PINX:IPRC Imperial Resources Inc Annual Report 10-K Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2012

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

Commission File Number: 333-152160

IMPERIAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)

Nevada
83-0512922
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

106 E. 6th ST. Suite 900, Austin, TX 78701
(Address of principal executive offices)

(512) 332-5740
(Issuer’s telephone number)
 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
 
YES o
 
NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
 
YES o
 
NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES x
 
NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES x
 
NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in

 
1

 

definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer”, “accelerated filer” and “small reporting company” Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (do not check if smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
 
YES o
 
NO x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fourth fiscal quarter of March 31, 2012: $12, 010,477.
 
As of June 28, 2012, there were outstanding 42,969,714 shares of registrant’s common stock, par value $0.001 per share.
 
 
 
2

 

 
TABLE OF CONTENTS

The statements regarding future financial and operating performance and results, strategic pursuits and goals, market prices, and other statements that are not historical facts contained in this report are forward-looking statements. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “budget,” “plan,” “forecast,” “predict,” “may,” “should,” “could,” “will” and similar expressions are also intended to identify forward-looking statements. These statements involve risks and uncertainties, including, but not limited to, market factors, market prices (including regional basis differentials) of natural gas and oil, results of future drilling and marketing activity, future production and costs, legislative and regulatory initiatives and other factors detailed in this document and in our other Securities and Exchange Commission filings. See “Risk Factors” in Item 1A for additional information about these risks and uncertainties. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those included in this document. See “Forward-Looking Information” for further details.

     
Page
       
PART I
     
       
ITEM 1.
Business.
 
6
       
ITEM 1A.
Risk Factors.
 
11
       
ITEM 1B.
Unresolved Staff Comments.
 
17
       
ITEM 2.
Properties.
 
17
       
ITEM 3.
Legal Proceedings.
 
17
       
ITEM 4.
Mine Safety Disclosure
 
17
       
PART II
     
       
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.
 
17
       
ITEM 6
Selected Financial Information.
 
18
       
ITEM 7.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
 
18
       
ITEM 7A.
Quantitative and Qualitative Disclosure about Market Risk.
 
25
       
ITEM 8.
Financial Statement and Supplementary Data.
 
25
       
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
25
       
ITEM 9A(T)
Controls and Procedures
 
25
       
ITEM 9B
Other information
 
26
       
PART III
     
       
ITEM 10.
Directors, Executive Officers and Corporate Governance.
 
27
       
ITEM 11.
Executive Compensation.
 
28
       
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
29
       
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence.
 
30
       
ITEM 14
Principal Accounting Fees and Services.
 
30
       
PART IV
     
       
ITEM 15.
Exhibits, Financial Statement Schedules
 
31
       
 
SIGNATURES
 
33
 
 
3

 
 
GLOSSARY OF CERTAIN OIL AND GAS TERMS

The following are abbreviations and definitions of certain terms commonly used in the oil and gas industry and included within this Annual Report on Form 10-K:

Abbreviations

Bbl(s). One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.
Mbbl. One thousand barrels of oil.
Bcf. One billion cubic feet of natural gas.
Mcf. One thousand cubic feet of natural gas.
Mmcf. One million cubic feet of natural gas.
Mmcfe. One million cubic feet of natural gas equivalent.
Energy content of one Mbbl is equivalent to approximately 6 Mmcf

 
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Definitions

Developed reserves. Developed reserves are reserves that can be expected to be recovered: (i) through existing wells with existing equipment and operating methods; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, or a service well.
Extension well. An extension well is a well drilled to extend the limits of a known reservoir.
Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious, strata, or laterally by local geological barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms structural feature and stratigraphic condition are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.
Oil. Crude oil and condensate.
Operator. The individual or company responsible for the exploration and/or production of an oil or gas well or lease.
Proved reserves. Proved reserves are those quantities, which, by analysis of geoscience and engineering data, can be estimated with “reasonable certainty” to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions and operating methods prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
Probable reserves. defined as oil and gas additional reserves that are less certain to be recovered than proved reserves but which, in sum with proved reserves, are as likely as not to be recovered.
Possible reserves. i.e. "having a chance of being developed under favorable circumstances".
Royalty interest. An interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.
Undeveloped reserves. Undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
Working interest. An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

The terms “developed reserves”, “development well”, “exploratory well”, “extension well”, “field”, “proved reserves”, “reserves”, “reservoir” and “undeveloped reserves” are defined by the SEC.
 
 
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PART I
 
ITEM 1. BUSINESS

Background

Imperial Resources, Inc. (“the Company”) is engaged in the exploration and development of oil and natural gas properties. The Company acquires the oil and gas interests in various manners, by purchasing them or via a farm-in whereby we earn our interests by developing the acreage of another. The Company acquires fee simple determinable interests in the oil and gas properties in either acquisition scenario. In addition, the Company has purchased a salt water disposal facility.

The Company was incorporated under the laws of the State of Nevada on August 2, 2007, with the authorized capital stock of 500,000,000 shares at $0.001 par value. 

The Company was organized for the purpose of acquiring and exploring a mineral property and later abandoned it.  The Company has decided to focus its core activities on development and exploration of oil and gas assets in the United States through its wholly-owned subsidiary Imperial Oil & Gas Inc. (“Imperial Oil” or “IOG”) which was formed under the laws of the State of Delaware on January 8, 2010. Big Dig Operating, Inc., (“Big Dig”) was formed June 13, 2011 for the purpose of operating a salt water disposal facility, and is a wholly owned subsidiary of Imperial Oil & Gas, Inc.  In addition, Green Tide Water Disposal, Ltd. (“Green Tide”) was formed on June 15, 2011, as a limited partnership with Imperial owning a 99% limited partnership interest, and Big Dig owning a 1% general partnership interest. Green Tide has obtained a promissory note, the funds from which shall be applied solely for the purpose of bringing the salt water disposal facility back in to commercial operations, servicing associated liabilities existing at time and marketing services of the facility.

The Company was formerly considered in the Exploration Stage. The Company purchased a producing oil and gas interest on January 10, 2010, of which 93% of revenues, or $79,790, for the fiscal year ended March 31, 2012 related to this well, and 100% of all revenues for the year ended March 31, 2011 were attributable to this lease. The remaining revenues of $6,133 related to a test well acquired during the year which was successful and is now operating of which the Company owns a nominal .002 interest.

The Company has to date engaged in the exploration and development of oil and natural gas properties of others under arrangements in which we finance the costs in exchange for interests in the oil or natural gas revenue generated by the properties. Such arrangements are commonly referred to as farm-ins to us, or farm-outs by the property owners farming out to us.

On April 27, 2011, the Company purchased a salt water disposal facility. The Company has deepened the facility disposal well to a depth currently approved by the Texas Railroad Commission, and plans to open the facility soon to dispose of up to its currently permitted capacity of 15,000 barrels of salt water a day produced from third party operating wells in the area.

As of March 31, 2012, our investment program totaled $2,125,502 including property acquisition, drilling and our salt water facility. Our capital spending was funded through the raising of capital through the issuance of subscription agreements for our common stock for $150,000, debt issuance proceeds of $1,250,000 and proceeds of $540,000 from the sale of certain acquired leases during the year.

We remain focused on our strategies of putting the salt water disposal facility into commercial operation and pursuing lower risk drilling opportunities that provide reasonably predictable results on acreage positions to be acquired. Additionally, we intend to maintain spending discipline and manage our balance sheet in an effort to ensure sufficient liquidity, including cash resources and available credit. We believe these strategies are appropriate for our portfolio of projects and the current industry environment.
 
