SECURITIES EXCHANGE COMMISSION
Washington D.C 20549
(Mark One)
FORM 10-Q
X ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF
1934
For the Quarterly
Period Ended October 31, 1999
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition
period from_____ to______
Commission file number 0-9923
IMPERIAL PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-3386019
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
100 NW Second Street
Suite 312
Evansville, Indiana 47708
(Zip Code)
Registrant's telephone number,
including area code (812) 424-7948
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No ____
On October 31, l999, there were 12,504,165 shares of the
Registrant's common stock issued and outstanding.
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IMPERIAL PETROLEUM, INC.
Index to Form 10-Q for the Quarterly Period
Ended October 31, 1999
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
- --------------------
Page
Consolidated Balance Sheets as of July 31, 1999
and October 31, 1999 4-5
Consolidated Statements of Operations for the
three months ended 6 October 31,1999 and 1998. 6
Consolidated Statements of Cash Flows for the
three months ended October 31, 1999 and 1998. 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
PART II - OTHER INFORMATION
The information called for by Item 1. Legal Proceedings, Item 2. 18
Changes in Securities, Item 3. Default Upon Senior Securities,
Item 4. Submission of Matters to a Vote of Security Holders, Item
5. Other Information and Item 6. Exhibits and Reports on Form 8-
K have been omitted as either inapplicable or because the answer
thereto is negative.
SIGNATURES 19
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Part I
Financial Information
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - October 31, 1999
31-Oct-99 31-Jul-99
ASSETS
Current Assets
Cash $ 596 $ 1,415
Accounts Receivable -other 150,117 3,000
Other current assets 60,964 60,964
------ ------
Total 211,677 65,379
------- ------
Property, Plant and Equipment
Other depreciable equipment 5,165 5,166
Mining claims, options and 41,760 41,760
Mining and milling (369) (369)
---- -----
equipment
Net property, plant and equipment 46,557 46,557
------ ------
Other Assets
Investment in subsidiary 1,754,209 1,754,209
Accounts receivable-related party 134,757 0
Other non-current assets 81,794 81,794
------ ------
Total other assets 216,551 0
------- -
TOTAL ASSETS $ 2,228,994 $ 1,947,939
--------- ---------
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED - October 31, 1999
31-Oct-99 31-Jul-99
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $48,351 $41,051
Accounts payable-other 0 0
Accrued expenses 612,195 558,487
Unearned revenue 0 0
Notes payable 187,500 187,500
Notes payable-related party 719,497 696,997
------- -------
Total current 1,567,543 1,484,035
--------- ---------
liabilities
Non-current
Liabilities
Unearned revenue 447,441 297,441
Notes payable, less current portion 0 0
- -
Total non-current liabilities 447,441 297,441
-------
Stockholder's Equity
Common stock 78,926 69,170
Additional paid-in capital 4,473,675 4,350,476
Treasury stock -1,468,677 -1,468,676
Retained earnings -2,869,916 -2,784,508
Unrealized loss on
marketable securities 0 0
- -
Total stockholder's equity 214,008 166,463
------- -------
Total Liabilities and Stockholder's Equity $ 2,228,994 $ 1,947,939
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ending
31-Oct-99 31-Oct-98
Operating Income:
Oil and gas revenue $0 $0
Management and fee income 7,035 31,088
----- ------
Total operating income 7,035 31,088
Operating Expenses:
Oil and gas lease operations 0 0
Dry Hole costs 0 0
Mining operating expense 0 0
General and administrative expense 69,985 62,124
Depreciation and depletion 0 0
- -
Total operating expense 69,985 62,124
------ ------
Income/Loss from operations -62,950 -31,036
Other Income/expense
Interest expense 22,458 14,161
Gold certificate income-net 0 0
Loss on marketable 0 0
Gain on retirement of debt 0 0
Loss on write-down of mining equipment 0 0
Gain/ loss on sale of 0 0
-
assets
Total other income/expense 22,458 14,161
------
Net Income (Loss) before tax -85,408 -45,197
------- -------
Provision for Income Taxes
Current 0 0
Deferred 0 0
- -
Total benefit from income taxes 0 0
- -
Net Income/Loss -85,408 -45,197
--------- ---------
Income/Loss per share ($0.007) ($0.005)
-------- --------
Weighted average shares outstanding 12,504,165 8,930,250
---------- ---------
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IMPERIAL PETROLEUM, INC.
