SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF
1934
For the fiscal year
ended July 31, 1999
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 12(b) of the Act: None.
Securities registered pursuant to Section 13(g) of the Act:
Common Stock. $0.006 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, l999, there were 11,528,230 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 $1,956,804. See Item5. Market for Registrant's Common Stock
and Related Stockholder Matters.
Documents Incorporated by Reference
NONE
<PAGE>
IMPERIAL PETROLEUM, INC.
FORM 10-K
FISCAL YEAR ENDED JULY 3 l, 1999
TABLE OF CONTENTS
PART I
Page
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 toF-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.
<PAGE>
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"), SilaQuartz
Mining Company Ltd. ("SilaQuartz"), an Ohio Limited Liability Company. , and Oil
City Petroleum, Inc. ("Oil City"), an Oklahoma corporation. 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.
The Company acquired 90% control of Oil City effective August 31, 1998.
<PAGE>
The Company
Imperial Petroleum, Inc., a Nevada corporation ("the Company"), is a diversified
energy, and mineral mining company headquartered in Evansville, Indiana. The
Company has historically been engaged in the production and exploration of crude
oil and natural gas in Oklahoma and Texas and has diversified its business
activities to include mineral mining, with a particular emphasis on gold mining.
The Company intends to utilize its oil and natural gas assets to support and
enhance its mining activities. The Company expects to focus its future growth in
both energy and mining ventures.
At July 31,1999, the Company had completed the acquisition of 90% control of Oil
City Petroleum, Inc. a Tulsa, Oklahoma based energy producer and Oil City had
subsequently sold its primary oil and gas assets to Comanche Energy, Inc.
("Comanche"). As a result, the Company became a significant shareholder in
Comanche. The Company does not presently operate any oil and natural gas
properties directly.
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"). The Company was
reorganized under a Reorganization Agreement and Plan and Article of Merger
dated August 31, 1981 resulting in the Company being domiciled in Nevada.
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.
<PAGE>
The Ridgepointe Exchange Transaction was closed on August 27, 1993. As a result,
Ridgepointe is now a wholly, owned subsidiary of the Company. At the time of
acquisition, Ridgepointe was engaged in the development of a copper ore mining
operation in Yavapai County, Arizona and, through its wholly owned subsidiary,
I.B. Energy, Inc., an Oklahoma corporation ("I.B Energy"), in the exploration
for and production of oil and gas in the Mid-continent and Gulf Coast regions of
the United States.
In connection with the closing of the Ridgepointe Exchange Transaction, each
member of the Board of Directors of the Company resigned and Wilson, Borem and
Dewitt C. Shreve ("Shreve") were elected Directors of the Company. In addition,
each officer of the Company resigned and the Company's new Board of Directors
elected Wilson as Chairman of the Board, President and Chief Executive Officer,
Borem as Vice President and Cynthia A. Helms as Secretary of the Company. Ms.
Helms subsequently resigned and Kathryn H. Shepherd was elected Secretary. Mr.
Borem, Mr. Shreve and Ms. Shepherd subsequently resigned and Mr. Malcolm W.
Henley and Mrs. Stacey D. Smethers were elected to the Board. The Board of
Directors further authorized the move of the Company's principal executive
offices from Dallas, Texas to its current offices in Evansville, Indiana.
As a condition to closing the Ridgepointe Exchange Transaction, the Company
received and canceled 7,232,500 shares of the Company's common stock from the
Company's former partner, Glauber Management, and 100,000 shares of the common
stock of Tech-Electro Technologies, Inc from an affiliate of Glauber Management
and Glauber Valve. In addition, pursuant to the terms of the First Amendment,
Glauber Management or Glauber Valve, or their affiliates, were to transfer to
the Company 75,000 shares of common stock of Wexford Technology, Inc. (formerly
Chelsea Street Financial Holding Corp.) no later than October 31, 1993, such
transfer subsequently occurred.
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.
<PAGE>
In August 1994 the Company acquired certain gold mining claims "'Gold Nugget
Mine" in the Quartzite area of Arizona comprising some 1200 acres from Kenneth
Shephard et al. In connection with the transaction the Company issued to Mr.
Shephard et al. shares of its restricted common stock, a one year note payable
of $750,000 and assumed an equipment leasing agreement with Darr Equipment Co.
concerning the associated mining equipment for approximately $440,000. During
the period from September 1994 through April 1995, the Company constructed
additional processing equipment and completed a water well on the property to
initiate placer mining operations. After initiating operations in several areas
of the property, the Company determined the quantity of gold varied too greatly
across the property to establish permanent facilities commensurate with its long
range corporate objections. As a result the Company unwound the acquisition in
August 1995.
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 the term of the note 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 operated a pilot plant
from September 1997 to November 1997. Since that time the Company has been
seeking financing to install a full-scale operating facility.
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. ("LaTex") dated September 30, 1996 in connection with
LaTex's merger with Alliance Resources Plc.. Included in the assets purchased
were 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
<PAGE>
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. Alliance failed to exercise its
option to re-purchase any of the assets.
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.
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 and has suspended further efforts in regards to SilaQuartz until
marketing and financing arrangements are completed.
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 received disappointing
results from recovery tests aimed at recovering platinum group metals from the
ore. Future operations are presently suspended while the operator re-evaluates
the results and seeks industry participation or other financing for the project.
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 and to designate the delivery
location for the Merrion ore at the mine site. Merrion is delinquent in its
payments to the Company, although revised terms are under negotiation.
