<PAGE>
SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[_] For the fiscal year ended July 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
Securities registered pursuant to Section 17(b) of the Act: None.
Securities registered pursuant to Section 13(g) of the Act:
Common Stock. $0.001 par value per share
----------------------------------------
(Title of class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation K is not contained herein, and will not be contained to
the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
------
On July 3l, l998, there were 6,469,801 shares of the Registrant's common
stock issued and outstanding.
The aggregate market value of the Registrant's voting stock held by non-
affiliates is $941,256. See Item5. Market for Registrant's Common Stock and
Related Stockholder Matters.
Documents Incorporated by Reference
NONE
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IMPERIAL PETROLEUM, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 3l, 1998
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TABLE OF CONTENTS
PART I
Page
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Item 1. Business 1.
Item 2. Properties 1.
Item 3. Legal Proceedings , 13.
Item 4. Submission of Matters to a Vote of Security Holders 13.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 14.
Item 6. Selected Financial Data 14.
Item 7. Management's Discussion and Analysis of Financial
Condition And Results of Operations 14.
Item 8. Financial Statements and Supplementary Data F-1 to F-7.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 18.
PART III
Item 10. Directors and Executive Officers of the Registrant 19.
Item 11. Executive Compensation 20.
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 21.
Item 13. Certain Relationships and Related Transactions 21.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
On Form 8-K 25.
Signature 26.
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PART I
Item 1. Business and Item 2. Properties
- ---------------------------------------
Definitions
As used in this Form 10-K
"Mcf" means thousand cubic feet, "MMcf' means million cubic feet and
"Bcf"' means billion cubic feet "Mcfe" means thousand cubic feet equivalent,
"Mmcfe" means million cubic feet equivalent and "Bcfe" means billion cubic
feet equivalent. "Bbl" means barrel, "MBbls" means thousand barrels and
"MMBbls" means million barrels. "BOE" means equivalent barrels of oil and
"MBOE" means thousands equivalent barrels of oil. Unless otherwise indicated
herein. natural gas volumes are stated at the legal pressure base of the state
or area in which the reserves are located and at 60 degrees Fahrenheit.
Natural gas equivalents are determined using the ratio of six Mcf of natural
gas to one Bbl of crude oil
The term "gross" refers to the total leasehold acres or wells in which the
Company has a working interest. The term "net" refers to gross leasehold acres
or wells multiplied by the percentage working interest owned by the Company.
"Net production" means production that is owned by the Company less royalties
and production due others.
"Proved reserves" are estimated quantities of crude oil, natural gas and
natural gas liquids, which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions "Proved developed reserves"
are those reserves which are expected to be recovered through existing wells
with existing equipment and operating methods. "Proved undeveloped reserves"
are those reserves which are expected to be recovered from new wells on
undrilled acreage or from existing wells where a relatively major expenditure
is required for recompletion.
The term "oil" includes crude oil, condensate and natural gas liquids.
"Base Metals" refers to a family of metallic elements, including copper,
lead and zinc.
"Grade" refers to the metal or mineral content of rock, ore or drill or
other samples. With respect to precious metals, grade is generally expressed
as troy ounces per ton of rock.
"Mineable" refers to that portion of a mineral deposit from which it is
economically feasible to extract ore.
"Net Smelter Royalty" is a royalty based on the actual sale price received
for the subject metal less the cost of smelting and/or refining the material
at an offsite refinery or smelter along with off-site transportation costs.
"Patented Mining Claim" is a mining claim, usually comprising about 20
acres, to which the US Government has conveyed title to the owner.
"Unpatented Mining Claim" is a mining claim which has been staked or
marked out in accordance with federal and state mining laws to acquire the
exclusive rights to explore for and exploit the minerals which may occur on
such lands. The title to the property has not been conveyed to the holder of
an unpatented mining claim.
Unless the context requires otherwise, all references herein to the
Company include Imperial Petroleum, Inc., and its consolidated subsidiaries.
Ridgepointe Mining Company, a Delaware corporation ("Ridgepointe"), I.B.
Energy, Inc., an Oklahoma corporation ("I.B. Energy"), Premier Operating
Company, a Texas corporation ("Premier"), LaTex Resources International, a
Delaware corporation ("LRI"), Phoenix Metals, Inc., a Texas corporation
("Phoenix"), and SilaQuartz Mining Company Ltd. (SilaQuartz), an Ohio Limited
Liability Company. Premier was sold effective July 31, 1996. LRI and Phoenix
were acquired effective April 30, 1997. Eighty percent control of SilaQuartz
was acquired effective November 23, 1998.
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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 that 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 is considering
re-entering the energy acquisition business. (See- "Subsequent Events").
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, 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.
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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.
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.
5
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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.
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. 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.
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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 $62,500 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 in the St. Louis, Missouri area
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.
Subsequent Events
On August 31, 1998, subsequent to year end, the Company entered into an
agreement to acquire Oil City Petroleum, Inc., a Tulsa-based oil and gas
producer with energy reserves valued at about $6.5 million. Under the terms of
the Agreement, the Company will issue 1.95 million shares of its restricted
common stock to the major shareholders of Oil City for a 90% ownership position.
In addition, the Company will issue 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 expects to close the transaction
during its third quarter of fiscal 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
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in the Republic of South Africa. The Joint Venture Manager has begun the permit
application process and is awaiting export of equipment from Imperial. Initial
mining activity is expected during the third quarter of fiscal 1999.
Business Strategy
The Company's business strategy has changed since the acquisition of
Ridgepointe in August 1993. The Company has used its oil and gas assets to
provide the working capital necessary to expand and develop its mineral mining
activities. The Company's emphasis on mining ventures reflects its belief that
quality opportunities still exist in many areas of mineral mining for small
mining companies. The Company anticipates using partnership or joint venture
arrangements to avoid the large capital expenditures that can accompany certain
mining ventures. By seeking out small high quality claims and operations in
areas either by-passed or not yet occupied by major mining concerns, the Company
expects to position itself to take advantage of future upswings in the demand
for certain minerals such as gold, copper and platinum. The Company intends to
seek out opportunities in other commodities that the Company believes may have
the opportunity for a cyclical improvement in demand and price.
Mining
The availability of a market for the Company's mineral and metal production
will be influenced by the proximity of the Company's operations to refiners and
smelting plants. In general the Company will sell its mined product to local
refineries and smelters. The price received for such products will be dependent
upon the Company's ability to provide primary separation to ensure fineness or
quality. The price of gold has been relatively stable in recent years
reflecting a period of relatively low inflation. Copper prices have generally
been more volatile, in part due to increased demand of developing economies for
electrical wire and other copper related products.
Changes in the price of gold and copper will significantly affect the
Company's future cash flows and the value of its mineral properties. The Company
is unable to predict whether prices for these commodities will increase,
decrease or remain constant in future periods.
Reserves
Mining
------
The following table sets forth estimates as of July 31, 1998 of the mineral
reserves net to the Company's interest in each of the Company's claim groups as
prepared by independent engineers and geologists and by the Company. These
estimates are based upon extensive sampling and testing on the Company's
properties and are based on assumptions the Company believes are reasonable
regarding production costs, metallurgical recoveries and mineral prices. There
are numerous uncertainties inherent in the preparation of estimates of reserves,
including many factors beyond the Company's control. The accuracy of any such
estimates is a function of the quality of available data and of engineering and
geological interpretation and judgement. It can be expected as the Company
conducts additional evaluation, drilling and testing with respect to its
properties that these estimates will be adjusted and that plans for mining could
be revised.
Based on its analysis of the mineral deposits detailed in the table below,
it is the Company's present determination that these properties can be mined on
an economic basis by the Company and that these estimates constitute reserves as
that term is typically used in the mining industry. Although permitting required
to initiate mining operations in the United States has become extremely complex
and cannot be considered a certainty, the company believes that, in the normal
course of property development, it should be able to obtain the necessary
permits to commence or expand mining operations on these properties.
The estimates provided in the table below utilize in place grades and do not
reflect losses that will be
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incurred in the recovery process. The mineral grades utilized in the preparation
of reserves for each property are generally based upon results of sampling and
testing programs conducted on each property and analyzed by qualified assayers
or engineers.
<TABLE>
<CAPTION>
As of July 31, 1998
-------------------------
Net Mineable Reserves
-------------------------
Claim Group Location Acres Gold Grade (oz/ton) Gold (oz) Silver (oz) Copper (lbs)
----------- -------- --------- ------------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
UFO Mine (l) Arizona 400 0 0 0 600,000
Endless Glory (2) Arizona 160 0.24 67,400 1,626,000 17,660,000
Bear 1 & 2 Arizona 320 0.06 31,250 0 0
Pa I & 2 Arizona 320 0.09 34,320 0 0
Santa 1-22 Arizona 3,280 0.05 255,000 0 0
Cal l & 2 (3) Montana 320 0.07 85,000 0 0
Duke Mine Utah 2,240 0.10 4,883,750 0 0
--------- --------- --------- ----------
Total 7,040 5,356,720 1,626,000 18,260,000
</TABLE>
(1) Copper reserves are based upon 400 million pounds at an average grade
of 3% and adjusted for the Company's interest in the Joint Venture.
(2) Silver grade is 5.81 oz./ton; copper reserves are based on 17.6
million pounds at an average grade of 3.1 %.
(3) Also contains significant amounts of industrial grade garnet.
Principal Exploration and Development Projects: Mining ventures:
United States
UFO Mine - Until the formation of the Joint Venture, subsequent to year end,
--------
the Company operated the UFO Mine and Rumico Millsite located in Yavapai County,
Arizona comprising some 400 acres of unpatented mining claims. The principal
resource discovered to date is copper. Strip mining operations were initiated
under a small miner's exemption July 1992 to verity the quality of the ore body
and evaluate the economics of the mine. A limited core-drilling program was
completed in March 1993 and a pilot operation was conducted using the millsite
facilities to determine actual recoveries of copper As a result the Company has
estimated the property's copper reserves at 12,000,000 lbs. based upon an
average grade of 3%. Working capital limitations had limited the Company's
development of the mining property, in favor of other projects. And as a result,
the Company entered into a Mining Joint Venture in November 1997, subsequent to
year end. The property, was subject to an acquisition note with the former
owners requiring the payment of $1,000,000. The note had been extended several
times by the holder and the mining claims served as collateral for the note The
Company negotiated a Mining Joint Venture with Mr. Zane Pasma in November 1997
that retired the note payable and secured the return of 1,000,000 shares of the
Company's common stock (pre-split) for the assignment of the Company's interest
in the Lone Star claims and a contribution of the Company's interest in the
Congress Mill Site facility. The Company retained a 5% carried interest in the
Mining Joint Venture through the initial $6.0 million spent by the Joint Venture
to develop the property. Mr. Pasma manages the Mining Joint Venture and began
initial operations in 1998. Currently, the Joint
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Venture Manager is awaiting the results of additional recovery tests.
Endless Glory - The Endless Glory property consists of 160 acres of
-------------
unpatented mining claims located in Santa Cruz county; Arizona and part of the
Coronado national Forest, approximately 15 miles south of Patagonia. Arizona.
Access to the property is through several National Forest roads and jeep trails.
The claims are situated in a mountainous area made up of limestones and
rhyolites which are intersected by veins of quartz and barite. The quartz veins
are up to 7 feet in width and contain high amounts of base metals in the
sulfides. Mining has been conducted on the property previously, primarily for
base metals. Significant areas of placer deposits also exist in washes on the
property. Testing and sampling of placer material and dump tailings indicate a
total mineable volume of approximately 265.000 tons of material with mineral
grades averaging 0.25 ounces/ton of gold; 6.13 ounces/ton of silver 3.33 %
copper and 1.6 % zinc.
The Company expects to conduct additional tests on the placer and tailings
material during fiscal 1998 to determine if the material can be suitably
recovered using the Cosmos concentrator equipment. The Company presently expects
to utilize gravity separation methods to recover the precious metals, however
additional testing may assist in defining the recovery method. The Company
currently expects to spend approximately $25,000 on additional testing during
the fourth quarter of fiscal 1999. Feasibility studies and engineering design of
recovery systems will be conducted pending the outcome of tests using the Cosmos
Concentrator.
Bear 1 & 2 - The property comprises some 320 acres of unpatented mining
----------
claims located in western Cochise County, Arizona in the Huachuca mountains
approximately 30 miles from Sierra Vista, Arizona. The area has been mined
previously through lode workings in the Wakefield Mine and the Van Horn Mine,
primarily for silver and tungsten. While the potential exists to evaluate and
further quantify the potential values of the lode deposits on the property, the
Company's primary focus is in the placer areas which make up part of Bear
Creek. It is likely that the placer mineralization is connected with the
various lode areas on the property.
An extensive sampling and testing program indicates a total of approximately
505,000 tons of mineable placer material exists on the claims with an average
grade of 0.06 ounces/ton of gold The Company expects to conduct a pilot
operation using a portable Cosmos Concentrator unit during the fourth quarter of
1999. It is estimated that the total cost of the pilot operation will not exceed
$75,000 Feasibility and engineering design and the timing of installation of a
full scale plant will be determined based on the results of the pilot operation.
PN 1 & 2 - The PN 1 & 2 property consists of 320 acres of unpatented mining
--------
claims located 20 miles northwest of Patagonia, Arizona in the Coronado National
Forest of Santa Cruz County, Arizona. Access to the area is limited to four-
wheel drive vehicles. Prior mining activity has occurred on the property in the
Little Joker, St. Louis, Philadelphia, Armada, Lead King and Dragon Z mines all
of which were productive of copper, lead, silver and gold. The Company presently
anticipates reentering these old shafts and drifts to reestablish production.
