ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996 Commission File No. 0-21169
Nevada 76-0529110
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15311 Vantage Parkway West
Suite 160
Houston, Texas 77032
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(Address of Principal Executive offices) (Zip Code)
(281) 987-2828
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(Issuer's Telephone Number, Including Area Code)
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Securities Registered under Section 12(b) of the Exchange Act:
None
Securities Registered under Section 12(g) of the Exchange Act:
Check if the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period as the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this report and no such disclosure will be contained, to the best of the issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |_|
The issuer's revenues for its most recent fiscal year were $0.
The aggregate market value of shares of Common Stock held by non-affiliates (based on the October 31, 1997 average of bid and asked prices) was approximately $6.8 million.
As of October 31, 1997, 13,101,421 shares of the issuer's Common Stock were outstanding.
Transitional small business disclosure format: |_| Yes |X| No
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Imperial Petroleum Recovery Corporation (the "Company" or "Imperial") is a development stage company committed to developing and marketing a proprietary oil sludge remediation process and equipment that use high energy microwaves to separate water, oil and solids. The Company calls the process "MST," which stands for "Microwave Sludge Treatment," and believes the process can provide an effective, ecologically sound and economical method of processing crude oil sludge and emulsions. The process recovers usable hydrocarbon compounds from material that otherwise would be of little value or require disposal. Based on prototype testing and demonstrations, the Company believes that approximately 50% to 90% of the crude oil recovered through the remediation process can be reclaimed for sale.
In December 1996, new management assumed control of day-to-day operations of the Company. The new management consists of Henry Kartchner, Chairman and Chief Executive Officer, and C. Brent Kartchner, Secretary/Vice President of Operations. The Company's new management has implemented a number of cost-cutting initiatives aimed at continuing to fund the Company's operations from existing resources and reducing the level of revenue required to operate the Company. See "Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company has not yet recognized sales revenues. It is concentrating its marketing efforts on North America. Approximately eight potential customers are awaiting the results of field test trials before determining whether to enter into contracts to acquire the Company's products.
Internationally, the Company is negotiating with entities in Kuwait, the Netherlands and Venezuela to use the MST process to clean up stored sludge or emulsions.
Current Product Offerings
The Company currently has one product offering, the MST-1000, and intends to offer another product, the MST-500. The model number of each unit represents the average number of barrels of sludge the unit can process in a 24-hour period. The MST-1000 has been designed primarily for use by oil refineries and other waste oil processors that have operable crude oil distillation capacities of between 5,000 and 100,000 barrels per day. Up to eight MST-1000 units can be joined to work together. The MST-500 has been designed primarily for use at small refineries and clean-up sites, many of which are located in developing nations. The Company intends also to offer an MST-2000 and an MST-4000 for larger field applications. These products would consist of, respectively, two and four MST-1000 units joined together.
The core of an MST process consists of a microwave generator, a series of waveguides, tuners, a computer and computer control instrumentation plus the actual applicator, where the sludge/emulsion is subjected to microwave energy.
The Company intends to assemble MST units in its Houston, Texas facility, using components procured primarily from outside subcontractors and vendors. The Company intends to manufacture a few key items itself and to build to order to fit each customer's needs. Each unit will vary in size and sophistication in the software modules.
The Company offers its products and systems for lease directly to end users. In certain overseas markets, the Company offers its products to existing oil sludge processors through geographically-specific marketing partnerships. After leasing, the MST products are to be operated by the customer's or partner's personnel, after receiving technical training from the Company. Imperial intends to have technicians available worldwide to service the Company's products and to monitor and periodically check products in the field. Each MST System is to be protected by a security system to assure that the Company and its partners maintain control of the system and that any royalty payments are calculated accurately.
Research and Development
Principals of the Company began developing the MST process in 1995. Testing of a prototype unit began in September 1996. The Company has modified the MST process based on its testing and on reactions to presentations and demonstrations made to potential customers and technical experts. Modifications have greatly reduced maintenance costs of MST units.
Marketing
The Company markets its products primarily for remediation of crude oil sludge and emulsions produced in connection with oil production and refining. There are approximately 700 oil refineries worldwide, all of which are potential customers of the Company. The United States has 111 operable petroleum refineries. The Company is focusing its marketing efforts on refineries located in the United States and Canada. The Company intends to form strategic alliances with foreign partners in order to penetrate international markets. The Company already has formed alliances with the following:
o DuraTherm, Inc., an environmental services and technology firm that provides thermal desorption, resource recovery, recycling, and waste minimization for hydrocarbon contaminated materials, primarily for the petroleum and petrochemical industries; and
o Golden Shahin for General Trading and Contracting Co., a Kuwaiti company that provides logistical support for the successful completion of the Kuwait Oil Lakes Remediation Project.
The Company believes that the MST process also can be deployed in shipping lanes and ports to treat sludge from crude oil tankers as they off-load ballast and clean their tanks before loading. The Company intends to increase efforts to market the system for this application in the future.
Competition
The Company's competitors are firms that use either incineration or centrifuge recovery systems to process oil sludge and emulsions. Incineration, which is still prevalent in developing nations, is easy, low in cost and does not require sophisticated technology if the process is not subject to environmental rules and procedures. If done under environmental rules and regulations, however, incineration is costly. In addition, most incineration systems destroy the sludge in a way that does not produce usable hydrocarbon byproducts.
Use of a centrifuge recovery system requires high heat and creates vapor problems. Fires and explosions are possible, posing a danger to personnel as well as to the environment. Complete recovery of oil seldom is achieved and requires the use of chemicals, at additional cost. Moreover, the chemicals are difficult to eliminate from the sludge, and eventually travel back to the refinery or into the wastewater system.
The Company believes that the MST process offers significant competitive advantages over competing oil sludge remediation processes. The Company believes the MST process is more effective, ecologically more sound, and more economical than competing systems. In addition, fewer environmental problems appear to be associated with the MST process. The cost of using the MST process is comparable to centrifuging, which is between $3 and $15 a barrel plus $.25 to $1.50 a barrel if chemicals are used. The Company expects the MST process to recover 50% to 90% of the oil, while centrifuging usually would recover less. The Company believes that the sale value of the hydrocarbons recovered by the MST process can offset a portion of the cost of operation.
The Company's competitors include both very large companies engaged in oil sludge remediation and small operators with portable burners who incinerate oil sludge and move from site to site.
The Company's largest competitors are:
o Waste Management, Inc., which handles bio-remediation, liquid solidification, and waste transportation, is a nationwide company with 25 operating units in the Texas, Oklahoma, and Louisiana regions.
o DuraTherm, Inc., which is the nation's leader in hazardous solid waste handling, processing and recovery, has a $20 million facility in Houston, Texas that receives products from all over North America./1
o Alfa Laval, a manufacturer of remediation equipment, has a worldwide coverage of centrifuges and other separation equipment, plus a service company in most oil producing regions.
Many of the companies with which the Company competes are substantially larger and have substantially greater resources and market recognition and broader capabilities than the Company. It is also likely that other competitors will emerge in the future. As a consequence, there is no assurance that the Company will be able successfully to compete in the marketplace.
Protection of Intellectual Property
The technology used in the MST process is proprietary. The Company does not now own patents to protect its design. Proprietary rights relating to the Company's products and processes generally will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. The Company has filed a patent application relating to its design and may seek additional patents in the future covering patentable results of research. There can be no assurance that any patent applications filed by the Company will result in patents being issued or that any patents that may be owned or licensed by the Company in the future will afford protection against competitors with similar technology, will not be infringed upon or designed around by others or will not be challenged and held to be invalid or unenforceable. In the absence of patent protection, the business of the Company may be adversely affected by competitors who independently develop substantially equivalent technology.
Third-party patents relating to technology utilized by the Company may now exist or be issued in the future. The Company may need to acquire licenses to, or to contest the validity of, any such patents. Significant funds may be required to defend any claim that the Company infringes a third-party patent, and any such claim could adversely affect the Company until the claim is resolved. Furthermore, any such dispute could result in a rejection of any patent applications of the Company or the invalidation of any patents the Company may own in the future. There can be no assurance that any license required under any such patent would be made available or, if available, would be available on acceptable terms or that the Company would prevail in any litigation involving such patent. Any of the foregoing adverse results could have a material adverse effect on the Company and its results of operations.