On August 31, 1998, the Company entered into an agreement to acquire Oil City
Petroleum, Inc., Tulsa-based oil and gas producer with energy reserves valued at
about $6.5 million. Under the terms of the Agreement, the Company issued 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 issued a corporate
guarantee to Bank One NA guaranteeing the repayment of the Oil City senior debt
of approximately $1.1 million and the Company agreed to 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. Upon closing the Oil City Acquisition, the Company
assisted Oil City management in the acquisition of additional oil and natural
gas producing property interests and in the subsequent sale of Oil city's
primary asset, Double Eagle Petroleum Corporation to Comanche Energy, Inc. of
Dallas, Texas. As a result of these transactions, the Company received 5,481,901
shares of restricted common stock of Comanche, (representing about 12.5% of
Comanche) valued at the time of closing at $0.52 per share. The management of
Oil City has assumed the management of Comanche.
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
<PAGE>
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 January 2000. Under the terms of the Agreement the Company has the
right to cancel the Agreement at any time for non-payment and currently holds
the physical certificate. 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 applied for financing from the Export-Import Bank to buy
earth moving and other mining equipment to be exported to Continental and
employed on behalf of the Joint Venture. Continental controls some 1200 acres of
alluvial diamond claims and has operations in the Barkley West area, just
northwest of Kimberly in the Republic of South Africa. The Joint Venture Manager
began the permit application process, however the parties were unable to locate
an acceptable guarantor to obtain the project financing. The Company has
withdrawn from the project.
In April 1999, the Company entered into an agreement to acquire the contract
from Consulta Solutions to treat effluent materials to control odor and bacteria
associated with the rendering of poultry products at the American Protein plant
in Georgia. The Company issued 650,000 shares of its restricted common stock and
three-year warrants to issue an additional 600,000 shares of common stock
exercisable at $0.25 per to a management group consisting of three individuals.
The Company utilized its dormant subsidiary, Phoenix Metals, Inc. as the
business entity and began operations at the American Protein plant in Georgia
under the name Imperial Environmental Company. At year-end, the Company had only
received approximately $55,000 in revenue from the contract and had encountered
problems with the implementation of its business plan due to internal management
problems, lack of adequate working capital to fund expansion of the subsidiary
and unanticipated competition from other vendors in this business. As a result,
the Company has temporarily suspended its operations until sufficient working
capital is available.
Subsequent Events
The Company has entered into negotiations with Asia Pacific Capital Corporation,
a merchant banking firm located in Sydney, Australia, to provide project
financing for its mining and energy projects in connection with an equity
infusion. If completed under the present structure, Asia Pacific would acquire
20 million shares of the Company's restricted common stock in exchange for $12
million and a commitment to project finance up to $47 million of the Company's
mining and energy projects. Asia Pacific has provided the Company with a loan
commitment of $50 million to finance an oil and natural gas acquisition that is
under review by the Company and expects to complete the equity infusion during
April 2000. The Company expects to complete its negotiation with the seller of
the oil and natural assets during April 2000 and if successful, expects to sign
the loan commitment from Asia Pacific.
Business Strategy
The Company's business strategy has changed since the acquisition of Ridgepointe
in August 1993. In the past 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, particularly in the energy
business, that the Company believes may have the opportunity for a cyclical
improvement in demand and price.
<PAGE>
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, 1999 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 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.
As of July 31.1999
Net Mineable Reserves
Claim Group Location Acres Gold Grade(oz/ton) Gold(oz) Silver(oz) Copper(lbs)
- ----------- -------- ----- ------------------ -------- ---------- -----------
UFO Mine(l) AZ 400 0 0 0 600,000
Endless Glory(2) AZ 160 0.24 67,400 1,626,000 17,660,000
Bear 1 & 2 AZ 320 0.06 31,250 0 0
Pa I & 2 AZ 320 0.09 34,320 0 0
Santa 1-22 AZ 3,280 0.05 255,000 0 0
Cal l & 2(3) MT 320 0.07 85,000 0 0
Duke Mine UT 2,240 0.10 4,883,750 0 0
----- --------- --------- ----------
Total 7,040 5,356,720 1,626,000 18,260,000
<PAGE>
(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
1998, 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. The results of initial
recovery tests for platinum group metals was disappointing and the Joint Venture
Manager suspended operations to seek an industry partner or other financing for
the development of the copper and gold reserves known to exist on the claims.
The Company does not expect any activity during the current fiscal year.
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 the current fiscal year 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 the current fiscal year, subject to
available capital. Feasibility studies and engineering design of recovery
systems will be conducted pending the outcome of tests using the Cosmos
Concentrator.
<PAGE>
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
current fiscal year. 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
capital is available to adequately test and develop the reserves.
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 2000 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 2000, subject to available
capital, and anticipates the cost of the test program to be about $75,000. Core
drilling to further define the lode mineralization will be delayed 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.
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
when available capital and manpower are available 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.
<PAGE>
Duke Mine - The primary focus of the Company during the past three years has
been the testing and the implementation 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 g6ld 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. Initial operations were conducted at rates of 20 tons per day and
numerous tests were conducted. 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 were 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 quarter of the current fiscal year,
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 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 with operations being established by one of the groups some 6
miles east of the Company's pilot plant location. The Company believes that it
will be successful in completing the financing during the current fiscal year 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 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 current year. Substantial
capital will be required to construct a large scale processing facility and the
Company's schedule will necessarily become dependent upon available capital.
<PAGE>
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.
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.
<PAGE>
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.
<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. Trading in the Company's shares resumed in
September 1997 and at year-end July 31, 1999 the Company's stock was quoted at
approximately $0.31 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 $0.43 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, 1999, there are approximately 597 holders of record of the Company's
common stock.
