SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 17, 2003
-----------------
IMPERIAL PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-9923 95-338601
- ------------------------------------------------------------------------
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
11600 GERMAN PINES DRIVE, EVANSVILLE, IN 47725
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) - 867-1433
---------------
ITEM 1. Changes in Control:
None.
ITEM 2. Acquisition or Disposition of Assets:
Registrant previously reported on form 8-K dated December 26, 2003, the
sale of control of Powder River Basin Gas Corp, a consolidated subsidiary
of Registrant which filing is included herein by reference.
ITEM 7. Financial Statements and Exhibits:
Attached hereto are Pro Forma financials reflecting the sale of control of
Powder River Basin Gas Corp on the Registrant's most recent fiscal year end
financial condition.
SIGNATURE
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 thereunto duly authorized.
Imperial Petroleum, Inc.
By: ___________________
Jeffrey T. Wilson
President
Dated: February 20, 2004
Consolidated Financial Statements
IMPERIAL PETROLEUM, INC. and SUBSIDIARIES
July 31, 2003 and 2002
IMPERIAL PETROLEUM, INC.
and
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JULY 31, 2003 and 2002
and
FOR THE YEARS ENDED
July 31, 2003 and 2002
INDEPENDENT AUDITOR'S REPORT,
INDEPENDENT ACCOUNTANT'S REPORT
ON PRO FORMA INFORMATION
and
SUPPLEMENTAL INFORMATION
(UNAUDITED)
IMPERIAL PETROLEUM, INC.
July 31, 2003 and 2002
T A B L E O F C O N T E N T S
-----------------------------
Page
Independent Auditor's Report
Independent Accountant's Report
Consolidated Financial Statements:
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-31
Supplemental Information (Unaudited) 32-34
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, 2003 and 2002 and
the consolidated statements of operations, stockholders' equity, and cash flows
for the years ended July 31, 2003 and 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2003 and 2002 and the results of its
operations and its cash flows for the years ended July 31, 2003 and 2002, in
conformity with accounting principles generally accepted in the United States of
America.
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.
The accompanying supplementary information on pages 32-34 is not a required part
of the basis financial statements but is supplementary information required by
accounting principles generally accepted in the United States of America. We
have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of
the supplementary information. However, we did not audit the information and
express no opinion on it.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
December 13, 2003
Tulsa, Oklahoma
Independent Accountant's Report
Board of Directors
Imperial Petroleum, Inc.
Evansville, Indiana
We have examined the pro forma adjustments reflecting the transaction described
in Note 19 and the application of those adjustments to the historical amounts in
the accompanying pro forma balance sheet of Imperial Petroleum, Inc. (A
Development Stage Company) as of July 31, 2003 and the related pro forma
statement of income for the year then ended. These historical financial
statements were audited by us. Such pro forma adjustments are based upon
management's assumptions described in Note 19. Imperial Petroleum, Inc.'s
management is responsible for the pro forma financial information. Our
responsibility is to express an opinion on the pro forma financial information
based on our examination.
Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances. We believe that our examination provides a reasonable basis for
our opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction occurred at an earlier date. However, the pro forma financial
statements are not necessarily indicative of the results of operations or
related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transaction described in Note 19, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma column reflects the
proper application of those adjustments to the historical financial statement
amounts in the pro forma balance sheet as of July 31, 2003, and the pro forma
statement of income for the year then ended.
BRISCOE, BURKE & GRIGSBY LLP
Certified Public Accountants
February 12, 2004
Tulsa, Oklahoma
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 2003 and 2002
Pro Forma
ASSETS 2003 2003 2002
------------ ------------ ------------
Current assets:
Cash $ 157,500 $ - $ 2,869
Accrued interest receivable - - 45,755
Prepaids - 84,392 -
------------ ------------ ------------
Total current assets 157,500 84,392 48,624
------------ ------------ ------------
Property, plant and equipment
(Notes 1, 2, and 4):
Mining claims, options and development
costs less impairment 41,760 41,760 41,760
Oil and gas properties
(full cost method) 249,293 1,389,067 -
Equipment - 1,107
Acquisition in progress
(Note 13) 980,211 980,211 4,000
------------ ------------ ------------
1,271,264 2,411,038 46,867
------------ ------------ ------------
Less: accumulated depr - - 1,107
Net property, plant and equip 1,271,264 2,411,038 45,760
------------ ------------ ------------
Other assets:
Notes receivable - related parties
(Note 3) - - 192,408
Investments in PRVB 27,000 - -
Investments-WarriorResources