The Company seeks to protect the technology used in the MST process in part by confidentiality agreements with its advisors, employees, consultants, suppliers and vendors. The
Company also protects its technology by building interlocking security measures into its products. There can be no assurance, however, that these agreements and security measures will not be breached, that the Company will have adequate remedies for any breach or that the Company's trade secrets will not otherwise be disclosed to, or discovered by, competitors. In addition, there can be no assurance that persons or institutions providing research to the Company will not assert rights to intellectual property arising out of such research.
Suppliers
The Company primarily uses standard parts and components from a variety of suppliers to produce the hardware for each MST process. Certain components are currently available only from a few limited sources. To date, the Company has not had difficulty obtaining parts and components in sufficient quantity in a timely manner. The Company does not expect to have such difficulty if and when sales of MST processes accelerate.
Government Regulation
The Company's products are subject to government regulation by the United States Environmental Protection Agency, local and state environmental agencies, and local health departments. The Company believes that its products meet or exceed all applicable safety and environmental regulations.
Employees
As of October 31, 1997, the Company had 10 full-time employees, five engaged in testing and manufacturing and five involved in sales and administration.
ITEM 2. PROPERTIES
The Company leases 4,519 square feet of office space and 7,500 square feet of manufacturing space in Houston, Texas, on a month to month basis. The total lease payment for the leased space is $6,265.83 per month.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit involving the Company was filed on February 9, 1995. The defendant, Thermal Wave International Inc. (TWI), filed third-party claims against third-party defendants, including the Company, on August 20, 1996. TWI alleged that the company:
(1) is misrepresenting itself as the exclusive source of a technology designed to perform oil sludge remediation through treatment by microwave radiation, but that such technology was actually acquired and developed by TWI;
(2) has disclosed and/or made commercial use of TWI's trade secrets;
(3) has violated ss. 43 (a) of the Lanham Act;
(4) has violated ss. 16.29 of the Texas Business and Commerce Code;
(5) has engaged in unfair competition, false advertising and misappropriation of proprietary information under the common law of Texas; and
(6) has engaged in a conspiracy to misappropriate, misrepresent and wrongfully exploit technology of TWI.
TWI sought the following remedies, inter alia, against the Company: (1)
actual damages of an unspecified amount; (2) disgorgement of profits; (3)
punitive damages of an unspecified amount; (4) an order to enjoining the Company
from (a) using trade secrets or other proprietary information belonging to TWI;
(b) acts of unfair competition, and (c) false advertising, and (5) requirements
that the Company (a) make appropriate disclosures to correct alleged false or
misleading statements, and (b) disclose to TWI all details of alleged false or
misleading statements.
Management believes that TWI's claims are without merit and is vigorously defending the Company. The Company denies that it has utilized or misappropriated any trade secrets of TWI. Due to the uncertainties of the litigation, no outcome can be predicted at this stage.
Continental Electronics Corporation claims Imperial owes it $178,845 for work performed by Continental under two contracts. The claim under one contract is approximately $100,000. Imperial believes that the claimed sum was not properly calculated under the contract. The second contract was for programing services and related hardware. The program did not functioned properly, however, and the hardware did not meet safety standards. Imperial intends to defend the claim and to pay only that portion of the claim ultimately deemed appropriate.
The Company is subject to other litigation from time to time arising from its operations and receives occasional letters alleging infringement of patents owned by third parties. Management does not believe that any such litigation and claims that have arisen have merit or that they will have a material effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board Market under the symbol "IREC."
The following table sets forth the range of high and low bid quotations for the Company's common stock for each of the calendar quarters of 1996 and 1997 from the commencement of public trading in the stock on April 16, 1996.
1996 High Bid Low Bid ---- -------- ------- Second Quarter* $ 3.62 $ 0.87 Third Quarter $ 8.375 $ 5.1875 Fourth Quarter $ 6.00 $ 4.375 1997 High Bid Low Bid ---- -------- ------- First Quarter $ 4.56 $ 2.62 Second Quarter $ 2.62 $ 0.62 Third Quarter $ 0.75 $ 0.43 Fourth Quarter $ 0.96 $ 0.31 ------------ |
* From April 16, 1996.
The quotations in the table above reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
Holders
As of October 31, 1997, there were 540 registered holders of the Company's Common Stock.
Dividends
The Company has not paid cash dividends to date, and it is not expected that any cash dividends will be paid in the foreseeable future. The Company intends to retain any earnings to finance its future growth.
Recent Sales of Unregistered Securities
During the fiscal year ended October 31, 1996, the Company sold shares of its Common Stock for cash without registration under the Securities Act of 1933 on 16 different dates, as detailed in the following table:
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No. of Aggregate No. of
Date Purchasers Purchase Price Price per Share* Shares Sold*
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11/01/95 1 $8,000 $2.00 4,000
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11/15/95 1 2,000 2.00 1,000
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12/13/95 14 51,200 2.00 25,600
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12/23/95 1 12,000 2.00 6,000
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01/07/96 9 22,400 2.00 11,200
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01/07/96 1 500 4.00 125
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01/07/96 1 1,500 3.00 500
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01/11/96 2 65,000 4.00 16,250
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01/23/96 9 204,305 2.00 102,150.5
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01/24/96 4 92,000 2.00 46,000
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01/26/96 1 50,000 2.00 25,000
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01/31/96 1 8,000 2.00 4,000
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01/31/96 6 21,200 2.50 8,480
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02/05/96 2 3,000 3.00 1,000
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02/14/96 2 9,000 3.00 3,000
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02/16/96 1 3,000 3.00 1,000
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04/18/96 1 12,000 3.00 4,000
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05/10/96 1 40,000 2.00 20,000
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05/10/96 3 40,000 2.50 16,000
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05/10/96 4 102,000 3.00 34,000
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08/15/96 1 5,000.00 6.00 833
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TOTAL 66** $752,105 330,138.5
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* Numbers have not been adjusted toect .03 for 1 stock dividend of November 22, 1996.
** Total is not sum of column because some purchasers purchased more than once.
In addition to the sales reflected in the table above, the Company issued 10,345 shares of Common Stock to 15 individuals on September 4, 1996 and 4,938 shares of Common Stock to four individuals on October 30, 1996. All of these individuals were employees of either the Company, NSA, Inc., which was providing administrative support services to the Company at the time, or Food Development Corporation, which was also providing services to the Company at the time. See "Item 12. Certain Relationships and Related Transactions." Shares of Common Stock were issued to these individuals in lieu of other compensation. The Company also issued 25,000 shares of Common Stock to a lawyer providing services to the Company in lieu of other compensation on January 24, 1996.
Current management believes that prior management relied upon the exemption provided in Section 4(2) of the Securities Act, which covers "transactions by an issuer not involving any public offering," to issue the shares discussed and identified in the table above without registration under the federal Securities Act of 1933. Except in the case of the issuance to the lawyer and to employees, purchasers of the shares were business associates, family members and friends of officers and directors of the Company. The certificates representing the shares sold were marked with a legend indicating that transfer of the shares was restricted because they had not been sold in a registered offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its inception in 1995, the Company has been actively developing its petroleum sludge treatment technology. From inception Imperial has sustained cumulative losses of approximately $4,804,746. The losses include expenses for the following:
(a) The purchase of Phonon Technologies, a microwave and chemical research and development company, in the amount of $349,500;
(b) Costs of approximately $1,795,324 to fund the research and development of Imperial's MST process for treating oil sludge and further improving its present technologies; and
(c) General and administrative (G&A) expenses, which include the international and domestic marketing of Imperial's microwave technology and oil sludge remediation product line.
The above losses have been funded in part by private sales of common stock which have resulted in net cash proceeds of approximately $3,620,000.
In December 1996, the Company effected a significant number of cost-cutting initiatives aimed at continuing to fund its operations from existing resources and reducing the level of revenue required to achieve a break-even/cash flow position. The Board of Directors relocated corporate headquarters to Houston, Texas. This relocation has saved the Company money by consolidating management and operations into the same area for better coordination and communication. The relocation also provided a strategic benefit by placing the Company in the oil capital of the world, thus exposing it to hundreds of Houston-based companies involved in the petro-chemical industry. The relocation should better enable the Company to meet directly with interested parties and interface with oil industry executives in a position to make decisions to further the goals of the Company.
In December 1996, a management re-organization also was instituted. Since that time, Imperial has substantially completed its capital expenditure program, field tested its MST-1000, and built an inventory of key components. Current management has instituted a complete set of internal policies on cost control. These have resulted in major cost reductions to date.