Item 6. Selected Financial Data
1999 1998 1997 1996 1995 1994
Operating Revenue 115,244 60,000 15,955 105,630 114,667 296,641
Income (loss)from (1,006,421) (496,604) (6,726) (388,089) (461,186) (306,397)
continuing operations
Net Income (loss) (1,006,421) (496,604) (6,726) (276,424) (702,195) (307,397)
Net Income (loss)
per share (0.10) (0.08) (0.0) (.0.01) (0.03) (0.01)
Total Assets 1,947,939 1,948,979 722, 530 3,552,369 4,887,842 3,907,113
Stockholder's Equity 166,463 572,644 91,666 1,163,278 1,462,035 1,119,930
Cash Dividends Paid
per Common Share 0 0 0 0 0 0
Number of Outstanding
Shares(weighted) 9,627,006-6,138,819-13,357,111-24,927,938-24,026,841-21,180,958
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
<PAGE>
future profits. As the Company successfully completes its strategy of becoming a
mining company, the same factors listed above will apply to the 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, 1999 compared to year ended July 31, 1998. Total revenues
for the Company for the year ended July 31, 1999 were $115,244 compared to
$60,000 for the year ended July 31, 1998 and reflects management fees as a
result of the Company's subleases on its office space and the revenues
associated with the Company's environmental subsidiary. The Company expects its
revenues to remain marginal until it begins continuous operations on the Duke
Mine planned for summer 2000 or until it completes an oil and natural gas
acquisition.
Operating expenses for the year ended July 31, 1999 were $119,649 compared to
$69,152 for the same period a year earlier and reflect the startup of operations
in the environmental business during the current year in contrast to 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 from
$561,266 for the year ended July 31, 1998 to $839,393 for the year ended July
31, 1999 and reflects the expenses associated with the environmental business,
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 a non-recurring charge against earnings of $1,329,474
during the year ended July 31, 1999 as a result of the write-down of its mining
assets. As a result of the inactivity of the Company in the development of its
mining properties during 1999, the Company's mining efforts no longer qualify as
development stage activities under the accounting rules.
<PAGE>
The Company incurred an after tax net loss of $1,0006,421 ($0.10 per share) for
the year ended July 31, 1999 compared to an after tax net loss of $496,604
($0.08 per share) for the prior year. The increase in the loss is a result of
the write-down of the Company's mining claims of $1,329,474 and an increase in
general and administrative expenses of $278,127 from the prior year. These
increases were offset by the gain on the sale of the assets of Oil City during
the year of $1,289,923. The Company does not expect to generate a profit until
its mining operations are in continuous production.
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 2000 or the SilaQuartz Idaho mine expected to begin
in summer of 2001.
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 2000.
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.
<PAGE>
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 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 2000. While the Company has signed an agreement with Asset Capital
LLC that would 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. 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 the
Asset Capital transaction will complete.
The Company has entered into negotiations with Asia Pacific Capital Corporation,
a merchant banking firm headquartered in Sydney, Australia, to provide an equity
infusion of $12 million in connection with project financing of up to $47
million. Asia Pacific has provided a firm loan commitment to the Company of $50
million to finance an oil and natural gas acquisition that the Company is
attempting to negotiate. The principals of Asia Pacific have indicated funding
of the equity infusion should occur in April 2000. No agreements have been
signed between the Company and Asia Pacific yet. If the transaction completes,
Asia Pacific would become the Company's principal shareholder. There can be no
assurance that Asia Pacific will complete the equity purchase and, absent the
equity purchase, would remain interested in providing the financing under the
terms of its financing commitment.
As a result of the acquisition of control of Oil City and the subsequent sale of
Oil City's assets to Comanche, the Company owns 5,481,901 shares of the
restricted common stock of Comanche. At current market prices those shares are
valued at approximately $1.2 million. The Company expects to use the Comanche
shares as collateral in seeking a working capital loan to initiate operations at
the Duke Gold Mine or in the pursuit of oil and gas acquisitions. The shares
owned by the Company in Comanche are restricted from sale under Rule 144 of the
Securities Act, and as such there can be no assurance that a bank will accept
the shares as collateral or that sufficient borrowing capacity can be obtained
to allow operations to begin.
The Company intends to continue to pursue each of the above transactions in an
effort to finance its operations, however, in the event that the funds from
Asset Capital or Asia Pacific 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/Merrion are unpredictable in both timing and magnitude and because there can
be no assurance that FSI/Merrion 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
<PAGE>
of a processing plant, Merrion is currently delinquent in its payments. The
Company believes it 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 or Asia Pacific 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 and accrued interest $807,012 as of
July 31, 1999. 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, 1999, the Company had current assets of $65,379 and current
liabilities of $1,484,035, which resulted in negative working capital of
$1,418,656. The negative working capital position is comprised primarily of
notes payable to shareholders and related parties totaling $884,497, accrued
salaries and expenses totaling $558,487. 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 2000. The previously discussed
transactions with Asset Capital and Asia Pacific, 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.
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.
<PAGE>
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, 1999 and 1998................... F-2
Consolidated Statements of Operations for the years ended
July 31, 1999, 1998 and 1997.................................................F-3
Consolidated Statements of Stockholder's Equity for the years
Ended July 31, 1999, 1998 and 1997.......................................... F-4
Consolidated Statements of Cash flows for the years ended
July 31, 1999, 1998 and 1997............................................... F-5
Notes to Consolidated Financial Statements...................................F-7
Item9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.
Not applicable.
<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 46 Director, Chairman of the Board,
President and Chief Executive Officer
Malcolm W. Henley 48 Director
Stacey D. Smethers 31 Director, Secretary
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.
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.
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, 1999 under Section
16(a) of the Exchange Act, the Company believes that all requisite filings have
been made timely.