(Notes 2 and 11) 40,304 40,304 208,298
------------ ------------ ------------
Total other assets 67,304 40,304 400,706
------------ ------------ ------------
TOTAL ASSETS $ 1,496,068 $ 2,535,734 $ 495,090
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, 2003 and 2002
Pro Forma
LIABILITIES and 2003 2003 2002
STOCKHOLDERS' EQUITY ------------ ------------ ------------
Current liabilities:
Accounts payable $ 124,963 $ 179,974 $ 92,263
Accrued expenses (Note 17) 464,291 501,389 1,083,008
Notes payable (Note 6) 280,000 691,400 80,000
Notes payable - related parties
(Note 7) 741,517 741,517 765,817
------------ ------------ ------------
Total current liabilities 1,610,771 2,114,280 2,021,088
------------ ------------ ------------
Noncurrent liabilities:
Unearned revenue - noncurrent
(Note 16) - - 304,359
Deferred income taxes (Note 5) - - -
------------ ----------- ------------
Total noncurrent liabilities - - 304,359
------------ ------------ ------------
Minority interest (Note 1) - 353,520 -
Stockholders' equity:
Common stock of $.006 par value,
authorized 50,000,000 shares;
30,948,103 issued in 2003 and
39,363,946 shares in 2002 185,689 185,689 236,184
Paid-in capital 7,085,359 6,972,581 6,247,583
Deficit accumulated before the
development stage (89,525) (89,525) (89,525)
Deficit accumulated during the
development stage (6,588,922) (6,293,507) (5,981,295)
Treasury stock, at cost
(1,368,957 shares in 2003 and
21,368,957 shares in 2002) (707,304) (707,304) (2,243,304)
------------ ------------ ------------
Total stockholders' equity (deficit) (114,703) 67,934 (1,830,357)
----------- ------------ ------------
Commitments and contingencies
(Note 9) - - -
------------ ------------ ------------
TOTAL LIABILITIES and
STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,496,068 $ 2,535,734 $ 495,090
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements. -3-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended July 31, 2003 and 2002
Pro Forma Cum
2003 2003 2002 from Incep
Operating income:
Oil, gas and mining $ - $ - $ - $ 924,687
Management fees 94,000 94,000 - 310,733
------------ ------------ ----------- -----------
Total operating income 94,000 94,000 - 1,235,420
------------ ------------ ------------ -----------
Operating expenses:
Cost of goods sold - - - 110,529
Lease operating exp - - - 765,092
Research and development - - - 7,407
Impairment loss
(Note 11) 168,367 168,367 388,844 4,178,363
General and
administrative expenses 942,927 942,927 466,875 4,676,111
Merger expenses 231,027 231,027 - 231,027
Depreciation, depletion
and amort (Note 2) - - - 265,310
------------ ------------ ------------ ----------
Total operating expenses 1,342,321 1,342,321 855,719 10,233,839
------------ ------------ ------------ -----------
Loss from operations (1,248,321) (1,248,321) (855,719) (8,998,419)
Other income and (expense):
Interest expense (80,292) (80,292) (78,788) (956,168)
Interest income - - 25,433 101,220
Other income 7,016 7,016 88,832 693,714
Gain (loss) on sale
of assets (Note 15) (295,415) - - 878,048
------------ ------------ ------------ ----------
Net loss before income tax (1,617,012) (1,321,597) (820,242) (8,281,605)
------------ ------------ ------------ ----------
Provision for income taxes: (Note 5)
Current - - - -
Deferred - - - 203,502
------------ ------------ ------------ ----------
Total benefit from income taxes - - - -
------- ------------ ------------ ----------
Net loss before
extraordinary item (1,617,012) (1,321,597) (820,242)(8,078,103)
---------- ------------ ------------ ----------
Extraordinary item
(Note 15 1,009,385 1,009,385 - 1,784,596
------------ ------------ ------------ ---------
Net loss (607,627) (312,212) (820,242)(6,293,507)
Loss per share (Not $ (.02) $ (.01) $ (.05)
============ ============ ============
Weighted avg shares
(not outstanding) 24,777,057 24,777,057 16,598,593
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the Years Ended July 31, 2003 and 2002
Common Stock Additional Total
Par Paid-In Retained Treasury Stockholder's
Shares Value Capital Deficit Stock Equity(Deficit)
---------- ----------- ------------ ------------ ------------- ---------------
Balances, restated,
at July 31, 2001 13,925,276 83,552 4,069,776 (5,250,578) (579,804) (1,677,054)
Investments in
Warrior Resources 2,948,457 17,691 359,712 - - 377,403
Stock issued for
payment of fees 1,436,722 8,620 233,933 - - 242,553
Stock issued to pay
off interest and
debt (Note 6) 1,053,491 6,321 97,175 - - 103,496
Stock held pending
financing 20,000,000 120,000 1,416,000 - (1,536,000) -
Default on
subscribed stock - - 70,987 (127,500) (56,513)
Net loss for
the period - - - (820,242) - (820,242)
---------- ------- --------- ----------- ----------- -----------
Balances at July 31, 2002 39,363,946 236,184 6,247,583 (6,070,820) (2,243,304) (1,830,357)
---------- ------- --------- ----------- ----------- -----------
Stock issued in
acquisitions 6,567,130 39,401 1,297,280 - - 1,336,681
Stock issued for
payment of fees 3,172,000 19,032 575,458 - - - 594,490
Stock issued to pay
off interest and
debt (Note 6) 1,845,027 11,072 268,260 - - 279,332
Stock returned from
failed financing (20,000,000) (120,000) (1,416,000) - 1,536,000 -
Net loss for
the period - - - (312,212) - (312,212)
----------- ------------ ------------- ------------- ------------- ---------------
