<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, 1998
[_] 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 X No
--- ---
On October 31, l998, there were 8,930,250 shares of the Registrant's common
stock issued and outstanding.
<PAGE>
IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended October 31, 1998
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
- --------------------
Page
----
Consolidated Balance Sheets as of July 31, 1998 and October 31, 1998 4-5
Consolidated Statements of Operations for the three months ended 6
October 31,1998 and 1997.
Consolidated Statements of Cash Flows for the three months ended 7
October 31, 1998 and 1997
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. 18
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 19
2
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Part I
Financial Information
3
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - October 31, 1998
<TABLE>
<CAPTION>
31-Oct-98 31-Jul-98
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 5,483 $ 12,125
Accounts Receivable -other 69,588 72,500
Other current assets 92,920 92,920
---------- ----------
Total 167,991 177,545
---------- ----------
Property, Plant and
Equipment
Mining properties under
development
Mining claims, options and
development
costs 1,032,934 1,032,934
Mining and milling equipment 37,500 37,500
Acquisition in progress 738,315 300,000
---------- ----------
Net mining 1,808,749 1,370,434
properties ---------- ----------
Net property, plant and equipment 1,808,749 1,370,434
---------- ----------
Other Assets
Accounts receivable-related party 525,000 401,000
Investments- securities 0 0
---------- ----------
Total other assets 525,000 401,000
---------- ----------
TOTAL ASSETS $2,501,740 $1,948,979
---------- ----------
</TABLE>
4
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - October 31, 1998
<TABLE>
<CAPTION>
31-Oct-98 31-Jul-98
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 15,714 $ 21,434
Accounts payable-other 71,325 71,325
Accrued expenses 472,442 428,579
Unearned revenue 200,000 50,000
Notes payable 100,000 125,000
Notes payable-related party 676,497 679,997
----------- -----------
Total current 1,535,978 1,376,335
liabilities ----------- -----------
Non-current
Liabilities
Deferred income taxes 0 0
Notes payable, less current 0 0
portion ----------- -----------
Total non-current liabilities 0 0
-----------
Stockholder's
Equity
Common stock 41,925 38,819
Additional paid-in capital 3,893,628 3,458,419
Treasury stock -1,216,677 -1,216,677
Retained earnings -1,753,114 -1,707,917
Unrealized loss on marketable 0 0
securities ----------- -----------
Total stockholder's equity 965,762 572,644
----------- -----------
Total Liabilities and Stockholder's Equity $ 2,501,740 $ 1,948,979
----------- -----------
</TABLE>
5
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ending
-------------------
31-Oct-98 31-Oct-97
----------
<S> <C> <C>
Operating Income:
Oil and gas $ 0 $ 0
revenue
Management and fee income 31,088 0
---------- ----------
Total operating income 31,088 0
Operating Expenses:
Oil and gas lease operations 0 0
Dry Hole costs 0 0
Mining operating expense 0 17,831
General and administrative expense 62,124 110,175
Depreciation and depletion 0 0
---------- ----------
Total operating expense 62,124 128,006
---------- ----------
Income/Loss from operations -31,036 -128,006
Other Income/expense
Interest expense 14,161 0
Gold certificate income-net 0 158,996
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 14,161 158,996
----------
Net Income (Loss) before tax -45,197 30,990
---------- ----------
Provision for Income Taxes
Current 0 0
Deferred 0 0
---------- ----------
Total benefit from income 0 0
taxes ---------- ----------
Net Income/Loss ($45,197) $ 30,990
---------- ----------
Income/Loss per share ($0.005) $0.006
---------- ----------
Weighted average shares outstanding 8,930,250 5,283,164
---------- ----------
</TABLE>
6
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ending
31-Oct-98 31-Oct-97
---------- ----------
<S> <C> <C>
Net cash provided by (used in) operations -$29,142 $55,721
Net cash provided by (used in) investing activities:
Capital additions and property -438,315 -23,581
acquisitions
Dispositions 0 0
Other -124,000 -31,250
---------- ----------
Total -562,315 -54,831
Net cash provide by (used in) financing activities:
Repurchase of common stock 0 0
Issuance of common stock 438,315 0
Deferred Revenue 150,000
Notes payable 0 -25,825
Notes payable-related party -3,500 0
---------- ----------
Total 584,815 -25,825
Decrease in cash and equivalents -6,642 -24,935
Cash and cash equivalents at beginning of period 12,125 1,103
Cash and cash equivalents at end of period 5,483 -23,832
Supplemental disclosures of Cash Flow Information
Interest 14,161 0
Cash paid during the period for:
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.