The Company recognizes the key to success at this time requires extensive promotion. Management intends to implement a strategic marketing plan with the following objectives:
o Position the Company as a leader in microwave technology both domestically and internationally.
o Increase awareness and name recognition of Imperial among petroleum industry clients.
o Generate qualified sales leads and potential joint venture partners.
o Increase, through market research, significant information to create immediate and long-term marketing plans.
o Expand sales materials, emphasizing use of a product video and the Company's website.
o Continue to contact media groups to further establish an image as a highly professional organization interested in helping solve environmental problems while improving customer's bottom line.
o Communicate on a regular basis with editors of major trade, business and local petroleum-related publications to increase coverage of the Company's technology.
o Create an internal/external newsletter to serve as an informational piece for internal personnel, shareholders, key clients and media sources.
o Increase communication with the financial community, including brokers and potential investors.
o Join industry and environmental organizations to further corporate goals.
Even though the Company has been restricted by cash flow, marketing efforts have been ongoing. Management believes that the interest generated in the MST technology thus far indicates solid demand for products utilizing the technology. In an effort to produce MST sales, the Company is continuing with product testing efforts and has targeted several large volume users. Management currently is hopeful that an order for an MST-1000 will be placed in the first fiscal quarter of 1998, and that orders for two MST-1000 units will be placed in the second quarter of fiscal year 1998. The Company's plan of operations envisions the placement of two to three orders per quarter in the remainder of fiscal year 1998.
The foregoing discussion contains certain forward looking statements which involve risks and uncertainties. Imperial's actual results could differ materially from the results anticipated in such statements.
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended October 31, 1995
The Company has sustained substantial losses from operations since inception, and such losses have continued since October 31, 1996. In addition, the Company has used, rather than provided, cash in its operations.
The Company has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue operations.
A change in management occurred in December 1996, wherein the number of administrative and marketing personnel was reduced, operations were relocated to less costly facilities, and marketing and promotion costs were lowered.
In mid-1997, the Company completed development and demonstration of a redesigned MST-1000 and began field testing.
Management has aggressively sought to restructure its liabilities to reduce near-term cash requirements. Such restructuring activities include the following:
o In July 1997, an agreement was reached to settle the remaining obligations resulting from the Company's acquisition of assets from Phonon Technologies, Inc., by issuing 100,000 shares of common stock and reassigning the rights to certain technologies previously acquired.
o In June 1997, the Company settled its commitment under a long-term lease in Las Vegas, Nevada, which carried a monthly commitment in excess of $25,000, by issuing 100,000 shares of common stock and by agreeing to pay the landlord $100,000 in June 1998.
o In August 1997, the Company reached an agreement with Food Development Corporation (FDC), a company which is owned by the Chairman of the Company's Board of Directors and which has funded operations of the Company since inception. The agreement required the Company to repay $703,000 on May 1, 1998. Of this sum, $661,000 was outstanding at October 31, 1996.
The Company has been in the development stage since operations commenced in 1995 with substantially all of management's attention focused on developing products based upon its sludge remediation process, promoting the Company within its targeted industries, and raising capital to finance operations. As such, the Company has not realized any sales since operations began in 1995.
Operating expenses in fiscal 1996 were $4,105,683 as compared to $700,749 in fiscal 1995, an increase of 486%. The increase is partially attributable to fiscal 1995 containing only four months of operations in which the Company had reduced staff levels and had outsourced the
initial development phase of the first prototype. Research and development expenses in fiscal 1996 were $1,355,324 as compared to $440,000 in fiscal 1995, an increase of 208%. This increase was due to continued development of an MST-4000 prototype unit which was outsourced in 1995 and then bought in-house in 1996. By the end of fiscal 1996, the first unit was completed and demonstrable. Therefore, management does not expect development expenditures in fiscal 1997 to be as significant as they were in fiscal 1996.
In August 1996, the Company acquired certain assets consisting primarily of patents and technology from Phonon Technologies, Inc. A charge of $349,500 was recorded in the fiscal 1996 financial statements associated with this acquisition to expense the portion of the purchase price related to technology and patents which the Company has reassigned.
General and administrative expenses in fiscal 1996 totaled $2,283,941 as compared to $260,749 in fiscal 1995, which as discussed above constituted only a partial year of operations. Of these expenses, $846,283 in fiscal 1996 were funded or incurred by National Security Analysts, Inc. or Food Development Corporation, both entities controlled by stockholders of the Company. Such expenses consisted of administrative support, marketing, technology development, and management salaries necessary due to lack of existing infrastructure within the Company. Management has curtailed significantly such expenses in fiscal 1997 as internal management has increased its involvement in the administrative, product development and selling and marketing functions of the Company. Other general and administrative expenses in fiscal 1996 include non-cash charges of approximately $340,000 associated with the issuance of common stock to employees and a vendor for services rendered to the Company.
In fiscal 1997, management entered into a lease in Las Vegas, Nevada for space intended to be used for production and manufacturing. However, due to delays in bringing its products to market and the relocation by new management to Texas in late 1996, the facility was abandoned by the Company. As a result of abandonment, the Company recorded a charge of $161,918 for the cost attributable to a settlement reached with the landlord in July 1997.
Liquidity and Capital Resources
Imperial's business is capital intensive. The Company has funded its operations principally from the private placement of common stock and debt financing that has subsequently been converted into common stock. On October 31, 1996, Imperial's aggregate liabilities were approximately $2,005,804 and the Company had negative working capital of approximately $400,555. By mid-November 1996, Imperial had no available cash or marketable securities.
In December 1996, Barry Meuse, President/CEO, Richard Wiewiorka, Vice President, and Joseph Meuse, Secretary resigned their positions as officers and members of the Board of Directors.
The following officers/directors remained: Henry Kartchner, Chairman/CEO; Larry Taylor, President; Brent Kartchner, Secretary/Vice President of Operations. Mr. Taylor resigned from the presidency and Board of Directors of the Company late in fiscal year 1997.
Beginning in December l996, Imperial, under new management, began a major effort to restructure its operations and reorganize its business focus that enabled the Company to continue to fund its operations. The efforts to reduce costs and expenses included closing Imperial's large corporate offices in Alexandria, Virginia and its leased facility in Las Vegas, Nevada. This move allowed the consolidation of both facilities in Houston, Texas. Additionally, by reducing staff, eliminating costly consultants, focusing R&D and streamlining office activities, management estimates that monthly expenses have been reduced by approximately 40%.
These factors enabled Imperial to continue to fund operations from its existing sources and reduce the revenue required to achieve break-even. Imperial has not yet completed a laboratory in Houston and estimates that it will require $75,000 near-term capital to complete this facility.
Since the re-organization started in December 1996, Imperial has struggled to stabilize its financial condition by raising capital through private placements of equity and debt.
ITEM 7. FINANCIAL STATEMENTS
Please see attached.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not required because previously reported.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers.
The current directors and executive officers of the Company are Henry H. Kartchner, 73, and C. Brent Kartchner, 51.
Henry Kartchner has served as a director and Chairman of the Board of the Company since December 1995 and as Chief Executive Officer since December 1996. Mr. Kartchner also is Chief Executive Officer of Food Development Corporation, an international agribusiness, which he founded in 1975. Under his leadership, FDC grew to annual revenues of $75 million.
In 1970, he founded Desert Magic, Inc., an agribusiness that included 10,000 acres of irrigated land, processing plants and a nationwide marketing system. During the 1960's, Mr. Kartchner was an executive with the H.J. Heinz company and responsible for the fastest growing food sector of the Company.
Brent Kartchner has been Vice President of Operations and Secretary of the Company since December 1996 and a director of the Company since September 1995. He also was a Vice President of the Company from September 1995 to December 1996. From 1992 to 1994, Mr. Kartchner was General Manager and co-owner of Pacific Northwest Farming--Oregon Potato Processing Center, a 12,000 acre agribusiness that included production and marketing and a transportation division, plus the nation's largest potato dehydrating factories. From 1987 to 1992, Mr. Kartchner was Vice President of Marketing of Sunkyong Limited, one of the largest grain/foodstuff importers into South Korea. Mr. Kartchner received a Bachelor of Science degree in agronomy and business management from Brigham Young University in 1971. Brent Kartchner is the son of Henry Kartchner.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires the Company's executive officers and directors and any persons who own beneficially more than 10% of the Company's Common Stock to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") as well as to furnish the Company with a copy of each such report. Additionally, SEC regulations require the Company to identify in its proxy statement and Annual Report on Form 10-KSB those individuals for whom one or more of these reports required under Section 16 was not filed on a timely basis during the most recent fiscal year or prior fiscal years.