Balances at July 31, 2003 30,948,103 $ 185,689 $ 6,972,581 $ (6,383,032) $ (707,304) $ 67,934
=========== ============ ============= ============= ============= ===============
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2003 and 2002
2003 2002 from Inception
Cash flows from operating activities:
Net loss $ (312,212) $ (820,242) $ (6,293,507)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion
and amortization - - 265,310
Expenses paid with
common stock 764,696 242,554 2,928,248
Loss (Gain) on sale
and disposal of assets - - (878,048)
Gains on extinguishment
of debt (1,009,385) - (1,784,596)
Write-offs and
impairments 172,367 329,417 4,178,363
(Increase) Decrease in
accounts receivable - other - - -
(Increase) Decrease in accrued
interest receivable - (25,435) -
(Increase) Decrease in notes
receivable - related party 28,194 - -
(Increase) Decrease in
notes receivable - other - 10,353 -
(Increase) Decrease in
other assets - - -
Increase (Decrease) in
accounts payable 30,000 (9,542) -
Increase (Decrease) in
accrued expenses 189,791 195,190 978,369
Increase (Decrease) in
unearned revenue - - -
------------ ------------ --------------
Net cash used for operating activities (136,549) (77,705) (605,816)
------------ ------------ --------------
Cash flows from investing activities:
(Purchases) Sales of assets (42,020) - 605,861
-------- ------------ --------------
Net cash used for investing activities $ (42,020) $ - $ 605,861
--------- ------------ --------------
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2003 and 2002
Cumulative
2003 2002 from Inception
------------ ------------ --------------
Cash flows from financing activities:
Increase (Decrease) in
notes payable $ 200,000 $ - $ -
Increase (Decrease) in
notes payable - related parties (24,300) 79,500 -
-------- ------------ --------------
Net cash provided by
financing activities 175,700 79,500 -
--------- ------------ --------------
Net increase (decrease) in cash
and cash equivalents (2,869) 1,795 -
Cash and cash equivalents
at beginning of year 2,869 1,074 -
------------ ------------ --------------
Cash and cash equivalents
at end of year $ - $ 2,869 $ -
============ ============ ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ - $ - $ -
Income taxes - - -
Supplemental schedule of noncash
investing and financing activities:
Stock issued for
fixed assets $ 1,287,790 $ - See Footnote 1
Stock issued for
services and interest 764,696 242,554
Stock issued for
investment - 377,403
Impairments and write-offs 172,367 329,417
Stock issued to
extinguish debt 1,009.385 103,496
------------ ------------
Total $ 3,234,238 $ 1,052,870
============ ============
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.
-7-
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 the
southwestern and western United States.
The Company is engaged, through its wholly owned subsidiary Imperial
Environmental Company, in developing and marketing water filtration systems
to municipalities.
The Company is involved in acquisitions with several entities to acquire
oil and gas properties through its parent company Imperial Petroleum, Inc.
During 2003, the Company acquired a 55% interest in Powder River Basin Gas
Corp. The Powder River Basin Gas Corp. was incorporated under the laws of
Colorado on August 27, 1999 as Celebrity Sports Network, Inc. The principal
activities since inception have been organizational matters and obtaining
financing. The Company was formed in an effort to broaden the scope of
public appearances available to current and former professional athletes.
The Company, however, changed their operations in 2001 through a reverse
acquisition with Powder River Basin Gas Corp., an oil and gas company.
Powder River Basin Gas Corp. (PRBG) was incorporated in the state of
Colorado on June 13, 2001. The Company is engaged in the business of
assembling and managing a portfolio of undeveloped acreage in the Powder
River basin coal bed methane (CBM) play in Sheridan County, Wyoming. This
acreage is located in a proven geological setting and near operators such
as Western Gas Resources, Barrett Resources, Phillips Petroleum, J.M. Huber
and others. The Company has leasehold interests in 8,096.83 net acres. Two
wells have been drilled on one lease and eleven additional wells have been
spudded.
Pursuant to a reverse acquisition and reorganization agreement, PRBG was
acquired by Celebrity Sports on September 5, 2001. At the time of the
acquisition, the Company changed its name to Powder River Basin Gas Corp.
The Company issued 9,000,000 shares of common stock for all the issued and
outstanding stock of PRBG; thus, making PRBG a wholly-owned subsidiary of
the Company.
The Company issued 9,000,000 shares of common stock for the receipt of
9,000,000 shares of PRBG, therefore, an adjustment to the shares
outstanding was necessary to reflect the other shareholders of the Company
at the time of acquisition. No goodwill was recorded in the acquisition,
and the purchase method of accounting was used in recording the business
combination. -8-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Financial Condition
The Company's financial statements for the year ended July 31, 2003 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 $312,212 and $820,242 for the
years ended July 31, 2003 and 2002, respectively, and as of July 31, 2003
has an accumulated deficit of $6,383,032.