<PAGE>
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, 1999, 1998 and 1997 (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.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Awards
Warrants
Name Year Salary Bonus # shares
Jeffrey T. Wilson 1999 $ 125,000
1998 $ 100,000
1997 $ 100,000 250,000(1)
Malcolm W. Henley 1999
1998
1997 250,000(1)
- --
Stacey D. Smethers 1999
1998
1997 50,000(1)
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of July 31, 1999, the Company has 11,528,230 issued and outstanding shares of
common stock. The following table sets forth, as of July 31, 1999, 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 31,1999, the Company had approximately 597 holders of common stock of
record.
<PAGE>
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
Jeffrey T. Wilson (1) 2,012,501 17.5%
Malcolm W. Henley (2) 33,334 0.3%
Stacey D. Smethers (3) 1,667 0.0%
James G. Borem(4) 349,118 3.0%
W. J. Weaver, Jr.(5) 200,000 1.7%
A. D. Phillips(5) 200,000 1.7%
Fred J. Griffin(5) 200,000 1.7%
All officers and directors as a
Group (7 people) 2,996,620 26.0%
Edmund J. Kwiecien, Jr. (6) 750,000 6.5%
Silver Petroleum, Inc. (7) 584,563 5.1%
Total officers, directors and
5% shareholders 4,331,183 37.6%
(1) The mailing address of Mr. Wilson is 100 NW Second Street, Suite 312,
Evansville, Indiana 47708. Does not include 150,000 shares owned by HN
Corporation, owned by Mr. Wilson's wife or 50,000 shares held in Trust by Old
National Bank for Mr. Wilson's children.
(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) Mr. Borem is President of Oil City Petroleum, Inc., a 90% owned subsidiary
of the Company. Mr. Borem's mailing address is PO Box 35286, Tulsa, OK
74153-0286.
(5) Mssrs. Weaver, Phillips and Griffin are officers of Imperial Environmental
Company, a 100% wholly-owned subsidiary of the Company. The mailing address for
each is PO Box 20191, Evansville, IN 47708.
(6) The mailing address of Mr. Kwiecien is 13601 Royalton Road, Strongsville,
Ohio 44136. Mr. Kwiecien resigned as a Director of the Company.
(7) The mailing address of Silver Petroleum, Inc. is PO Box 476, Bluffton, IN
47614.
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 $807,012 in
principal and accrued interest as of July 31, 1999.
HN Corporation, a private retail company owned by Mr. Wilson and his wife, has
made unsecured loans to the Company which total $112,858 in principal and
accrued interest as of July 31, 1999.
<PAGE>
The Company has made unsecured loans to Wexford Technology, Inc., an affiliate
of the Company, of $515,385 as of July 31, 1999.
The Company has made loans to SilaQuartz Mining Company, an 80% owned
subsidiary, as of July 31, 1999 that total $83,220.
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 and to HN Corporation at the rate of
$500 per month. As of July 31, 1999, Wexford owed Imperial $30,000 in accrued
office expenses and RealAmerica owed Imperial a total of $22,500 in unpaid
office space rent.
<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, 1999 and 1998; Consolidated
Statements of Operations for the years ended July 31,1999,
1998, and 1997;
Consolidated Statements of Stockholder Equity for the
years ended July 31, 1999, 1998, and 1997;
Consolidated Statements of Cash Flows for the years ended
July 31, 1999, 1998, and 1997;
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, 1999.
(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 August31, 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.
<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.
10.18 Negative Pledge Agreement by and between Premier Operating Company
and Bank of Oklahoma, N.A. dated October 18, 1993.
<PAGE>
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.
<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: January ____, 2000 /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:
Signature Title Date
/s/ Jeffrey T. Wilson President and Chief Executive January __, 2000
- ---------------------- Officer (Principal Executive
Jeffrey T. Wilson Officer) and Director
<PAGE>
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 1999, 1998 and 1997
<PAGE>
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 1999 and 1998
and
FOR THE YEARS ENDED
JULY 31, 1999, 1998 and 1997
and
INDEPENDENT AUDITOR?S REPORT
<PAGE>
IMPERIAL PETROLEUM, INC.
July 31, 1999, 1998, and 1997
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 7-33
<PAGE>
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, 1999 and 1998 and
the consolidated statements of operations, stockholders' equity, and cash flows
for the years ended July 31, 1999, 1998 and 1997. 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, 1999 and 1998 and the results of its
operations and its cash flows for the years ended July 31, 1999, 1998 and 1997,
in conformity with generally accepted accounting principles.