Sampling and testing at these sites yields mineable ore totaling 369,000 tons
with an average grade of 0.09 ounces/ton of gold. In order to properly develop
the property; the Company plans to initiate a core-drilling program to better
define the mineralization at each site. It is expected that the core drilling
program will cost approximately $300,000 and will be deferred until fiscal 1999.
Santa 1-22 - The claims comprising the Santa 1 through Santa 22 are located
----------
in the Patagonia area of Santa Cruz County; Arizona and encompass some 3,300
acres of unpatented mining claims. .Mining activity in the past has occurred at
the Dixie, Joplin, Last Chance, Happy Jack and Mohawk mines that produced lead,
copper, silver and gold. Mining in this area dates to 1879. Numerous tailings
piles exist at these sites which can be processed for gold recovery. In addition
the Company anticipates conducting a core drilling program to further define the
mineralization on the lode mines. Because of the significant placer area
available on these claims, the Company expects to conduct an extensive testing
and sampling program during fiscal 1998 to determine the suitability of the
Cosmos Concentrator to recovering gold in these areas. The sampling and testing
which has been conducted to date at the various sites, including the tailings
piles indicates a total of 4,320,000 tons of mineable ore with an average grade
of 0.06 ounces/ton of gold. The Company expects to conduct its analysis of the
placer material during the fourth quarter of fiscal 1998 and anticipates the
cost of the test program to be about $75,000. Core drilling to further define
the lode mineralization will be delayed until fiscal 1999 due to capital and
manpower limitations.
Cal 1 & 2 - The Cal 1 & 2 property consists of 320 acres of unpatented
---------
mining claims located near the city of Butte, Montana. The property contains
significant amounts of industrial quality garnet and sapphire as well as gold.
10
<PAGE>
The claims consist of placer material deposited by the California Creek and
most, if not all of the previous mining in this area has been placer mining
Based upon the sampling and testing program which has been conducted to date,
the total mineable tonnage available is 2,555,000 tons with an average yield of
0.033 ounces/ton of gold, 5.5 lbs./ton of garnet and 0.12 lbs./ton of sapphire.
The Company plans to conduct recovery tests utilizing the Cosmos concentrator
during the fourth quarter of fiscal 1999 to determine the suitability of this
equipment for recovering gold from these placers. The estimated cost for the
test is $55,000. The results of the test will determine the timing and cost of
the recovery system installed to initiate full-scale operations.
Duke Mine - The primary focus of the Company during fiscal 1998 has been the
---------
initiation of operations on the Duke Mine located in San Juan County, Utah. The
property comprises some 2,240 acres of unpatented mining claims in the Dry
Valley Gold Claim area. Access to the property is excellent via blacktop roads
adjacent to the claims. The property is located some 20 miles south of Moab,
Utah. The primary mineralization at the Duke Mine occurs as microscopic gold
located in very fine grain placer material. Sieve analysis of the sand indicates
that about 71% of the material are larger than 200 mesh. Recovery tests have
been conducted on a grid sampling pattern throughout the claim area utilizing
the Cosmos Concentrator and indicate an average recovery of 0.10 ounces/ton of
free gold. Because of the nature of the placer material and in particular its
size, mining and process recovery operations will be significantly simplified,
thereby reducing costs. The company has, subsequent to its initial reserve
report, conducted additional recovery tests utilizing other equipment in
addition to the Cosmos Concentrator with similar results. Water is readily
available, however, drilling is required.
The Company began production at the Duke Mine during the first quarter of
fiscal 1998 on a pilot operation. A portable Cosmos Concentrator was purchased
and was moved on site. The facility should be capable of processing about 100
tons of placer material per day, however initial operations have been conducted
at rates of 20 tons per day. The Company spent approximately $185,000 to begin
operations at this level and is operating under a small miner's permit
exemption. Pilot plant results have been encouraging despite mechanical start-up
problems. Upon completion of its pilot tests, the Company suspended any further
operations until construction of a full-scale modular facility can be completed.
The facility is planned during the fourth quarters of fiscal 1999, subject to
capital availability, permitting and construction schedules, at a cost of $5.0
million and with a capacity of 10,000 tons per day. The present claims owned by
the Company contain approximately 48,837,500 tons of placer material. The
company anticipates obtaining additional claims in the vicinity of the Duke Mine
during fiscal 1999 to further enhance its mineral resource in this area.
Presently there are 5 other companies active in the development of claims in the
vicinity of the Duke Mine. The Company has signed an Agreement with Asset
Capital LLC to provide the necessary funds for construction of the plant.
Mexico
Lance and Trega Mines - During 1993 the company entered into a joint venture
---------------------
to exploit gold reserves located in the Sierra Madre mountains of Mexico in and
around the town of Uruachi, Mexico. Under the terms of the agreement the Company
would own 55 % of the mines for paying $50,000 and 500,000 shares of the
Company's restricted common stock and for providing working capital loans of up
to $200,000 to be used to complete infrastructure and facilities necessary to
develop continuos mining operations. Although the quality of the ore bodies in
the Lance and Trega mines tested at very high contents of gold, 4 ounces/ton and
2 ounces/ton, respectively, the Company and its partner were unable to complete
the necessary infrastructure due to capital limitations. Both parties have
essentially mothballed the project until such time as sufficient capital is
available to complete the construction of roads and facilities. The company has
expended approximately $265,000 in the development of this project to date.
SilaQuartz Mining Company Ltd.
The Company owns an 80% interest in and controls the operations of
SilaQuartz Mining Company Ltd. which was formed to own a lease granted by
Systems Integration Corporation (SIC) in and unto certain high grade silica
mining claims located in Idaho. The claims comprise some 2,300 acres of high
grade silica ore with assay and spectrographic analysis resulting in a 98.5%
average purity. SIC had previously provided ore estimates in excess of 2 billion
tons of mineable reserves. The Company has not completed any independent reserve
analyses to date. High
11
<PAGE>
purity silica is used in a number of industries, most notably flux for steel
making, glass and electronics. Processing is required in many cases to further
refine the silica ore through the removal of minor amounts of impurities in
order to access markets that provide sufficient economic return to transport the
material from its current location in Idaho to market. The Company is conducting
engineering and marketing studies to determine the appropriate market to
penetrate with its silica ore and to determine the level of processing required
and the cost of a processing plant. It is expected that the Company will
conclude its studies during the third quarter of fiscal 1999 and begin
preparations for the construction of a processing plant during the fourth
quarter of fiscal 1999 or the first quarter of fiscal 2000. Substantial capital
will be required to construct a large scale processing facility and the
Company's schedule will necessarily become dependent upon available capital.
Competition
The acquisition of mining claims prospective for precious metals or other
minerals is subject to intense competition from a large number of companies and
individuals the ability of Company to acquire additional leases or additional
mining claims could be curtailed severely as a result of this competition.
The principal methods of competition in the industry for the acquisition of
mineral leases is the payment of bonus payments at the time of acquisition of
leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations requiring exploration and
production commitments by the lessee. Companies with far greater financial
resources, existing staff and labor forces, equipment for exploration and
mining, and vast experience will be in a better position than the Company to
compete for such leases.
Government Contracts
No portion of the Company's business is subject to re-negotiation of profits
or termination of contracts or subcontracts at the election of the Government.
Regulation
Federal, state and local authorities extensively regulate the mining
industry. Legislation affecting the mining industry is under constant review for
amendment or expansion. Numerous departments and agencies, both federal and
state, have issued rules and regulations binding on the mining industry and
their individual members some of which carry substantial penalties for the
failure to comply. The regulatory burden on the mining industry increases their
cost of doing business and consequently, affects their profitability. Inasmuch
as such laws and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for various of the Company operations, and these permits are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations and
violations are subject to fines, injunctions or both. It is possible that
increasingly strict requirements will be imposed by environmental laws and
enforcement policies thereunder. The Company is also subject to laws and
regulations concerning occupational safety and health. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in the aggregate to the Company's overall operations by reason of
environmental or occupational safety and health laws and regulations but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
12
<PAGE>
Title to Properties
Mining. The Company does not have title opinions on its mining claims or
------
leases and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claims may successfully contest all or a
portion of its title to the claims. Furthermore, the validity of all unpatented
mining claims is dependent upon inherent uncertainties such as the sufficiency
of the discovery of minerals, proper posting and marking of boundaries, and
possible conflicts with other claims not determinable from descriptions of
record. In the absence of a discovery of valuable minerals, a mining claim is
open to location by others unless the claimant is in actual possession of and
diligently working the claim (pedis possessio) No assurance can be given with
respect to unpatented mining claims in the exploratory stage that a discovery of
a valuable mineral deposit will be made.
To maintain ownership of the possessory title created by an unpatented
mining claim against subsequent locators, the locator or his successor in
interest must pay an annual fee of $200 per claim.
Operational Hazards and Insurance
The operations of the Company are subject to all risks inherent in the
exploration for and operation of mines and mining equipment, including such
natural hazards as blowouts, cratering and fires, which could result in damage
or injury to, or destruction of, drilling rigs and equipment, mines, producing
facilities or other property or could result in personal injury, loss of life or
pollution of the environment. Any such event could result in substantial expense
to the Company which could have a material adverse effect upon the financial
condition of the Company to the extent it is not fully insured against such risk
The Company carries insurance against certain of these risks but, in accordance
with standard industry practices, the Company is not fully insured for all risks
either because such insurance is unavailable or because the Company elects not
to obtain insurance coverage because of cost Although such operational risks and
hazards may to some extent be minimized. no combination of experience, knowledge
and scientific evaluation can eliminate the risk of investment or assure a
profit to any company engaged in mining operations
Employees
The Company employs one person in its Evansville, Indiana office whose
functions are associated with management, operations and accounting. The Company
uses independent contractors to supervise its mining business.
Item 3. Legal Proceedings.
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
13
<PAGE>
PART II
Item 5. Market For Registrant's Common Stock; and Related Stockholder
Matters.
The Company's common stock is traded in the over-the-counter market. Since
1984 trading has been so limited and sporadic that it is not possible to
obtain a continuing quarterly history of high and low bid quotations. Stock
information is received from registered securities dealers and reflects inter-
dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company has been advised that
trading in its shares resumed in September 1997 and at year-end July 31, 1998
the Company's stock was quoted at approximately $0.25 per share in sporadic
trading. The approximate present bid price for the Company's common stock is
$0. 125 per share and the approximate asked price is $0.3125 per share.
No dividends have ever been paid by the Company on its common stock and it
is not anticipated that dividends will be paid in the foreseeable future.
At July 31, 1998, there are approximately 500 holders of record of the
Company's common stock.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 60,000 15,955 105,630 114,667 296,641 433,213
Income (loss) from continuing operations (496,604) (6,726) (388,089) (461,186) (306,397) (124,914)
Net Income (loss) (496,604) (6,726) (276,424) (702,195) (307,397) (124,914)
Net Income (loss) per share (0.08) (0.0) (.0.01) (0.03) (0.01) (0.01)
Total Assets 1,948,979 722, 530 3,552,369 4,887,842 3,907,113 2,394,010
Stockholder's Equity 572,644 91,666 1,163,278 1,462,035 1,119,930 1,531,431
Cash Dividends Paid per Common Share 0 0 0 0 0 0
Number of Outstanding Shares (weighted) 6,138,819 13,357,111 24,927,938 24,026,841 21,180,958 10,920,184
</TABLE>
Item 7. Management's Discussion and Analysis of the Financial Condition and
Results of Operations.
Results of Operations
The factors which most significantly affect the Company's results of
operations are (i) the sale prices of crude oil and natural gas, (ii) the level
of oil and gas sales., (iii) the level of lease operating expenses, (iv) the
level of and interest rates on borrowings and the ability of FSI to market its
financial product to generate non-refundable fees to the Company. Since the
Company has limited control over the success of FSI's program, the Company will
need to rely on the initiation operations on its mining ventures to generate
cash flow and future profits. As the Company successfully completes its strategy
of becoming a mining company, the same factors listed above will apply to the
14
<PAGE>
sale of minerals and metals mined by the Company. As the Company initiates
production on its mining properties, results of operations will be affected by:
(i) commodity prices for copper and gold. (ii) the quantity and quality of the
ores recovered and processed and (iii) the level of operating expenses
associated with the mining operations.
Prices for gold had remained relatively stable during the past several years and
had generally reflected the relatively low inflation rates predominate in the
economies of the industrialized nations. Recently, gold prices began a
significant downward price adjustment, which may reflect a shift from the
traditional dependence upon gold as a financial hedge against inflation. Current
spot prices for gold are $290.00 per ounce and are expected to continue to
remain at or near those levels. The Company does not expect to realize any
substantial increase in the price of gold in the future.
Copper prices have fluctuated dramatically since the Company's acquisition of
its copper property with prices ranging from a low of about $0.65 per pound in
August 1993 to a high of $1.20 per pound in 1995 to current levels of about
$0.80 per pound. Wide variations in copper prices have resulted from the
increased demand for electrical wire and copper related products as a result of
the continued high growth rate of the economies of the industrialized nations
and as a result of periodic reductions in the availability of scrap copper for
recycling. Continued fluctuations in the spot price for copper are expected to
result from variations in the availability of scrap copper and the continued
strong demand from emerging nations. Concerns regarding the economies of the
Pacific Rim nations, and in particular Japan, have recently dampened demand for
copper and will likely impact its price until such time as stability is achieved
in those economies.