Management Plans to Continue As A Going Concern
The Company believes that it will require outside capital to continue as a
going concern. In that regard, the Company retained Jeffries & Company, an
investment banking firm with expertise in oil and natural gas transactions,
to assist the Company in securing financing for its acquisition of the
assets and liabilities of Warrior Resources, Inc.; Hillside Oil & Gas LLC
and certain assets of Renovared Energy Resources, Inc. As a result, the
Company has received an indicative term sheet from Hybridge/Zwirn Capital
Management LLC to provide a reserve-based lending facility to the Company
of up to $18.0 million to complete these acquisitions and to provide
development capital for the assets acquired. The Company is continuing to
provide Hybridge with its requested due diligence in an effort to close the
transaction.
The Company controls the operations of Warrior Resources, Inc. and acquired
control of Powder River Basin Gas Corp in May 2003. As a result of each of
these acquisitions, the Company receives management fees in an amount of
$15,000 per month which, if continued to be available, will adequately pay
for the Company's current overhead expense. The Company expects to complete
a transaction involving the change of control of Powder River in which the
Company will receive an interest in the Powder River Basin properties
located in Wyoming.
Management continues to pursue other acquisitions and merger opportunities.
-9-
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 Powder River Basin Gas Corporation
Pursuant to a Stock Exchange Agreement dated May 5, 2003 (the "Stock
Exchange Agreement") between Imperial Petroleum, Inc. and the Powder River
Basin Gas Corporation ("Powder River"), the Powder River stockholders
agreed to exchange (the "Powder River Exchange Transaction") an aggregate
of 25,385,000 shares of the common stock of Powder River, representing 55%
of the issued and outstanding common stock of Powder River, for a total of
2,400,000 restricted and 250,000 un-restricted free trading shares of the
Company's common stock representing approximately 10% of the Company's
resulting issued and outstanding common stock. The business combination was
accounted for using the purchase method of accounting. As a result, Powder
River has become a consolidated subsidiary of the Company. The results of
Powder River's operations have been included in the consolidated financial
statements since that date.
-10-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Powder River Basin Gas Corp is an oil and gas exploration company that is
engaged in the evaluation and development of coal bed methane reserves as
well as shallow oil reserves within the Powder River Basin in the State of
Wyoming. The Company hoped to develop these properties but subsequently
changed its objective with respect to these holdings. Subsequent to
year-end the Company reached an agreement to sell most of its interest in
Powder River.
The purchase was valued at $540,000 based on the average trading value of
Imperial Petroleum's issuance of 2,650,000 shares of common stock at
acquisition which resulted in its 55% stake in Powder River Basin Gas Corp.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
At May 16, 2003
Current assets $ 2,555
Property, plant and equipment 1,284,251
-------------
Total assets acquired 1,286,806
Current liabilities 499,518
Long-term debt -
-------------
Total liabilities assumed 499,518
-------------
Net assets acquired $ 787,288
=============
-11-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Proforma Information
The following financial information is presented as if the companies had
been combined for the periods presented:
12 Months
July 31, 2003
--------------
Revenues $ 109,000
Operating expenses:
Impairments 536,490
General and administrative 1,681,206
Merger expenses 231,027
-----------
Total operating expenses 2,448,723
Other income (expense):
Interest expense (105,424)
Other income 7,016
------------
Total other income (expense) (98,408)
Provision for income taxes -
------------
Extraordinary gains on extinguishment 1,009,385
------------
Net loss $ (1,428,746)
============
-12-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Development Stage Companies
The Company became a development stage company when in 1993 it acquired
Ridgepointe Mining Company and focused its efforts toward mining,
eventually divesting its oil and gas properties. Currently the company is
pursuing its re-entry into the oil and gas industry and thus remains a
development stage company until it completes its acquisitions and major
activities commence.