 
6

 
 
Greater Garwood Project and Cochran #1 Well
On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”).  The Project included one producing well known as the Cochran #1 Well, which is being operated by El Paso E & P Company, L.P, and other mineral leases with possible reserves for surrounding areas covering approximately 1,844 gross acres. The Cochran #1 Well produced and sold approximately 15 Mmcfe, net during the twelve months ended March 31, 2012, and 22 Mmcfe net to Imperial during the twelve months ended March 31, 2011.  The Company obtained a reserve report dated December 2009, showing total estimated net proved reserve estimates of approximately 287 Mmcfe for the Cochran #1 Well. As of March 31, 2012, the net investment in the well totaled $219,354.
 
The leases on additional acreage in the Greater Garwood Project with possible reserves expired before the year ended March 31, 2011. As such, the Company had incurred $370,295 related to impairment on the expired leases. In addition, the Cochran #1 well had impairment charges of $216,439 based on estimated future cash flows as of March 31, 2011. The total amount of impairment of $586,734 on this investment has been included in the Consolidated Statement of Operations for the year ended March 31, 2011.

The Greater Garwood interests were acquired from the issuance of a $900,000 note payable. On December 10, 2010, the note payable of $900,000, plus $42,534 in accrued interest, was converted to 1,625,059 shares of the Company’s common stock at $0.58 per share. The fair value of the shares on the date of exchange was $1,218,794, which resulted in recording a loss on debt extinguishment of $276,260. This loss is included in our Consolidated Statement of Operations for the year ended March 31, 2011.

Oklahoma Project

In July of 2010, Imperial Oil entered into a participation agreement in an area of mutual interest (AMI) and joint operating agreement to acquire a 50% working interest in leases on up to 5,000 acres in Oklahoma. The agreements provide the Company a 50% working interest in proposed horizontal oil and gas drilling projects in the AMI. During the year ended March 31, 2012, the Company participated in approximately $160,000 in acreage costs and $50,770 of associated expenses, totaling $210,770.  In January 2012, the Company sold the acreage acquired during the year for $540,000, earning a net profit of $346,184.  The Company retained a successful test well which the Company acquired an interest in as part of its due diligence. In addition, the Company has the right to acquire new acreage in a new area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of March 31, 2012, the Company’s investment in the project totaled $17,664, including $10,400 in acquisition costs and lease operating expenses.

Nunnelly Project

On January 10, 2011, the Company entered into an Oil and Gas lease (“Agreement”) with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The Agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. The Company obtained an evaluation from an independent registered petroleum engineer in 2011 indicating net probable recoverable oil reserves of approximately 17 Mbbls. Deepening of the existing Nunnelly #1 wellbore is the Company’s first planned option. As of March 31, 2012, $63,062 was capitalized, relating to surface preparation work at the site.

Stateline

On January 25, 2011, the Company entered into a Farmout Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement called for the Company’s subsidiary to pay a spud fee of $60,000 and drill between one and four wells within a specified commencement date. As the Company was not able to commence drilling by the specified time, the agreement subsequently expired during the year ended March 31, 2012. As a result, the Company has recorded losses of $60,000 on its investment which has been included in the Consolidated Statement of Operations for the year ended March 31, 2012.

 
7

 
 
Salt Water Disposal Facility

On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits. The acreage is, located in Wise County, Texas.  The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.

The SWDF is located in the heart of the Barnett Shale, the largest gas play by number of wells, in Texas. The SWDF is conveniently located for the disposal of large volumes of salt water generated from essential fracture (“frac”) stimulation operations on Barnett Shale gas wells, some of which have been frac’ed up to four times. There are approximately 6,000 wells within 20 miles of the Facility.

The Company obtained debt proceeds of $1,250,000 during the year ended March 31, 2012 to rework and deepen the well and operate the SWDF. The Company deepened the well to a depth currently approved by the Texas Railroad Commission, As of March 31, 2012, the Company had incurred $2,109,919 in capitalized costs related to the acquisition of the facility and deepening of the well.  The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011.  Surface equipment with a carrying value of $157,562 was lost and has been reflected as an extraordinary loss in the Statement of Operations as of March 31, 2012. The Company has incurred additional costs to complete clean-up of the plant and has purchased and largely installed the replacement tanks and equipment. The Company anticipates the testing and opening of the facility in July 2012. As of March 31, 2012, the Company’s investment in the SWDF net of accumulated depreciation was $1,825,422.

Mara Prospects and Net Profit Interest

On January 19, 2010, Imperial Oil entered into a Net Profit Agreement with Mara Energy, LLC (“Mara”), whereby Imperial agreed to share profits from certain mutually beneficial oil and gas exploration and development opportunities in Canada and the continental United States, which are procured by Mara.  At March 31, 2012, no royalties or consulting fees have been paid. Mara is partially owned by our CEO and director, and  another director, and former officers of the Company.   The Mara Net Profit Agreement was terminated on July 8, 2011 by mutual agreement between Imperial Oil and Mara.

Sydney Oil and Gas Overriding Royalty Interest

On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC (“Sydney”), a gross overriding royalty of 6.5% of 8/8 for each lease proportionally reduced by the actual working interest acquired by Imperial Oil.  Imperial’s CEO owns an interest in and controls Sydney. At March 31, 2012, no royalties have been paid.

Internal Controls Over Reserve Estimation Process and Qualifications of Third Party Engineers

Our policies regarding internal controls over the recording of reserves estimates requires reserves to be in compliance with the SEC definitions and guidance and prepared in accordance with generally accepted petroleum engineering principles.

Coach Capital, LLC, from whom we acquired our interest in the Garwood Property, commissioned a third party Reservoir Evaluation on the Garwood Property, which was completed on December 22, 2009 (the “Reserve Report”). A copy of the Reserve Report is attached as an Exhibit to this Annual Report on Form 10-K and incorporated herein by reference. The Reserve Report was prepared by Grant Twanow, our former Director, President and Chief Executive Officer. Mr. Twanow was a Petroleum Reservoir Engineering Specialist based in North America with extensive experience in oil and gas joint ventures and operations. He is now deceased. We have not engaged any third party to conduct a reserve audit.

 
8

 
 
Reserves and Acreage

All of our reserves and acreage are located in the United States. The table below sets forth the estimate of our net proved reserves as of March 31, 2012. Proved reserves cannot be measured exactly because the estimation of reserves involves numerous judgments and variables. Reserve estimates must be continually revised to as a result of new information obtained from drilling and production history, new geological and geophysical data and changes to economic conditions.


 
Oil and Natural Gas Condensate
 
Natural Gas
 
Total
 
(Mbbls)
 
(Mmcf)
 
(Mmcfe)
Producing-Cochran Well #1
3.54
 
163.70
 
184.33

Our proved undeveloped reserves (PUDs) decreased 44.53 Mbbls as a result of the expiration of the agreement on the Stateline project during the year ended March 31, 2012.

The following table sets forth our interest in wells and acreage for proved reserves as of March 31, 2012.

 
Number of Productive Wells
 
Developed Acreage (3)
 
Undeveloped Acreage
 
Gross
(1)
Net
(2)
 
Gross (1)
Net
(2)
 
Gross
(1)
Net
(2)
           
Natural Gas and Condensate
1
.1
 
400
44.7
 
0
0
           
(1) A gross well or acre is a well or acre in which we own an interest.
(2) A net well or acre is deemed to exist when the sum of fractional ownership interests in wells or acres equals 1.
(3) Developed acreage is acreage assignable to productive wells.