With the initiation of production from the Duke Gold Mine in Utah, the Company's
principal source of cash flow will be the production and sale of gold. Cash flow
from gold sales depends upon the quantity of production and the price obtained
for such production. An increase in prices permits the Company to finance its
operations to a greater extent with internally generated funds. A decline in
gold prices reduces the cash flow generated by the Company's operations, which
in turn reduces the funds available for servicing debt, acquiring additional
mining properties and for developing and expanding its mining operations.
Year ended July 31, 1998 compared to year ended July 31, 1997. Total revenues
- -------------------------------------------------------------
for the Company for the year ended July 31, 1998 were $60,000 compared to
$15,955 for the year ended July 31, 1997 and reflects management fees as a
result of the Company's subleases on its office space. The Company expects its
revenues to remain marginal until it begins continuous operations either on the
Duke Mine planned for summer 1999 or the SilaQuartz Idaho mine expected to begin
in summer of 2000.
Operating expenses for the year ended July 31, 1998 were $69,152 compared to
$31,899 for the same period a year earlier and reflect the operation of the
company's pilot plant on the Duke Gold Mine during the first and second fiscal
quarters of 1998. The company does not expect to incur substantial operating
expenses until one of its mining operations is in continuous operation. General
and administrative expenses increased dramatically from $93,433 for the year
ended July 31, 1997 to $561,266 for the year ended July 31, 1998 and reflects
the expenses associated with the Duke Gold Mine pilot plant operation and
funding of engineering and other overhead costs associated with the SilaQuartz
silica mining project. The Company expects the level of its general and
administrative expenses to remain high until advance studies and other planning
is completed and the mines are in continuous operation.
The Company incurred an after tax net loss of $496,604 ($0.08 per share) for the
year ended July 31, 1998 compared to an after tax net loss of $6,726 ($0.00 per
share) for the prior year. The increase in the loss is a result of the high
level of general and administrative expenses for 1998 and the fact that the loss
in 1997 was offset by the extinguishment of $775,211 in debt as a result of the
purchase of assets from Latex Resources, Inc. The Company generated $188,996 in
fees from its program with Merrion/FSI during fiscal 1998 compared to $91,251
for the year earlier. The Company does not expect to generate a profit until its
mining operations are in continuous operations.
Year ended July 31, 1997 compared to year ended July 31, 1996. Total revenues
- -------------------------------------------------------------
for the Company for the year ended July 31, 1997 were $15,955 compared to
$105,630 for the year ended July 31, 1996. The decrease in revenues reflect the
sale of Premier Operating Company during the first quarter of 1997. The Company
expects to begin reporting revenues from its operation of the Duke Gold Mine
during the summer of 1999.
15
<PAGE>
Operating expenses for the year ended July 31,1997 were $132,189 compared to
$386,619 for the year ended July 31, 1996. The level of expenses is expected to
remain about the same for fiscal 1998 until significant mining activity is
achieved. General and administrative expenses decreased to $93,433 for the year
ended July 31,1997 compared to $312,453 for the prior year end and reflect the
reduced activity of the Company in the mining business and the costs associated
therewith. General and administrative expenses are expected to increase
dramatically as mining operations are initiated and the Company hires employees
to manage its operations.
The Company incurred an after tax loss of $6,726 ($0.00 per share) for the year
ended July 31, 1997 compared to a loss of $276,424 ($0.01 per share) for the
year ending July 31, 1996. The improvement in the after tax loss reflects the
gain on the extinguishment of the debt ($775,211) owed by the company to Latex
Resources, Inc. in connection with the Company's purchase of certain assets and
liabilities from LaTex. The Company received $91,521 during the year in non-
refundable fees in conjunction with its participation with FSI compared to
$268,532 the prior year. Until the Company initiates significant mining
operations on a continuous basis, it is anticipated that the Company's
operations will continue to be unprofitable.
Year ended July 31, 1996 compared to year ended July 31, 1995. Total revenues
- -------------------------------------------------------------
for the Company for the year ended July 31, 1996 were $105,630 compared to
$114,667 for the year ended July 31, 1995. The decrease in revenues reflect
lower produced volumes of oil and natural gas and is offset somewhat by slightly
higher product prices received. In addition to revenues from operations, the
Company generated net revenue of $268,532 during the year from its participation
in the financial program offered by FSI. Since the ability of FSI to continue
its 1996 levels of placements of its financial product cannot be assured, the
Company expects its revenues will decrease during fiscal 1997 and reflect
revenue levels commensurate with its current oil and gas operations. The Company
sold its oil and gas operations in October, 1996 and as a result will have only
minimal revenues until its mining operations begin. Since the Company is,
subject to available capital, planning the start-up of operations on its Duke
Mine during fiscal 1997 operating revenues may increase if operations are
achieved on a significant level.
Operating expenses for the year ended July 31,1996 were $386,619 compared to
$389,940 for the year ended July 31, 1995. The level of expenses is expected to
remain about the same for fiscal 1997 unless significant mining activity is
achieved. General and administrative expenses increased to $312,453 for the year
ended July 31, 1996 compared to $234,012 for the prior year-end and reflect the
present acquisition activity in the mining business and the costs associated
therewith. General and administrative expenses are expected to increase
dramatically as mining operations are initiated and the Company hires employees
to manage its operations.
The Company incurred an after tax loss of $276,424 ($0.01 per share) for the
year ended July 31, 1996 compared to a loss of $702,895 ($0.03 per share) for
the year ending July 31, 1995 The improvement in the after tax loss reflects the
increase in non-refundable fees received by' the Company in conjunction with its
participation with FSI and the reduction in write-offs incurred in prior years.
Until the Company initiates significant mining operations on a continuous basis,
it is anticipated that the Company's operations will continue to be
unprofitable.
Capital Resources and Liquidity.
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
16
<PAGE>
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 signed 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 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 Asset Capital
transaction will complete. The Company has 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 $679,997 as of July 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 July 31, 1998, the Company had current assets of $177,545 and current
liabilities of $1,376,335, which resulted in negative working capital of
$1,198,790. The negative working capital position is comprised primarily of
notes payable to shareholders and related parties totaling $679,997 and accrued
salaries and expenses totaling $428,579. 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 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.
17
<PAGE>
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.
Item 8. Financial Statements and Supplementary Data.
Audited Financial Statements of Imperial Petroleum, Inc.
Independent Auditor's
Report.................................................................... F-1
Consolidated Balance Sheets as of July 31, 1998 and 1997.................. F-2
Consolidated Statements of Operations for the years ended July 31, 1998,
1997 and 1996............................................................. F-3
Consolidated Statements of Stockholder's Equity for the years Ended
July 31, 1998, 1997 and 1996.............................................. F-4
Consolidated Statements of Cash flows for the years ended July 31, 1998,
1997 and 1996............................................................. F-5
Notes to Consolidated Financial Statements................................ F-7
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.
Not applicable.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
Directors and Executive Officers
The following table sets forth certain information regarding the directors,
executive officers and key employees of the Company.
Name Age Position
---- --- --------
Jeffrey T. Wilson 45 Director, Chairman of the Board, President and
Chief Executive Officer
Malcolm W. Henley 47 Director
Stacey D. Smethers 30 Director, Secretary
Edmund J. Kwiecien, Jr. 46 Director
Jeffrey T. Wilson has been Director, Chairman of the Board, President and Chief
- -----------------
Executive Officer of the Company since August 1993. Mr. Wilson was a Director,
Chairman and President of LaTex Resources, Inc., an affiliate of the Company,
and was the founder of its principal operating subsidiary, LaTex Petroleum
Corporation. Prior to his efforts with LaTex, Mr. Wilson was Director and
Executive Vice President of Vintage Petroleum, Inc. and was employed by Vintage
in various engineering and acquisition assignments from 1983 to 1991. From
August 1980 to May 1983 Mr. Wilson was employed by Netherland, Sewell &
Associates Inc., a petroleum consulting firm. Mr. Wilson began his career in the
oil and gas business in June 1975 with Exxon Company USA in various assignments
in the Louisiana and South Texas areas. Mr. Wilson holds a Bachelor of Science
Degree in Mechanical Engineering from Rose-Hulman Institute of Technology.
Malcolm W. Henley has been a Director of the Company since May 1996. Mr. Henley
- -----------------
was a Director and Vice President of LaTex Resources, Inc., an affiliate of the
Company and was founder of Enpro, Inc. a crude oil and natural gas marketing
subsidiary of LaTex. Mr. Henley's prior experience includes Manager of
Operations for Champlin Pipeline Company from 1976 to 1979 and Continental Oil
Company from 1975-1976. Mr. Henley has a Bachelor of Arts Degree in Business
Administration from Oklahoma State University and an Associate Degree in
Petroleum Land Technology from Tulsa Junior College.
Stacey D. Smethers has been a Director of the Company and Director since July
- ------------------
1995. Mrs. Smethers was Executive Assistant to the President of Enpro, Inc. and
Marketing Representative for LaTex Resources, Inc., an affiliate of the Company.
Mrs. Smethers has seven years of varied experience in the oil and gas industry
including assignments in marketing, administration and petroleum land
management.
Edmund J. Kwiecien, Jr. has been a Director of the Company since November 1997
- -----------------------
as a result of the acquisition of controlling interest by the Company of
SilaQuartz Mining Company Ltd. Mr. Kwiecien is the founder of SilaQuartz. Prior
to forming SilaQuartz, Mr. Kwiecien has owned various companies and had various
assignments primarily related to the real estate business.
Section 16(a) Reporting Deficiencies
Section 16(a) of the Securities and Exchange Act of 1934 ("Exchange Act")
requires the Company's directors and officers and persons who own more than 10%
of a registered class of the Company's equity securities, to file initial
reports of ownership on Form 3 and reports of changes in ownership on Forms 4
and 5 with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers ("NASD"). Such persons are required by SEC
regulation to furnish the company with copies of all Section 16(a) forms they
file.
19
<PAGE>
Based upon a review of From 3, 4 and 5 filings made by the Company's officers
and directors during the past fiscal year ended July 31, 1998 under Section
16(a) of the Exchange Act, the Company believes that all requisite filings have
been made timely.
Item 11. Executive Compensation.
The table below sets forth, in summary form, (1) compensation paid to Jeffrey T.
Wilson, the Company's Chairman of the Board, President and Chief Executive
Officer and (2) other compensation paid to officers and directors of the
Company. Except as provided in the table below, during the three fiscal years
ended July 31, 1998, 1997 and 1996 (I) no restricted stock awards were granted,
(ii) no stock appreciation or stock options were granted, (iii) no options,
stock appreciation rights or restricted stock awards were exercised, and (iv)
except as provided below, no awards under any long term incentive plan were made
to any officer or director of the Company.
The Company began accruing salary due to Jeffrey T. Wilson in January 1994. To
date no actual salary payments have been made to Mr. Wilson.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Awards
----------------
Annual Compensation Warrants
------------------- --------
Name and Principal
- ------------------
Position Year Salary Bonus # shares
- -------- ---- -------- ----- --------
<S> <C> <C> <C> <C>
Jeffrey T. Wilson 1998 $100,000 -- ----
1997 $100,000 -- 250,000(1)
1996 $100,000 -- ----
Malcolm W. Henley 1998 ---- -- ----
1997 ---- -- 250,000(1)
1996 ---- -- 333,333(2)
Stacey D. Smethers 1998 ---- -- ----
1997 ---- -- 50,000(1)
1996 ---- -- 8,333(2)
</TABLE>
None of the executive officers listed received perquisites or other personal
benefits that exceeded the lesser of $50,000 or 10% of the salary and bonus for
such officers.
(1) The exercise price of the warrants is $0.25 per share with a term of three
years from October 9, 1997.
(2) The exercise price of the warrants is $0.18 per share with a term of three
years from July 10, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 1998, the Company has 6,469,801 issued and outstanding shares
of common stock. The following table sets forth, as of July 31, 1998, the number
and percentage of shares of common stock of the Company owned beneficially by
(I) each director of the Company, (ii) each executive officer of the Company,
(iii) all directors and officers as a group, and (iv) each person known to the
Company to own of record or beneficially own more than 5% of the Company's
common stock. Except as otherwise listed, the stockholders listed in the table
have sole voting and investment power with respect to the shares listed. As of
July 31,1998, the Company had approximately 550 holders of common stock of
record.
20
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
- ------------------------ ------------------ -----------------
<S> <C> <C>
Jeffrey T. Wilson (1) 1,695,835 26.2%
Malcolm W. Henley (2) 33,334 0.5%
Stacey D. Smethers (3) 1,667 0.03%
Edmund J. Kwiecien, Jr. 750,000 11.6%
All officers and directors as a
Group (3 people) 2,480,836 38.33%
</TABLE>
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312,
Evansville, Indiana 47708.
(2) The mailing address of Mr. Henley is 4200 East Skelly Drive, Suite 1000,
Tulsa, Oklahoma 74135.
(3) The mailing address of Stacey D. Smethers is 4813 Rustic Road, Sand Springs,
Oklahoma 74063.
(4) The mailing address of Mr. Kwiecien is 13601 Royalton Road, Strongsville,
Ohio 44136.
Item 13. Certain Relationships and Related Transactions.
Jeffrey T. Wilson, Chairman, President and Chief Executive Officer of the
Company has made unsecured loans to the Company which total $679,997 in
principal as of July 31, 1998.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has
made unsecured loans to the Company which total $25,000 in principal as of July
31, 1998.
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate
of the Company, of $676,415 as of July 31, 1998.
The Company has made loans to SilaQuartz Mining Company, an 80% owned
subsidiary, as of July 31, 1998 that total $62,500.