A summary of stock changes in the stockholders' equity from inception to
July 31, 2001 (see statement of stockholder's equity for subsequent
activity) is as follows:
Common Stock
Shares Amount
------------- ------------
Balances at July 31, 1993 12,560,730 $ 1,531,438
Reverse acquisition of
Imperial Petroleum, Inc. 8,117.111 259,198
Acquisition of Premier Operating Company 749,000 276,420
Stock issued for mining properties 1,000,000 88,743
------------ ------------
Balances at July 31, 1994 22,426,841 2,155,799
------------ ------------
Stock issued for services 100,000 17,188
Stock issued for mining properties
and equipment 1,500,000 257,812
------------ ----------
Balances at July 31, 1995 24,026,841 2,430,799
------------ ----------
Stock issued for services 500,000 15,000
Stock issued for mining properties
and equipment 1,900,000 57,000
Stock issued for investment 5,000,000 42,188
----------- -----------
Balances at July 31, 1996 31,426,841 2,544,987
------------ ---------
-13-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Common Stock
Shares Amount
------------- ------------
Balances at July 31, 1996 31,426,841 $ 2,544,987
Reverse split (26,188,677) -
Stock issued for mining properties
and equipment 45,000 15,270
------------ ------------
Balances at July 31, 1997 5,283,164 2,560,257
------------ ------------
Stock issued for services 173,575 88,090
Stock issued for mining properties
and equipment 860,000 787,500
Stock issued to pay off debt 153,062 101,992
----------- ------------
Balances at July 31, 1998 6,469,801 3,537,839
------------ ------------
Treasury stock issued in contemplation 1,500,000 -
Stock issued for services 1,036,163 169,154
Stock issued for equity securities 1,972,266 394,454
Stock issued to pay off debt 550,000 106,800
------------ ------------
Balances at July 31, 1999 11,528,230 4,208,247
------------ ------------
-14-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS COMBINATION (continued)
Common Stock
Shares Amount
------------- -----------
Balances at July 31, 1999 11,528,230 $ 4,208,247
Stock cancelled (650,000) -
Stock subscribed 716,666 127,500
Stock issued to pay off interest and debt 909,269 90,926
------------ ------------
Balances at July 31, 2000 12,504,165 4,426,673
------------ ------------
Stock issued for payment of fees 500,000 40,000
Stock issued to pay off interest and debt 921,111 74,284
------------ ------------
Balances at July 31, 2001 13,925,276 $ 4,540,957
============ ============
-15-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The July 31, 2003 and 2002 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.)and its proportionate share of the assets, liabilities,
revenues and expenses of Powder River Basin Gas Corporation, for which the
company is the majority owner. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of 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.
Bad Debts
Bad debts on receivables are charged to expense in the year the receivable
is determined uncollectible, therefore, no allowance for doubtful accounts
is included in the financial statements. Amounts determined as
uncollectible are not significant to the overall presentation of the
financial statements. During 2003 and 2002 the Company charged off $120,364
and $27,167, respectively.
Financial Instruments
The Company values its financial instruments as required by FASB Statement
No. 107, Disclosures about Fair Values of Financial Instruments. The fair
value of current assets and current liabilities approximate their reported
carrying amounts as of July 31, 2003.
-16-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
The equity method of accounting is used for all investments in associated
companies in which the Company's interest is 20% or more. Under the equity
method, the Company recognizes its share in the net earnings or losses of
these associated companies as they occur rather than as dividends are
received. Dividends received are accounted for as a reduction of the
investment rather than as dividend income.
The investments are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of the investment may not be
recoverable.
Management Fees
The Company receives a $10,000 per month management fee from Warrior
Resources, Inc. Warrior Resources, Inc. is under common control and the
Company is involved in an as yet to close acquisition of Warrior's oil &
gas properties as of July 31, 2003. During 2003, the Company has earned
$94,000 in management fees.
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 currently operates in the mining
and environmental technologies industries. 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 is dependent on the continued financial
support of its Chief Executive Officer through loans to the Company and
salary deferral.
-17-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company's consolidated financial statements are prepared using the
accrual method of accounting.
Property, Equipment, Depreciation and Depletion
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of 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.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition,
exploration, and development of oil and gas reserves, including directly
related overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves. Investments
in unproved properties and major development projects are not amortized
until proved reserves associated with the projects can be determined or
until impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present
value," discounted at a 10-percent interest rate of future net revenues
from proved reserves, based on current economic and operating conditions,
plus the lower of cost or fair market value of unproved properties.
-18-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Oil and Gas Properties (continued)
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves of oil and gas, in which case the gain or loss is
recognized in income.
Long-Lived Assets
Long-lived assets to be held and used or disposed of other than by sale are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used or disposed of other than
by sale are recognized based on the fair value of the asset. Long-lived
assets to be disposed of by sale are reported at the lower of its carrying
amount of fair value less cost to sell.
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.
Reclassification
Certain amounts in the 2002 consolidated financial statements have been
reclassified to conform to the 2003 presentation.
-19-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
2. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Newly Issued Pronouncements
In July 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets.
Statement 141: Eliminates the pooling method for accounting for business
combinations.
Requires that intangible assets that meet certain criteria be reported
separately from goodwill.
Requires negative goodwill arising from a business combination to be
recorded as an extraordinary gain.
Statement 142: Eliminates the amortization of goodwill and other
intangibles that are determined to have an indefinite life.
Requires, at a minimum, annual impairment tests for goodwill and other
intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, the Company is required to:
Re-evaluate goodwill and other intangible assets that arose from
business combinations entered into before July 1, 2001. If the
recorded other intangibles assets do not meet the criteria for
recognition, they should be reclassified to goodwill. Similarly, if
there are other intangible assets that meet the criteria for
recognition but were not separately recorded from goodwill, they
should be reclassified from goodwill.
Reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly.
Write-off any remaining negative goodwill.
The Company completed its assessment of the effects of these new
pronouncements on its financial statements and believes the effects to be
immaterial. The standards were implemented by the Company in its July 31,
2003 consolidated financial statements.