</TABLE>
7
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PART I - FINANCIAL INFORMATION
- ---- - --------- -----------
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
Unaudited
October 31, 1998
(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, 1999. 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,
1998.
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 intends to utilize its oil and natural gas assets to support and
enhance its mining activities. The Company expects to focus its growth in both
energy and mining ventures.
At July 31,1998, the Company had sold its remaining domestic oil and gas
interests in the sale of Premier Operating Company and had completed its
transition to a minerals and metals mining company. (See " Mining - Reserves").
However, due to the recent downturn in energy prices, the company has decided to
re-enter the oil and natural gas production and exploration business through the
acquisition of controlling interest of Oil City Petroleum, Inc. as discussed
below.
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
8
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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, 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
9
<PAGE>
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.
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
10
<PAGE>
range corporate objections. As a result the Company unwound the acquisition in
August 1995.
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 320 acres and
referred to as the Duke Mine, in San Juan county, Utah from Paradox Basins Inc.
for payment of $45,000 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
that 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 acquired an additional 1,900
acres of claims contiguous to the original claim area and began operations of a
pilot plant during September, 1997.
The Company sold the stock of Premier Operating Company for $175,000 on
November 1, 1996 (effective July 31, 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 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.
11
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and a note payable to LaTex totaling $677,705; 5,000 shares of LaTex Resources
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, the assumption of liabilities associated with the various entities and an
option under certain conditions for Alliance to reacquire the 50% of the sold
assets and liabilities during an 18-month period. Closing occurred at the time
of the LaTex/Alliance merger, on April 30, 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 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.
On November 23, 1997, 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. As one of a limited number of commercial deposits of
high grade silica in the United States, 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. To date the Company has funded approximately $72,500 of its
commitment.
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 (pre-split) 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 began
test mining on the Lone Star claims during 1998 and is awaiting results of
recovery tests to determine future operations.
On June 28, 1998, the Company entered into a series of Agreements to sell
unprocessed silica ore to Merrion Reinsurance Company Ltd. Under the terms of
the Agreements, Imperial will deliver up to a total of 1 million tons of silica
ore at $50.00 per ton to a processing site to be determined by the Company
beginning in April 1999, subject to the construction of a processing plant.
Merrion is required to pre-pay $50,000 per month of the silica purchase until
delivery commences, at which time it is expected Imperial will process and sell
silica products on behalf of Merrion and retain a certain portion of the
proceeds against the purchase price. Imperial has the right to hold 55% of the
equity of Merrion against the future payment for the silica as planned. Imperial
has the right to delay delivery under the agreement until such time as a
processing plant is constructed and operational.
On August 31, 1998, the Company entered into an agreement to acquire Oil City
Petroleum, Inc., Tulsa-based oil and gas producer with energy reserves valued at
about $6.5 million. Under the terms
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of the Agreement, the Company issued 1.94 million shares of its restricted
common stock to the major shareholders of Oil City for a 90% ownership position.
In addition, the Company issued a corporate guarantee to Bank One NA
guaranteeing the repayment of the Oil City senior debt of approximately $1.1
million at closing and the Company will provide a subordinate loan of $975,000
to Oil City over a thirty six month period to assist in the payment of its
senior debt. The acquisition has been approved by the Oil City Board and major
shareholders and Bank One and the Company has delivered the shares and begun
funding its monthly loan commitment in anticipation of the final closing
expected during February 1999.
On September 8, 1998 the Company entered into an Agreement to hypothecate for a
period of 3.5 years a substantial amount of its in-ground gold reserves to Asset
Capital LLC, a Colorado corporation, in exchange for the payment of a total of
$65 million. Under the terms of the Agreement, the Company has the right to
mine, extract and sell the gold recovered from the claims hypothecated during
the period. In addition, Asset Capital, has the right to request the
hypothecation of additional gold reserves through the payment of an additional
$75 million. Asset Capital is delinquent under the terms of the Agreement in
paying the Company, however, management of the Company continues to monitor the
progress of Asset Capital and is expecting the initial payment from Asset
Capital in February 1999. Under the terms of the Agreement the Company has the
right to cancel the Agreement at any time for non-payment. The Company plans to
use the capital provided by Asset Capital to fund the installation of facilities
on its gold mining properties as well as other corporate purposes.