Production, Production Prices and Production Costs

Proved Developed Reserves

Our net proved developed reserves from the Cochran #1 Well are summarized in the table below in Mmcfe.

   
March 31, 2012
   
March 31, 2011
 
   
(Mmcfe)
   
(Mmcfe)
 
Beginning of the period
    198.93       222.77  
Revisions of previous estimates
    -       -  
Extensions and discoveries
               
Production
    (14.61 )     (23.84 )
End of the period
    184.32       198.93  

 
 
9

 
The following table presents certain information with respect to the Cochran #1 Producing Well:

   
March 31, 2012
   
March 31, 2011
 
Production operations:
           
Natural gas (Mcf)
    13,311       21,639  
Crude oil and condensate (Mbbls)
    .22       .37  
Produced Sales Price:(1)
               
Natural gas ($/Mcf)
    4.51       4.07  
Crude oil and condensate ($/Bbl)
    91.80       80.07  
Production Costs ($/Mcfe)(2)
    1.30       2.89  
 
(1)
Represents the average realized sales price for all production volumes and royalty volumes sold during the periods shown
 
(2)
Production costs include direct lifting costs (labor, repairs and maintenance, materials and supplies), the costs of administration of production offices and insurance, but is exclusive of depreciation and depletion applicable to capitalized lease acquisition, exploration and development expenditures and taxes other than income.

Exploratory and Development Activities

All our exploratory and development activities relate to properties that were acquired during the year ended March 31, 2012 and 2011.

As of March 31, 2012, we had incurred development costs for surface preparation work totaling $63,062, to deepen of the existing Nunnelly #1 wellbore. The Company obtained an evaluation in April 2011, from an independent registered petroleum engineer indicating net probable recoverable oil reserves of approximately 17 Mbbls. After initial work on the well it has been determined that a new well will need to be drilled and that re-entry into the existing Nunnelly #1 wellbore is not economically feasible. The Company’s capital expense for the first well is expected to be around $750,000.

Delivery Commitments

As of March 31, 2012, we had no delivery commitments for oil or natural gas under existing contracts or agreements.

Development

Our future operations are dependent upon the identification and successful completion of additional long-term or permanent equity financings, the support of creditors and stockholders, and, ultimately, the achievement of profitable operations. There can be no assurances that we will be successful, which would in turn significantly affect our ability to roll out our business plan. If not, we will likely be required to reduce operations or liquidate assets. We will continue to evaluate our projected expenditures relative to our available cash and to seek additional means of financing in order to satisfy our working capital and other cash requirements.

We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital. We expect no significant changes in the number of employees over the next 12 months.

Subject to available financing, we plan to initiate drilling operations in the next several months, and together with commencing production, we may have some significant ongoing capital expenditures. We believe that, with our current efforts to raise capital, we should have sufficient cash resources to satisfy our needs over the next twelve months. Our ability to satisfy cash requirements thereafter will determine whether we achieve our business objectives. Should we require additional cash in the future, there can be no assurance that we will be successful in raising additional debt or equity financing on terms acceptable to our company, if at all.

Employees

As of March 31, 2012, we had no employees.  We currently utilize temporary contract labor throughout the year to address business and administrative needs.

 
10

 

ITEM 1A. RISK FACTORS

An investment in our common stock involves an exceptionally high degree of risk and is extremely speculative. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

risks related to our limited operating history; including security and conversion arrangements over Notes payable;

risks related to our financing and development activities;

risks related to the historical losses and expected losses in the future;

risks related to our dependence on our executive officers;

risks related to fluctuations in oil and natural gas prices, and the price for salt water disposal;

risks related to exploratory activities, drilling for and producing oil and natural gas, and the drilling of salt water disposal wells;

risks related to the operation of salt water disposal facilities;

risks related to liability claims from oil and gas, and salt water disposal operations;

risks related to accessing the oil and natural gas, and salt water disposal markets;

risks related to the statutory regulation of the drilling for and producing of oil and natural gas, and the disposal of salt water;

risks related to legal and reporting compliance costs and the ongoing accreditation of our auditors by the PCAOB;

risks related to the unavailability of drilling equipment and supplies;

risks related to competition in the oil and natural gas industry, including the disposal of salt water;

risks related to period to period comparison of our financial results;

risks related to our securities and the general public markets;

risks related to our ability to raise capital or enter into joint venture or working interest arrangements on acceptable terms.

 
11

 
Risks Related to Our Business and Industry

The duration or severity of the current global economic downturn and disruptions in the financial markets, and their impact on us, are uncertain.

The oil and gas industries generally are highly cyclical, with prices subject to worldwide market forces of supply and demand and other influences. The recent global economic downturn, coupled with the global financial and credit market disruptions, have had a historic negative impact on the oil and gas industry. These events have contributed to higher costs of borrowing and/or diminished credit availability. While we believe that the long-term prospects for oil and gas remain bright, we are unable to predict the duration or severity of the current global economic and financial crisis. There can be no assurance that any actions we may take in response to further deterioration in economic and financial conditions will be sufficient. A protracted continuation or worsening of the global economic downturn or disruptions in the financial markets could have a material adverse effect on our business, financial condition or results of operations.

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.

We have a limited operating history. As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. We may not be able to achieve a similar growth rate in future periods. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance. Our success is significantly dependent on meeting business objectives. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history.
 
We may be unable to locate recoverable resources or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

We have incurred losses in prior periods and may incur losses in the future.

We have incurred net losses since inception. We cannot be assured that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing stockholders may suffer substantial dilution.

We will need to obtain additional financing in order to complete our business plan. Our business plan calls for significant expenses in connection with our exploration activities. Furthermore, if our exploration program is successful in discovering commercially exploitable reserves of valuable resources, we will require additional funds in order to begin commercial production. Obtaining additional financing will be subject to market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are not successful in achieving financing in the amount necessary to further our operations, implementation of our business plan may fail or be delayed. If we are unsuccessful in obtaining additional financing when we need it, our business may fail before we ever become profitable and our stockholders may lose their entire investment.
 

 
12

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.
 
The auditors' report on our financial statements expressed an opinion that our Company’s capital resources are not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raise additional funds. These conditions raise substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds there is the distinct possibility that we will no longer be a going concern and will cease operation which means any persons purchasing shares will lose their entire investment in our Company.

Oil and gas exploration are highly speculative ventures and it is highly probable that no reserves will be discovered and any funds spent on exploration will be lost.

Drilling for oil and gas involves numerous risks, including the risk that we will not encounter commercially productive oil reservoirs. The wells we drill or participate in may not be productive and we may not recover all or any portion of our investment in those wells. The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that crude is present or may be produced economically. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors including, but not limited to:
 
unexpected drilling conditions;
pressure or irregularities in formations;
equipment failures or accidents;
mechanical difficulties, such as lost or stuck oil field drilling and service tools;
fires, explosions, blowouts and surface cratering;
uncontrollable flows of oil and formation water;
environmental hazards, such as oil spills, pipeline ruptures and discharges of toxic gases;
other adverse weather conditions; and
increase in the cost of, or shortages or delays in the availability of, drilling rigs and equipment.

Certain future drilling activities may not be successful and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons.

Our future operating revenue is dependent upon the performance of our leased properties.