CONSOLIDATED STATEMENT OF
CASH FLOWS
UNAUDITED
Three Months Ending
31-Oct-99 31-Oct-98
Net cash provided by (used in) -$175,018 -$29,142
operations
Net cash provided by (used in)
investing activities:
Capital additions and property 0 -438,315
Acquisitions
Dispositions 0 0
Other -134,757 -124,000
-------- --------
Total -134,757 -562,315
Net cash provide by (used in) financing activities:
Repurchase of common stock 0 0
Issuance of common stock 9,755 438,315
Deferred Revenue 150,000 150,000
Notes payable 0 0
Notes payable-related party 26,000 -3,500
Paid-in Capital 123,200 0
------- -
Total 308,955 584,815
Decrease in cash and equivalents 819 6,642
Cash and cash equivalents at beginning of period -1,415 12,125
Cash and cash equivalents at end of period 596 5,483
Supplemental disclosures of Cash Flow Information
Interest 22,458 14,161
Cash paid Income taxes 0 0
during the period for:
For the purposes of cash flows, the Company considers all highly liquid debt
instruments Purchased with a maturity of three months or less to be cash
equivalents.
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PART I - FINANCIAL INFORMATION
IMPERIAL PETROLEUM, INC.
Notes to Consolidated Financial Statements
Unaudited
October 31, 1999
(1) General
The accompanying interim condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the periods presented are
not necessarily indicative of the results which may be expected for the year
ending July 31, 2000. These condensed interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended July 31,
1999.
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.
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.
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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.
The Ridgepointe Exchange Transaction was closed on August 27, 1993. As a result,
Ridgepointe is now a wholly, owned subsidiary of the Company. At the time of
acquisition, Ridgepointe was engaged in the development of a copper ore mining
operation in Yavapai County, Arizona and, through its wholly owned subsidiary,
I.B. Energy, Inc., an Oklahoma corporation ("I.B Energy"), in the exploration
for and production of oil and gas in the Mid-continent and Gulf Coast regions of
the United States.
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In connection with the closing of the Ridgepointe Exchange Transaction, each
member of the Board of Directors of the Company resigned and Wilson, Borem and
Dewitt C. Shreve ("Shreve") were elected Directors of the Company. In addition,
each officer of the Company resigned and the Company's new Board of Directors
elected Wilson as Chairman of the Board, President and Chief Executive Officer,
Borem as Vice President and Cynthia A. Helms as Secretary of the Company. Ms.
Helms subsequently resigned and Kathryn H. Shepherd was elected Secretary. Mr.
Borem, Mr. Shreve and Ms. Shepherd subsequently resigned and Mr. Malcolm W.
Henley and Mrs. Stacey D. Smethers were elected to the Board. The Board of
Directors further authorized the move of the Company's principal executive
offices from Dallas, Texas to its current offices in Evansville, Indiana.
As a condition to closing the Ridgepointe Exchange Transaction, the Company
received and canceled 7,232,500 shares of the Company's common stock from the
Company's former partner, Glauber Management, and 100,000 shares of the common
stock of Tech-Electro Technologies, Inc from an affiliate of Glauber Management
and Glauber Valve. In addition, pursuant to the terms of the First Amendment,
Glauber Management or Glauber Valve, or their affiliates, were to transfer to
the Company 75,000 shares of common stock of Wexford Technology, Inc. (formerly
Chelsea Street Financial Holding Corp.) no later than October 31, 1993, such
transfer subsequently occurred.
Acquisition of Premier. Pursuant to a Stock Exchange Agreement dated October 4,
1993 (the "Premier Stock Exchange Agreement"), between the Company and the
holders of the issued and outstanding common stock of Premier Operating Company,
a Texas corporation ("Premier") (such persons are sometimes referred to herein
as the ("Premier Stockholders") The Premier Stockholders agreed to exchange (the
"Premier Exchange Transaction") an aggregate of 749,000 shares of the common
stock of Premier, consisting of 252,000 shares of Class A voting common stock
and 497,000 shares of non-voting Class B common stock, representing 100% of the
issued and outstanding common stock of Premier, for a total of 749,000 shares of
newly issued shares of the Company's common stock representing 3.62% of the
Company's resulting issued and outstanding common stock. The one-for-one ratio
of the number of shares of the Company's common stock exchanged for each share
of Premier common stock was determined through arms length negotiations between
the Company and the Premier Stockholders.