All executive officers, directors and 10% beneficial owners of the
Company's Common Stock who were such on October 7, 1996, the date on which the
Company's Common Stock became registered under the Act, were required under
Section 16(a) to file an initial statement of beneficial ownership on Form 3
within 10 days of that date. Mr. Henry Kartchner and Mr. Brent Kartchner did not
file their initial statements of beneficial ownership until August 11, 1997. To
the Company's knowledge, Mr. Barry Meuse, Mr. Larry Taylor and Mr. Richard
Wieworka, who were executive officers, directors and 10% beneficial owners at
the time, and Mr. Owen K. Stephenson, who was a 10% beneficial owner, have not
yet filed their initial statements of beneficial ownership.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the compensation paid or accrued by Imperial, to or on behalf of the Imperial's Chief Executive Officer and other executive officers determined for services provided in the fiscal years indicated.
Annual Compensation
Name Other
and Annual
Principal Salary Bonus Compensation
Position Year ($) ($) ($)
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Henry Kartchner 1996 12,000 0 0
Chairman 1995 - 0 0
Barry Meuse 1996 35,000 0 0
CEO/President 1995 10,000 0 0
Brent Kartchner 1996 17,500 0 0
Vice President 1995 - 0 0
Larry Taylor 1996 58,600 0 0
Vice President 1995 23,000 0 0
Richard Wiewiorka 1996 46,500 0 0
Vice President 1995 23,000 0 0
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Compensation of Directors
Directors receive no compensation or fees for their services rendered in such capacity.
Employment Contracts
There were no written employment contracts for any Imperial employees in the fiscal year ended October 31, 1996 and have been none since then.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of October 31, 1997 the persons (including any "group") named in the table below were believed by the management of the Company to be beneficial owners of more than five percent of the Common Stock of the Company under SEC Rule 13d-3. Under that Rule, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, management believes that each person indicated above has sole power to vote, or dispose or direct the disposition, of all shares beneficially owned, subject to applicable community property laws.
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership(2) Percent of Class
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C. Brent Kartchner 1,098,041 8.38%
57 Quail Run Rd.
Henderson, NV 89014
Henry Kartchner 2,585,705(3) 18.65%
3216 S. Everett Place
Kennewick, WA 99336
Rex H. Lewis 2,000,000 15.27%
2325-A Rennaissance Dr.
Las Vegas, NV 89119
Larry Taylor 1,297,665(4) 9.90%
12250 S. Kirkwood #625
Stafford, TX 77477
All Officers & Directors 3,683,746 26.57%
as a Group(5)
---------------
|
(1) Another person or person may own beneficially 5% or more of the Company's Common Stock without management's having sufficient evidence to conclude that such an ownership position currently exists.
(2) All shares are held directly except that (i) Mr. Henry Kartchner's beneficial holdings include 1,348,341 shares held directly, 473,625 shares held by Food Development Corporation, which he controls, and exercisable options to acquire 763,739 shares at $0.31 per share held by Food Development Corporation, and (ii) Mr. Lewis' shares are held by Maya LLC, an entity he controls.
(3) Mr. Henry Kartchner has agreed to return 250,000 shares to the Company for cancellation, which would reduce his beneficial ownership to 2,335,705 shares or 17.16% of the outstanding class.
(4) Since October 31, 1997, Mr. Taylor has returned 600,000 shares to the Company for cancellation, reducing his total beneficial ownership to 429,665 shares, or 3.28% of the outstanding class.
(5) Includes two individuals, Mr. Henry Kartchner and Mr. Brent Kartchner.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1995, the following six individuals entered into an agreement of which the Company was a third-party beneficiary: C. Brent Kartchner, Henry H. Kartchner, Barry Meuse, Owen K. Stephenson, Larry D. Taylor and Richard Wieworka. Under the agreement, Mr. Stephenson, who represented that he controlled 6,961,000, or 99.4 %, shares of the Company's 7,000,000 outstanding shares of Common Stock, was to convey 1,066,000 of the shares to each of the other parties to the agreement. In exchange, the other parties promised to provide the consideration set forth opposite each of their names below:
Party Consideration
----- -------------
C. Brent Kartchner Agreement to provide operational and fabrication
services to the Company for minimal compensation to
be agreed upon.
Henry H. Kartchner Economic support and credit required to fabricate
and test the initial MST-4000 prototype for minimal
compensation.
Barry Meuse Agreement to provide management services to the
Company, for compensation to be agreed upon.
Larry D. Taylor Agreement to act as marketing representative for the
Company, for compensation to be agreed upon.
Richard Wieworka Agreement to provide corporate development services
to the Company, for compensation to be agreed upon.
|
Mr. Stephenson agreed to, and in connection with consummation of the transactions provided for in the agreement did, transfer and assign the consideration provided by each of the parties listed in the table above to the Company. In addition, in order to induce such parties to enter into the agreement, Mr. Stephenson agreed to provide consulting services to assist in transforming the Company into a public company with its shares of Common Stock eligible for public trading in the United States. The Company did not record any value for the assets transferred and assigned to it by Mr. Stephenson in the transaction.
The Company has engaged in transactions with NSA, Inc. ("NSA"), an entity controlled by Mr. Barry Meuse, who at the time of the transactions was a more-than-5% stockholder, officer and director of the Company. During the fiscal year ended December 31, 1996, the Company incurred liabilities to NSA of $244,880 for administrative support services, travel and other associated costs; $93,571 for office rent; and $257,023 in noninterest bearing advances or payments to Company vendors to fund working capital needs. As of October 31, 1996, $138,637 of the aggregate of these amounts had not been paid. The Company increased its liability to NSA by $265,363 for additional costs, rent and advances in November and December of 1996. Mr. Meuse ceased to be an officer and director of the Company in December 1996.
The Company is disputing claims of NSA for $671,194 in additional costs and charges allegedly incurred, including $478,184 in salary for Mr. Meuse from September 1995 to December 1996, 1997 rent of $100,000, and interest of $93,010 on the outstanding balance.
The Company also has engaged in transactions with Food Development Corporation ("FDC"), an entity controlled by Henry H. Kartchner, the Company's Chairman of the Board. During the fiscal year ended October 31, 1996, the Company reimbursed FDC $275,000 for research and development expenses it had incurred on behalf of the Company. In addition, in August 1997 the Company executed a note for $703,282 to FDC to cover the reimbursement of
other research and development expenses incurred by FDC on behalf of the Company, including an additional $183,407 in fiscal year 1995, $469,770 in fiscal year 1996, and $661,677 in fiscal year 1997. The note bears interest at 10% annually, and is due no later than May 1, 1998.
From March to October 1996, Phoenix Financial and Eagle Trust, entities believed to have been controlled by Owen K. Stephenson, whom management believes was a more-than-5% beneficial owner of the Company's Common Stock at the time, loaned the Company $1,884,004, with no provision being made for the payment of interest. In December 1996, the Company issued 450,139 shares of Common Stock (equal to $4.185 per share) to repay the loans in full. The same entities loaned the Company an additional $450,000 in early fiscal year 1997, with no provision being made for the payment of interest. The Company repaid this amount in April 1997 by issuing 109,939 shares of Common Stock (equal to $4.09 per share).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Financial Statements
The following financial statements are included in this report:
Report of Independent Certified Public Accountants
Balance Sheets as of October 31, 1995 and 1996
Statements of Operations for the years ended October 31, 1995 and 1996
Statements of Stockholder's Deficit for the years ended October 31, 1995 and 1996
Statements of Cash Flows for the years ended October 31, 1995 and 1996
Notes to Financial Statements
Exhibits
The exhibits to this report are identified in the Exhibit Index, which appears immediately after the signature page and is incorporated in this Item 13 by this reference.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter of the fiscal year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 24, 1997.