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 and substantial
working capital deficiencies. 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.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
March 29, 2000
Tulsa, Oklahoma
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 1999 and 1998
ASSETS 1999 1998
------------ ----------
Current assets:
Cash $ 1,415 $ 12,125
Accounts receivable - other 3,000 72,500
Inventories (Note 2) 60,964 --
Other current assets -- 92,920
-------- --------
Total current assets 65,379 177,545
-------- --------
Property, plant and equipment
(Notes 1, 2, and 4):
Mining claims, options and
development costs less impairment 41,760 1,032,934
Equipment 5,166 37,500
Acquisition in progress (Note 19) -- 300,000
--------- ---------
46,926 1,370,434
Less: accumulated depreciation 369 --
Net property, plant and equipment 46,557 1,370,434
--------- ---------
Other assets:
Accounts receivable - related party
(Note 3) - 401,000
Intangibles - net (Note 12) 81,794 --
Investments - securities
(Notes 2, 13 and 24) 1,754,209 --
---------- ----------
Total other assets 1,836,003 401,000
---------- ----------
TOTAL ASSETS $1,947,939 $1,948,979
========== ==========
<PAGE>
LIABILITIES and STOCKHOLDERS' EQUITY 1999 1998
Current liabilities:
Accounts payable $ 41,051 $ 21,434
Accounts payable - other -- 71,325
Accrued expenses (Note 23) 558,487 428,579
Unearned revenue (Note 22) -- 50,000
Notes payable (Note 6) 187,500 125,000
Notes payable - related parties
(Note 7) 696,997 679,997
Total current liabilities 1,484,035 1,376,335
Noncurrent liabilities:
Unearned revenue - noncurrent
(Note 12) 297,441 --
Deferred income taxes (Note 5) -- --
Total noncurrent liabilities 297,441 --
Stockholders? equity:
Common stock of $0.006 par value
Authorized 50,000,000 shares;
11,528,230 issued in 1999 and
6,469,801 shares in 1998 69,170 38,819
Paid-in capital 4,350,476 3,458,419
Accumulated deficit (2,714,338) (1,707,917)
Accumulated other comprehensive
income (70,168) --
Treasury stock, at cost (1,652,290
shares in 1999 and 152,290
shares in 1998) (1,468,677) (1,216,677)
Total stockholders equity 166,463 572,644
Commitments and contingencies
(Note 9) -- --
TOTAL LIABILITIES and
STOCKHOLDERS' EQUITY $ 1,947,939 $ 1,948,979
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ --------
Operating income:
Oil and gas revenue $ - $ - $ 15,955
Management fees - 60,000 -
Environmental service revenues 53,744 - -
Rents 61,500 - -
------------ ------------ ------------
Total operating income 115,244 60,000 15,955
------------ ------------ ------------
Operating expenses:
Cost of goods sold 110,529 - -
Oil and gas lease operating expense - - 7,389
Mining lease operating expense 9,120 69,152 24,510
Impairment loss (Note 4) 1,329,474 - -
General and administrative expenses 839,393 561,266 93,433
Depreciation, depletion and
amortization (Note 2) 9,775 - 6,857
------------ ------------ ------------
Total operating expenses 2,298,291 630,418 132,189
------------ ------------ ------------
Loss from operations (2,183,047) (570,418) (116,234)
Other income and (expense):
Interest expense (113,297) (76,915) (19,478)
Interest income - 38,921 -
Gold certificate income - net (Note 16) - 188,996 91,521
Loss on write-down of mining
equipment (Note 15) - - (797,786)
Loss on write-down of securities - (77,188) -
Gain on extinguishment of debt - - 775,211
Gain (loss) on sale
of assets (Note 21) 1,289,923 - 60,040
------------ ------------ ------------
Net loss before income taxes (1,006,421) (496,604) (6,726)
------------ ------------ ------------
Provision for income taxes: (Note 5)
Current 80,763 - -
Deferred (80,763) - -
------------ ------------ ------------
Total benefit from income taxes - - -
------------ ------------ ------------
Net loss $ (1,006,421) $ (496,604) $ (6,726)
============ ============ ============
Loss per share (Note 2) $ (.10) $ (.08) $ -
============ ============ ============
Weighted average shares outstanding 9,627,006 6,138,819 13,357,111
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Common Stock Additional Other Total
----------------------
Par Paid-In Retained Comprehensive Treasury Stockholders
Shares Value Capital Deficit Income Stock Equity
---------- ---------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1996 31,426,841 $ 31,427 $ 2,472,959 $ (1,204,587) $ (16,208) $ (120,313) $ 1,163,278
Reverse split (Note 18) (26,188,677) - - - - - -
Receipt of Treasury stock
(Notes 17 and 19) - - - - 16,208 (1,096,364) (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 (1,211,313) - (1,216,677) 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 - - - (496,604) - - (496,604)
------------ ---------- ------------- ------------- ------------- ------------- -------------
Balances at July 31, 1998 6,469,801 38,819 3,458,419 (1,707,917) - (1,216,677) 572,644
Treasury stock issued in
contemplation 1,500,000 9,000 243,000 - - (252,000) -
Stock issued for services 1,036,163 6,217 162,937 - - - 169,154
Stock issued for equity
securities (Note 21) 1,972,266 11,834 382,620 - - - 394,454
Stock issued to pay off
debt (Note 6) 550,000 3,300 103,500 - - - 106,800
Unrealized loss on equity
securities (Note 13) - - - - (70,168) - (70,168)
Net loss for the period - - - (1,006,421) - - (1,006,421)
------------ ---------- ------------- ------------- ------------- ------------- -------------
Balances at July 31, 1999 11,528,230 $ 69,170 $ 4,350,476 $ (2,714,338) $ (70,168) $ (1,468,677) $ 166,463
============ ========== ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ --------
Cash flows from operating activities:
<S> <C> <C> <C>
Historical net loss $ (1,006,421) $ (496,604) $ (6,726)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,775 - 6,857
Expenses paid with common stock 188,455 115,164 -
Impairments 1,329,474 - -
Gain on sale (1,429,922) - -
Write-offs 495,095 - -
Realized loss on marketable securities - 77,188 -
(Increase) Decrease in accounts receivable - oil and gas - - 15,673
(Increase) Decrease in accounts receivable - other (3,000) (72,500) -
(Increase) Decrease in accounts receivable - related party - (353,695) (37,429)
(Increase) Decrease in inventories (60,964) - -
(Increase) Decrease in other current assets - (78,920) (12,850)
(Increase) Decrease in other assets (91,200) - 75
Increase (Decrease) in accounts payable 19,617 (39,321) 11,493
Increase (Decrease) in accounts payable - other - 61,025 66,500
Increase (Decrease) in accrued expenses 216,607 198,225 (21,881)
Increase (Decrease) in unearned revenue 247,441 50,000 (3,550)
------------ ------------ ------------
Net cash used for operating activities (85,043) (539,438) 18,162
------------ ------------ ------------
Cash flows from investing activities:
Mining options, properties and equipment - net - - (105,832)
Oil and gas properties and equipment sold - - 112,865
Purchases of equipment (5,167) - -
(Increase) Decrease in investment - - 2,445
------------ ------------ ------------
Net cash used for investing activities $ (5,167) $ - $ 9,478
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ --------
Cash flows from financing activities:
<S> <C> <C> <C>
Increase (Decrease) in notes payable $ 62,500 $ 125,000 $ (139,817)