The Premier Exchange Transaction was closed on October 4, 1993. As a result,
Premier became a wholly owned subsidiary of the Company. Premier is an oil and
gas company whose principal assets consist of oil and gas properties located in
the Mid-continent and Gulf Coast regions of the United States.
In connection with the closing of the Premier Exchange Transaction, each member
of the Board of Directors of Premier resigned and Wilson and Borem were elected
Directors of Premier. In addition, each officer of Premier resigned and
Premier's new Board of Directors elected Wilson as Chairman of the Board,
President and Chief Executive Officer, Borem as Vice President and Kathryn H.
Shepherd as Secretary of the Company. Mr. Borem and Ms. Shepherd subsequently
resigned.
In December 1993, Ridgepointe had agreed to acquire a 50% interest in two gold
mining claims located in the Sierra Madre mountains of Mexico. Under the terms
of the transaction, at closing Ridgepointe agreed to pay $50,000 and the Company
agreed to issue 500,000 shares of newly-issued shares of the Company's
restricted common stock and agreed to provide $200,000 in working capital to
develop these mining claims. The Company has funded the working capital
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requirements under the terms of the letter agreement to construct roads and
install equipment to develop the claims. As a result of its efforts, the Company
is entitled to acquire an additional 5% interest in the project. Testing of the
mining claims has been completed with very favorable results, and significant
expenditures have been made to construct roads and a test facility for the
mining project. Due to the magnitude of the remaining capital requirements, the
Company has delayed any further efforts in developing the mining properties
until such time as sufficient capital is available to allow continuous
operations.
In August 1994 the Company acquired certain gold mining claims "'Gold Nugget
Mine" in the Quartzite area of Arizona comprising some 1200 acres from Kenneth
Shephard et al. In connection with the transaction the Company issued to Mr.
Shephard et al. shares of its restricted common stock, a one year note payable
of $750,000 and assumed an equipment leasing agreement with Darr Equipment Co.
concerning the associated mining equipment for approximately $440,000. During
the period from September 1994 through April 1995, the Company constructed
additional processing equipment and completed a water well on the property to
initiate placer mining operations. After initiating operations in several areas
of the property, the Company determined the quantity of gold varied too greatly
across the property to establish permanent facilities commensurate with its long
range corporate objections. As a result the Company unwound the acquisition in
August 1995.
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
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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
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
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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
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
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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. In connection with the temporary suspension of its
environmental activities, the management group resigned and the shares and
options issued to them in connection with their employ have been returned to the
Company.
The Company 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. Based upon the most recent information provided by Asia
Pacific, the equity infusion should complete during January 2000. 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 January 2000. The Company expects to
complete its negotiation with the seller of the oil and natural assets during
January 2000 and if successful, expects to sign the loan commitment from Asia
Pacific in January 2000.
(2) ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring items) considered necessary for a fair presentation
have been included. These statements should be read in conjunction with the
Ridgepointe Mining Company financial statements and notes thereto as of July 31,
1995 which are included in the Company's Form 8-K disclosure statement for the
reverse acquisition by Ridgepointe of Imperial and included herein by this
reference.
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(3) NOTES PAYABLE
The Company enters into private notes primarily from its major shareholders from
time-to-time in the course of funding its mining and other activities. As of
October 31, 1999, the Company had a total of 6 notes payable to individuals and
private companies totaling $1,034,549, including principal and accrued interest
thereon, of which $936,435 was with its Chairman and President.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
RESULTS OF OPERATIONS
The following is a discussion of the results of operations of the Company for
the three months ended October 31, 1999. This discussion should be read in
conjunction with the Company's unaudited Consolidated Financial Statements and
the notes thereto included in Part I of this Quarterly Report.
Historically, the factors which most significantly affect the Company's results
of operations are (i) the sale prices of crude oil, natural gas, copper and
gold, (ii) the level of total sales volumes, (iii) the level of lease operating
expenses, and (iv) the level of and interest rates on borrowings. The sales
volumes from the Company's copper and gold mining operations are as yet
insignificant, however, future results of operations are expected to be
significantly affected by these factors. Commodity prices for copper and gold
continue to fluctuate. Until sustained sales are achieved in each commodity,
price fluctuations will remain immaterial.