On October 22, 1998 the Company entered into a Joint Venture arrangement with
Natural Resources Group Inc., a US corporation and Continental Resources Party
Ltd., a South African company, to mine, extract and sell diamonds from claims
and association claims controlled by Continental. Under the terms of the
Agreement, Imperial will apply for financing from the Export-Import Bank or
other sources to buy earth moving and other mining equipment to be exported to
Continental and employed on behalf of the Joint Venture. Continental controls
some 1200 acres of alluvial diamond claims and has operations in the Barkley
West area, just northwest of Kimberly in the Republic of South Africa. The Joint
Venture Manager has begun the permit application process and is awaiting export
of equipment from Imperial. Imperial has applied, through a local U.S. equipment
leasing company, with the Export-Import Bank and expects to receive an initial
letter of commitment during February 1999. Initial mining activity is expected
during the third quarter of fiscal 1999.
(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.
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(3) NOTES PAYABLE
The Company enters into private notes primarily from its major shareholders from
time-to-time in the course of funding its mining and other activities. As of
October 31, 1998, the Company had a total of 3 notes payable to individuals
totaling $776,497, of which $676,497 was with its Chairman and President.
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, 1998. 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. Commodity prices for copper and gold
continue to fluctuate. Until sustained sales are achieved in each commodity,
price fluctuations will remain immaterial.
While the acquisition of a controlling interest of SilaQuartz Mining Company
Ltd. and the subsequent sale of unprocessed silica ore to Merrion results in the
monthly receipt of advance revenue of $50,000, delivery of the silica ore is not
anticipated until construction of a processing plant is completed and as such
any payments received by Merrion are presently considered as deferred revenue
for accounting purposes. Upon completion of the silica processing facility and
the initiation of continuous mining activity, the value of various processed
silica products will significantly influence the Company's quarterly results of
operations.
As discussed previously, as of October 31, 1998, the Company had signed an
agreement to acquire 90% control of Oil City Petroleum, Inc. and thereby return
to the oil and natural gas business. Upon final closing of the acquisition
scheduled for February 1999, the Company will begin to reflect revenue and
expenses associated with Oil City's operations and as such will again be subject
to fluctuations in energy prices.
Three Months Comparison
- -----------------------
Quarter ended October 31, 1998 compared to Quarter ended October 31, 1997.
- ------- -----------------------------------------------------------------
Revenues for the three months ending October 31, 1998 were $31,088 compared to
$0 for the comparable quarter
14
<PAGE>
ended October 31, 1997 and reflects revenue from the Company's sublease of
office space and interest income on notes receivable from affiliates. Any future
revenues will result from the start-up of mining operations.
Production and mining operating expenses were $0 for the quarter ended October
31, 1998 compared to $17,831 for the quarter ended October 31, 1997 and
represent a decrease due to the cessation of operations of the pilot plant
located at the Duke Mine at the completion of its test period. The Company
expects its operating expenses for mining operations to increase significantly
upon installation of its permanent plant at the Duke Mine.
General and administrative costs decreased to $62,124 for the three months
ending October 31, 1998 from $110,175 for the same period a year earlier and
primarily reflects the decreased level of the Company's activity at its Duke
Mine. 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 loss of $45,197 ($0.005 per share) for
the quarter ended October 31, 1998 compared to a net gain of $30,990 ($0.006 per
share) for the comparable quarter a year earlier. The net loss in income is
attributable primarily to a lack of fees generated during the period ending
October 31, 1998 from the FSI/Merrion program compared to the fees generated a
year earlier for the same period of $158,996. The timing of FSI/Merrion's
ability to utilize the financial products offered by this program result in wide
fluctuations in the generation of these fees to the Company. The Company does
not expect that this program will continue to generate fees for the Company and
believes in the future it will need to rely entirely on its energy and mining
ventures to generate income.
CAPITAL RESOURCES AND LIOUIDITY
- ------- --------- --- ---------
The Company's capital requirements relate primarily to its mining activities and
the expansion of those activities. Prior to the change in control, the Company
funded its very limited activities from cash flow. The Company, through its
subsidiaries, had established credit facilities with a bank to facilitate the
funding of its operations. As a result of the sale of its Premier Operating
subsidiary in October, 1996, the Company retired its principal bank debt and no
longer has access to financing from that source.
Presently the Company is active in several mining activities, which will require
significant capital expenditures. The Company has a wide degree of discretion in
the level of capital expenditures it must devote to each project on an annual
basis and the timing of the development of each project. The Company has
primarily been engaged, in its recent past, in the acquisition and testing of
mineral properties to be inventoried for future development. Because of the
relative magnitude of the capital expenditures that may ultimately be required
for any single mining venture as operations are achieved, management has pursued
a strategy of acquiring properties with significant mineral potential in an
effort to create a mineral property base sufficient to allow the Company to
access capital from external sources, either through debt or equity placements.