Increase (Decrease) in notes payable - related parties 17,000 425,460 104,239
------------ ------------ ------------
Net cash provided by financing activities 79,500 550,460 (35,578)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (10,710) 11,022 (7,938)
Cash and cash equivalents at beginning of year 12,125 1,103 9,041
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,415 $ 12,125 $ 1,103
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ - $ - $ 6,896
Income taxes - - -
Supplemental schedule of noncash investing and financing activities:
Stock issued for mining equipment and mining claim options $ - $ 787,500 $ 15,270
Stock issued for services 188,455 115,164 -
Stock issued for investment 1,429,922 - -
Rescind agreement on mining claims and equipment - - 2,045,565
Rescind agreement on notes payable - 74,918 (1,089,753)
Rescind agreement on common stock issued - - (955,812)
Unrealized loss on equity securities (70,167) - (16,208)
Write-down of oil and gas assets - - -
Write-down of mining claims 1,329,474 - 797,786
Write-offs 495,095 - 797,786
Extinguishment of debt - - (775,211)
---------- ------------ ------------
Total $ 3,372,779 $ 977,582 $ 21,637
============ ============ ============
</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 consolidated 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 attempting to obtain capital, through its wholly owned
subsidiary, Ridgepointe Mining Company, to continue testing, defining and
developing mineral reserves on mining claims it owns or operates in Utah,
Montana, Arizona, and New Mexico.
The Company is engaged, through its wholly owned subsidiary Imperial
Environmental Company, in developing and marketing water filtration
systems to municipalities.
The Company is currently negotiating to acquire certain oil and gas
properties in order to return to the Company?s core competency.
Financial Condition
The Company?s financial statements for the year ended July 31, 1999 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 $1,006,421 for the year ended July 31, 1999 and as of
July 31, 1999 has an accumulated deficit of $2,714,338 and a deficit working
capital of $1,418,656.
The Company?s management plans to raise capital to fund continuing operations by
utilization of one or a combination of the following:
1. The private placement of equity securities and/or debenture financing
through negotiations with capital investors.
2. The joint venture of the Company?s Utah property with another mining
company to provide the capital resources to develop the property.
3. The use of the Company?s investment securities as collateral to obtain
a loan to complete oil and gas acquistions.
4. The borrowing of equity securities from a financial partner to use as
collateral to obtain funding for the Company?s silica mine in Idaho.
5. The capital infusion of approximately $250,000 to continue efforts in
the environmental business.
Management believes that the recoverability of assets and liabilities
approximate their carrying amounts.
-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 17.
Acquisition of Phoenix Metals, Inc.
See Note 17.
Acquisition of Oil City Petroleum, Inc.
See Note 21.
Development Stage Companies
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:
1999 1998
------------ --------
Current assets $ -- $ --
Net claims and equipment 41,760 620,434
Other assets -- --
----------- -----------
Total assets $ 41,760 $ 620,434
=========== ===========
1999 1998
----------- -----------
Current liabilities $ 583,952 $ 630,632
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 (1,889,232) (1,357,238)
----------- -----------
Total liabilities and
stockholders' deficit $ 41,760 $ 620,434
=========== ===========
-9-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception
------------ ------------ --------------
Operating revenues $ - $ - $ -
Miscellaneous income - - 96,579
------------ ------------ --------------
Total income - - 96,579
Lease operating expenses - 67,652 162,922
Impairment loss 578,674 - 578,674
General and
administrative (60,292) 62,361 347,066
------------ ------------ --------------
Total expenses 518,382 130,013 1,088,662
Net operating loss (518,382) (130,013) (992,083)
Interest expense (13,612) (14,243) (280,826)
Gain (Loss) on sale/
write-down of assets - 191,598 (786,093)
------------ ------------ -------------
Net income (loss) before
income taxes (531,994) 47,342 (2,059,002)
Income tax benefit - - (169,770)
------------ ------------ --------------
Net loss $ (531,994) $ 47,342 $ (1,889,232)
============ ============ ==============
-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 $(1,889,232)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion --
Non-cash impairment (578,674)
Decrease in current liabilities 500,432
-----------
Net cash used for operating activities (1,967,474)
-----------
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:
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, 1999 $ --
===========
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
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
A summary of the financial information of Imperial Environmental Company
(formerly Phoenix Metals, Inc.) (A Development Stage Company) is as follows:
1999 1998
------------ --------
Current assets $ -- $ --
Inventories 60,964 --
Fixed assets - net 4,797 --
Other assets 81,794 --
--------- ------------
Total assets $ 147,555 $ --
========= ============
1999 1998
--------- ------------
Current liabilities $ 221,200 $ --
Long-term liabilities -- --
Common stock -- --
Paid-in capital -- --
Deficit accumulated during
development stage (73,645) --
--------- ------------
Total liabilities and
stockholders' deficit $ 147,555 $ --
========= ============
-12-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Cumulative
1999 1998 From Inception
------------ ------------ --------------
Operating revenues $ 53,744 $ - $ 53,744
Miscellaneous income - - -
------------ ------------ --------------
Total income 53,744 - 53,744
Operating expenses 110,529 - 110,529
General and
administrative 7,085 - 7,085
Depreciation and
amortization 9,775 - 9,775
------------ ------------ --------------
Total expenses 127,389 - 127,389
Net operating loss (73,645) - (73,645)
Interest expense - - -
------------ ------------ -------------
Net income (loss) before
income taxes (73,645) - (73,645)
Income tax benefit - - -
------------ ------------ --------------
Net loss $ (73,645) $ - $ (73,645)
============ ============ ==============
-13-
<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 $ (73,645)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,775
Increase in other assets (91,200)
Increase in current liabilities 221,200
---------
Net cash used for operating activities 66,130
---------
Cash flows from investing activities:
Increase in inventories (60,964)
Equipment purchased - net (5,166)
---------
Net cash used for investing activities (66,130)
---------
Cash flows from financing activities:
Debt --
---------
Net cash provided by financing activities --
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents at inception --
---------
Cash and cash equivalents at July 31, 1999 $ --
=========
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.