-20-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
3. NOTES RECEIVABLE - RELATED PARTIES
Notes receivable from related parties was comprised of the following:
2003 2002
------------ ------------
Warrior Resources (formerly Comanche
Energy) - 9% demand note $ - $ 110,795
AQ Technologies - 9% demand note - 81,613
------------ ------------
Total $ - $ 192,408
=========== ============
The Company owns 33% of Warrior Resources and has control with Jeffrey
Wilson as its CEO. During 2003 the monies advanced to Warrior have been
combined into its acquisition in progress of Warrior's oil and gas
properties. The Company's CEO has guaranteed the note receivable from AQ
Technologies (See Note 9) and during 2003 the Company wrote-off the funds
advanced under this guarantee.
4. PROPERTY, PLANT and EQUIPMENT
The Company's mining fixed assets consist of the following:
2003 2002
------------ ------------
Oil and gas properties $ 1,389,067 $ -
Mining claims 74,800 74,800
Equipment - 1,107
Mine development costs 32,634 32,634
Acquisitions in progress 980,211 4,000
Impairment reserve (65,674) (65,674)
----------- ------------
Total $ 2,411,038 $ 46,867
============ ============
The Company has not completed or updated the necessary reserve studies of
its mining claims 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 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.
-21-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
4. PROPERTY, PLANT and EQUIPMENT (continued)
The Company accounts for its oil and gas properties under the full cost
method. The companies capitalized costs for oil and gas properties result
from its 2003 acquisitions of Powder River Basin Gas Corp. and an interest
in the Bovina field in Warren County, Mississippi. Due to the stage of
development of the Powder River Basin Gas Corp. properties the Company does
not have current reserve studies. Subsequent to year-end the Company has
entered into an agreement to sell its controlling interest in Powder River
Valley Basin to another party.
The Company has $1,284,251 and $104,816 in acquisition costs related to the
Powder River Basin Gas Corp. and Bovina field acquisitions respectively at
July 31, 2003. See the supplemental information for information relating to
oil and gas producing activities.
5. INCOME TAXES
Provisions for income taxes are as follows
2003 2002
------------ ------------
(in thousands)
Current:
Federal $ - $ -
State - -
------------ ------------
$ - $ -
============ ============
Deferred:
Federal $ - $ -
State - -
------------ ------------
$ - $ -
============ ============
Income taxes differed from the amounts computed by applying the U.S.
federal tax rate as a result of the following:
2003 2002
------------ ------------
(in thousands)
Computed "expected" tax expense
(benefit) $ (106) $ (279)
State income taxes net of federal
benefit - -
Increase(Decrease) in valuation
allowance for deferred tax assets 106 279
Other - -
------------ ------------
Actual income tax expense $ - $ -
============ ============
-22-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
5. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
2003 2002
------------ ------------
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $ - $ -
Other - -
------------ ------------
Total deferred tax liabilities - -
------------ ------------
Deferred tax assets:
Property, plant and equipment - -
Unrealized loss on securities 707 649
Net operating losses 1,463 1,415
Other - -
------------ ------------
Total deferred tax assets 2,170 2,064
------------ ------------
Valuation allowance (2,170) (2,064)
------------ ------------
Net deferred tax assets - -
------------ ------------
Net deferred tax asset (liability) $ - $ -
============ ============
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 $3,144,000. If not previously utilized, the net
operating losses will expire in varying amounts from 2014 to 2023.
Due to recurring losses and a lack of funding the Company has not been
filing its tax returns. Provisions for current and deferred taxes are
estimated using known facts. Any differences from actual are outside of the
scope of our examination.
-23-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
6. NOTES PAYABLE
2003 2002
------------ ------------
Gary S. Williky, promissory note,
dated November 24, 1997, principal
due on demand plus interest
at 9.0% $ 40,000 $ 40,000
Thomas J. Patrick, promissory note,
dated December 18, 1997, principal
due on demand plus interest
at 9.0% 40,000 40,000
Note payable to individuals, currently
due, including interest at 8% 200,000 -
Note payable to a company, due in total
January 2002, including interest at 10% 86,400 -
Note payable to an individual, due in total
January 2003, including interest at 12% 25,000 -
Note payable to an individual, due in total
in May 2003 40,000 -
Convertible debenture to a company, due
in total by conversion of stock, including
interest at 6% 260,000 -
------------ ------------
Total 691,400 80,000
Less: current portion 691,400 80,000
------------ ------------
Long-term notes payable $ - $ -
============ ============
During the year, the Company issued its restricted common stock to extend
due dates and partially satisfy principal and accrued interest. However,
the notes payable are currently in default. The Company is currently
negotiating with the parties to extend or renew notes payable.