IMPERIAL PETROLEUM RECOVERY CORPORATION
By /s/ Henry H. Kartchner
------------------------------------
Henry H. Kartchner
Chairman and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
/s/ Henry H. Kartchner November 24, 1997 -------------------------------------- Henry H. Kartchner Chairman and Chief Executive Officer (Principal Executive Officer) /s/ C. Brent Kartchner November 24, 1997 -------------------------------------- C. Brent Kartchner Vice President and Director |
IMPERIAL PETROLEUM RECOVERY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Financial Statements and Report of
Independent Certified Public
Accountants
Imperial Petroleum Recovery Corporation
(a development stage company)
Contents
Report of Independent Certified Public Accountants 3 Financial Statements Balance Sheets 4-5 Statements of Operations 6 Statements of Stockholders' Deficit 7 Statements of Cash Flows 8 Notes to Financial Statements 9-16 |
Report of Independent Certified Public Accountants
Board of Directors
Imperial Petroleum Recovery Corporation
(a development stage company)
We have audited the accompanying balance sheets of Imperial Petroleum Recovery Corporation (a development stage company) (a Nevada corporation) as of October 31, 1996 and 1995, and the related statements of operations, changes in stockholders' equity and cash flows for the years then ended and for cumulative amounts since inception. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Imperial Petroleum Recovery Corporation (a development stage company) as of October 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended and for cumulative amounts since inception in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the financial statements, the Company has incurred cumulative net losses of approximately $4,804,746 since inception of operations and as of October 31, 1996, the Company's current liabilities exceeded its current assets by $400,555 and its total liabilities exceeded its total assets by $3,009,535. These factors, among others, as discussed in Note A to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Vienna, Virginia
June 9, 1997, except for Note D,
as to which the date is July 9, 1997; Note E, as to which the date is August
15, 1997; and Note G, as to which the date is July 7, 1997
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets
-------------------------------------------------------------------------------------------------
October 31, 1996 1995
-------------------------------------------------------------------------------------------------
(as restated;
see Note H)
Assets
Current Assets
Cash and cash equivalents $ - $208,339
Officer and employee advances 146,884 15,000
Inventory 132,000 -
Deposits - 1,989
----------------------------------
Total Current Assets 278,884 225,328
Property and Equipment, net of accumulated depreciation
of $3,362 at October 31, 1996 158,501 -
Technology Rights--held for note settlement 339,500 -
----------------------------------
$776,885 $225,328
-------------------------------------------------------------------------------------------------
|
Imperial Petroleum Recovery Corporation
(a development stage company)
Balance Sheets--Continued
-------------------------------------------------------------------------------------------------
October 31, 1996 1995
-------------------------------------------------------------------------------------------------
(as restated;
see Note H)
Liabilities and Stockholders' Deficit
Current Liabilities
Bank overdraft $ 51,934 $ -
Notes payable--Phonon acquisition--current portion 20,000 -
Accounts payable--trade 341,707 -
Accounts payable--National Security Analysts, Inc. 138,638 458,407
Accrued employee expense reimbursements 124,542 50,661
Current portion of abandoned lease obligation 2,618 -
----------------------------------
Total Current Liabilities 679,439 509,068
Note Payable--Phonon acquisition--noncurrent 339,500 -
Note Payable--Food Development Corporation 661,677 -
Accrued Lease Obligation--noncurrent 100,000 -
Obligations to Be Settled in Stock
Loans from affiliated entities 1,884,004 -
Abandoned lease obligation 59,300 -
Phonon acquisition 62,500 -
----------------------------------
2,005,804 -
Commitments and Contingencies - -
Stockholders' Deficit
Common stock--authorized 100,000,000 shares; $.001
par value; issued and outstanding 8,315,080 and
7,884,372 shares at October 31, 1996 and 1995,
respectively 8,315 7,882
Common stock subscribed (7,730) (7,730)
Additional paid-in capital 1,794,626 416,348
Deficit accumulated during the development stage (4,804,746) (700,240)
----------------------------------
Total Stockholders' Deficit (3,009,535) (283,740)
----------------------------------
$ 776,885 $ 225,328
-------------------------------------------------------------------------------------------------
|
The accompanying notes are an integral part of these statements.
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Operations
----------------------------------------------------------------------------------------------------------
Cumulative
Amounts Year ended October 31,
Since ----------------------
Inception 1996 1995
----------------------------------------------------------------------------------------------------------
(as restated;
see Note H)
Revenue $ - $ - $ -
Cost of Goods Sold - - -
--------------------------------------------------
Gross Profit - - -
Operating Expenses
Research and development expenses--prototype 1,795,324 1,355,324 440,000
Acquired research and development--Phonon
Technologies 349,500 349,500 -
General and administrative expenses
Internal administration, selling and marketing
expense 1,508,062 1,430,720 77,342
Administrative and operating support costs--
related parties 991,628 808,221 183,407
Loss on abandonment of leased facility 161,918 161,918 -
--------------------------------------------------
Loss from Operations (4,806,432) (4,105,683) (700,749)
Other Income
Interest income 1,686 1,177 509
--------------------------------------------------
Net Loss $ (4,804,746) $(4,104,506) $ (700,240)
----------------------------------------------------------------------------------------------------------
Loss per Share $ (.46) $ (.41)
----------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 8,980,081 7,679,126
----------------------------------------------------------------------------------------------------------
|
The accompanying notes are an integral part of these statements.
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Stockholders' Deficit
---------------------------------------------------------------------------------------------------------------------
Years ended October 31, 1996 and 1995
---------------------------------------------------------------------------------------------------------------------
Common
Price per Common Stock
Date Share Shares Subscribed
---- ----- ------ ----------
Balance, November 1, 1994 7,729,702 $(7,730)
Issuance of Common Stock for Cash September 1995-October 1995 $1.94 89,812 -
September 1995-October 1995 3.85 62,858 -
Net Loss - -
--------------------------
Balance, October 31, 1995 7,882,372 (7,730)
Issuance of Common Stock for Cash November 1995-April 1996 1.94 158,734 -
November 1995-April 1996 2.41 13,794 -
November 1995-April 1996 3.17 21,626 -
November 1995-April 1996 3.88 60,044 -
November 1995-April 1996 4.86 11,890 -
November 1995-April 1996 5.07 7,366 -
July 1996 3.00 83,333 -
September 1996 4.34 11,513 -
Issuance of Common Stock to Vendor
for Services Rendered August 1996 5.94 25,750 -
Issuance of Common Stock to Employees
for Services Rendered October 1996 4.84 38,658 -
Net Loss - -
--------------------------
Balance, October 31, 1996 8,315,080 $(7,730)
---------------------------------------------------------------------------------------------------------------------
|
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage
----- ------- -----
Balance, November 1, 1994 $7,730 $ - $ -
Issuance of Common Stock for Cash 90 174,310 -
62 242,038 -
Net Loss - - (700,240)
-------------------------------------------
Balance, October 31, 1995 7,882 416,348 (700,240)
Issuance of Common Stock for Cash 159 308,067 -
14 33,351 -
22 68,478 -
60 233,120 -
12 57,822 -
7 37,393 -
83 249,917 -
12 49,989 -
Issuance of Common Stock to Vendor
for Services Rendered 26 152,974 -
Issuance of Common Stock to Employees
for Services Rendered 38 187,167 -
Net Loss - - (4,104,506)
-------------------------------------------
Balance, October 31, 1996 8,315 $1,794,626 $(4,804,746)
------------------------------------------------------------------------------------
|
The accompanying notes are an integral part of these statements.
Imperial Petroleum Recovery Corporation
(a development stage company)
Statements of Cash Flows
----------------------------------------------------------------------------------------------------------
Cumulative
Amounts Year ended October 31,
Since ----------------------
Inception 1996 1995
----------------------------------------------------------------------------------------------------------
(as restated;
see Note H)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $(4,804,746) $(4,104,506) $(700,240)
-------------------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 3,360 3,360 -
Noncash charge associated with acquisition 349,500 349,500 -
Accrued loss on abandonment of leased facility 161,918 161,918 -
Charges associated with stock issuances to
vendor 153,000 153,000 -
Related party expenses included in note
payable 661,677 661,677 -
Changes in assets and liabilities
Increase in inventory (132,000) (132,000) -
Decrease (increase) in deposits - 1,989 (1,989)
Increase in officer and employee advances (146,884) (131,884) (15,000)
Increase in accrued liabilities 124,542 73,881 50,661
Increase in accounts payable 480,345 21,938 458,407
-------------------------------------------------
Total Adjustments 1,655,458 1,163,379 492,079
-------------------------------------------------
Net Cash Used in Operating Activities (3,149,288) (2,941,127) (208,161)
-------------------------------------------------
Cash Flows from Investing Activities
Cash paid for acquisition (94,000) (94,000) -
Additions to property and equipment (161,863) (161,863) -
-------------------------------------------------
Net Cash Used in Investing Activities (255,863) (255,863) -
-------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 1,642,213 1,225,713 416,500
Proceeds from loans from affiliated entities 1,884,004 1,884,004 -
Payments on notes payable (173,000) (173,000) -
Proceeds from bank overdraft 51,934 51,934 -
-------------------------------------------------
Net Cash Provided by Financing Activities 3,405,151 2,988,651 416,500
-------------------------------------------------
Net (Decrease) Increase in Cash - (208,339) 208,339
Cash and Cash Equivalents, Beginning of Period - 208,339 -
-------------------------------------------------
Cash and Cash Equivalents, End of Period $ - $ - $ 208,339
----------------------------------------------------------------------------------------------------------
|
The accompanying notes are an integral part of these statements.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements
NOTE A--REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations since inception, and such losses have continued since October 31, 1996. In addition, the Company has used, rather than provided, cash in its operations.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet is financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
The Company has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue in existence.