Imperial leases office space and office services, including telephones, copiers,
and office supplies at its headquarters office to Wexford and RealAmerica at the
rate of $2,500 per month to each Company. As of July 31, 1998, Wexford owed
Imperial $30,000 in accrued office expenses and RealAmerica owed Imperial a
total of $10,000 in unpaid office space rent.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) Financial Statements (See Item 8. Financial Statements and
Supplementary Data):
Financial Statements of Imperial Petroleum, Inc.
Reports of Independent Public Accountants;
Consolidated Balance Sheets as of July 31, 1998 and 1997;
Consolidated Statements of Operations for the years ended July 31,
1998, 1997, and 1996;
Consolidated Statements of Stockholder Equity for the years ended
July 31, 1998, 1997, and 1996;
Consolidated Statements of Cash Flows for the years ended July 31,
1998, 1997, and 1996;
Notes to Consolidated Financial Statements.
Supplemental Financial Information
Schedule II - Amounts Receivable from Related Parties. Other
Schedules are omitted as they are not required.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the fiscal year ended July 31, 1998.
(c) Exhibits. (Previously filed).
2.1 Reorganization Agreement and Plan incorporated herein by reference
to Exhibit E to the Registrant's General Form for Registration of Securities on
Form 10 filed with the Securities and Exchange Commission on August 31, 1981
(the "Form 10").
2.2 Article of Merger incorporated herein by reference to Exhibit F of
the Form 10.
2.3 Agreement to Exchange Stock and Plan of Reorganization dated August
27, 1993 by and between Imperial Petroleum, Inc., Glauber Management Company,
Glauber Valve Co., Inc., Jeffrey T. Wilson, James G. Borem, and those persons
listed on exhibit A thereto, and exhibits and schedules attached thereto,
incorporated herein by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
September 17, 1993.
2.4 First Amendment to Agreement to Exchange Stock and Plan of
Reorganization dated August 27, 1993 by and between Imperial Petroleum, Inc.,
Glauber Management Company, Glauber Valve Co., Inc., Jeffrey T. Wilson, James G.
Borem, and those persons listed on Exhibit A thereto, and exhibits and schedules
attached thereto, incorporated herein by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 17, 1993.
2.5 Stock Exchange Agreement dated October 4, 1993 by and between
Imperial Petroleum, Inc., Frederic D. Sewell, and the remaining parties
identified in Schedules "A-1" and "A-2" thereto, and exhibits and schedules
attached thereto, incorporated herein by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 29, 1993.
3.1 Certificate of Incorporation of the Registrant incorporated herein
by reference to Exhibit -- of the Form 10.
22
<PAGE>
3.2 Bylaws of the Registrant incorporated herein by reference to
Exhibit B of the Form 10.
4 Instruments defining the rights of security holders, including
indentures. Not applicable.
9 Voting Trust Agreement. Not applicable.
10.1 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma,
N.A. dated July 9, 1992.
10.2 Promissory Note in the principal sum of $395,000 by and between lB.
Energy, Inc. and Sank of Oklahoma, N.A. dated July 9, 1992.
10.3 Mortgage, Deed of Trust, Security Agreement, Financing Statement
and Assignment between I.B. Energy, Inc. and Bank of Oklahoma, N.A. dated July
9, 1992.
10.4 Guaranty Agreement by and between James G. Borem, Patricia Borem
and Bank of Oklahoma, N.A. dated July 9, 1992.
10.5 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C.
Wilson and Bank of Oklahoma, N.A. dated July 9, 1992.
10.6 Letter Agreement between I.B. Energy, Inc. and Bank of Oklahoma,
N.A. dated July 9, 1992.
10.7 Security Agreement and Assignment [Louisiana] between IB. Energy,
Inc. and Bank of Oklahoma, NA. dated July 9, 1992.
10.8 Act of Pledge and Security Agreement between I.B. Energy, Inc. and
Bank of Oklahoma, NA. dated July 9, 1992.
10.9 Letter Agreement between I.B. Energy, Inc., Bank of Oklahoma, N.A.,
Jeffrey T. Wilson, Annalee C. Wilson, James G. Borem and Patricia Borem dated
May 7, 1993.
10.10 Promissory Note in the principal sum of $350,000 by and between
I.B. Energy, Inc., and Bank of Oklahoma, N.A. dated May 7, 1993.
10.11 Guaranty Agreement by and between Ridgepointe Mining Company and
Bank of Oklahoma N.A. dated May 7, 1993.
10.12 Guaranty Agreement by and between Jeffrey T. Wilson. Annalee C.
Wilson, and Bank of Oklahoma, NA. dated May 7, 1993.
10.13 Guaranty Agreement by and between James G. Borem, Patricia Borem,
and Bank of Oklahoma, NA. dated May 7, 1993.
10.14 Promissory Note in the principal sum of $216,000 by and between
Premier Operating Company and Bank of Oklahoma, N.A. dated October 18, 1993.
10.15 Mortgage, Deed of Trust, Security Agreement. Financing Statement
and Assignment (Midland County, Texas) by and between Premier Operating Company
and Bank of Oklahoma, NA. dated October 18, 1993.
10.16 Financing Statement by and between Premier Operating Company and
Bank of Oklahoma. N.A. dated October 18, 1993.
10.17 Letter Agreement by and between Premier Operating Company and Bank
of Oklahoma, N.A. dated October 18, 1993.
23
<PAGE>
10.18 Negative Pledge Agreement by and between Premier Operating Company
and Bank of Oklahoma, N.A. dated October 18, 1993.
10.19 Guaranty Agreement by and between Ridgepointe Mining Company and
Bank of Oklahoma, N.A. dated October 18, 1993.
10.20 Guaranty Agreement by and between the Registrant and Bank of
Oklahoma, N.A. dated October 18, 1993.
10.21 Guaranty Agreement by and between Jeffrey T. Wilson, Annalee C.
Wilson, and Bank of Oklahoma, N.A. dated October 18, 1993.
10.22 Agreement to Acquire SilaQuartz Mining Company dated November 3,
1997 Including Subsequent Amendments.
10.23 Compromise and Settlement Agreement by and Between Ridgepointe
Mining Company and UFO Limited Partnership dated November 28, 1997.
10.24 Joint Venture Agreement for the Recovery of Precious Metals by and
between Zane Pasma and Ridgepointe Mining Company dated December 1, 1997.
10.25 Hypothecation Agreement by and between Imperial Petroleum, Inc. and
Asset Capital LLC dated September 8, 1998 and Gold Dore Certificate Rental
Agreement of the same date.
10.26 Joint Venture Agreement for the Recovery of Diamonds by and between
Imperial Petroleum, Inc. and Continental Resources Party Ltd. and Natural
Resources Group, Inc. dated October 22, 1998.
11 Statement re: computation of per share earnings. Not applicable.
12 Statement re: computation of ratios. Not applicable.
13 Annual Report to security holders, Form 10-Q, or quarterly report
to security holders. Not applicable.
16 Letter re change in certifying accountant. Not applicable.
18 Letter re: change in accounting principles. Not applicable.
21 Subsidiaries of the Registrant.
22 Published report regarding matters submitted to vote of security
holders. Included by reference.
23 Consents of experts and counsel. Not applicable.
24 Power of Attorney. Not applicable.
27 Financial Data Schedule. Not applicable.
28 Information from reports furnished to state insurance regulatory
authorities. Not applicable;
99 Additional Exhibits; Not applicable.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Imperial Petroleum, Inc.
Date: February ____, 1999 /s/ Jeffrey T. Wilson
----------------------
Jeffrey T. Wilson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jeffrey T. Wilson President and Chief Executive February __, 1999
- ------------------------ Officer (Principal Executive
Jeffrey T. Wilson Officer) and Director
</TABLE>
25
<PAGE>
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 1998 and 1997
and
FOR THE YEARS ENDED
JULY 31, 1998, 1997 and 1996
and
INDEPENDENT AUDITOR'S REPORT
<PAGE>
IMPERIAL PETROLEUM, INC.
July 31, 1998, 1997, and 1996
T A B L E O F C O N T E N T S
-------------------------------
Page
----
Independent Auditor's Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-28
<PAGE>
[LETTERHEAD OF BRISCOE, BURKE & GRIGSBY LLP APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Imperial Petroleum, Inc.
Evansville, Indiana
We have audited the accompanying consolidated balance sheets of
Imperial Petroleum, Inc. (A Development Stage Company) as of July 31, 1998 and
1997 and the consolidated statements of operations, stockholders' equity, and
cash flows for the years ended July 31, 1998, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imperial Petroleum, Inc. (A
Development Stage Company) as of July 31, 1998 and 1997 and the results of its
operations and its cash flows for the years ended July 31, 1998, 1997 and 1996,
in conformity with generally accepted accounting principles.
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses, substantial
working capital deficiencies, and has not completed the necessary reserve
studies to determine the metal content of the reserves and the related future
production costs which affect the recoverability of capitalized costs. These
factors raise substantial doubt about its ability to continue as a going
concern. Further, there can be no assurance, assuming the Company successfully
raises additional funds, that it will be able to economically recover the value
of its mining claims or achieve profitability. Management's plans in regard to
these matters are also described in Note 1 to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BRISCOE, BURKE & GRIGSBY LLP
---------------------------------
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
January 28, 1999
Tulsa, Oklahoma
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997 LIABILITIES and 1998 1997
ASSETS ------------ ----------- STOCKHOLDERS' EQUITY ------------ ------------
Current assets: Current liabilities:
<S> <C> <C> <C> <C> <C>
Cash $ 12,125 $ 1,103 Accounts payable $ 21,434 $ 60,755
Accounts receivable - other 72,500 - Accounts payable - other 71,325 85,218
Other current assets 92,920 14,000 Accrued expenses 428,579 230,354
----------- ----------- Unearned revenue 50,000 -
Total current assets 177,545 15,103 Notes payable (Note 6) 125,000 -
----------- ----------- Notes payable - related parties
(Note 7) 679,997 254,537
----------- -----------
Total current liabilities 1,376,335 630,864
----------- -----------
Noncurrent liabilities:
Deferred income taxes (Note 5) - -
----------- -----------
Total noncurrent liabilities - -
----------- -----------
Mining properties under development Stockholders' equity:
(Notes 1, 2, and 4): Common stock of $0.006 par value.