-24-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
7. NOTES PAYABLE - RELATED PARTY
2003 2002
------------ ------------
H. N. Corporation - 9.0% demand note $ 110,473 $ 124,723
Officer - 10.0% demand note 111,845 111,845
Officer - 7.5% demand note 72,850 82,900
Officer - 9.0% demand note 446,349 446,349
------------ ------------
$ 741,517 $ 765,817
============ ============
During the year, the Company issued 1,236,309 shares of its common stock to
extend due dates of related party notes.
8. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its chief executive officer,
Jeffrey T. Wilson and a Company owned and controlled by Mr. Wilson, H.N.
Corporation. For 2003 and 2002 the Company has accrued an annual salary of
$109,500 and $118,500, respectively, for Mr.Wilson. The Company, from time
to time, has also entered into loans with its directors, stockholders and
related companies (See Notes 3 and 7).
During 2003, the Company issued stock valued at $683,745 and advanced
$14,000 in payments of obligations of Warrior Resources, Inc., an
affiliate, pursuant to an acquisition of its oil and gas properties.
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.
-25-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
9. LITIGATION, COMMITMENTS AND CONTINGENCIES (continued)
Commitments (See Note 16)
The Company's Chief Executive Officer is a guarantor of a note payable of
AQ Technologies. The approximate amount of this guarantee at July 31, 2003
is $65,000. The Company has been servicing the note due to AQ Technoligies'
inability to do so. Monthly payments, including principal and interest,
under this note are $2,521. During 2003 it was determined that the amounts
previously paid under the guarantee would not be collectible and a $120,364
charge off resulted (See Note 3).
The Company's subsidiary, Powder River Basin Gas Corp., has entered into
various oil and gas leases from several land owners. Associated with the
agreements, the Company is committed to various royalty agreements ranging
from 15% to 25% of gross revenue production. Some of the leases also
provide for a minimum royalty. As of July 31, 2003, no royalties were due.
10. BUSINESS SEGMENTS
The Company's operations involve mining and environmental operations. The
following table sets forth information with respect to the industry
segments of the Company.
2003 2002
------------ ------------
Revenues: (in thousands)
Oil and gas $ - $ -
Mining - -
Environmental - -
Other 94 -
------------ ------------
Total revenues $ 94 $ -
============ ============
-26-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
10. BUSINESS SEGMENTS (continued)
2003 2002
------------ ------------
Identifiable assets: (in thousands)
Oil and gas $ 2,701 $ -
Mining 42 42
Environmental - 1
Other 130 452
------------ ------------
$ 2,873 $ 495
============ ============
Depreciation and depletion:
Oil and gas $ - $ -
Mining - -
Environmental - -
------------ ------------
$ - $ -
============ ============
11. INVESTMENTS IN WARRIOR RESOURCES, INC.
During 1999 the Company acquired a stake in Warrior Resources, Inc. which
was recorded as an investment under the cost method. Through an exchange
transaction in 2002 the Company now has a 32% interest (33,586,473 shares
with an undiscounted trading value of $69,805), exceeded the 20% ownership
threshold and has the ability to significantly influence the investee,
requiring a change to the equity method of accounting.
A change to the equity method of accounting from the cost method of
accounting for an investment requires a retroactive adjustment by the
investor to its investment, results of operations, and retained earnings in
a manner consistent with the step-by-step acquisition of a subsidiary.
-27-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
11. INVESTMENTS IN WARRIOR RESOURCES, INC. (continued)
Warrior Resources common stock is traded publicly on over-the-counter
markets. Recurring losses and management representations of the investee
provide evidence of impairment of this equity investment. Therefore, the
impairment allowance required for equity investments under APB Opinion 18
yields a result which reduces the carrying amount of the equity investment
to the lower market value as per quoted market prices (currently $.002)
discounted for large block and lack of marketability discounts as
applicable. Thus the carrying value is unchanged from that when carried
using the cost method of accounting for the investment but the results of
operations are restated to reflect the change in the carrying value of the
investment. The investment presentation has been changed to reflect the
change from the cost method to the equity method. An impairment loss of
$168,367 and $388,844 were recognized in 2003 and 2002, respectively. The
carrying amount of the investment is as follows:
July 31, July 31,
2003 2002
------------ ------------
Equity in investee net assets $ 2,118,951 $ 2,118,579
Impairment allowance 2,078,647 1,910,280
------------ ------------
Net carrying amount $ 40,304 $ 208,299
============ ============
Condensed selected financial data of Warrior Resources (unaudited) is as
follows:
July 31, July 31,
2003 2002
------------ ------------
Assets $ 28,982,195 $ 34,404,629
Liabilities 5,150,616 5,258,950
------------ ------------
Net assets $ 23,831,579 $ 29,145,679
============ ============
Net income (loss) $ (5,314,100) $ (5,048,842)
============ ============
-28-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
12. WARRANTS
The Company has the following warrants outstanding:
200,000 @ $.25, expiring 11/03/04
1,000,000 @ $.25, expiring 6/26/08
During 2003, the Company issued 1,000,000 warrants to its CEO, Jeffrey T.
Wilson, in settlement of accrued but unpaid compensation through July, 31,
2002 in the amount of $808,508. This transaction resulted in a gain on
extinguishment of debt of $808,508.