A change in management occurred in December 1996, wherein the number of administrative and marketing personnel was reduced, operations were relocated to less costly facilities, and marketing and promotion costs were lowered. The Company's senior management continues to forego cash-based compensation until cash flow improves.
In mid-1997, the Company completed development and demonstration of a prototype unit, and is prepared to begin production for interested customers.
Management has aggressively sought to restructure its liabilities to reduce near-term cash requirements. Such restructuring activities include the following:
o In July 1997, an agreement was reached to settle the remaining obligation resulting from the Company's acquisition of assets from Phonon Technologies, Inc., by issuing 100,000 shares of common stock and reassigning the rights to certain medical technology previously acquired.
o In June 1997, the Company settled its commitment under a long-term lease in Las Vegas, Nevada, which carried a monthly commitment in excess of $25,000, by issuing 100,000 shares of common stock and by agreeing to pay the landlord $100,000 in June 1998.
o In August 1997, the Company reached an agreement with Food Development Corporation (FDC), a company which is owned by the chairman of the Company's board of directors and which has funded operations since inception. The agreement required the Company to repay $703,000, of which $661,000 was outstanding at October 31, 1996, no earlier than May 1, 1998. The note is convertible by FDC into common stock anytime prior to payment.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Imperial Petroleum Recovery Corporation (a development stage company incorporated in Nevada) (the Company) has been in the development stage since commencement of operations in fiscal year 1995. Operations to date comprise developing and marketing crude oil sludge, recovery process technology. Since December 1996, principal operations have been conducted in Texas.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method. Property and equipment are depreciated over the estimated economic lives estimated to be five years.
Research and Development Expenses
Costs incurred in connection with developing a prototype and demonstration model of a system designed for crude oil sludge, recovery process technology have been expensed as incurred. Certain costs incurred for components of the system have been capitalized as inventory because they have alternative future uses.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in checking and money market accounts, and short-term investments with original maturity dates of three months or less.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Management believes the Company is not exposed to any significant credit risk on cash and cash equivalents.
Fair Value of Financial Instruments
Financial instruments in the accompanying financial statements principally consist of notes payable. Such notes include the following:
o An obligation to FDC which at October 31, 1996, amounted to approximately $661,000. Management is unable to estimate its fair value because the amount is due to a related party and market information on notes of this type is unavailable;
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
o An obligation to the seller of certain assets acquired in August 1996 is stated at 1) the value of common stock issued in July 1997 in partial satisfaction of the note and 2) the remaining amount of the note of $339,500 which was settled by reassigning certain technology to the seller.
Income Taxes
The Company has not provided for a deferred tax asset associated with net operating losses generated to date because of uncertainty as to realization of the related tax benefits. As of October 31, 1996, the Company has a net operating loss carryforward of approximately $2,100,000 which is available to be applied against taxable income generated through 2011. Additional costs totaling approximately $2,700,000 incurred through October 31, 1996, are being classified as start-up costs for income tax reporting purposes, and will be amortized over a five-year period beginning in fiscal year 1997. Upon a change in control of the Company, the use of all or a portion of the net operating loss carryforward may be limited.
Loss per Share
The computation of the loss per share is based upon the weighted average number of common shares outstanding in each period and gives retroactive effect to a stock dividend in December 1996.
NOTE C--NOTES AND LOANS PAYABLE
Phonon Acquisition
In connection with the purchase of certain assets from Phonon Technologies, Inc., in August 1996 (as described in Note G), the Company executed a noninterest bearing, non-recourse note payable to the seller in the amount of $595,000. Through October 31, 1996, the Company made payments totaling $173,000 against this obligation. In November 1996, the Company paid an additional $20,000 on the note. In a settlement agreement reached in July 1997, the Company has committed to retire a portion of the remaining principal outstanding by issuing 100,000 shares of common stock in August 1997. The obligation of $62,500 related to the stock issuance has been classified as a noncurrent liability in the accompanying 1996 financial statements, pending issuance of the stock. In addition, the Company agreed to reassign the rights to certain technology acquired in the purchase in satisfaction of the remaining balance.
Affiliated Entities
From March through October 1996, the Company was loaned $1,884,004 from two entities affiliated with a stockholder of the Company. The loans bore no interest. In December 1996, the Company issued 450,139 shares of common stock to repay the loans in full. The loans have been classified as noncurrent liabilities in the accompanying balance sheet pending issuance of the stock, and interest was not imputed because of the short time the loans were outstanding.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE C--NOTES AND LOANS PAYABLE--Continued
The Company received approximately $450,000 from the same entities as additional loans in early 1997. The loans were repaid in April 1997 when the Company issued 109,939 shares of common stock.
NOTE D--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and research facility in Stafford, Texas, under a month-to-month operating lease. During fiscal year 1996 and through December 1996, the Company leased office space from NSA, Inc. (see Note E), for which it paid approximately $12,500 per month. Upon the relocation of operations to Texas in December 1996, such lease payments ceased.
In July 1996, the Company entered into a 62-month lease for offices manufacturing and research space in Las Vegas, Nevada. The Company did not commence operations in the leased facility because of delays in bringing its products to market and has since attempted to locate a subtenant or replacement tenant. As a result of the abandonment, the Company recorded a charge to operations of $161,918, which is the cost attributable to a settlement reached in July 1997. The settlement provides for the payment of $100,000 plus interest of 10% in July 1998, the issuance of 100,000 shares of common stock, and a cash payment at settlement of $2,618. The stock issuance commitment has been valued using the value of the Company's stock at the settlement date, and the associated liability has been classified as a noncurrent obligation pending issuance of the stock.
Total rent expense, excluding the loss from the abandoned lease described above, for the year ended October 31, 1996, was approximately $351,000.
Litigation and Asserted Claims
A lawsuit involving the Company was filed on February 9, 1995. The defendant, Thermal Wave International, Inc. (TWI), filed third-party claims against third-party defendants, including the Company, on August 20, 1996. TWI alleged that the Company (1) is misrepresenting itself as the exclusive source of a technology designed to perform oil sludge remediation through treatment by microwave radiation despite that such technology was allegedly acquired and developed by TWI; (2) has disclosed and/or made commercial use of TWI's trade secrets; (3) has violated ss. 43(a) of the Lanham Act; (4) has violated ss. 16.29 of the Texas Business and Commerce Code; (5) has engaged in unfair competition, false advertising and misappropriation of proprietary information under the common law of Texas; and (6) has engaged in a conspiracy to misappropriate, misrepresent and wrongfully exploit technology of TWI.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE D--COMMITMENTS AND CONTINGENCIES--Continued
TWI sought the following remedies against the Company: (1) actual damages of an unspecified amount; (2) disgorgement of profits; (3) punitive damages of an unspecified amount; (4) attorneys' fees of an unspecified amount; (5) pre- and post-judgment interest; (6) costs of court; (7) a permanent injunction to enjoin (a) use of trade secrets or other proprietary information allegedly belonging to TWI, (b) acts of unfair competition, (c) false advertising, (d) acts constituting violations of ss. 16.29 of the Texas Business and Commerce Code, and (e) competing with TWI; and (8) to require (a) the Company to make appropriate disclosures to correct alleged false or misleading statements, and (b) the Company disclose to TWI all details of alleged false or misleading statements.
Management believes the claims against it are without merit and is vigorously defending itself. Management is unable to predict the possible outcome of this matter.
The Company has been presented with another claim in the amount of $250,000 associated with a customer's deposit for a contract. The Company issued 83,333 shares as collateral for the deposit and has classified the proceeds received as an addition to stockholders' equity in the accompanying financial statements, as management believes the amount is nonrefundable. The Company's Board of Directors and management vigorously dispute the customer's right to the refund under several defenses which they believe are meritorious; they do not believe the ultimate outcome of this matter will have a material, adverse impact on the Company's financial statements.