Our future operating revenue depends upon our ability to profitably operate our existing leased properties by drilling and completing wells that produce commercial quantities of oil and gas and our ability to expand our operations through the successful implementation of our plans to explore, acquire and develop additional properties. The successful development of oil and gas properties requires an assessment of potential recoverable reserves, future oil and gas prices, operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact. No assurance can be given that we can produce sufficient revenue to operate our existing properties or acquire additional oil and gas producing properties and leases. We may not discover or successfully produce any recoverable reserves in the future, or we may not be able to make a profit from the reserves that we may discover. In the event that we are unable to produce sufficient operating revenue to fund our future operations, we will be forced to seek additional, third party funding, if such funding can be obtained. Such options would possibly include debt financing, sale of equity interests in our Company, joint venture arrangements, or the sale of oil and gas interests. If we are unable to secure such financing on a timely basis, we could be required to delay or scale back our operations. If such unavailability of funds continued for an extended period of time, this could result in the termination of our operations and the loss of an investor’s entire investment.

We own rights to properties that have not yet been developed.

We own rights to properties that have limited or no development. There are no guarantees that our properties will be developed profitably or that the potential resources on the property will produce as expected if they are developed.

 
13

 
 
Market factors in the oil and gas business are out of our control and so we may not be able to profitably sell any reserves that we find.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls or any combination of these and other factors, and respond to changes in domestic, international, political, social and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our future financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our Company not receiving an adequate return on invested capital.

If we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business will fail.

We will compete with other exploration companies in the recruitment and retention of qualified managerial and technical employees. Our success will be largely dependent upon our ability to hire highly qualified personnel. This is particularly true in highly technical businesses such as oil or gas exploration. These individuals may be in high demand and we may not be able to attract the staff we need. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or may lose such employees after they are hired. Currently, we have not hired any key personnel and we do not intend to do so for the next 12 months. If we are unable to hire key personnel when needed, our exploration program may be slowed down or suspended.
 
Since our executive officers do not have technical training or experience in starting, and operating an oil or gas exploration company there is a higher risk our business will fail.

Our executive officers have no experience in oil or gas exploration and do not have formal training in engineering or in the technical aspects of management of an exploration company. This inexperience means that we will have to rely on the technical services of others with expertise in oil and gas exploration in order for us to carry out our planned exploration program. If we are unable to contract for the services of such individuals, it will make it difficult and may be impossible to successfully develop our business. There is thus a higher risk that our operations, earnings and ultimate financial success could suffer irreparable harm and that our stockholders will lose all of their investment.

We depend on the skill, ability and decisions of third party operators to a significant extent.

The success of the drilling, development and production of the properties in which we have or expect to have a working interest is substantially dependent upon the decisions of such third-party operators and their diligence to comply with various laws, rules and regulations affecting such properties. The failure of any third-party operator to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules and regulations, including environmental laws and regulations in a proper manner with respect to properties in which we have an interest could result in material adverse consequences to our interest in such properties, including substantial penalties and compliance costs. Such adverse consequences could result in substantial liabilities to us or reduce the value of our properties, which could negatively affect our results of operations.

Our operations involve substantial costs and are subject to various economic risks.

Our operations are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire producing properties and to drill exploratory wells. The cost and length of time necessary to produce any reserves may be such that it will not be economically viable. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, development and production activities to be unsuccessful. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. We also face the risk that the resources located may be less than anticipated, that we will not have sufficient funds to successfully extract such resources, that we will not be able to market the resources due to a lack of a market and that fluctuations in market prices will make development of those leases uneconomical. This could result in a total loss of our investment.

 
14

 
 
We are subject to risks arising from the failure to fully identify potential problems related to acquired reserves or to properly estimate those reserves.

Although we perform a review of the acquired properties that we believe is consistent with industry practices, such reviews are inherently incomplete. It generally is not feasible to review in depth every individual property involved in each acquisition. Ordinarily, we will focus our review efforts on the higher-value properties and will sample the remainder, and depend on the representations of previous owners. However, even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, we often assume certain environmental and other risks and liabilities in connection with acquired properties. There are numerous uncertainties inherent in estimating quantities of proved oil reserves and actual future production rates and associated costs with respect to acquired properties, and actual results may vary substantially from those assumed in the estimates.

A substantial or extended decline in oil and gas prices may adversely affect our business, financial condition, cash flow, liquidity or results of operations as well as our ability to meet our capital expenditure obligations and financial commitments to implement our business plan.

Any revenues, cash flow, profitability and future rate of growth we achieve will be greatly dependent upon prevailing prices for oil and gas. Our ability to maintain or increase our borrowing capacity and to obtain additional capital on attractive terms is also expected to be dependent on oil and gas prices. Historically, oil and gas prices and markets have been volatile and are likely to continue to be volatile in the future. Prices for oil and gas are subject to potentially wide fluctuations in response to relatively minor changes in supply of and demand for oil and gas, market uncertainty, and a variety of additional factors beyond our control. Those factors include:

the domestic and foreign supply of oil and natural gas;
the ability of members of the Organization of Petroleum Exporting Countries and other producing countries to agree upon and maintain oil prices and production levels;
political instability, armed conflict or terrorist attacks, whether or not in oil or natural gas producing
regions;
the level of consumer product demand;
the growth of consumer product demand in emerging markets, such as China and India;
weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand of oil and natural gas;
domestic and foreign governmental regulations and other actions;
the price and availability of alternative fuels;
the price of foreign imports;
the availability of liquid natural gas imports; and
worldwide economic conditions.

These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas. Lower oil and natural gas prices may not only decrease our revenues on a per unit basis, but may also reduce the amount of oil we can produce economically, if any. A substantial or extended decline in oil and natural gas prices may materially affect our future business, financial condition, results of operations, liquidity and borrowing capacity. While our revenues may increase if prevailing oil and gas prices increase significantly, exploration and production costs and acquisition costs for additional properties and reserves may also increase.

 
15

 
 
Governmental and environmental regulations could adversely affect our business.

Our business is subject to federal, state and local laws and regulations on taxation, the exploration for and development, production and marketing and safety matters. Many laws and regulations require drilling permits and govern the spacing of wells, rates of production, prevention of waste, unitization and pooling of properties and other matters. These laws and regulations have increased the costs of planning, designing, drilling, installing, operating and abandoning our oil wells and other facilities. In addition, these laws and regulations, and any others that are passed by the jurisdictions where we have production, could limit the total number of wells drilled or the allowable production from successful wells, which could limit our revenues.

Our operations are also subject to complex environmental laws and regulations adopted by the various jurisdictions in which we have or expect to have operations. We could incur liability to governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remedial costs. We could potentially discharge these materials into the environment in any of the following ways:

 
from a well or drilling equipment at a drill site;
 
from gathering systems, pipelines, transportation facilities and storage tanks;
 
damage to oil wells resulting from accidents during normal operations; and
 
blowouts, cratering and explosions.

Because the requirements imposed by laws and regulations are frequently changed, we cannot assure you that laws and regulations enacted in the future, including changes to existing laws and regulations, will not adversely affect our business. In addition, because we acquire interests in properties that have been operated in the past by others, we may be liable for environmental damage caused by the former operators.

Risks Related to our Common Stock

A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.

Although our common stock is quoted on the OTCBB under the symbol “IPRC,” there is a limited public market for our common stock. No assurance can be given that an active market will develop or that a stockholder will ever be able to liquidate its shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to effect transactions in the securities. Even if a purchaser finds a broker willing to effect a transaction in these securities, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.

Our common stock may be subject to the penny stock rules which may make it more difficult to sell our common stock.

The Securities and Exchange Commission has adopted regulations which generally define a “penny stock” to be any equity security that has a market price, as defined, less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as, institutions with assets in excess of $5,000,000 or an individual with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser’s written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our stockholders to sell their shares in the secondary market.