While the acquisition of a controlling interest of SilaQuartz Mining Company
Ltd. and the subsequent sale of unprocessed silica ore to Merrion results in the
monthly receipt of advance revenue of $50,000, delivery of the silica ore is not
anticipated until construction of a processing plant is completed and as such
any payments received by Merrion are presently considered as deferred revenue
for accounting purposes. Upon completion of the silica processing facility and
the initiation of continuous mining activity, the value of various processed
silica products will significantly influence the Company's quarterly results of
operations.
As discussed previously, the company acquired 90% control of Oil City Petroleum,
Inc. effective August 31,1998 and sold substantially all of the assets of Oil
City to Comanche Energy effective in June 1999. As a result of the sale and
because the Company is a minor shareholder, the Company does not report its
share of the revenues and expenses of Comanche.
Three Months Comparison
Quarter ended October 31, 1999 compared to Quarter ended October 31, 1998.
Revenues for the three months ending October 31, 1999 were $7,035 compared to
$31,088 for the comparable quarter ended October 31, 1998 and reflects revenue
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from the Company's sublease of office space and interest income on notes
receivable from affiliates. The decrease in revenues is the result of the
termination of sublease agreements with Wexford Technology, Inc. and RealAmerica
Co. and the write-off of certain debts owed the Company by Wexford. Any future
revenues will result from the start-up of mining operations or from new oil and
gas acquisitions.
Production and mining operating expenses were $0 for the quarter ended October
31, 1998 compared to $0 for the quarter ended October 31, 1998. No significant
operations were conducted during the quarter. The Company expects its operating
expenses for mining operations to increase significantly upon installation of
its permanent plant at the Duke Mine.
General and administrative costs remained about the same with costs of $65,148
for the three months ending October 31, 1998 compared to $62,124 for the same
period a year earlier and primarily reflects the level of normal G&A expenses. G
&A should continue to increase as the Company begins continuous mining
operations and initiates a corporate public relations campaign. Interest expense
for the quarter increased from $14,161 in 1998 to $22,457 for the same period in
1999 and reflects the higher borrowings by the Company from private debt
sources.
The Company had an after-tax net income loss of $85,408 ($0.007 per share) for
the quarter ended October 31, 1999 compared to a net loss of $45,197 ($0.005 per
share) for the comparable quarter a year earlier. The increase in net loss in
income is attributable primarily to increased interest costs and less revenue
generated from the sublease of office space. The Company does not expect to
generate significant income until its mining operations are in production.
CAPITAL RESOURCES AND LIOUIDITY
The Company's capital requirements relate primarily to its mining activities and
the expansion of those activities. Prior to the change in control, the Company
funded its very limited activities from cash flow. The Company, through its
subsidiaries, had established credit facilities with a bank to facilitate the
funding of its operations. As a result of the sale of its Premier Operating
subsidiary in October, 1996, the Company retired its principal bank debt and no
longer has access to financing from that source.
Presently the Company is active in several mining activities, which will require
significant capital expenditures. The Company has a wide degree of discretion in
the level of capital expenditures it must devote to each project on an annual
basis and the timing of the development of each project. The Company has
primarily been engaged, in its recent past, in the acquisition and testing of
mineral properties to be inventoried for future development. Because of the
relative magnitude of the capital expenditures that may ultimately be required
for any single mining venture as operations are achieved, management has pursued
a strategy of acquiring properties with significant mineral potential in an
effort to create a mineral property base sufficient to allow the Company to
access capital from external sources, either through debt or equity placements.
In order to develop its properties in a continuous manner in the future,
management believes the Company will need to raise capital from outside sources
during fiscal 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.
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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 early January 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 $1.6 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
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
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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 $824,537 as of
October 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 October 31, 1999, the Company had current assets of $211,677 and current
liabilities of $1,567,543, which resulted in negative working capital of
$1,355,866. The negative working capital position is comprised primarily of
notes payable to shareholders and related parties totaling $906,997, accrued
salaries and expenses totaling $612,195. 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.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities .Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Reference is made to the Proxy Solicitation Materials regarding
the Annual Meeting of Shareholders dated November 21, 1996.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable.
(b) Current Report on Form 8-K
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Imperial Petroleum, Inc.
By: /s/ Jeffrey T. Wilson
---------------------
Jeffrey T. Wilson, President
and Chief Executive Officer
Dated: January __, 2000
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