Mining claims, options and Authorized 50,000,000 shares;
development costs 1,032,934 282,934 6,469,801 issued in 1998 and
Mining and milling equipment 37,500 - 5,283,164 shares in 1997 38,819 31,699
Acquisition in progress (Note 18) 300,000 300,000 Paid-in capital 3,458,419 2,487,957
----------- ----------- Accumulated deficit (1,707,917) (1,211,313)
1,370,434 582,934 Treasury stock, at cost (152,290
----------- ----------- shares in 1998 and 752,290 shares
Net property, plant and equipment 1,370,434 582,934 in 1997) (1,216,677) (1,216,677)
----------- ----------- ----------- -----------
Other assets: Total stockholders' equity 572,644 91,666
----------- -----------
Accounts receivable - related party
(Note 3) 401,000 47,305
Investments-securities (Notes 2 and 12) - 77,188
----------- ----------- Commitments and contingencies
(Note 9) - -
Total other assets 401,000 124,493
----------- -----------
TOTAL LIABILITIES and
TOTAL ASSETS $ 1,948,979 $ 722,530 STOCKHOLDERS' EQUITY $ 1,948,979 $ 722,530
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Operating income:
Oil and gas revenue $ - $ 15,955 $ 104,740
Management fees 60,000 - 890
---------- ----------- -----------
Total operating income 60,000 15,955 105,630
---------- ----------- -----------
Operating expenses:
Oil and gas lease operating expense 7,389 44,980
Mining lease operating expense 69,152 24,510 1,760
General and administrative expenses 561,266 93,433 312,453
Depreciation and depletion (Note 2) - 6,857 27,426
---------- ----------- -----------
Total operating expenses 630,418 132,189 386,619
---------- ----------- -----------
Loss from operations (570,418) (116,234) (280,989)
Other income and (expense):
Interest expense (76,915) (19,478) (107,100)
Interest income 38,921 - -
Gold certificate income - net (Note 15) 188,996 91,521 268,532
Loss on write-down of mining equipment (Note 14) - (797,786) (121,953)
Loss on write-down of securities (77,188) - -
Gain on extinguishment of debt - 775,211 -
Gain (loss) on sale of assets - 60,040 (34,914)
---------- ----------- -----------
Net loss before income taxes (496,604) (6,726) (276,424)
---------- ----------- -----------
Provision for income taxes: (Note 5)
Current - - -
Deferred - - -
---------- ----------- -----------
Total benefit from income taxes - - -
---------- ----------- -----------
Net loss $ (496,604) $ (6,726) $ (276,424)
========== =========== ===========
Loss per share (Note 2) $ (.08) $ - $(.01)
========== =========== ===========
Weighted average shares outstanding 6,138,819 13,357,111 24,927,938
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Unrealized Total
Par Paid-In Treasury Retained Loss on Stockholders'
Shares Value Capital Stock Deficit Equity Equity
---------- ------ ---------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1995 24,026,841 $24,027 $2,366,171 $ - $ (928,163) $ - $ 1,462,035
Receipt of Treasury stock - - - (120,313) - - (120,313)
Stock issued for services 500,000 500 14,500 - - - 15,000
Stock issued for mining properties
and equipment 1,900,000 1,900 55,100 - - - 57,000
Stock issued for investment 5,000,000 5,000 37,188 - - - 42,188
Net loss for the period - - - - (276,424) (16,208) (292,632)
----------- ------- ---------- ----------- ----------- -------- ------------
Balances at July 31, 1996 31,426,841 31,427 2,472,959 (120,313) (1,204,587) (16,208) 1,163,278
Reverse split (Note 17) (26,188,677) - - - - - -
Receipt of Treasury stock (Notes 16 and 18) - - - (1,096,364) - 16,208 (1,080,156)
Stock issued for mining properties
and equipment 45,000 272 14,998 - - - 15,270
Net loss for the period - - - - (6,726) - (6,726)
----------- ------- ---------- ----------- ----------- -------- ------------
Balances at July 31, 1997 5,283,164 31,699 2,487,957 (1,216,677) (1,211,313) - 91,666
Stock issued for services 173,575 1,040 87,050 - - - 88,090
Stock issued for mining properties
and equipment 860,000 5,160 782,340 - - - 787,500
Stock issued to pay off debt 153,062 920 101,072 - - - 101,992
Net loss for the period - - - - (496,694) - (496,604)
----------- ------- ---------- ----------- ----------- -------- ------------
Balances at July 31, 1998 6,469,801 $38,819 $3,458,419 $(1,216,677) $(1,707,917) $ - $ 572,644
=========== ======= ========== =========== =========== ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Historical net loss $(496,604) $ (6,726) $(276,424)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Expenses paid with common stock 115,164 - -
Depreciation and depletion - 6,857 27,426
Realized loss on marketable securities 77,188 - -
(Increase) Decrease in accounts receivable - oil and gas - 15,673 (3,929)
(Increase) Decrease in accounts receivable - other (72,500) - -
(Increase) Decrease in accounts receivable - related party (353,695) (37,429) -
(Increase) Decrease in other current assets (78,920) (12,850) (718)
(Increase) Decrease in other assets - 75 14,812
Increase (Decrease) in accounts payable (39,321) 11,493 (18,108)
Increase (Decrease) in accounts payable - related parties - - (10,951)
Increase (Decrease) in accounts payable - other 61,025 66,500 1,800
Increase (Decrease) in accrued expenses 198,225 (21,881) 77,800
Increase (Decrease) in unearned revenue 50,000 (3,550) 3,550
--------- --------- ---------
Net cash used for operating activities (539,438) 18,162 (184,742)
--------- --------- ---------
Cash flows from investing activities:
Mining options, properties and equipment - net - (105,832) (20,000)
Oil and gas properties and equipment sold - 112,865 -
Write-down of oil and gas equipment - - 18,869
Write-off of mining claims and equipment - - 134,824
(Increase) Decrease in investment - other - 2,445 (2,445)
--------- --------- ---------
Net cash used for investing activities $ - $ 9,478 $ 131,248
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase (Decrease) in notes payable $125,000 $ (139,817) $ (12,593)
Increase (Decrease) in notes payable - related parties 425,460 104,239 71,849
-------- ----------- -----------
Net cash provided by financing activities 550,460 (35,578) 59,256
-------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 11,022 (7,938) 5,762
Cash and cash equivalents at beginning of year 1,103 9,041 3,279
-------- ----------- -----------
Cash and cash equivalents at end of year $ 12,125 $ 1,103 $ 9,041
======== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ $ 6,896 $ 63,270
Income taxes - - -
Supplemental schedule of noncash investing and financing activities:
Stock issued for mining equipment and mining claim options $787,500 $ 15,270 $ (57,000)
Stock issued for services 115,164 - (15,000)
Stock issued for investment - - (42,188)
Rescind agreement on mining claims and equipment - 2,045,565 1,270,376
Rescind agreement on notes payable 74,918 (1,089,753) (1,150,063)
Rescind agreement on common stock issued - (955,812) (120,313)
Unrealized loss on equity securities - (16,208) 16,208
Write-down of oil and gas assets - - 18,869
Write-down of mining claims - 797,786 134,824
Extinguishment of debt - (775,211) -
-------- ----------- -----------
Total $977,582 $ 21,637 $ 55,713
======== =========== ===========
</TABLE>
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION
Organization
------------
The Company is engaged, through its wholly owned subsidiary, Ridgepointe
Mining Company, in testing, defining and developing mineral reserves on
mining claims it owns or operates in Utah, Montana, Arizona, and New
Mexico.
Financial Condition
-------------------
The Company's financial statements for the year ended July 31, 1998 have
been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities in the normal course of
business. The Company incurred a net loss of $496,604 for the year ended
July 31, 1998 and as of July 31, 1998 has an accumulated deficit of
$1,707,917 and a deficit working capital of $1,198,790.
The Company's management plans to raise capital to fund continuing
operations by utilization of one or a combination of the following:
1. The continuation of its efforts in the issuance of Gold Dore
Certificates (See Note 15).
2. The private placement of equity securities through negotiations
with potential market makers in the Company's securities.
3. The joint venture of the Company's Utah property with another
mining company to provide the capital resources to develop all of
the Company's properties.
-7-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Acquisition of Imperial Petroleum, Inc.
---------------------------------------
Pursuant to an Agreement to Exchange Stock and Plan of Reorganization dated
August 27, 1993 (the "Stock Exchange Agreement"), between Imperial
Petroleum, Inc. ("Imperial"), Glauber Management Company, ("Glauber
Management"), Glauber Valve Co., Inc., ("Glauber Valve"), and 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, representing 100% of the
issued and outstanding common stock of Ridgepointe, for a total of
12,560,730 shares of newly issued shares of Imperial's common stock
representing 59.59% of Imperial's resulting issued and outstanding common
stock. The one-for-one ratio of the number of shares of Imperial's common
stock exchanged for each share of Ridgepointe common stock was determined
through arms length negotiations between Imperial and the majority
stockholders of Ridgepointe. As a result, Ridgepointe became a wholly
owned subsidiary of Imperial.
As a condition to the Ridgepointe Exchange Transaction, Imperial received
and canceled 7,232,500 shares of its Common Stock from Glauber Management
and received 100,000 shares of the common stock of Tech-Electro
Technologies, Inc. from an affiliate of Glauber Management and Glauber
Valve. In addition, Glauber Management or Glauber Valve, or their
affiliates, transferred to Imperial 75,000 shares of common stock of
Chelsea Street Holding Company, Inc.
Acquisition of Premier Operating Company
----------------------------------------
Pursuant to a Stock Exchange Agreement dated October 4, 1993 (the "Stock
Exchange Agreement") between Imperial Petroleum, Inc. and 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 Operating Company ("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 a major shareholder of Premier, on behalf of the Premier Stockholders.
The business combination was accounted for using the purchase method of
accounting. As a result, Premier became a wholly owned subsidiary of the
Company.
-8-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Acquisition of LaTex Resources International, Inc.
--------------------------------------------------
See Note 16.
Acquisition of Phoenix Metals, Inc.
-----------------------------------
See Note 16.
Development Stage Company
-------------------------
A summary of the financial information of Ridgepointe Mining Company (A
Development Stage Company), excluding its wholly owned subsidiary I. B.
Energy, Inc., is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets $ - $ -
Net property and equipment 620,434 582,934
Other assets - -
----------- -----------
Total assets $ 620,434 $ 582,934
=========== ===========
1998 1997
----------- -----------
Current liabilities $ 630,632 $ 640,474
Long-term liabilities - -
Common stock 125,107 125,107
Paid-in capital 1,343,886 1,343,886
Deficit accumulated before
development stage (121,953) (121,953)
Deficit accumulated during
development stage (1,357,238) (1,404,580)
----------- -----------
Total liabilities and
stockholders' deficit $ 620,434 $ 582,934
=========== ===========
</TABLE>
-9-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
<TABLE>
<CAPTION>
Cumulative
1997 1998 From Inception
---------- ---------- ---------------
<S> <C> <C> <C>
Operating revenues $ - $ - $ -
Miscellaneous income - - 96,579
--------- --------- -----------
Total income - - 96,579
Lease operating expenses 24,510 67,652 162,922
General and
administrative 16,689 62,361 407,358
--------- --------- -----------
Total expenses 41,199 130,013 570,280
Net operating loss (41,199) (130,013) (473,701)
Interest expense (9,945) (14,243) (267,214)
Gain (Loss) on sale/
write-down of assets (797,786) 191,598 (786,093)
--------- --------- -----------
Net income (loss) before
income taxes (848,930) 47,342 (1,527,008)
Income tax benefit - - (169,770)
--------- --------- -----------
Net loss $(848,930) $ 47,342 $(1,357,238)
========= ========= ===========
</TABLE>
-10-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
From Inception
--------------
Cash flows from operating activities:
Historical net loss $ (1,357,238)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion
(Increase) in other assets
Increase in current liabilities 630,632
-------------
Net cash used for operating activities (726,606)
-------------
Cash flows from investing activities:
Mining options, properties and equipment
purchased - net (620,434)
-------------
Net cash used for investing activities (620,434)
------------
Cash flows from financing activities:
Increase in notes payable -
Stock issued for funding 1,347,040
------------
Net cash provided by financing activities 1,347,040
------------
Net increase in cash and cash equivalents -
Cash and cash equivalents at inception -
------------
Cash and cash equivalents at July 31, 1998 $ -
============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ -
Income taxes -
Disclosure of accounting policy:
For purposes of the statement of cash flows,
the Company considers all highly liquid debt
instruments purchased with a maturity of three
months or less to be cash equivalents.
-11-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The July 31, 1998, 1997 and 1996 financial statements include the accounts
of the Company and its wholly owned subsidiaries, Ridgepointe Mining
Company, Premier Operating Company, I. B. Energy, Inc., LaTex Resources
International, Inc., and Phoenix Metals, Inc. All significant intercompany
accounts have been eliminated.
Accounting Estimates
--------------------
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instruments
---------------------
The fair value of current assets and current liabilities are assumed to be
equal to their reported carrying amounts due to the short maturities of
these financial instruments.
The carrying value of all other financial instruments approximates fair
value.
Marketable Securities
---------------------
The Company determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Securities are classified as held-to-maturity
when the Company has the intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost and investment
income is included in earnings. The Company classifies certain highly
liquid securities as trading securities. Trading securities are stated at
fair value and unrealized holding gains and losses are included in income.
Securities that are not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized holding gains and losses, net of
tax, reported as a separate component of stockholders' equity.
-12-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company places its cash investments with high
quality financial institutions and limits the amount of exposure to any one
institution. In the case of default of any one financial institution, no
cash investments exist that are not covered by the FDIC. The Company's
revenues were, until 1997, derived principally from uncollateralized sales
to customers in the oil and gas industry. The concentration of credit risk
in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and
other conditions. The Company has not experienced significant credit
losses on such receivables. The Company performs periodic evaluations of
its customers' financial condition and generally does not require
collateral.
Development Stage Subsidiary
----------------------------
Ridgepointe Mining Company, a wholly owned subsidiary, is in the process of
defining mineral reserves and raising capital for operations. As such,
Ridgepointe Mining Company is considered a development stage enterprise.
Revenue Recognition
-------------------
The Company recognizes oil and gas revenue in the month of sale. Mining
revenues will be recognized in the month of sale. Uncollected revenue is
accrued based on known facts and trends of the relevant oil and gas
properties on a monthly basis.
-13-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, Equipment, Depreciation and Depletion
-----------------------------------------------
The Company uses the successful efforts method to account for costs in the
acquisition and exploration of oil and natural gas reserves. Costs to
acquire mineral interests in proved reserves, and to drill and equip
development wells are capitalized. Geological and geophysical costs and
costs to drill exploratory wells which do not find proved reserves are
expensed. Undeveloped oil and gas properties which are individually
significant are periodically assessed for impairment of value and a loss is
recognized at the time of impairment by providing an impairment allowance.
The remaining unproved oil and gas properties are aggregated and an overall
impairment allowance is provided based on Company experience. Depletion
and depreciation are calculated on the units of production method based
upon current estimates of oil and gas reserves provided by management.
Non oil and gas property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of non
oil and gas assets. Expenditures which significantly increase values or
extend useful lives are capitalized. Expenditures for maintenance and
repairs are charged to expenses as incurred. Upon sale or retirement of
property and equipment, the cost and related accumulated depreciation and
depletion are eliminated from the respective accounts and the resulting
gain or loss is included in current earnings.
Mining exploration costs are expensed as incurred. Development costs are
capitalized. Depletion of capitalized mining costs will be calculated on
the units of production method based upon current production and reserve
estimates when placed in service.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of change in tax rates is recognized in
income in the period that includes the enactment date.
-14-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss Per Common Share
---------------------
Loss per common share is computed based upon the weighted average common
shares outstanding. Outstanding warrants are excluded from the weighted
average shares outstanding since their effect on the earnings per share
calculation is antidilutive.
FASB Accounting Standards
-------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 119 (SFAS 119), Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments. This
Statement generally requires disclosures about amounts, nature, and terms
of derivative financial instruments. The Company has adopted SFAS 119 for
the fiscal year ended July 31, 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the undiscounted
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted SFAS 121 for the fiscal year ending July 31, 1997.
Reclassification
----------------
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
-15-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Shareholder $ 1,000 $ 1,000
Wexford Technology, Inc. 676,415 184,794
Allowance for bad debts (276,415) (138,489)
--------- ---------
Total $ 401,000 $ 47,305
========= =========
</TABLE>
4. MINING PROPERTIES UNDER DEVELOPMENT
Mine Development
----------------
The costs incurred for mine evaluation and development are capitalized.
Upon the commencement of production, the capitalized costs will be
amortized utilizing the units of production method. The Company has
incurred $32,634 and $32,634 in development costs through July 31, 1998
and 1997, respectively. (See Note 18.)