 
16

 
 
We have historically not paid cash dividends and do not intend to pay cash dividends.

We have historically not paid cash dividends to our stockholders and management does not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future. We intend to retain future earnings, if any, for use in the operation and expansion of our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our office is located at 106 East 6th Street, Suite 900, Austin, Texas.

ITEM 3. LEGAL PROCEEDINGS

We are not aware of any material pending or threatened litigation or of any proceedings known to be contemplated by governmental authorities which are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole. There are no material proceedings pursuant to which any of our directors, officers or affiliates or any owner of record or beneficial owner of more than 5% of our securities or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5. MARKET REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SHARES

Market Information

Our common stock is available for trade on the Over the Counter Bulletin Board (which we refer to as the “OTCBB”), and OTC Markets.com under the symbol IPRC. The OTCBB is sponsored by the Financial Industry Regulatory Authority (which we refer to as “FINRA”). The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network, which provides information on current “bids” and “asks” as well as volume information. Both the OTCBB and OTC Markets.com are not considered a “national exchange.”

Prior to November 22, 2010 there was no active trading in our common stock.

 
17

 
The high and low bid quotations of our common stock on the OTCBB as reported by the FINRA were as follows:

Fiscal Year End March 31, 2012
 
High
 
Low
2012
       
First Quarter
 
$
0.76
   
$
0.25
 
Second Quarter
 
$
0.42
   
$
0.30
 
Third Quarter
   
0.36
   
$
0.10
 
Fourth Quarter
   
0.31
   
$
0.09
 
2011
               
Fourth Quarter
   
1.19
     
0.47
 
 
The above quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

As of March 30, 2012, the closing bid quotation for our common stock was $0.28 per share as quoted by the OTCBB. On June 28, 2012, the closing bid quotation on our common stock was $0.16 as quoted by the OTCBB.

Stockholders

As of June 28, 2012, there were 42,969,714 shares of common stock issued and outstanding held by 32 stockholders of record (not including street name holders).

Dividends

We have not paid any cash dividends to date and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance our growth. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition, capital requirements and other factors.

Securities Authorized for Issuance under Equity Compensation Plans

None

Sales of Unregistered Securities

On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with this accredited investor, it subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.

ITEM 6. SELECTED FINANCIAL INFORMATION

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our financial statements and the notes thereto, which form an integral part of the financial statements, which are attached hereto. The financial statements mentioned above have been prepared in conformity with accounting principles generally accepted in the United States of America and are stated in United States dollars.

Our Form 10-K includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words such as: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-K. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
 
 
18

 
 
Overview and Plan of Operation

Producing Wells

Cochran #1 Well

On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”).  The Project included one producing well known as the Cochran #1 Well. The well produced and sold approximately 15 Mmcfe, net during the twelve months ended March 31, 2012, and 22 Mmcfe net to Imperial for the twelve months ended March 31, 2011.  The Company obtained a reserve report dated December 2009, showing total estimated net proved reserve estimates of approximately 287 Mmcfe for the Cochran #1 Well. For the year ended March 31, 2012, approximately 93% of revenues were from this well and totaled $79,790. All revenues for the year ended March 31, 2011 totaling $117,484 are from the Cochran Well.

Exploratory Wells

Oklahoma Project

On July 12, 2010, Imperial Oil entered into a participation agreement regarding four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provided for a 50% working interest in horizontal oil and gas drilling projects. During the year ended March 31, 2012, the Company had incurred $210,770 in acquisition of acreage and a nominal interest in one successful test well.

In January 2012, the Company sold the acreage acquired during the year for $540,000, earning a net profit of $346,184.  The Company retained a successful test well which the Company acquired an interest in as part of its due diligence. In addition, the Company has the right to acquire new acreage in a new area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of March 31, 2012, the Company’s investment in the project totaled $17,664, , including $10,400 in acquisition costs and lease operating expenses.

Nunnelly Project

On January 10, 2011, the Company entered into an Oil and Gas lease with the mineral owner of approximately 35 acres and an existing wellbore known as Nunnelly #1 in Montague County Texas. The lease agreement provides for the development of the Project lease area. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. As of March 31, 2012, $63,062 is capitalized relating to surface preparation work at the site.

Stateline

On January 25, 2011, the Company entered into a Farmout Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement called for the Company’s subsidiary to pay a spud fee of $60,000 and drill between one and four wells within a specified commencement date. As the Company was not able to commence drilling by the specified time, the agreement subsequently expired during the year ended March 31, 2012. As a result, the Company has recorded losses of $60,000 on its investment which has been included in the Consolidated Statement of Operations for the year ended March 31, 2012.

 
19

 


Salt Water Disposal Facility

On April 27, 2011, Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 42 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas.  The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period.

Green Tide obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned, plus any unpaid accrued interest.  The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity until the opening of the facility. As of March 31, 2012, $1,200,000, plus an additional advance of $50,000 had been received.  

The Company deepened the well to a depth currently approved by the Texas Railroad Commission. As of March 31, 2012, the Company had incurred $2,109,919 in capitalized costs related to the acquisition of the facility and deepening of the well.  The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011.  A significant portion of the surface equipment- was lost and this has been reflected as an extraordinary loss in the Statement of Operations as of March 31, 2012, totaling $157,562. The Company has completed clean-up of the plant and has purchased the replacement tanks and equipment. The Company anticipates the opening of the facility in July 2012.

The SWDF is located in the heart of the Barnett Shale, the largest gas play by number of wells, in Texas. The SWDF is conveniently located for the disposal of large volumes of salt water generated from essential fracture (“frac”) stimulation operations on Barnett Shale gas wells, some of which have been frac’ed up to four times. There are approximately 6,000 wells within 20 miles of the Facility. Disposal rates in the area range from approximately $0.35 to $0.60 per barrel of water, even at less attractive, generally more distant facilities. In addition to disposal revenues the Company expects to benefit from materially additional revenues generated by the facility from the recovery and re-sale of oil contained in frac water.

The deepening of the well has successfully found several lost circulation zones within a high porosity strand in the Ellenburger formation, ideal for the planned disposal volumes of water, and the well is now at the final total depth. The Ellenburger is the favored formation for disposal purposes in this part of Texas as it is separated by thousands of feet of rock from any fresh water bearing formations.  The Ellenburger is a thick formation more than 2,000 feet thick in the subject location capable of sustaining constant input of huge amounts of disposal water without contamination risk to other oil and gas producing formations or ground water. The Company has a perpetual license to dispose of 15,000 barrels of contaminated water per day with a strong possibility to increase its permitted disposal to 30,000 per day after a satisfactory period of operations at or near is current capacity.

Upon opening of the facility the Company will initially be able to dispose of up to 15,000 barrels of salt water a day. Facility operating costs are expected at around $30,000 per month, resulting in an estimated operating break-even point of only 2,225 barrels of water per day, even assuming low end $0.45 per barrel disposal rates and excluding any recovered oil revenues.

Comparison of Fiscal Years Ended March 31, 2012 and March 31, 2011:

The Cochran #1 well produced and sold approximately 15 Mmcfe, net to Imperial, during the twelve months ended March 31, 2012, and 22 Mmcfe, net to Imperial, for the twelve months ended March 31, 2011. For the year ended March 31, 2012, revenues totaled $85,923, of which approximately 93% of revenues were from the Cochran well or $79,790. The remaining revenues of $6,133 related to a test well acquired during the year which was successful and is now operating, of which the Company owns a nominal .002 interest. All revenues for the year ended March 31, 2011, totaling $117,484 are from the Cochran Well. The decrease in revenues of $31,561 is primarily due to decreased natural gas production and natural gas sales prices for the year ended March 31, 2012.