The Company is involved in other litigation incident to the ordinary conduct of its business. Management believes the claims are without merit and is unable to predict the possible outcome of these matters.
NOTE E--RELATED PARTY TRANSACTIONS
NSA, Inc.
The Company engages in several transactions with NSA, Inc. (NSA), an entity controlled by a stockholder and former director of the Company. These transactions are summarized as follows:
Amounts for the
Year Ended
October 31,
1996
----------------------------------------------------------------------------------------------------------
Administrative support services, travel and other associated costs $244,880
Office rent 93,571
Noninterest bearing advances or payments to Company vendors to fund
working capital needs 257,023
------------
$595,474
------------
|
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE E--RELATED PARTY TRANSACTIONS--Continued
The Company has recorded a liability to NSA at October 31, 1996, of $138,637. Subsequent to October 31, 1996, the Company has increased the liability by $265,363 for additional costs, rent, and advances in November and December 1996. However, the Company is disputing $671,194 in additional costs and charges sought by NSA associated with salary and overhead for an officer of NSA (who was part of the Company's management through December 1996) of $478,184; interest on the outstanding balance of $93,010; and 1997 rent of $100,000 on certain office space. Because a definitive settlement agreement has not been reached with NSA regarding the Company's obligation, further negotiations may result in a liability different than that recorded in the financial statements. The effect of such a change will be recorded in the period a settlement is reached.
During the year ended October 31, 1996, an agreement was executed providing for the Company to acquire NSA, Inc., in an exchange of securities. Subsequent to executing the agreement, the Board of Directors of the Company voided the merger, believing it was not in the best interest of the Company to merge with NSA. All shares of common stock issued in connection with the merger were subsequently returned to the Company and not reflected as outstanding shares in the accompanying financial statements.
Food Development Corporation
The Company engages in several transactions with Food Development Corporation (FDC), an entity controlled by a stockholder and director of the Company. In addition, included in research and development expense in fiscal year 1995 is $275,000 associated with prototype development costs funded by FDC.
For the years ended October 31, 1996 and 1995, FDC incurred expenses on behalf of the Company amounting to $469,770 and $183,407, respectively. As of October 31, 1996, the Company recorded a liability of $661,677 to FDC. In August 1997, the Company executed a note payable to FDC in the amount of $703,282, which includes the October 31, 1996, liability and expenses of $76,261 incurred subsequent to October 31, 1996. The note bears interest at 10%, computed prospectively from August 15, 1997, and is due no earlier than May 1, 1998. FDC may convert the balance due anytime into an equivalent number of shares of common stock at the market value on the date of the conversion.
NOTE F--STOCKHOLDERS' EQUITY
In December 1996, the Company declared a 3% stock dividend issuable to stockholders of record as of the declaration date. As a result, the accompanying financial statements retroactively give effect to the dividend.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE F--STOCKHOLDERS' EQUITY--Continued
In August 1996, the Company issued 25,750 shares of common stock to an attorney for legal services rendered on behalf of the Company. Legal expenses were charged for $153,000 to record the fair value of the shares issued based upon the trading price of the shares.
In September and October 1996, the Company issued 38,658 shares of common stock to certain employees of the Company, NSA and FDC. Compensation expense recorded as a result of the stock issuance was $187,205 based upon the trading price of the shares at the date of issuance.
NOTE G--SIGNIFICANT TRANSACTIONS
In August 1996, the Company acquired certain assets consisting of technology, patents and furniture and laboratory equipment from Phonon Technologies, Inc. (PTI), a Houston, Texas, based research and development company, engaged in the development of microwave chemistry technologies. The purchase price for the assets was $689,000, of which $94,000 was paid at closing and the remainder financed by a non-recourse note payable collateralized only by the technology and assets acquired. The Company allocated $349,500 of the purchase price to acquired research and development costs which were expensed in the statement of operations. The remaining $339,500 related to other technology was capitalized. As described in Note C, the Company reached an agreement in July 1997 to restructure the remaining balance due on the note payable. The settlement included reassigning the capitalized technology to the seller in satisfaction of the remaining balance on the note of $339,500.
PTI had not realized any revenue from the acquired technologies prior to the acquisition and the Company did not hire any permanent employees or occupy facilities of PTI. As such, the Company does not believe this acquisition constitutes a business acquired and has, therefore, omitted pro forma disclosures required for business combinations.
NOTE H--RESTATEMENT
The 1995 financial statements have been restated to properly reflect expenses incurred on behalf of the Company by an affiliated entity and to reflect certain cash activity not previously reflected. The effect of the restatement was to increase the deficit accumulated during the development stage as of October 31, 1995, by $674,068 and to increase net loss for the year ended October 31, 1995, by $674,068.
Imperial Petroleum Recovery Corporation
(a development stage company)
Notes to Financial Statements--Continued
NOTE I--SUPPLEMENTAL INFORMATION ON NON-CASH FINANCING AND INVESTING ACTIVITIES
As discussed in Notes C and G, the Company acquired certain assets in part by issuing a promissory note in the amount of $595,000.
NOTE J--SUBSEQUENT EVENTS
Sale of Inventory
In June 1997, the Company sold a prototype component carried as inventory at original cost of $132,000 in the accompanying financial statements for $234,000, payable in 36 monthly installments.
Notes Payable
In April and May 1997, the Company was loaned $346,067 by stockholders who are former officers of the Company. The obligations bear interest at 10% and are payable no later than one year from the origination date of each loan.
Imperial Petroleum Recovery Corporation
Exhibit Index to Form 10-KSB
Exhibit No. Identification of Exhibit
----------- -------------------------
3.1 Articles of Incorporation of the Company (incorporated
by reference to Exhibits 2 and 2.1 to the Company's
Registration Statement on Form 10-SB filed with the
Commission on August 8, 1996, Commission File No.
0-21169)
3.2 Bylaws of the Company
27 Financial data schedule
|
Exhibit 3.2
BYLAWS
OF
IMPERIAL PETROLEUM RECOVERY CORP.
A Nevada Corporation
ARTICLE I
Offices
Section 1. The registered office of this corporation shall be in the County of Clark, State of Nevada.
Section 2. The corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. All annual meetings of the stockholders shall be held at the registered office of the corporation at such other place within or without the State of Nevada as the directors shall determine. Special meetings of the stockholders may be held at such time and place within or without the State of Nevada as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of the stockholders, commencing with the year 1996, shall be held on the 21st day of January each year if not a legal holiday and, if a legal holiday, then on the next secular day following, or at such other time as may be set by the Board of Directors from time to time, at which the stockholders shall elect by vote a Board of Directors and transact such other business as may properly be brought before the meeting.
Section 3. Special meetings of the Stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the President or the Secretary by resolution of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose of the proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the President or a Vice President or the Secretary or an Assistant Secretary or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time and the place, which may be within or without this State, where it is to be held. A copy of such notice shall be either delivered personally to or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten nor mare than sixty days before such meeting. If mailed, it shall be directed to a stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. In the event of the transfer of stock after delivery of such notice of and prior to the holding of the meeting it shall not be necessary to deliver or mail notice of the meeting to the transferee.
Section 5. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 6. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall be sufficient to elect directors or to decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Articles of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question.
Section 8. Each stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting shall be by ballot.
Section 9. At any meeting of the stockholders any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that any such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No proxy or power of attorney to vote shall be used to vote at a meeting of the stockholders unless it shall have been filed with the secretary of the meeting when required by the inspectors of election. All questions regarding the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by the inspectors of election who shall be appointed by the Board of Directors, or if not so appointed, then by the presiding officer of the meeting.
Section 10. Any action which may be taken by the vote of the stockholders at a meeting may be taken without a meeting if authorized by the written consent of stockholders holding at least a majority of the voting power, unless the provisions of the statutes or of the Articles of Incorporation require a greater proportion or voting power to authorize such action in which case such greater proportion of written consents shall be required.
ARTICLE III
Directors
Section 1. The business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
Section 2. The number of directors which shall constitute the whole board shall be fifteen (15). The number of directors may from time to time be increased or decreased to not less than one nor more than fifteen by action of the Board of Directors. The directors shall be elected at the annual meeting of the stockholders and except as provided in Section 2 of this Article, each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders.
Section 3. Vacancies in the Board of Directors including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the stockholders. The holders of two thirds of the outstanding shares of stock entitled to vote may at any time peremptorily terminate the term of office of all or any of the directors by vote at a meeting called for such purpose or by a written statement filed with the secretary or, in his absence, with any other officer. Such removal shall be effective immediately, even if successors are not elected simultaneously and the vacancies on the Board of Directors resulting therefrom shall be filled only by the stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any directors, or if the authorized number of directors be increased, or if the stockholders fail at any annual or special meeting of stockholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting.