-14-
<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, 1999, 1998 and 1997 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 Imperial Environmental Company
(formerly 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 equity
as other comprehensive income.
-15-
<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 and accounts
receivable. The Company places its cash 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 exists that is 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 trade receivables. The Company performs periodic evaluations of
its customers? financial condition and generally does not require collateral.
Development Stage Subsidiaries
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.
Imperial Environmental Company, a wholly owned subsidiary, is in the process of
raising capital to continue developing its water filtration technology. As such,
Imperial Environmental 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.
During the year ended July 31, 1999 the Company recognized revenues of $53,744
from its development stage subsidiary Imperial Environmental Company. It also
recognized rental revenues from sublease of its office space of $61,500.
-16-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are valued at the lower of cost or market. The average cost method
is used for determining the cost or remaining inventories.
Inventories at July 31 were:
1999 1998
------------ --------
Materials and supplies $ 4,526 $ --
Work-in-process 56,438 --
------- ------------
Total $60,964 $ --
======= ============
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.
-17-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles
The Company has capitalized the costs related to the organization of its
development stage subsidiary Imperial Environmental Company. Amortization is
computed by the straight-line method over 5 years.
The Company plans to implement SOP 98-5, as required, in its next fiscal year.
SOP 98-5 requires that the intangible asset be charged against income rather
than carried as an asset and amortized.
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.
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. 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.
During the fiscal year ending July 31, 1999, the Company concluded that an
impairment loss was required based on current circumstances (See Note 4).
-18-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassification
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform with the 1999 presentation.
3. ACCOUNTS RECEIVABLE - RELATED PARTIES
Accounts receivable - related parties was comprised of the following:
1999 1998
------------ --------
Shareholder $ - $ 1,000
Wexford Technology, Inc. 695,678 676,415
Allowance for bad debts (695,678) (276,415)
------------ ------------
Total $ - $ 401,000
============ ============
4. MINING PROPERTIES UNDER DEVELOPMENT
The Company?s mining fixed assets consist of the following:
July 31, July 31,
1999 1998
------------ --------
Mining claims $ 1,000,300 $ 1,000,300
Mining equipment 37,500 37,500
Mine development costs 32,634 32,634
Acquisition in progress 300,000 300,000
Impairment reserve (1,328,674) -
------------ ------------
Total $ 41,760 $ 1,370,434
============ ============
-19-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. MINING PROPERTIES UNDER DEVELOPMENT (continued)
The Company has not completed or updated 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. In addition, the
Company?s going concern problem, lack of capital and other factors led
management to recognize an impairment reserve of $1,328,674 to reduce the
carrying value to management?s estimate of the amount recoverable upon ultimate
disposition. The Company intends to continue to hold and use the impaired
assets.
5. INCOME TAXES
Provisions for income taxes are as follows:
1999 1998 1997
------------ ------------ --------
(in thousands)
Current:
Federal $ - $ - $ -
State - - -
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
Deferred:
Federal $ - $ - $ -
State - - -
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
-20-
<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:
1999 1998 1997
-------- -------- ------
(in thousands)
Computed ?expected? tax expense
(benefit) $ 81 $ (169) $ (1)
State income taxes net of federal
benefit -- -- --
Increase(Decrease) in valuation
allowance for deferred tax assets (81) 169 1
Other -- -- --
- ---- ----
Actual income tax expense $-- $-- $--
= ==== ====
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below:
1999 1998
------------ --------
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $ 122 $ 300
Other -- --
----- -----
Total deferred tax liabilities 122 300
----- -----
Deferred tax assets:
Unrealized loss on securities 18 --
Net operating losses 390 649
Other 1 1
----- -----
Total deferred tax assets 409 650
----- -----
Valuation allowance (287) (350)
----- -----
Net deferred tax assets 122 300
----- -----
Net deferred tax asset (liability) $-- $--
===== =====
-21-
<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) carryforwards to offset its earnings of
approximately $1,560,000. If not previously utilized, the net operating losses
will expire in varying amounts from 2010 to 2013.
6. NOTES PAYABLE
1999 1998
------------ --------
H. N. Corporation, promissory note,
dated January 20, 1998, principal
due on demand plus interest
at 9% $107,500 $ 25,000
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due on demand plus interest
at 9% 40,000 50,000
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due on demand plus interest
at 9% 40,000 50,000
-------- --------
Total 187,500 125,000
Less: current portion 187,500 125,000
-------- --------
Long-term notes payable $ -- $ --
======== ========
During the year, the Company issued its restricted common stock to extend due
dates and partially satisfy accrued interest. However, the notes payable are
currently in default. The Company is currently negotiating with the parties to
extend or renew notes payable.
-22-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
1999 1998
------------ --------
Officer - 10% demand note $ 64,295 $ 64,295
Officer - 7.5% demand note 186,353 186,353
Officer - 9.0% demand note 446,349 429,349
------------ ------------
$ 696,997 $ 679,997
============ ============
8. RELATED PARTY TRANSACTIONS
The Company has entered into the above loans with its chief executive officer,
Jeffrey T. Wilson. The Company, from time to time, has also entered into loans
with its directors, stockholders and related companies (See Notes 3 and 7).