 
20

 
 
Lease operating expenses for the fiscal year ended March 31, 2012 were $18,999, primarily for the Cochran #1 well, as compared to $73,435 for the fiscal year ended March 31, 2011. Lease operating expenses declined $54,536 as the Company incurred approximately $58,000 related to repairs to the well during the fiscal year ended March 31, 2011.

The Greater Garwood project was acquired from the issuance of a $900,000 note payable. On December 10, 2010, the note payable of $900,000 plus $42,534 in accrued interest, was converted to 1,625,059 shares of the Company’s common stock at $0.58 per share. The fair value of the shares on the date of exchange was $1,218,794, resulting in a loss on debt extinguishment of $276,260, which is included in other expenses in the Consolidated Statement of Operations for the year ended March 31, 2011.

The leases on additional acreage in the Greater Garwood Project with possible reserves expired before the year ended March 31, 2011. As such, the Company had incurred $370,295 related to impairment on the expired leases. In addition, the Cochran #1 well had impairment charges of $216,439 based on estimated future cash flows as of March 31, 2011. The total amount of impairment of $586,734 on this investment has been included in the Consolidated Statement of Operations for the year ended March 31, 2011.

In addition, depletion expenses declined $43,600 from 2011 to 2012 as a result of an impairment charge on the Cochran #1 well during the fiscal year ended March 31, 2011.

As most of the Company’s investing activities occurred during the twelve months ended March 31, 2012, accounting and audit fees increased approximately $92,000 over the comparable year. Director’s fees increased $81,000 as the Company started paying one director during the last quarter of the fiscal year end March 31, 2011, compared to twelve months for the comparable period in 2012. Other general and administrative expenses all increased from 2011 primarily as a result of increased investments and operations in oil and gas and related properties.

Depreciation expense totaling $126,936 was incurred for the salt water disposal facility acquisition for the fiscal year ended March 31, 2012 as compared to zero in the previous year.

The SWDF was near completion when the facility was struck by lightning on November 8, 2011. A significant portion of the surface equipment was lost and this has been reflected as an extraordinary loss in the Consolidated Statement of Operations as of March 31, 2012 totaling $157,562.

Interest expense increased to $445,618 for the twelve months ended March 31, 2012 from $33,750 for the twelve months ended March 31, 2011. The increase is a result of increased borrowings related to the salt water disposal facility borrowings ($188,025)  derivative liability ($173,511), and discount amortization ($84,082) that resulted from bifurcation of the embedded conversion feature.

Comparison of Fiscal Years Ended March 31, 2011 and March 31, 2010

A comparison of the fiscal years ended March 31, 2011 and 2010 has not been presented as the Company was considered to be in the Development Stage until December 31, 2010, and the Cochran #1 well was acquired in the last quarter of fiscal year end March 31, 2010.

Liquidity and Capital Resources
 
We reported total current assets of $109,047 on March 31, 2012, consisting of $92,464 in cash and $16,583 of accounts receivable. As of March 31, 2012, the Company’s investments in oil and gas properties totaled $2,125,502, up from $322,126 as a result of increased investments in oil and gas and the purchase and development of a salt water disposal facility. As of March 31, 2012, current liabilities were $398,451, of which $302,484 relate to vendor payables. Long term debt including current portion totaled $1,769,255, and included a derivative liability of $509,628 relating to the fair value of the embedded conversion option which was bifurcated from the host at March 31, 2012. Stockholders’ equity was $162,810 at March 31, 2012.

 
21

 
 
As of March 31, 2012, we had cash of approximately $92,000. We had net operating losses of $620,013 for the fiscal year ended March 31, 2012.

For the fiscal year ended March 31, 2012 and 2011, we used $223,978 and $55,349, respectively, in cash for operating activities. During the year ended March 31, 2012 we raised $1,700,000 in notes to purchase and develop the SWDF.  We also raised $150,000 from a securities purchase agreement. We raised $500,000 in capital from the issuance of shares for the period ended March 31, 2011. All proceeds from debt and equity have been used to purchase additional oil and gas investments and develop the SWDF.
 
We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital.
 
On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with this accredited investor, it subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.
 
On January 10, 2012, Imperial Oil sold all of its interest in leases obtained as a result of a participation agreement and area of mutual interest (AMI) agreement to acquire leases on up to 5,000 acres in Oklahoma entered into on July 12, 2010. The Company received a cash payment of $540,000 in consideration for the sale of its lease interests and the Company’s release of its interest in the AMI. Concurrent with the sale and as an additional consideration for the sale the Company has, with its partner in the divested AMI, entered into a new AMI covering 144 square miles elsewhere in Oklahoma. The terms of the new AMI provide for the Company to retain a 90% working interest in any properties that are leased in the new AMI.

We have also obtained additional funding’s totaling $130,000 subsequent to March 31, 2012.

Over the last 12 months the Company has raised capital and debt of approximately $2,000,000 in difficult capital markets.

We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital.

During the year ended March 31, 2012, we have incurred expenses related to the acquisition of additional leases and acreage for development. We funded our operations from equity and debt financing and from our oil and gas revenues. We plan to continue to seek financings, and we believe that this will provide sufficient working capital to fund our operations for at least the next twelve months. This and other exploration activities, increased expenses, additional acquisitions, or other events, may require us to raise a significant amount of capital through equity or debt financings. There can be no assurance that we will be successful in raising additional funds and, if unsuccessful, our plans for expanding operations and business activities may have to be curtailed. Any attempt to raise funds, through debt or equity financing, would likely result in dilution to existing stockholders.
 
Off-Balance Sheet Arrangements

None

 
 
22

 
 
Recently Issued Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments in this update are to be applied prospectively. The amendments are effective for interim and annual periods beginning after December 15, 2011. Early application was not permitted.  The new guidance did not have a significant impact on our consolidated financial position, results of operations or cash flows.
 
Critical Accounting Policies

Use of Estimates in the Preparation of Consolidated Financial Statements

Our discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified certain accounting policies as being of particular importance to the presentation of our financial position and results of operations and which require the application of significant judgment by our management. We analyze our estimates, including those related to oil and natural gas revenues, oil and natural gas properties, exploration and valuation expenditure, income taxes and contingencies, and base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and estimates affect our more significant judgments and estimates used in the preparation of our financial statements.
 
Property and Equipment:

Oil and natural gas properties:
We use the successful efforts method of accounting for exploration and evaluation expenditure in respect of each area of interest. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available.

Exploration Expenses:
We account for our oil and gas exploration and development costs using the successful efforts method. Geological and geophysical costs are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion. Exploratory wells which discover potentially economic reserves that are in areas where a major capital expenditure would be required before production could begin, and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized as long as the additional exploratory work is under way or firmly planned. The application of the successful efforts method of accounting requires management's judgment to determine the proper designation of wells as either developmental or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes. Once a well is drilled, the determination that economic proved reserves have been discovered may take considerable time and judgment. The evaluation of oil and gas leasehold acquisition costs included in unproved properties requires management's judgment to estimate the fair value of such properties.
 

 
23

 

Impairment:
We review our long-lived assets, consisting primarily of oil and gas properties, at least annually and record impairments to proved oil and gas properties, whenever management determines that events or circumstances indicate that the recorded carrying value of such properties may not be recoverable. Proved oil and gas properties are reviewed for impairment on a field-by-field basis, which is the lowest level at which depletion of proved properties is calculated. We estimate the expected future cash flows of our proved oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the properties to test the carrying amount for recoverability. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the proved oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, the present value of future cash flows net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows.

