental fees in advance on an annual basis to
the insurance carrier and to the Company. The fees paid are non-refundable to
the holder. Under its agreement with FSI, the Company has the right to terminate
its participation at any time by providing written notice to FSI. Furthermore,
the Company has the right to reject any requests for the issuance of
certificates.
In June 1996, Ridgepointe acquired five separate mining projects, four of which
were located in Arizona and one in Montana, comprising some 4,400 acres of
claims. In connection with the acquisition of these projects, the Company paid a
total of $10,000 in cash and issued a total of 1,800,000 shares of the Company's
restricted common stock. None of the mining projects are presently active,
although significant sampling and testing has been conducted by the prior
owners. Reserve reports have been prepared by third party engineers and
geologists on each of the properties and indicate significant reserve potential.
In July 1996, Ridgepointe acquired mining claims comprising 900 acres and
referred to as the Duke Mine, in San Juan county, Utah from Paradox Basins Inc.
for payment of $100,000 and the issuance of 600,000 shares of the Company's
restricted common stock as well as the reservation of a 4.5% net smelter royalty
in favor of the sellers. The Company conducted an extensive sampling and testing
program in connection with the acquisition to quantify the economic viability of
the placer mining project and to determine the optimal recovery process to be
employed. Because of the nature of the placer gold, i.e. microscopic, the
determination of the recovery process is paramount to a successful mining
operation. The Company has conducted its tests utilizing the Cosmos Concentrator
which is designed to improve recoveries over conventional equipment in
operations where the recovery of microscopic free gold is important, such as the
Duke Mine. A third party reserve report has confirmed the significant gold
values associated with the Duke Mine claims. The Company expects to initiate
mining operations of a pilot plant during August or September 1997, subject to
final receipt of mining permits.
The Company sold the stock of Premier Operating Company for $175,000 on November
1, 1996 and retired its entire outstanding bank balance at Bank of Oklahoma with
the proceeds. As a result of the sale, the company has substantially sold its
oil and gas operations and properties.
The Company entered into an agreement to purchase certain assets and liabilities
from LaTex Resources, Inc. dated September 30, 1996 in connection with its
merger with Alliance Resources Plc. Included in the assets to be purchased are
5,000,000 shares of common stock of Wexford Technology, Inc. representing 32.3%
of the issued and outstanding shares and a note payable to LaTex totaling
$1,372,799; 3,798,730 shares (pre-split) of common stock of Imperial Petroleum,
Inc. and a note payable to LaTex totaling $677,705; 5,000 shares of LaTex
Resources
11
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International, Inc. common stock representing 100% of the issued and outstanding
stock and a note payable to LaTex totaling $3,363,000; and 30,000 shares of
Phoenix Metals, Inc. common stock representing 100 % of the issued and
outstanding stock. The consideration paid to LaTex was 100,000 shares of LaTex
stock and an option under certain conditions to reacquire the sold assets and
liabilities during an 18 month period. Closing occurred April 30, 1997 with the
consummation of the LaTex/Alliance merger.
During the quarter ending January 31, 1997, on November 21, 1996 the Company's
shareholders approved a one for six reverse split of the company's common stock.
As a result the Company's issued and outstanding common shares were reduced to
5,237,807 as of that date.
In September 1997 the Company began operation of its pilot facility located at
the Duke Mine in Utah. The facility is designed to recover microscopic gold
using a Cosmos Concentrator system at a rate of 100 tons of ore processed daily.
The Company completed the acquisition of an 80% interest in SilaQuartz Mining
Company Ltd., a company owning mining rights to high-grade silica claims in
Idaho on November 24, 1997. The Company believes SilaQuartz will be able to
secure a significant portion of the market for this material very rapidly. Under
the terms of the SilaQuartz transaction, the Company issued 750,000 shares of
its restricted common stock and 750,000 shares of the stock it owns in Wexford
Technology, Inc. in exchange for the 80% interest. In addition the Company is
obligated to provide $250,000 in loans to SilaQuartz to begin mining operations.
The Company unwound its acquisition of the UFO Mining Limited Partnership
interest in the Lone Star Mine in November 1997 and retired a note payable to
UFO Mining Limited Partnership of $1,000,000 and secured the return of 1,000,000
shares of its common stock from UFO Mining Limited Partnership in exchange for
the Company's contribution of its Congress Mill Site Facility interests and
equipment and its interests in the Lone Star Mine to a Mining Partnership
managed by Zane Pasma. The Company retained a 5% carried interest in the
partnership through the expenditure by the Partnership of the first $6.0 million
towards the development of the Lone Star Mine. The Partnership expects to
initiate continuous mining on the Lone Star claims during 1998.