These transactions were consummated on terms equivalent to those that prevail in
arm?s length transactions.
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.
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<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.
Revenues: (in thousands)
1999 1998 1997
------------ ------------ ------------
Oil and gas
production and
lease operations $ - $ - $ 16
Mining - - -
Environmental 54 - -
Other 61 - -
------------ ------------ ------------
Total revenues $ 115 $ - $ 16
============ ============ ============
Identifiable assets:
Oil and gas production $ - $ - $ -
Mining 41 1,370 583
Environmental 5 - -
Other 1,902 579 140
------------ ------------ ------------
$ 1,948 $ 1,949 $ 723
============ ============ ============
Depreciation and depletion:
Oil and gas production $ - $ - $ 7
Mining - - -
Environmental 10 - -
------------ ------------ ------------
$ 10 $ - $ 7
============ ============ ============
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<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, 1999, 1998 and 1997. 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).
1999 1998 1997
---------- ---------- -------
(In thousands)
Revenues $ - $ - $ 16
Production costs - - 7
Gross production taxes - - 1
Depreciation, depletion and amortization - - 7
---------- ---------- ----------
Results of operations before income taxes - - 1
Income tax expense - - -
---------- ---------- ----------
Results of operations (excluding corporate
overhead and interest costs) $ - $ - $ 1
========== ========== ==========
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.
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<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(continued)
Oil (MBbls) Gas (MMcf)
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 - -
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, 1999 - -
=========== ==========
Proved developed reserves at:
July 31, 1997 - -
July 31, 1998 - -
July 31, 1999 - -
-26-
<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.
1999 1998 1997
------------ ------------ --------
(In thousands)
Future cash inflows $ - $ - $ -
Future costs - future production and
development costs - - -
------------ ------------ ------------
Future net cash inflows before
income tax expense - - -
Future income tax expense - - -
------------ ------------ ------------
Future net cash flows - - -
10% annual discount for estimated
timing of cash flows - - -
------------ ------------ ------------
Standardized Measure of discounted
future net cash flows $ - $ - $ -
============ ============ ============
-27-
<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:
1999 1998 1997
------------ ------------ --------
(In thousands)
Standardized Measure - beginning of year - $ - $ 102
Increases (Decreases)
Sales, net of production costs - - -
Net change in sales prices, net of
production costs - - -
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 - - -
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 - $ - $ -
============ ============ ============
12. INTANGIBLE ASSETS
Intangible assets consist of the organizational costs of $ 81,794(net of
amortization) incurred in the formation of Imperial Environmental Company.
-28-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
13. INVESTMENTS
Unrealized Unrealized Carrying
Cost Gains Losses Value
Investment in equity
securities:
July 31, 1999:
Available for sale
(marked to market) $ 1,824,377 $ - $ (70,168) $ 1,754,209
July 31, 1998:
Available for sale
(marked to market) $ - $ - $ - $ -
14. WARRANTS
On April 21, 1999, the Company issued warrants for services provided to the
Company. The warrants give the holder the right to purchase 600,000 shares of
the Company?s restricted common stock for $.50 per share. The warrants expire on
April 21, 2002.
15. WRITE-DOWN OF MINING PROPERTIES
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 19.
-29-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
16. GOLD CERTIFICATE INCOME
The Company has entered into agreements 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 ended July 31, 1998, the Company had
$209,996 of Gold Certificate Income, less finders fees of $21,000 for net Gold
Certificate Income of $188,996.
17. 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.
-30-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. 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 with
a par value of $ .006.
19. 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 of the settlement agreement, the Company 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.
20. LEASE OBLIGATIONS
The Company has a noncancelable operating lease agreement for office space.
Total rental expense was $22,117, $20,927 and $0 in 1999, 1998 and 1997
respectively. The Company currently operates under month-to-month terms.
-31-
<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
21. GAIN ON SALE OF ASSETS
During the year ended July 31, 1999 the Company acquired a 90% interest in Oil
City Petroeum in exchange for 1,972,266 shares of its restricted common stock.
All of Oil City?s assets were then sold to Comanche Energy, resulting in the
Company receiving 5,481,901 restricted shares of Comanche Energy common stock
(Note 13). This transaction resulted in a gain of $1,289,923.
The acquisition of Oil City would have qualified as a pooling of interests
acquisition. However, because of the divesture of this subsidiary prior to year
end, no pooling of assets, liabilities, stockholder?s equity or results of
operations is included in these financial statements.
22. UNEARNED REVENUE
The Company has received advances for future delivery of silica ore. Total
advances as of July 31, 1999 and 1998 were $297,441 and $50,000, respectively.
The Company?s commitments under these agreements mature as follows for the years
ended July 31:
2000 $ -
2001 $ -
2002 $ 59,488
2003 $ 107,079
2004 $ 107,079
Thereafter $ 23,795
23. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
1999 1998
------------ --------
Accrued officer salary - CEO $ 440,008 $ 315,008
Accrued interest on notes 116,379 111,471
Accrued rent 2,100 2,100
------------ ------------
$ 558,487 $ 428,579
============ ============
During the year ended July 31, 1999 the Company issued 550,000 shares
of its restricted common stock to pay accrued interest and extend
maturities of notes payable.
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<PAGE>
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
24. SUBSEQUENT MATTER
Subsequent to year end, the Company?s investment in 5,481,901 shares of Comanche
Energy common stock has decreased in value by approximately $1,088,000 (net of
marketability discounts).
-33-
<PAGE>