The Company's mining fixed assets consist of the following:
<TABLE>
<CAPTION>
July 31, July 31,
1998 1997
----------- ---------
<S> <C> <C>
Mining claims $1,000,300 $250,300
Mining equipment 37,500 -
Mine development costs 32,634 32,634
Acquisition in progress 300,000 300,000
---------- --------
Total $1,370,434 $582,934
========== ========
</TABLE>
-16-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (continued)
The Company has not completed the necessary reserve studies to determine
the metal content of the reserves and the related future production costs
which affect the recoverability of the capitalized costs. The amount of
impairment, if any, cannot be estimated. Accordingly, the financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
5. INCOME TAXES
Provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
----- ----- -----
$ - $ - $ -
===== ===== =====
Deferred:
Federal $ - $ - $ -
State - - -
----- ----- -----
$ - $ - $ -
===== ===== =====
</TABLE>
-17-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
Income taxes differed from the amounts computed by applying the U.S.
federal tax rate as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax benefit $(169) $ (1) $ (53)
State income taxes net of federal
benefit - - -
Increase in valuation allowance
for deferred tax assets 169 1 53
Other - - -
----- ----- -----
Actual income tax expense $ - $ - $ -
===== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1998 1997
------- ------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 300 $ 300
Other - -
----- -----
Total deferred tax liabilities 300 300
----- -----
Deferred tax assets:
Net operating losses 649 480
Other 1 1
----- -----
Total deferred tax assets 650 481
----- -----
Valuation allowance (350) (181)
----- -----
Net deferred tax assets 300 300
----- -----
Net deferred tax asset (liability) $ - $ -
===== =====
</TABLE>
-18-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
A valuation allowance is required when it is more likely than not that all
or a portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future
profitability. Accordingly, a valuation allowance has been established to
reduce the deferred tax assets to a level which, more likely than not, will
be realized.
The Company has net operating loss (NOL) carryforward to offset its
earnings of approximately $1,900,000. If not previously utilized, the net
operating losses will expire in varying amounts from 2009 to 2012.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
-------- -----
<S> <C> <C>
H. N. Corporation, promissory note,
dated January 20, 1998, principal
due January 20, 1999 plus interest
at 9% $ 25,000 $ -
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due November 24, 1998 plus interest
at 9% 50,000 -
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due December 18, 1998 plus interest
at 9% 50,000 -
-------- -----
Total 125,000 -
Less: current portion 125,000 -
-------- -----
Long-term notes payable $ - $ -
======== =====
</TABLE>
-19-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Officer - 10% demand note $ 64,295 $ 64,295
Officer - 7.5% demand note 186,353 190,242
Officer - 9.0% demand note 429,349 -
-------- --------
$679,997 $254,537
======== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company, from time to time, has entered into loans with certain
officers, directors, stockholders and related companies (See Notes
3 and 7).
9. LITIGATION, COMMITMENTS AND CONTINGENCIES
Contingencies - The Company is a named defendant in lawsuits, is a party
-------------
in governmental proceedings, and is subject to claims of third parties from
time to time arising in the ordinary course of business. While the outcome
of lawsuits or other proceedings and claims against the Company cannot be
predicted with certainty, management does not expect these matters to have
a material adverse effect on the financial position of the Company.
-20-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS
The Company's operations involve oil and gas production and mining
operations. The following table sets forth information with respect to the
industry segments of the Company.
1998 1997 1996
----------- ------------ ------------
Revenues: (in thousands)
Oil and gas
production and
lease operations $ - $ 16 $ 106
Mining - - -
----------- ------------ ------------
Total revenues $ - $ 16 $ 106
=========== ============ ============
Identifiable assets:
Oil and gas production $ - $ - $ 142
Mining 1,370 583 3,336
Other 579 140 74
----------- ------------ ------------
$ 1,949 $ 723 $ 3,552
=========== ============ ============
Depreciation and depletion:
Oil and gas production $ - $ 7 $ 27
Mining - - -
----------- ------------ ------------
$ - $ 7 $ 27
=========== ============ ============
-21-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
Results of Operations from Oil and Gas Producing Activities
-----------------------------------------------------------
The following sets forth certain information with respect to the Company's
results of operations from oil and gas producing activities for the years
ended July 31, 1998, 1997 and 1996. All of the Company's oil and gas
producing activities are located within the United States. During 1997 the
Company disposed of its oil and gas assets (See Note 1).
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Revenues $ - $ 16 $ 105
Production costs - 7 38
Gross production taxes - 1 7
Depreciation, depletion and amortization - 7 27
----- ----- -----
Results of operations before income taxes - 1 33
Income tax expense - - -
----- ----- -----
Results of operations (excluding corporate
overhead and interest costs) $ - $ 1 $ 33
===== ====== =====
</TABLE>
Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)
---------------------------------------------------------------
The Company chose not to have estimates of proved oil and gas reserves
prepared by independent petroleum engineers. The reserve estimates
provided were prepared by management. The Company's reserves are located
onshore in the United States.
The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current
information becomes available.
Proved reserves are estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are those which are expected to be recovered through
existing wells with existing equipment and operating methods. The
following is an analysis of the Company's proved oil and gas reserves.
-22-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
<TABLE>
<CAPTION>
Oil (MBbls) Gas (MMcf)
----------- ----------
<S> <C> <C>
Proved reserves at July 31, 1995 11.4 236.9
Revisions of previous estimates - -
Extensions, discoveries and other additions - -
Production (1.9) (44.1)
Purchases of reserves-in-place - -
Sales of reserves-in-place - -
---------- ---------
Developed reserves at July 31, 1996 9.5 192.8
Revisions of previous estimates - -
Extensions, discoveries and other additions - -
Production (.3) (6.7)
Purchases of reserves-in-place
Sales of reserves-in-place (9.2) (186.1)
---------- ---------
Developed reserves at July 31, 1997 - -
Revisions of previous estimates - -
Extensions, discoveries and other additions - -
Production - -
Purchases of reserves-in-place - -
Sales of reserves-in-place - -
---------- ---------
Developed reserves at July 31, 1998 - -
========== =========
Proved developed reserves at:
July 31, 1996 9.5 192.8
July 31, 1997 - -
July 31, 1998 - -
</TABLE>
-23-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
---------------------------------------------------------------------------
Oil and Gas Reserves (Unaudited)
--------------------------------
The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure
requirement under SFAS No. 69. The Standardized Measure does not purport to
present the fair market value of proved oil and gas reserves. This would
require consideration of expected future economic and operating conditions,
which are not taken into account in calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by
applying year-end prices, adjusted for fixed and determinable escalations,
to the estimated future production of year-end proved reserves. Future
cash inflows were reduced by the estimated future production and
development costs based on year-end costs to determine pre-tax cash
inflows. Future income taxes were computed by applying the statutory tax
rate to the excess of pre-tax cash inflows over the Company's tax basis in
the associated proved oil and gas properties. Tax credits and permanent
differences were also considered in the future income tax calculation.
Future net cash inflows after income taxes were discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -------
(In thousands)
<S> <C> <C> <C>
Future cash inflows $ - $ - $460.7
Future costs - future production and
development costs - - 186.7
----- ----- ------
Future net cash inflows before income tax expense - - 274.0
Future income tax expense - - 68.5
----- ----- ------
Future net cash flows - - 205.5
10% annual discount for estimated
timing of cash flows - - 103.4
----- ----- ------
Standardized Measure of discounted
future net cash flows $ $ - $102.1
===== ===== ======
</TABLE>
-24-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
Changes in Standardized Measure of Discounted Future Net Cash Flows
-------------------------------------------------------------------
Relating to Proved Oil and Gas Reserves (Unaudited)
---------------------------------------------------
The following is an analysis of the changes in the Standardized Measure for
the periods presented:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Standardized Measure - beginning of year $ - $ 102 $ 124
Increases (Decreases)
Sales, net of production costs - - (60)
Net change in sales prices, net of
production costs - - 8
Discoveries and extensions, net
of related future development
production costs - - -
Changes in estimated future
development costs - - -
Development costs incurred - - -
Revisions of previous quantity
estimates - - -
Accretion of discount - - 30
Net change in income taxes - - -
Purchases of reserves-in-place - - -
Sales of reserves-in-place - (102) -
Timing of production of reserves
and other - - -
----- ----- -----
Standardized Measure - end of year $ - $ - $ 102
===== ===== =====
</TABLE>
-25-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
---------- ---------- ---------- ---------
Investment in equity
securities:
July 31, 1998:
Available for sale
(marked to market) $ - $ - $ - $ -
July 31, 1997:
Available for sale
(marked to market) $ 77,188 $ - $ - $ 77,188
13. WARRANTS
On July 10, 1996, the Company issued warrants to employees of an affiliate
for services provided to the Company. The warrants give the holder the
right to purchase 2,500,000 shares of the Company's common stock for $.03
per share. The warrants expire on July 10, 1999.
14. WRITE-DOWN OF MINING EQUIPMENT
During the year ended July 31, 1996, the Company ceased its limited core
drilling and testing of its Arizona mining claims. The Company has
indefinitely ceased its Arizona milling operations. Additionally, the
Company wrote off $121,953 of book value in equipment that could not be
located.
Also, during the year ended July 31, 1997, the Company wrote-down, by
$784,341, its book value of equipment and development costs in its Arizona
operations related to its participation in a joint venture as discussed in
Note 18.
-26-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
15. GOLD CERTIFICATE INCOME
During 1996, the Company entered into an agreement with Financial Surety
International LTD whereby the Company would issue Gold Dore Certificates to
third parties in exchange for a leasing fee of 1.25% of the certificate
face value. The third party lessee uses the certificates as collateral in
order to obtain venture capital financing. These Gold Dore Certificates
specify the delivery of a specified amount of gold at a future date,
usually 5 years, for sale to the holder at the market price on that date.
Performance is insured by contract with Merrion Reinsurance Corporation
LTD. Upon expiration of the lease period, the certificates are returned to
the Company and are canceled.
The Company pays a 10% finders fee to a consultant in connection with each
certificate issued. During the year the Company had $209,996 of Gold
Certificate Income, less finders fees of $21,000 for net Gold Certificate
Income of $188,996.
16. ACQUISITION AND EXTINGUISHMENT OF DEBT
Agreement with LaTex Resources, Inc.
------------------------------------
During 1997, the Company reached an agreement with LaTex Resources, Inc.
whereby the Company gave 100,000 shares of LaTex common stock (or 85,500
equivalent Alliance Resources Plc post-merger shares), loaned to the
Company by CEO Jeffrey T. Wilson, in exchange for 5,000,000 shares of
Wexford Technology, Inc. common stock (representing a 32.3% interest),
3,798,730 shares of the Company's common stock, 5,000 shares of LaTex
Resources International, Inc. common stock (100%), 30,000 shares of Phoenix
Metals, Inc. common stock (100%) and extinguishment of the debt of the
aforementioned companies as well as that of the Company.
This extinguishment resulted in a gain of $786,162, the receipt of Treasury
stock valued at $140,553 and the recording of an investment in Wexford
Technology, Inc. of $77,188. No value was recorded for the receipt of
LaTex Resources International, Inc. or Phoenix Metals, Inc.
-27-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
17. STOCK SPLIT
On November 21, 1996 the Company effected a one for six reverse split of
its common stock, resulting in 5,238,164 shares being outstanding on that
date.
18. SETTLEMENT AGREEMENT ON UFO CLAIMS
During 1997, the Company reached a settlement agreement with UFO Mining
Limited Partnership whereby the Company would assign its interest in the
UFO mining claims to a third party, receive a release from the $1,000,000
note and receive 166,667 (post-split) shares of the Company's common stock
given in the original transaction. In conjunction with this agreement, the
Company entered into a joint venture with the third party whereby the
Company assigned its interest in the UFO claims, infrastructure and onsite
equipment to the joint venture in exchange for a 5% carried interest.
Under the joint venture agreement, the Company would be responsible for
contributing up to 167,000 shares of its restricted common stock if the
joint venture were to contribute $6,000,000 in capital. In exchange, the
third party assumed the responsibility for liability to the UFO Mining
Limited Partnership. Also, the Company has chosen to write-down the value
of the assets to be contributed to the joint venture by $784,341 to more
accurately reflect the market value of those assets and hence the value of
the Company's interest in the joint venture. The Company has reflected the
assets to be contributed to the joint venture as $300,000 in acquisitions
in progress.
As a result, the Company has reduced mining claims by $2,045,565, reduced
notes payable by $1,000,000, reduced accrued interest payable by $89,753
and recorded Treasury stock of $955,812.
-28-
<PAGE>
EXHIBIT 10.25
GOLD DORE CERTIFICATE RENTAL AGREEMENT
This Gold Dore Certificate Rental Agreement (the "Agreement") is made and
entered into as of the 8th day of September, 1998 by and between Imperial
Petroleum, Inc., ("LESSOR"), a Nevada corporation whose principal address is 100
NW Second Street, Suite 312, Evansville, IN 47708 and Asset Capital L.L.C. ("the
LESSEE"), a Colorado limited liability corporation whose principal address is
1024 Centre Ave., Bldg. E., Fort Collins, CO 80526.
WITNESSETH
WHEREAS, LESSEE desires to lease certain assets owned by LESSOR and represented
in the form of a Gold Dore Certificate of Deposit ("Gold Certificate") issued by
LESSOR, and
WHEREAS, LESSEE desires to lease the Gold Certificates on the terms and
conditions provided in this Agreement; and
WHEREAS, LESSOR is prepared to issue Gold Certificates on behalf of LESSEE or
its nominee with full rights of hypothecation thereto;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
provisions, and covenants herein contained the parties do hereby agree as
follows:
1. Issuance of Gold Certificate by LESSOR
1.01 Conditions on Issuance of Gold Certificate: LESSOR agrees to issue as
-------------------------------------------
requested by LESSEE on behalf of LESSEE or its designated nominee, a
total of five (5) Gold Dore Certificates in the aggregate amount of $500
million (US) based on dore, concentrates, in-ground gold reserves or
refined material (collectively referred herein as the "Gold Reserves").