In August 1997, the Company received loans totaling $380,000 from its President
and principal shareholder for use in furthering its mining activities and for
use in assisting Wexford Technology, Inc. in paying off its delinquent private
debt. The Company received a total of 1,600,000 shares of Wexford common stock
that was assigned to Mr. Wilson for providing the loan.
(2) ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
Ridgepointe Mining Company financial statements and notes thereto as of July 31,
1995 which are included in the Company's Form 8-K disclosure statement for the
reverse acquisition by Ridgepointe of Imperial and included herein by this
reference.
12
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(3) NOTE PAYABLE
Subsequent to the acquisition of Premier Operating Company, Premier executed a
promissory note and mortgage with a bank dated October 18, 1993 in the amount of
$216,000. The Company has paid the note in full.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
GENERAL
-------
RESULTS OF OPERATIONS
- ---------------------
The following is a discussion of the results of operations of the Company for
the three months ended October 31, 1997. The Company sold its oil and gas
operations effective October 31, 1996 and as a result comparisons between
quarters will reflect this change. This discussion should be read in conjunction
with the Company's unaudited Consolidated Financial Statements and the notes
thereto included in Part I of this Quarterly Report.
Historically, the factors which most significantly affect the Company's results
of operations are (i) the sale prices of crude oil, natural gas, copper and
gold, (ii) the level of total sales volumes, (iii) the level of lease operating
expenses, and (iv) the level of and interest rates on borrowings. The sales
volumes from the Company's copper and gold mining operations are as yet
insignificant, however, future results of operations are expected to be
significantly affected by these factors. As a result of the sale of Premier
Operating Company, the Company will not be reporting any revenues from oil and
gas sales.
Commodity prices for copper and gold continue to fluctuate. Until sustained
sales are achieved in each commodity, price fluctuations will remain immaterial.
THREE MONTHS COMPARISON
- -----------------------
Quarter ended October 31, 1997 compared to Quarter ended October 31, 1996.
Revenues for the three months ending October 31, 1997 were $0 compared to
$15,955 for the comparable quarter ended October 31, 1996 and reflects the loss
of operating revenue from the Company's oil and gas operations as a result of
the sale of Premier. Any future revenues will result from the start-up of mining
operations.
Production and mining operating expenses were $17,831 for the quarter ended
October 31, 1997 compared to $23,958 for the quarter ended October 31, 1996 and
represent a decrease due to the sale of Premier. Mining expenses increased due
to the startup of the Duke Mine during the period. The Company expects its
operating expenses for mining operations to increase significantly upon
installation of its pilot operations on the Duke claims.
13
<PAGE>
General and administrative costs increased to $110,175 for the three months
ending October 31, 1997 from $30,571 for the same period a year earlier and
primarily reflects the decreased level of the Company's activity in its oil and
gas production and is offset by increased activity in its efforts to establish
its mining operations and reserves. G & A should continue to increase as the
Company begins continuous mining operations and initiates a corporate public
relations campaign.
The Company had an after-tax net income gain of $30,990 ($0.006 per share) for
the quarter ended October 31, 1997 compared to a net gain of $18,549 ($0.000 per
share) for the comparable quarter a year earlier. The gain in income is
attributable primarily to a reduction in interest expense for the period of
$18,934 and the retirement of the debt to LaTex Resources as a result of the
Company's purchase of certain assets and liabilities in connection with the
LaTex/Alliance merger. In addition the Company generated fees during the period
ending October 31, 1997 of $158,996 as a result of the Company's financial
program with FSI compared to fees of $67,425 for the comparable period ending
October 31, 1996.
CAPITAL RESOURCES AND LIOUIDITY
The Company's capital requirements relate primarily to its mining activities and
the development of its oil and gas properties. Prior to the change in control,
the Company funded its very limited activities from cash flow. The Company,
through its subsidiaries, has established credit facilities with a bank to
facilitate the funding of its operations, has sold oil and gas properties to
provide working capital and has from time to time received unsecured loans from
its President and principal shareholder. More recently the Company has funded
its efforts as a result of fees collected in its financial program with FSI.