13. ACQUISITIONS IN PROGRESS
The Company is currently involved in the acquisition of oil and gas
properties from Warrior Resources, Inc., Hillside Oil and Gas LLC, and
Renovared Energy Resources, Inc. The Company has properly executed
agreements to acquire oil and gas properties in the United States. Costs
incurred pursuant to those acquisitions are $790,211, $160,000 and $30,000
respectively.
The Company is currently in the process in working with its lender to
consolidate, finance and close these acquisitions pursuant to the
agreements in place.
14. LEASE OBLIGATIONS
During 2002 the Company had a noncancelable operating lease agreement for
office space. Total rental expense was $0 and $7,953 in 2003 and 2002,
respectively. Currently, the Company offices in Mr. Wilson's home.
-29-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
15. GAIN ON EXTINGUISHMENT OF DEBT
During 2003, the Company issued 608,718 shares of its common stock as
settlement of the Company's default on delivery of its silica ore
contracts. This transaction resulted in an extraordinary gain of $200,877.
During 2003, the Company issued 1,000,000 warrants, exercisable at $.25, in
exchange for $808,508 in accrued officer salary. This transaction resulted
in an extraordinary gain of $808,508.
16. UNEARNED REVENUE
During 2003, the Company reached a settlement agreement to exchange 608,718
shares of its common stock in settlement of this obligation (See Note 15).
17. ACCRUED EXPENSES
The Company has accrued expenses as of July 31 as follows:
2003 2002
------------ ------------
Accrued officer salary - CEO $ 109,500 $ 808,508
Accrued interest on notes 391,889 274,500
------------ ------------
$ 501,389 $ 1,083,008
============ ============
During the years ended July 31, 2003 and 2002 the Company issued 1,236,309
and 1,053,491 shares, respectively, of its restricted common stock to pay
accrued interest, pay for services, and extend maturities of notes payable.
-30-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
18. SUBSEQUENT EVENTS
On October 20, 2003 the Company entered into a letter of understanding to
sell 23,885,000 of its 25,385,000 shares of Powder River Basin Gas
Corporation for $175,000. If completed, the sale would result in a loss of
$365,000 and leave the Company with 3% ownership of the common stock of
Powder River Basin Gas Corporation.
In October of 2003, the company raised $200,000 in cash through the sale of
2,000,000 shares of its restricted common stock and the issuance of a one
year warrant for 2,000,000 shares exercisable at $.12 per share.
The Company also extinguished its $200,000 note payable related to its
acquisition of Powder River Basin through the issuance of 2,000,000 shares
of common stock and a one year warrant for 2,000,000 shares exercisable at
$.14 per share.
The Company has also entered into a letter of intent to sell its mining
claims. The impact on final terms and resulting gain or loss are uncertain
at this time.
19. PRO FORMA FINANCIAL INFORMATION
July 31, 2003 historical balance sheet and income statement amounts have
been used to create pro forma balance sheet and income statements as if the
Company's December 15, 2003 sale of 23,885,000 of its 25,385,000 shares of
Powder RivBasin common stock, in exchange for $175,000 in cash due at
closing, and a 12.5% carried working interest in PRVB's Wyoming properties,
had taken place July 31, 2003. Additionally, $84,393 of prepaid consulting
to former PRVB management is now deemed worthless.
-31-
SUPPLEMENTAL INFORMATION
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Supplemental Information
(Unaudited)
Year Ended July 31, 2003
Capitalized Costs Relating to Oil and Gas
Producing Activities at July 31, 2003: Full Cost
-------------
Unproved oil and gas properties $ -
Proved oil and gas properties 104,816
Support equipment and facilities -
------------
104,816
Less accumulated depreciation, depletion,
amortization, and impairment -
------------
Net Capitalized Costs $ 104,816
============
Costs Incurred in Oil and Gas Producing
Activities for Year Ended July 31, 2003:
Property acquisition costs
Proved $ 104,816
Unproved -
Exploration costs -
Development costs -
Amortization rate per equivalent
barrel of production -
------------
$ 104,816
Results of Operations for Oil and Gas Producing
Activities for the Year Ended July 31, 2003
Oil and gas sales $ -
Production costs -
Depreciation, depletion and amortization -
------------
-
Income tax expense -
------------
Results of operations for oil and gas
activities (excluding corporate overhead
and financing costs) $ -
============
Acquisition costs of $1,284,251 are excluded from amortization at July 31, 2003.
-33-
IMPERIAL PETROLEUM, INC.
(A Development Stage Company)
Supplemental Information
(Unaudited)
Year Ended July 31, 2003
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of cured oil (including condensate and
natural gas liquids) and natural gas that 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 expected to be recovered through existing wells,
equipment and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expense (based on the year-end
statutory tax rates, with consideration of future tax rates already legislated)
to be incurred on pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing economic conditions.
The estimated future net cash flows are then discounted using a rate of 10
percent a year to reflect the estimated timing of the future cash flows.
-34-