Unproved oil and gas properties are assessed periodically for impairment on a property-by-property basis based on such factors as remaining lease terms, drilling results, reservoir performance, commodity price outlooks or future plans to develop acreage and allocate capital. If the results of our assessment indicate impairment, a loss is recognized by providing a valuation allowance.

Reserves Estimates:
It should not be assumed that the present value of future net cash flows included in this Annual Report as of March 31, 2012, is the current market value of our estimated proved reserves. Changes in crude oil and natural gas prices can cause revisions in our estimates if the sales price on which reserves are based makes it uneconomical to continue producing the reserves based on our current production costs. Estimates of proved reserves may materially impact depletion expense. If the estimates of proved reserves decline, the rate at which we record depletion expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomical to drill for and produce higher cost fields. In addition, a decline in proved reserve estimates may impact the outcome of our assessment of our producing oil and gas properties for impairment.

Depletion:
Depletion of the cost of proved oil and gas properties are calculated using the unit–of–production method. The reserve base used to calculate depletion, depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account

Amortization rates of depletion are updated to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions, and 4) impairments.
 
 Impairment of Long-Lived Assets:
The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable.  The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable.   When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.

Fair value of financial instruments:
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt are presented in the following Notes.

 
24

 
 
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.

Derivative Instruments:
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments with embedded conversion features of debt that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for option-based derivative financial instruments is determined using the Black-Scholes Option Pricing Model. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements, the reports of our independent registered public accounting firm, and the notes thereto of this report, which financial statements, reports, and notes are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A(T). – CONTROLS AND PROCEDURES

At the end of the period covered by this report, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a - 15(e) and Rule 15d - 15(e) under the Exchange Act).  Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not adequately designed and were not effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, in accordance with Rules 13a-15 and 15d-15 of the Exchange Act. Under the supervision and with the participation of our management, we, in conjunction with an independent third party, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth by the Committee of Sponsoring Organizations (“COSO) of the Treadway Commission in Internal Control — Integrated Framework.

 
25

 
 
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on this evaluation and those criteria, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of March 31, 2012 our internal control over financial reporting was not effective.
  
Our management has identified a deficiency that constitutes a material weakness in our technical accounting expertise necessary for an effective system of internal control and timely financial reporting.  In an effort to mitigate these material weaknesses, our management has hired additional staff with accounting technical expertise. At any time, if it appears that any control can be implemented to continue to mitigate such control deficiencies in a cost effective manner, we will attempt to implement the control.
 
This Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting pursuant to rules of the SEC that permit the Company to provide only management’s report in this Form 10-K.
 
This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and it is not incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general incorporation language in such filings.

Changes In Internal Control Over Financial Reporting
 
We have implemented additional controls and procedures designed to ensure that the disclosure provided by us meets the then current requirements of the applicable filing made under the Exchange Act. To address our lack of sufficient accounting technical expertise, during the first quarter ended March 31, 2013, we retained additional accounting technical expertise. Other than these there have been no changes in our internal control over financial reporting during the fourth quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B – OTHER INFORMATION
 
None.

 
26

 
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Each of our directors serves until his or her successor is elected and qualified. Each of our officers is elected by the Board of Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is removed from office. The Board of Director has no nominating or compensation committees.

The ages of the directors, executive officers and key employees are shown as of March 31, 2012.

Name and Address
 
Position(s)
 
Age
         
Rob Durbin(1)
 
Director, Chief Executive Officer and President
 
55
         
Mike Mackey(2)
 
Chief Financial Officer
 
55
         
Tom Barr (3)
 
Director
 
52

(1) Rob Durbin was appointed a director, Chief Executive Officer and President on December 10, 2010.
(2) On March 3, 2011, Imperial Resources, Inc. appointed Michael Mackey as its CFO.
(3) Tom Barr was appointed as director on December 21, 2010 pursuant to its powers under the Company’s bylaws to fill vacant seats on the Board.

Background of Officers and Directors

Mr. Durbin has been the director and the Chief Executive Officer of the wholly owned subsidiary of the company, Imperial Oil & Gas Inc., a Delaware company, since April 2010. Mr. Durbin is an attorney who practices exclusively in the areas of oil and gas. From 2003 to the present he has acted as counsel through his firm to several oil and gas exploration and production companies and related service companies. From 2002 to 2003 he was General Counsel and Vice President of Star of Texas Energy Services, Inc.  From 1987 to 2002 Mr. Durbin practiced at his own firm primarily in the areas of oil and gas and civil litigation. From 1998 to 2002 he was Adjunct Professor, at the Southwestern Professional Institute. From 1979 to 1986 he was regional manager at APL Services, Inc.

Mr. Mackey has been an Associate with vcfo since the fall of 2008. Since joining vcfo, he has provided numerous clients with Chief Financial Officer level support and guidance. Previously, Mr. Mackey was with Ascent Synergy Solutions as the Principal and Founder. His consulting firm focused on companies, typically in the technology, services or consulting markets, needing guidance and assistance at both a strategic and tactical level to realize their strategy and projections. Prior to Ascent Synergy Solutions, Mr. Mackey was the President, COO and one of the Founders of Empyrean Benefit Solutions. He was responsible for recruiting a high caliber management team to assist in the formation of the company that included designing and implementing the operational, accounting and administrative infrastructure. Prior to Empyrean Benefit Solutions, Mr. Mackey was the CFO and EVP Finance & Administration for Synergy HR Technologies and FastWeb.com. Prior to FastWeb.com, Mr. Mackey was the CFO, EVP Finance & Administration for DA Consulting Group. He played a critical role in evaluation and selection of underwriters, drafting of prospectus, strenuous international road show and successful $34.5 million Initial Public Offering. Prior to DA Consulting Group, he was the CFO, EVP Finance & Administration for Global Software and was instrumental in a complex spin-off from a publicly traded company. Mr. Mackey has also worked for MicroAge Computer as CFO, Kirchman Corporation as a Lead Financial Analyst, PricewaterhouseCoopers as an Auditor and Lockheed Martin as a Lead Financial Analyst. Mr. Mackey received his BS in Accounting from the University of Florida, Gainesville, and his MS in Accounting & MBA from the University of Central Florida, Orlando.

 
27

 
 
Mr. Barr, age 51, has served as a director of  Bio-AMD, Inc. (f/k/a Flex Fuels Energy, Inc.) a Nevada corporation since December 2006 and as Chief Executive Officer of that company since December 2008. From January 2005 to April 2007, Mr. Barr acted as a corporate consultant to various small and medium sized private and public enterprises.  From 2001 to 2004 Mr. Barr served as a consultant to EasyScreen PLC, a fully listed London Stock Exchange company. From 1996 to 2001 Mr. Barr was a private analyst and investor in publicly quoted stocks. From 1981 to 1996, Mr. Barr worked in the North Sea as a professional saturation diver in the Oil and Gas industry. Mr. Barr obtained a BSc from Stirling University, Scotland, in 1981. Mr. Barr is a citizen of the United Kingdom.

Relationships between Directors and Officers

None of our executive officers or directors or key employees is related by blood, marriage or adoption to any other director or executive officer.