LESSOR agrees to maintain sufficient Gold Reserves, in its sole
judgment, at all times during the period the Gold Certificate is
outstanding to provide LESSEE with a coverage ratio of 1 to 1. Coverage
ratio is defined as the value of the Gold Reserves based upon the
estimated volume of the reserves times the then current price of gold
divided by the face value of the certificate.
1.02 Term: Unless otherwise agreed in writing by LESSOR and LESSEE, the term
-----
of the Gold Certificate shall be for a period of two (2) years from the
date of issuance.
1.03 Payment of Rental Fees: LESSEE shall pay LESSOR in readily available
-----------------------
funds a rental fee in advance for the Gold Certificate as follows:
a.) 25% of the face value for the term of the certificate.
The rental fee is non-refundable and is due within 3 business days of
the time of
2
<PAGE>
delivery of the Gold Certificate by LESSOR to LESSEE or its designee.
1.04 Purchase Gold Reserves: During the term of the Agreement, LESSEE agrees
-----------------------
to purchase the Gold Reserves represented by the Gold Certificate as
such reserves are produced in gold dore form based upon the payment to
the LESSOR of the then current price of gold times the volume specified
on the face of the Gold Certificate. LESSOR shall notify LESSEE in
writing monthly of the volumes available for purchase and the Parties
agree to fix the gold price based upon the average cash price as posted
on the New York Mercantile Exchange for the five business days prior to
the end of each month.
1.05 Right of LESSEE to Hypothecate Gold Certificate: During the term the
------------------------------------------------
Gold Certificate is outstanding, LESSEE shall have the sole right to
deliver, pledge, hypothecate or otherwise encumber the Gold Certificate,
subject to the terms and conditions of this Agreement. In the event
LESSEE hypothecates, pledges or otherwise further encumbers the Gold
Certificate, LESSEE agrees to back the delivery of gold required under
the terms of the certificate with sufficient cash and/or insurance to
fully insure the certificate value.
1.06 Right of LESSOR to Cancellation of Gold Certificate: In the event
----------------------------------------------------
LESSEE fails to timely make any rental payment as specified in Section
1.02 above or otherwise fails to timely purchase the volumes of gold in
dore form available from LESSOR from time to time, LESSOR shall have the
right without notice to cancel the Gold Certificate from its books and
records.
1.07 Prior Hypothecation of Certain Gold Reserves: LESSEE acknowledges that
---------------------------------------------
LESSOR has entered into a prior Hypothecation Agreement regarding a
certain portion of its gold reserves and that LESSEE hereby agrees to
release sufficient gold reserves from the terms of that Hypothecation
Agreement to provide the coverage ratio defined in Section 1.01 above.
2. Representations and Warranties by LESSOR
-------------------------------------------
LESSOR represents and warrants to LESSEE that the statements contained in this
Section 2 are correct and complete as of the date of this Agreement and will be
- ---------
correct and complete as of the date of closing.
2.01 Authorization. LESSOR has full power and authority to execute and deliver
--------------
this Agreement and to perform his obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of LESSOR, enforceable in
accordance with its terms and conditions. LESSOR need not give any notice to,
make any filing with, or obtain any authorization, consent or approval of any
government, governmental agency, or other person in order to consummate the
transactions contemplated by this Agreement.
3
<PAGE>
2.02 Noncontravention. Neither the execution and the delivery of this Agreement,
-----------------
nor the consummation of the transactions contemplated hereby, will violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency or court to
which LESSOR is subject or conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, security
interest, or other arrangement to which LESSOR is a party or by which it is
bound or to which any of his assets are subject.
3. Representations and Warranties
------------------------------
Concerning LESSEE.
------------------
LESSEE represents and warrants to LESSOR that the statements contained in this
- ------
Section 3 are correct and complete as of the date of this Agreement and will be
- ---------
correct and complete as of the date of closing.
3.01 Organization, Qualification and Corporate Power. LESSEE is a limited
------------------------------------------------ ------
liability corporation duly organized under the laws of Colorado. LESSEE is duly
------
authorized to conduct business and is in good standing under the laws of each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties requires such qualification. LESSEE has full corporate power and
------
authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.
3.02 Noncontravention. Neither the execution and the delivery of this Agreement,
-----------------
nor the consummation of the transactions contemplated hereby, will (i) violate
any statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency or court to
which the LESSEE is subject or any provision of its Certificate of Incorporation
------
or Bylaws of LESSEE or (ii) conflict with, result in a breach of, constitute a
------
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, security
interest or other arrangement to which LESSEE is a party or by which it is bound
------
or to which any of its assets is subject or result in the imposition of any
security interest upon any of its assets. LESSEE is not required to give any
------
notice to, make any filing with, or obtain any authorization, consent or
approval of any government, governmental agency or other person in order for
LESSEE to consummate the transactions contemplated by this Agreement.
- ------
3.03 Speculative Nature and Risk. LESSEE understands and acknowledges the
---------------------------- ------
speculative nature of and substantial risk of loss associated with an investment
in the Gold Certificate. In agreeing to lease the Gold Certificate, LESSEE
------
acknowledges that it constitutes an investment which is suitable and consistent
with its financial condition and that it is able to bear the risks of this
investment for
4
<PAGE>
an indefinite period of time. LESSEE further acknowledges that the Gold
Certificates are backed by in-ground gold reserves and that LESSEE has reviewed
the available reserve reports, assays and other materials and has satisfied
itself as to the sufficiency of the reserves thereof. LESSEE further represents
------
that it has adequate means of providing for its current financial needs and
corporate contingencies and no need for liquidity in its investment and that it
has sufficient financial and business experience to evaluate the merits and
risks of this investment.
4. Other Terms and Conditions
4.01 Governing Law: The Agreement herein shall be governed by the laws of the
- -------------------
State of Nevada.
4.02 Notices: Any notices or other communications required or permitted
- ------------
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid if addressed as follows:
If to LESSEE: Frank Mannon
Asset Capital L.L.C.
1024 Centre Ave., Bldg. E
Fort Collins, CO 80526
If to LESSOR: Jeffrey T. Wilson
Imperial Petroleum, Inc.
100 NW Second Street, Suite 312
Evansville, IN 47708
4.03 No Assignment - Except in the event of the hypothecation of the Gold
- ------------------
Certificate by LESSEE as provided herein, this Agreement may not be assigned by
operation of law or otherwise without the express written consent of the Parties
hereto and, in the event of an attempted assignment, this Agreement shall
terminate.
4.04 Entire Agreement; Modification; Benefit - This Agreement contains the
- --------------------------------------------
entire agreement and understanding by and between LESSOR and the LESSEE with
respect to the subject matter hereof and no other representations, promises,
agreements or understandings, written or oral, not contained herein shall be of
any force or effect. This Agreement shall not be modified or amended except by
any instrument in writing signed by, or on behalf of, the parties hereto. This
Agreement shall be binding upon and inure to the benefit of and shall be
enforceable by and
5
<PAGE>
against LESSEE, its successors and assigns, and LESSOR and its successors and
assigns.
IN WITNESS HEREOF, the parties have executed this Agreement as of the day and
year first written above.
LESSOR
/s/ JEFFREY T. WILSON
--------------------------
Imperial Petroleum, Inc.
LESSEE
/s/ FRANK MANNON
--------------------------
Asset Capital L.L.C.
6
<PAGE>
AGREEMENT
This agreement by and between RIDGEPOINTE MINING COMPANY, hereinafter
referred to as "RMC", and Asset Capital, L.L.C. of Colorado, hereinafter
referred to as "AC" shall be specific to the terms and conditions of the
hypothecation of assets (Exhibit "A"), for the express purpose of enhancement of
-----------
financial guarantees and support of promissory notes generated by "AC" or its
affiliates.
For its participation in this program, "RMC", will receive a cash
payment of fifteen million dollars US ($15,000,000) after acceptance of assets
and within 5 days of our funding and within two weeks of execution. All assets
must remain hypothecated for a term of 3.5 years from the execution date of this
contract. All assets must be verified with written acceptance from "AC".
This contract is binding upon both parties and or its assigns and both
parties agree that the contents herein constitute their agreement in its
entirety that there are no other provisions expressed or implied.
RIDGEPOINTE MINING COMPANY
/s/ JEFFREY T. WILSON
- ----------------------------------
BY: Jeffrey T. Wilson, President
STATE OF INDIANA )
) ss.
COUNTY OF VANDERBURGH )
Before me, the undersigned Notary Public, in and for said County and State, on
this day personally appeared Jeffrey T. Wilson, acknowledged to me that he
executed said instrument for the purposes and consideration therein expressed.
Given, under my hand and seal of this 3rd day of Sept., 1998.
/s/ DARNELL J. GRANDERSON
------------------------------
Notary Public
My appointment expires:
DARNELL J GRANDERSON
NOTARY PUBLIC STATE OF INDIANA
VANDERBURGH COUNTY
MY COMMISSION EXP APR. 20, 2001
2
<PAGE>
HYPOTHECATION AGREEMENT
This agreement between Asset Capital, L.L.C. hereinafter referred to as "AC" and
Ridgepointe Mining Company, (Provider), whereby PROVIDER hereby hypothecates the
listed assets described in (Exhibit "A") to "AC" as additional collateral for
----------
financial guarantees issued by Asset Capital, L.L.C., and shall be for a term of
three (3.5) years from the execution date of said Promissory Note.
Description of hypothecated assets found on Exhibit "A" of this document.
[ASSET CAPITAL, L.L.C.
CORPORATE
STATE OF COLORADO
SEAL
APPEARS HERE]
********************************************************************************
EXECUTED this 3rd day of September, 1998.
---------
RIDGEPOINTE MINING COMPANY
/s/ JEFFREY T. WILSON
- ----------------------------------
BY: Jeffrey T. Wilson, President
STATE OF INDIANA )
) ss.
COUNTY OF VANDERBURGH )
Before me, the undersigned Notary Public, in and for said County and State, on
this day personally appeared Jeffrey T. Wilson, acknowledged to me that he
-----------------
executed said instrument for the purposes and consideration therein expressed.
Given, under my hand and seal of this 3rd day of Sept., 1998.
--- -----
/s/ DARNELL J. GRANDERSON
------------------------------
Notary Public
My appointment expires:
DARNELL J GRANDERSON
NOTARY PUBLIC STATE OF INDIANA
VANDERBURGH COUNTY
MY COMMISSION EXP APR. 20, 2001
4
<PAGE>
Exhibit "A"
-----------
Hypothecated assets:
--------------------
(Legal description)
Utah State mining claim numbers:
--------------------------------
#47316 (excluding the following: NW1/4 Sec.36, T291/2S, R22E)
#47318
#47323
Federal claim numbers:
----------------------
UMC #357684
UMC #357679
RIDGEPOINTE MINING COMPANY
/s/ JEFFREY T. WILSON
- ---------------------------------
BY: Jeffrey T. Wilson, President
STATE OF INDIANA )
) ss.
COUNTY OF VANDERBURGH )
Before me, the undersigned Notary Public, in and for said County and State, on
this day personally appeared Jeffrey T. Wilson, acknowledged to me that he
executed said instrument for the purposes and consideration therein expressed.
Given, under my hand and seal of this 3rd day of Sept., 1998.
/s/ DARNELL J GRANDERSON
--------------------------
Notary Public
My appointment expires:
DARNELL J GRANDERSON
NOTARY PUBLIC STATE OF INDIANA
VANDERBURGH COUNTY
MY COMMISSION EXP APR. 20, 2001
3
<PAGE>
Asset Capital, L.L.C. [NOTARY PUBLIC SEAL
OF MIKE ELAINE WHITE
By: /s/ E. F. MANNON STATE OF COLORADO
------------------- APPEARS HERE]
E. F. Mannon
STATE OF COLORADO )
) ss.
COUNTY OF LARAMER )
Before me, the undersigned Notary Public, in and for said County and State, on
this day personally appeared E. F. Mannon, acknowledged to me that he executed
said instrument for the purposes and consideration therein express.
Given, under my hand and seal of this 3rd day of September, 1998.
/s/ MIKE ELAINE WHITE
----------------------------
Notary Public
My appointment expires:
My Commission Expires 1/12/2001
- ---------------------
********************************************************************************
Asset Capital, L.L.C. [NOTARY PUBLIC SEAL
OF MIKE ELAINE WHITE
By: /s/ BRUCE BLECHMAN STATE OF COLORADO
------------------- APPEARS HERE]
Bruce Blechman
STATE OF COLORADO )
) ss.
COUNTY OF LARAMER )
Before me, the undersigned Notary Public, in and for said County and State, on
this day personally appeared Bruce Blechman, acknowledged to me that he executed
said instrument for the purposes and consideration therein express.
Given, under my hand and seal of this 3rd day of September, 1998.
/s/ MIKE ELAINE WHITE
----------------------------
Notary Public
My appointment expires: My Commission Expires 1/12/2001
[ASSET CAPITAL, L.L.C.