The stockholders may elect a director or directors at any time to file any vacancy or vacancies not filled by the directors. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the stockholders shall have power to elect a successor to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.
ARTICLE IV
Meetings of the Board of Directors
Section 1. Regular meetings of the Board of Directors shall be held at any place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation regular meetings shall be held at the registered office of the corporation. Special meetings of the Board may be held either at a place so designated or at the registered office.
Section 2. The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the meeting of stockholders and at the place thereof. No notice of such meeting shall be necessary to the directors in order legally to constitute the meeting, provided a quorum be present. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.
Section 3. Regular meetings of the Board of Directors may be held without call or notice at such time and at such place as shall from time to time be fixed and determined by the Board of Directors.
Section 4. Special meetings of the Board of Directors may be called by the Chairman or the President or by any Vice-President or by any two directors.
Written notice of the time and place of special meetings shall be delivered personally to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to him at his address as it is shown upon the records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company at least forty eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered as above provided, it shall be so delivered at least twenty four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director.
Section 5. Notice of the time and place of holding an adjourned meeting need not be given to the absent directors if the time and place be fixed at the meeting adjourned
Section 6. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 7. A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by law or by the Articles of Incorporation. Any action of a majority, although not act a regularly called meeting, and the record thereof, if assented to in writing by all of the other members of the Board shall be as valid and effective in all respects as if passed by the Board in regular meeting.
Section 8. A quorum of the directors may adjourn any directors meeting to meet again at a stated day and hour; provided, however, that in the absence of a quorum, a majority of the directors present at any directors meeting, either regular or special, may adjourn from time to time until the time fixed for the next regular meeting of the Board.
ARTICLE V
Committees of Directors
Section 1. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees of the Board of Directors, each committee to consist of two or more of the directors of the corporation which, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the corporation and may have power to authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by the Board of Directors. The members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. At meetings of such committees, a majority of the members or alternate members shall constitute a quorum for the transaction of business, and the act of a majority of the members or alternate members at any meeting at which there is a quorum shall be the act of the committee.
Section 2. The committees shall keep regular minutes of their proceedings and report the same to the Board or Directors.
Section 3. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.
ARTICLE VI
Compensation of Directors
Section 1. The directors may be paid their expenses of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings.
ARTICLE VII
Notices
Section 1. Notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Notice to directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting, whether of directors or stockholders, consent, either by a writing on the records of the meeting or filed with the secretary, or by presence at such meeting and oral consent entered on the minutes, or by taking part in the deliberations at such meeting without objection, the doings of such meeting shall be as valid as if had at a meeting regularly called and noticed, and at such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time, and if any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of said meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote at such meeting; and such consent or approval of stockholders may be by proxy or attorney, but all such proxies and powers of attorney must be in writing.
Section 3. Whenever any notice whatever is required to be given under the provisions of the statutes, of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VIII
Officers
Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. Any person may hold two or more offices.
Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board who shall be a director, and shall choose a President, a Secretary and a Treasurer, none of whom need be directors.
Section 3. The Board of Directors may appoint a Vice Chairman of the Board, Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
Section 4. The salaries and compensation of all officers of the corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office at the pleasure of the Board of Directors. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors.
Section 6. The Chairman of the Board shall preside at meetings of the stockholders and the Board of Directors, and shall see that all orders and resolutions of the Board of Directors are carried into effect.
Section 7. The Vice chairman shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties as the Board of Directors may from time to time prescribe.
Section 8. The President shall be the chief executive officer of the corporation and shall have active management of the business of the corporation. He shall execute on behalf of the corporation all instruments requiring such execution except to the extent the signing and execution thereof shall be expressly designated by the Board of Directors to some other officer or agent of the corporation.
Section 9. The Vice President shall act under the direction of the President and in the absence or disability of the President shall perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe. The Board of Directors may designate one or more Executive Vice Presidents or may otherwise specify the order of seniority of the Vice Presidents. The duties and powers of the President shall descend to the Vice Presidents in such specified order of seniority.
Section 10. The Secretary shall act under the direction of the President. Subject to the direction of the President he shall attend all meetings of the Board of Directors and all meetings of the stockholders and record the proceedings. He shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the President or the Board of Directors.
Section 11. The Assistant Secretaries shall act under the direction of the President. In order of their seniority, unless otherwise determined by the President or the Board of Directors, they shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe.
Section 12. The Treasurer shall act under the direction of the President. Subject to the direction of the President he shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the President or the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation.
Section 13. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.
Section 14. The Assistant Treasurers in the order of their seniority, unless otherwise determined by the President or the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. They shall perform such other duties and have such other powers as the President or the Board of Directors may from time to time prescribe.
ARTICLE IX
Certificates of Stock
Section 1. Every stockholder shall be entitled to have a certificate signed by the President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such stock.
Section 2. If a certificate is signed (a) by a transfer agent other than the corporation or its employees or (2) by a registrar other than the corporation or its employees, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer before such certificate is issued, such certificate may be issued with the same effect as though the person had not ceased to be such officer. The seal of the corporation, or a facsimile thereof, may, but need not be, affixed to certificates of stock.
Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation, if it is satisfied that all provisions of the laws and regulations applicable to the corporation regarding transfer and ownership of shares have been complied with, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 5. The Board of Directors may fix in advance a date not exceeding sixty (60) days nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to give such consent, and in such case, such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to notice of and to vote at such meeting, or any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid.
Section 6. The corporation shall be entitled to recognize the person registered on its books as the owner of shares to be the exclusive owner for all purposes including voting and dividends, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE X
General Provisions
Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends or for repairing or maintaining any property of the corporation or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
Section 5. The corporation may or may not have a corporate seal, as nay from time to time be determined by resolution of the Board of Directors. If a corporate seal is adopted, it shall have inscribed thereon the name of the corporation and the words "Corporate Seal" and "Nevada". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE XI
Indemnification
Every person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the corporation or is or was serving at the request of the corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the General Corporation Law of the State of Nevada from time to time against all expenses, liability and loss (including attorneys' fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. The expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or an behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Such right of indemnification shall be a contract right which may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the corporation would have the power to indemnify such person.
The Board of Directors may from time to time adopt further Bylaws with respect to indemnification and may amend these and such Bylaws to provide at all times the fullest indemnification permitted by the General Corporation Law of the State of Nevada.
ARTICLE XII
Amendments
Section 1. The Bylaws may be amended by a majority vote of all the stock issued and outstanding and entitled to vote at any annual or special meeting of the stockholders, provided notice of intention to amend shall have been contained in the notice of the meeting.
Section 2. The Board of Directors by a majority vote of the whole Board at any meeting may amend these Bylaws, including Bylaws adopted by the stockholders, but the stockholders may from time to time specify particular provisions of the Bylaws which shall not be amended by the Board of Directors.
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the consolidated balance sheet and consolidated statement of operations in the Compnay's Annual Report on For 10-KSB as of and for the year ended October 31, 1997 and is qualified in its entirety by reference to such financial statements. |
| CIK: 0001020448 |
| NAME: IMPERIAL PETROLEUM RECOVERY CORPORATION |
| MULTIPLIER: 1 |
| CURRENCY: U.S. Dollars |
| PERIOD TYPE | 12 mos |
| FISCAL YEAR END | Oct 31 1996 |
| PERIOD START | Nov 1 1995 |
| PERIOD END | Oct 31 1996 |
| EXCHANGE RATE | 1.000 |
| CASH | 0 |
| SECURITIES | 0 |
| RECEIVABLES | 0 |
| ALLOWANCES | 0 |
| INVENTORY | 132,000 |
| CURRENT ASSETS | 278,884 |
| PP&E | 158,501 |
| DEPRECIATION | 3,362 |
| TOTAL ASSETS | 776,885 |
| CURRENT LIABILITIES | 679,439 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 8,315 |
| OTHER SE | (3,001,220) |
| TOTAL LIABILITY AND EQUITY | 776,885 |
| SALES | 0 |
| TOTAL REVENUES | 0 |
| CGS | 0 |
| TOTAL COSTS | 4,806,432 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 0 |
| INCOME PRETAX | (4,804,746) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (4,804,746) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (4,804,746) |
| EPS PRIMARY | (.46) |
| EPS DILUTED | (.46) |