In order to develop its properties in a continuous manner in the future,
management believes the Company will need to raise capital from outside sources
during fiscal 1999. While the Company has singed an agreement with Asset Capital
LLC to provide adequate funding for its various activities, the Company has not
yet begun receiving its funds related to that agreement and in fact Asset
Capital is delinquent in its performance of the Agreement. While the company
continues to monitor the progress of Asset
15
<PAGE>
Capital in fulfilling its contract obligations and while Asset Capital's
management remains optimistic it will be able to fund its agreement with the
Company, there can be no assurance that the Asset Capital transaction will
complete. The Company ahs determined that the financial ability of Asset Capital
to perform, despite its earlier assurances to the contrary, is dependent upon
other transactions it is attempting to complete and as such, the Company does
not believe that litigation against Asset Capital would improve the Company's
position or the likelihood of payment by Asset Capital. In the event that the
funds from Asset Capital are not received or are not received timely or in the
event that additional capital is not obtained from other sources, it may become
necessary to alter development plans or otherwise abandon certain ventures.
Although the timing of expenditures for the Company's mining activities are
distributed over several months, the Company anticipates its current working
capital will be insufficient to meet its capital expenditures. Furthermore,
since the fees generated from the Company's participation in the program with
FSI are unpredictable in both timing and magnitude and because there can be no
assurance that FSI will continue to be able to market its product, the Company
believes it will be required to access outside capital either through debt or
equity placements or through joint venture operations with other mining
companies. While the Company has sold, subject to certain conditions,
unprocessed silica ore in an effort to provide working capital funds to complete
the various engineering and marketing studies required prior to the construction
of a processing plant, the Company will need to access outside capital in order
to construct the facilities necessary to begin profitable operations. There can
be no assurance that the Company will be successful in its efforts to locate
outside capital or that the funds to be provided by Asset Capital will be
received timely, if at all, and as a result the level of the Company's planned
mining activities may need to be curtailed, deferred or abandoned entirely. The
level of the Company's capital expenditures will vary in the future depending on
commodity market conditions and upon the level of and mining activity achieved
by the Company. The Company anticipates that its cash flow will be insufficient
to fund its operations at their current levels and that additional funds will
be required.
The Company sold its oil and gas properties in October 1996 and its Premier
Operating subsidiary and paid off its then existing credit facility with Bank
of Oklahoma. As a result the Company presently has no credit facility available
to fund its mining activities and will be required to rely on private debt
placements or equity sales to fund any remaining capital expenditures. The
Company has obtained certain unsecured loans from its Chairman and President,
Jeffrey T. Wilson, which total in principal $676,497 as of October 31, 1998.
These funds have been used to initiate the Company's mining activities.
Management believes that the Company will not have sufficient borrowing capacity
to fund its anticipated needs and will need to access outside capital.
At October 31, 1998, the Company had current assets of $167,991 and current
liabilities of $1,535,978, which resulted in negative working capital of
$1,367,987. The negative working capital position is comprised primarily of
notes payable to shareholders and related parties totaling $776,497 and accrued
salaries and expenses totaling $472,442. As discussed earlier, if the Company is
unsuccessful in obtaining outside capital certain mining activities of the
Company may be curtailed, postponed or abandoned. The Company believes that its
cash flow from operations will continue to be insufficient to meet its ongoing
capital requirements and short-term operating needs. As a result the Company
plans to seek additional capital from outside sources through the placement of
additional debt or equity during fiscal 1999. The previously discussed
transaction with Asset Capital, if successful, will provide the Company with
sufficient funds to pursue its mining and other ventures on the timely basis as
discussed herein. Because the availability of debt and equity financing are
subject to a number of variables, there can be no assurance that the Company
will be
16
<PAGE>
successful in attracting adequate financing and as a result may be required to
curtail, postpone or abandon certain of its planned capital expenditures. If the
Company is unable to attract adequate financing, management believes the Company
may be compelled to sell certain of its 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.
17
<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.
18
<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: February __, 1999
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) FOR THE QUARTER ENDED 10/31/98 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 5,483
<SECURITIES> 0
<RECEIVABLES> 69,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 167,991
<PP&E> 1,808,749
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,501,740
<CURRENT-LIABILITIES> 1,535,978
<BONDS> 0
0
0
<COMMON> 41,925
<OTHER-SE> 923,837
<TOTAL-LIABILITY-AND-EQUITY> 2,501,740
<SALES> 0
<TOTAL-REVENUES> 31,088
<CGS> 0
<TOTAL-COSTS> 62,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,161
<INCOME-PRETAX> (45,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,197)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,197)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
</TABLE>