Presently the Company is engaged in mining activities on its property in Utah
which require capital expenditures. The Company began pilot operations at the
Duke Mine in September 1997 at 20 tons of ore per day.
The level of the Company's capital expenditures will vary in the future
depending on commodity market conditions and upon the level of mining activity
achieved by the Company. The Company anticipates that its cash flow will not be
sufficient to fund its operations and debt service at their current levels for
the next year and that additional capital will be required. Presently, the
Company is utilizing funds obtained in its program with FSI to retire its
obligations and to fund its mining ventures. During the quarter ended October
31, 1997 the Company received $158,995 in non-refundable fees in connection with
the FSI program. There is no assurance that FSI will continue to be successful
in its efforts and that the Company will have sufficient funds to meet its
obligations.
The Company's bank credit facility was paid off with proceeds from the sale of
Premier. As a result the Company presently has no credit facility available to
it from a bank or other lending institution.
The Company has obtained certain unsecured loans from Jeffrey T. Wilson, which
totals $639,108 as of October 31, 1997. These funds are being used to initiate
the Company's mining activities and to assist Wexford in the repayment of its
delinquent private debt. Management
14
<PAGE>
believes that the Company has insufficient borrowing capacity to fund its
anticipated needs and will need to access outside capital. As a result the
Company has initiated discussions with an affiliate of FSI, Merrion Reinsurance
Company Ltd., to assist in securing a credit facility of up to $250,000. Merrion
has indicated a willingness to assist the Company in that regard, however, there
is no assurance that a loan can be obtained or that the terms will be acceptable
to the Company.
At October 31, 1997 the Company had current assets of $386,258 and current
liabilities of $1,051,685 which resulted in negative working capital of
$665,427. The working capital deficit is primarily comprised notes payable to
shareholders $639,108; accrued expense, primarily for unpaid salaries of
$261,604. The Company believes that its cash flow from operations will not be
sufficient to meet its anticipated capital requirements until its mining
operations in Utah are continuous. As a result the Company believes it will
require additional financing in order to carry on its operations. Because future
cash flows and the availability of financing are subject to a number of
variables, such as the level of production, the prices of gold and copper and
the Company's ability to successfully initiate operations on its mining
properties, there can be no assurance that the Company's capital resources or
ability to attract financing will be sufficient to maintain currently planned
levels of capital expenditures. If the Company is unable to maintain its current
level of operations, management believes the Company may be compelled to sell
certain assets to meet its obligations.
SEASONALITY
The results of operations of the Company are somewhat seasonal due to seasonal
fluctuations in the ability to conduct mining operations in certain areas,
resulting in lower production volumes. Due to these seasonal fluctuations,
results of operations for individual quarterly periods may not be indicative of
results, which may be realized on an annual basis.
INFLATION AND PRICES
The Company's revenues and the value of its mining properties have been and will
be affected by changes in copper and gold prices. The Company's ability to
maintain current borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent on copper and gold prices.
Prices for these commodities are subject to significant fluctuations that are
beyond the Company's ability to control or predict.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. NOT APPLICABLE.
-----------------
ITEM 2. CHANGES IN SECURITIES. NOT APPLICABLE.
---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NOT APPLICABLE.
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. REFERENCE IS MADE
---------------------------------------------------
TO THE PROXY SOLICITATION MATERIALS REGARDING THE ANNUAL MEETING OF
SHAREHOLDERS DATED NOVEMBER 21, 1996.
ITEM 5. OTHER INFORMATION. NOT APPLICABLE.
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
NOT APPLICABLE.
(b) CURRENT REPORT ON FORM 8-K
NOT APPLICABLE.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
IMPERIAL PETROLEUM, INC.
By: /s/ Jeffrey T. Wilson
---------------------
Jeffrey T. Wilson,
President and Chief Executive
Officer
Dated: May __, 1998
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) FOR THE QUARTER ENDED 10/31/97 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> JUL-31-1997
<PERIOD-END> OCT-31-1997
<CASH> (23,832)
<SECURITIES> 77,188
<RECEIVABLES> 443,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 386,258
<PP&E> 606,515
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,148,516
<CURRENT-LIABILITIES> 1,051,685
<BONDS> 0
0
0
<COMMON> 5,283
<OTHER-SE> 122,655
<TOTAL-LIABILITY-AND-EQUITY> 1,148,516
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 128,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,990
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,990
<EPS-PRIMARY> 0.006
<EPS-DILUTED> 0.006
</TABLE>