CORPORATE
SEAL
STATE OF COLORADO
APPEARS HERE]
5
<PAGE>
EXHIBIT 10.26
JOINT VENTURE AGREEMENT
FOR THE RECOVERY OF DIAMONDS
THIS JOINT VENTURE AGREEMENT FOR THE RECOVERY OF DIAMONDS (the
"Agreement"), dated as of the 22 day of October 1998, by and between Imperial
Petroleum, Inc., a Nevada corporation ("Imperial") and The Natural Resource
Group, Inc., a Delaware corporation and Continental Resources party Ltd., a
South African corporation, (collectively referred herein as"NRG/Continental").
W I T N E S S E T H :
WHEREAS, the Board of Directors of Imperial and NRG/Continental deem it
advisable and in the best interests of each company to enter into this
Agreement; and
WHEREAS, NRG/Continental owns certain mining rights, claims and mining
licenses in the Republic of South Africa in connection with its agreements with
individual miners and others; and
WHEREAS, Imperial has an interest in pursuing diamond mining opportunities
with NRG/Continental in South Africa and can assist in the purchase, lease or a
combination thereof of mining equipment for the projects; and
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby
agree as follows.
1. Obligations of The Parties
------------------------------
1.01 Obligations of NRG/Continental: NRG/Continental agrees to (a.)dedicate
-------------------------------
to the Joint Venture operation certain mining rights, claims and licenses under
its control in the Republic of South Africa as specified on Exhibit "A" attached
hereto and made a part hereof; (b.)make available its process technology,
including all drawings, flow charts, material balance calculations, chemical
formulas, tests, etc. or any other information useful or necessary to the Joint
Venture and any equipment or other materials currently in its possession in
South Africa which will aid in the recovery of diamonds from the diamondiferous
bearing gravels and ores to be processed by the Joint Venture. NRG/Continental
additionally agrees to assist in any modifications deemed appropriate in its
technology
1
<PAGE>
by the Joint Venture in tailoring the technology to the specific ores processed
by the Joint Venture; (c.) design, construct, manage and operate the facilities
planned by the Joint Venture in connection with the recovery of diamonds in
South Africa in its role as Joint Venture Manager; (d.) use its existing
agreements for the sale of diamonds recovered by the Joint Venture; and (e.)
disburse proceeds and pay invoices in connection with the Joint Venture
operations.
1.02 Obligations of Imperial: Imperial agrees to (a.) obtain a financial
------------------------
guarantee from an acceptable European insurance carrier to allow the Joint
Venture to obtain an equipment finance loan for mining equipment in an amount up
to $5.5 million; (b.) make available its process technology, including all
drawings, flow charts, material balance calculations, chemical formulas, tests,
etc. or any other information useful or necessary to the Joint Venture and any
equipment or other materials currently in its possession in South Africa which
will aid in the recovery of diamonds from the diamondiferous bearing gravels and
ores to be processed by the Joint Venture. Imperial additionally agrees to
assist in any modifications deemed appropriate in its technology by the Joint
Venture in tailoring the technology to the specific ores processed by the Joint
Venture; and (c.) provide technical assistance, where feasible to the Joint
Venture.
1.03 Obligations of Joint Venture Manager. NRG/Continental agrees to manage
------------------------------------
the Joint Venture on behalf of itself and Imperial in a good and workmanlike
manner and for the mutual benefit of the partners. NRG/Continental will, on
behalf of the Joint Venture, maintain the mining claims, mining rights and
licenses as required under the rules and regulations of South Africa and in
compliance with all local, state and federal laws and regulations.
NRG/Continental will file and maintain all permits, bonds, including reclamation
bonds, and insurance for the benefit of the Joint Venture in connection with the
development of the mining claims, mining rights and licenses, including but not
limited to, any mining plans as required by the regulatory agencies having
jurisdiction over the Joint Venture activities or operations. NRG/Continental
further agrees to use its best efforts on behalf of the Joint Venture to
develop, mine, treat, extract, process, sell, ship or otherwise develop the
properties listed on Exhibit "A" for the economic recovery of diamonds on behalf
of the Joint Venture partners.
2
<PAGE>
2. Representations and Warranties of NRG/Continental
-----------------------------------------------------
NRG/Continental represents and warrants to Imperial that the statements
contained in this Section 2 are correct and complete as of the date of this
---------
Agreement.
2.01 Authorization. NRG/Continental has full power and authority to execute
-------------
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of
NRG/Continental, enforceable in accordance with its terms and conditions.
NRG/Continental need not give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government, governmental agency, or
other person in order to consummate the transactions contemplated by this
Agreement.
2.02 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge or other restriction of any government, governmental agency
or court to which NRG/Continental is subject or conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which NRG/Continental
is a party or by which it is bound or to which any of its mining claims, leases
or licenses are subject.
2.03 Ownership. NRG/Continental has validly existing and properly licensed
---------
diamond mining claims with full and proper right to mine, extract and sell the
diamonds recovered from the mining claims, leases and licenses listed on Exhibit
"A" attached hereto and made a part hereof.
2.04 Speculative Nature and Risk. NRG/Continental understands and
----------------------------
acknowledges the speculative nature of and substantial risk of loss associated
with an investment in the Joint Venture. NRG/Continental further acknowledges
that there is no guarantee that the Joint Venture will economically mine,
recover or sell a sufficient volume of diamonds on acceptable terms to allow the
business of the Joint Venture to proceed as currently planned. In agreeing to
participate in the Joint Venture NRG/Continental acknowledges that it
constitutes an investment which is suitable and consistent with its financial
condition and that it is able to bear the risks of this investment for an
indefinite period of time,
3
<PAGE>
which may include the total loss of its investment. NRG/Continental further
represents that it has adequate means of providing for its current financial
needs and corporate contingencies and no need for liquidity in its investment in
the Joint Venture and that it has sufficient financial and business experience
to evaluate the merits and risks of this investment.
3. Representations and Warranties
----------------------------------
Concerning Imperial.
-------------------
Imperial represents and warrants to NRG/Continental that the statements
contained in this Section 3 are correct and complete as of the date of this
---------
Agreement.
3.01 Organization, Qualification and Corporate Power. Imperial is a
-----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Imperial is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction in which the nature of its
business or the ownership or leasing of its properties requires such
qualification. Imperial has full corporate power and authority to carry on the
business in which it is engaged and to own and use the properties owned and used
by it.
3.02 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge or other restriction of any government, governmental agency
or court to which the Imperial is subject or any provision of its Certificate of
Incorporation or Bylaws of Imperial or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which Imperial is a
party or by which it is bound or to which any of its assets is subject or result
in the imposition of any security interest upon any of its assets. Imperial is
not required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government, governmental agency or
other person in order for Imperial to consummate the transactions contemplated
by this Agreement.
4
<PAGE>
3.03 Speculative Nature and Risk. Imperial understands and acknowledges the
----------------------------
speculative nature of and substantial risk of loss associated with an investment
in the Joint Venture. Imperial further acknowledges that there is no guarantee
that the Joint Venture will economically mine, recover or sell a sufficient
volume of diamonds on acceptable terms to allow the business of the Joint
Venture to proceed as currently planned. In agreeing to participate in the
Joint Venture, Imperial acknowledges that it constitutes an investment which is
suitable and consistent with its financial condition and that it is able to bear
the risks of this investment for an indefinite period of time, which may include
the total loss of its investment. Imperial further represents that it has
adequate means of providing for its current financial needs and corporate
contingencies and no need for liquidity in its investment in the Joint Venture
and that it has sufficient financial and business experience to evaluate the
merits and risks of this investment.
4. Object of the Joint Venture
------------------------------
4.01 Object. The purpose of the Joint Venture is to economically recover
-------
diamonds from diamondiferous bearing gravels and ores in South Africa. The
Joint Venture is being formed in connection with the organization by
NRG/Continental of individual miners and small mining companies in South Africa
under cooperative agreements to provide certain services for those individuals
and companies in exchange for certain services to be provided by those
individuals and companies on behalf of NRG/Continental. The Joint Venture
anticipates acquiring additional mining rights and claims in South Africa as the
cooperative agreements of NRG/Continental and the individual miners are expanded
and further anticipates acquiring marketing rights to third party diamonds.
5. Term of the Joint Venture
----------------------------
5.01 Term. The term of the joint venture shall be 25 years.
-----
6. Ownership of the Joint Venture
---------------------------------
6.01 Ownership. NRG/Continental and Imperial shall own the Joint Venture,
----------
including all facilities constructed on behalf of the joint venture and any
distributions of cash or assets of the Joint Venture in equal amounts of 50%.
5
<PAGE>
6.02 Distributions to the Partners. The Joint Venture Manager agrees to
-----------------------------
disburse net proceeds from the Joint Venture on a monthly basis to the Partners.
Net proceeds are defined as that portion of monthly revenue which exceed monthly
expenses, including a reasonable charge by the Joint Venture Manager for its
overhead costs involved in Managing the business of the Joint Venture, such
overhead charges not to exceed $5,000 per month. NRG/Continental and Imperial
will execute a mutually acceptable Operating Agreement to govern disbursement of
funds and other accounting issues.
6.03 Capital Reinvestment Fund. NRG/Continental and Imperial agree to
-------------------------
establish under a separate agreement a capital reinvestment fund from net
proceeds attributable to the Joint Venture operations up to 50% of the proceeds
that would otherwise be distributed to the partners. The purpose of the capital
reinvestment fund shall be to make additional capital contributions to the Joint
Venture to acquire additional mining rights, claims or licenses, additional
mining equipment, facilities or for infrastructure improvements to expand the
operations of the Joint Venture. The term of the capital reinvestment fund shall
be negotiated between the parties after considering the success of the Joint
Venture operations and the availability of additional opportunities for
expansion of the Joint Venture.
7. Termination of the Joint Venture
-----------------------------------
7.01 Termination. The Joint Venture may be terminated by either party by
------------
giving 30 days written notice of its intent to terminate in the event of the
following: (a.) the failure of NRG/Continental to secure mining rights, claims
and licenses as provided in the attached Exhibit "A"; or (b.) the failure of the
Joint Venture to obtain a suitable equipment finance loan to provide mining
equipment in south Africa for use by the Joint Venture operations. The Joint
Venture may be terminated at any time prior to its expiration by mutual consent
and agreement of the parties hereto.
7.02 Effect of Termination. In the event of termination of the Joint Venture
----------------------
as a result of Section 7.01 (a.) or (b.) above, neither party shall have any
obligation or liability to the other arising out of the termination or its
actions or the failure of its actions. In the event the Joint Venture is
terminated by mutual consent, each party is entitled to an assignment of its
proportionate interest in the Joint Venture's assets, liabilities and
operations.
6
<PAGE>
8. General.
------------
8.01 Brokers and Finders. Each Party hereto represents that no broker,
-------------------
agent, finder or other party has been retained by either Party, and no brokerage
or finder's fees or agent's commissions or other like payment has been agreed to
be paid by him or it in connection with this Agreement or on account of the
transactions contemplated by this Agreement. Each Party agrees to indemnify and
hold harmless the other parties from and against any and every claim arising by
breach of the aforesaid representation and warranty and all costs and expenses,
legal or otherwise, which any such party may incur as the result of any such
claim.
8.02 Press Releases and Public Announcements. No Party shall issue any press
---------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties. Provided
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable efforts to advise the other Party prior to making the disclosure.
8.03 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of Nevada.
8.04 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid if addressed as follows:
If to Imperial:
Imperial Petroleum, Inc.
100 NW Second Street, Suite 312
Evansville, IN 47708
Attn: Mr. Jeffrey T. Wilson
President
7
<PAGE>
If to NRG/Continental:
The Natural Resources Group, Inc.
4950 Parkside Avenue
Philadelphia, PA 19131
Attn: Aljia Dumas
President
8.05 No Assignment. This Agreement may not be assigned by operation of law
-------------
or otherwise, without the express written consent of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
IMPERIAL Petroleum, Inc.
By: /s/ JEFFREY T. WILSON
--------------------------------------
Jeffrey T. Wilson President
NRG/CONTINENTAL
The Natural Resources Group, Inc.
By: /s/ ALJIA DUMAS
--------------------------------------
Aljia Dumas President
Continental Resources Party, Ltd.
By: /s/ MAURICE Q. WHITE JR.
-------------------------------------
8
<PAGE>
Appendix A
A-1 Continental Resources Party Limited
Membership Claims
A-2 Continental Resources Party Limited
Mining Claim, Longlands No. 350, Barkly West, SA
A-3 Vaalbos National Park Mining Claims
(To be included as acquired)
/s/ JEFFREY T. WILSON 10/22/98
- -------------------------------- --------------------------------
IMPERIAL Petroleum, Inc.
/s/ MAURICE Q. WHITE JR. 10/22/98
- -------------------------------- --------------------------------
Continental Resources Pty Ltd
/s/ ALJIA DUMAS, JR. 10/22/98
- -------------------------------- --------------------------------
The Natural Resource Group, Inc.
- --------------------------------- --------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEARS ENDING 7/31/98, 7/31/97 AND 7/31/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 12,125
<SECURITIES> 0
<RECEIVABLES> 72,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 177,545
<PP&E> 1,370,434
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,948,979
<CURRENT-LIABILITIES> 1,376,335
<BONDS> 0
0
0
<COMMON> 38,819
<OTHER-SE> 533,825
<TOTAL-LIABILITY-AND-EQUITY> 1,948,979
<SALES> 0
<TOTAL-REVENUES> 60,000
<CGS> 0
<TOTAL-COSTS> 630,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,915
<INCOME-PRETAX> (496,604)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,604)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