Arrangements between Directors and Officers

On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil.  Rob Durbin owns an interest in and controls Sydney. At March 31, 2012 no royalties have been paid to Sydney. Mr., Durbin waived amounts due to him from the sale of acreage in the Oklahoma investment in the best interests of the Company.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Based solely upon a review of Forms 3, 4 and 5 delivered to us as filed with the Securities Exchange Commission, our executive officers and directors, and persons who own more than 10% of our Common Stock timely filed all required reports pursuant to Section 16(a) of the Securities Exchange Act.

Code of Ethics

We have adopted a Code of Business Ethics and Control for the Board of Directors applicable to our principal executive officers and directors of the Company. Given the overlap between our executive officers and directors, we have not thought it necessary to adopt a separate Code of Ethics for our executive officers. A copy of the Code of Business Ethics and Control for the Board of Directors may be obtained free of charge, upon written request to the Company.
 
ITEM 11. EXECUTIVE COMPENSATION

To date we have no employees other than our officers. No compensation, other than director’s fees, has been awarded, earned or paid to our officers.

Board Compensation

In January, 2011, our Board of Directors approved a compensation plan pursuant to which Rob Durbin would receive the following compensation:

 
Monthly director fees of $9,000;
 
  
reimbursement of expenses related to service in the capacity of a member of the Board.

Mr. Durbin will not be employed pursuant to a written agreement by the Company.  Subsequent to board approval he will be paid a fee of not less than $8,500 per month and provided with employee benefits for health and other typical benefits of an executive officer up to an annual dollar cost to the Company of $10,000. This compensation is in addition to any of the compensation that Mr. Durbin is already entitled to as the operating officer of Imperial Oil & Gas Inc. The salary and other amounts may be paid either by the Company or Imperial Oil & Gas Inc. on behalf of the Company. Mr. Durbin will also be provided with director and officer insurance coverage, as determined by and available to the Company and will be provided an indemnification agreement, in a form to be negotiated, which will provide for the fullest protection and indemnification rights that are available under Nevada law.

 
28

 
 
Mr. Barr will not be initially employed pursuant to a written agreement by the Company and will work on a part time basis.  The Company intends to reach an agreement with Mr. Barr for a remuneration package in 2012. Mr. Barr is also intended to be provided with director and officer insurance coverage, as determined by and available to the Company and will be provided an indemnification agreement, in a form to be negotiated, which will provide for the fullest protection and indemnification rights that are available under Nevada law.

On March 3, 2011, the Company’s Board of Directors ratified the January 19, 2011 letter agreement between Imperial Resources Inc. (the “Company”) and virtualcfo, Inc. (d/b/a/ vcfo), engaging the services of vcfo to provide oversight and guidance to the finance and accounting team. Under the Agreement, Mike Mackey, a CFO at vcfo, will be assigned to the Company as CFO for the Company, including assisting the Company with operational and public reporting requirements, oversight and guidance of finance and accounting matters, and such other assistance as needed by the Company’s finance and accounting team.
 
The Agreement provides that the Company will pay a $7,500 retainer to vcfo, and consulting fees will be incurred on an hourly basis and billed weekly. Mike Mackey’s services will be billed at $175 per hour. The Company has also agreed to pay certain expenses incurred by vcfo in providing the contracted services.

The Company has agreed to add vcfo employees to its Directors and Officers Insurance policy. The Company has also agreed to indemnify and hold harmless vcfo and its officers, directors, employees, agents and successors and assigns against any and all demands, claims, causes of actions, damages, costs, expenses, penalties, losses and liabilities arising from the services for which vcfo has been engaged. The parties also signed a Mutual Confidentiality Agreement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of March 31, 2012 there were no shares owned beneficially by each of our directors, officers and key employees, individually and as a group. There is one present owner of 5% or more of our total outstanding shares. Share ownership is deemed to include all shares that may be acquired through the exercise or conversion of any other security immediately or within sixty days of June 28, 2012. Such shares that may be so acquired are also deemed outstanding for purposes of calculating the percentage of ownership for that individual or any group of which that individual is a member. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown.

  Title of Class
Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Ownership
   
Percent of Class
 
Common Stock
 
ANIL APPUKUTTAN
KARIMBANAYCHAL HOUSE
POOMANGALAM, INDIA 6806888
    2,475,000       6 %
Common Stock
Directors and Executive Officers as a Group (3 persons)
    0       0 %

Equity Compensation Plan Information
 
We have no active equity compensation plans and there are currently no outstanding options from prior plans.
 
 
29

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

Current officers-directors and their families have no shares in the Company, and have made no advances to the Company as of March 31, 2012. Prior officers have made contributions to capital totaling $7,800 in the form of expenses paid on behalf of the Company for the year ended March 31, 2012.

On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement whereby Imperial Oil agrees to pay Sydney Oil & Gas, LLC, a Texas limited liability company controlled by Mr. Robert Durbin, a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil.  Mr. Durbin owns an interest in and controls Sydney Oil & Gas, LLC. At March 31, 2012 no royalties have been paid or assigned.

Director’s fees totaling $108,000 were incurred for the year ended March 31, 2012, of which $27,000 is included in accounts payable and other accrued liabilities as of March 31, 2012.
 
Transactions with Promoters

We have not engaged any promoters and have not had any transactions with any promoters.

Director Independence

During the past fiscal year we did not have any independent directors on our board. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., The NASDAQ National Market, and the Securities and Exchange Commission.

Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by the Company’s independent registered public accounting firm for professional services rendered in connection with the audit of the Company’s annual consolidated financial statements for the twelve months ended March 31, 2012 and 2011 and reviews of the consolidated financial statements included in the Company’s Forms 10-K and 10-Q for 2012 and 2011 were approximately $27,960 and $13,500, respectively.

 
30

 

Audit-Related Fees

The aggregate fees billed by the Company’s independent registered public accounting firm for any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees” above for 2011 were $3,150.

Tax Fees

The aggregate fees billed by the Company’s independent registered public accounting firm for professional services for tax compliance, tax advice, and tax planning for 2012 and 2011 were approximately $0 and $5,000, respectively.

All Other Fees

The aggregate fees billed by the Company’s independent registered public accounting firm for all other non-audit services rendered to the Company, such as attending meetings and other miscellaneous financial consulting, for 2010 and 2009 were $0.

PART IV

ITEM 15. EXHIBITS , FINANCIAL STATEMENTS SCHEDULES

(a) (1) Financial Statements. The following financial statements are included in this report:

Title of Document
 
Page
     
Report of Madsen & Associates CPA’s Inc.
 
34
     
Consolidated Balance Sheet as at March 31, 2012 and 2011
 
35
     
Consolidated Statement of Operations for the years ended March 31, 2012 and 2011
 
36
     
Consolidated Statement of Changes in Stockholders’ Equity (Deficiency) for the years ended March 31, 2012 and 2011
 
37
     
Consolidated Statement of Cash Flows for the years ended March 31, 2012 and 2011
 
38
     
Notes to Consolidated Financial Statements
 
39 to 51

(a) (2) Financial Statement Schedules
 
  The following financial statement schedules are included as part of this report: None.
 
 
31

 

(a) (3) Exhibits-The following exhibits are included or are included as part of this report by reference:

Exhibit Number
Name
3.1(1)
Certificate of Incorporation
3.2(1)
Articles of Incorporation
3.3(1)
By-laws
3.4(8)
Certificate of filing of Green Tide Water Disposal Ltd., dated June 15, 2011
   
10.1(7)
Cochran #1 Well and Greater Garwood Prospect Reservoir Evaluation, dated December 22, 2009.
10.2(2)
Carry Agreement, dated October 27, 2009, between Baytor Energy LLC and Coach Capital, LLC
10.3(3)
Net Profits Agreement, dated January 19, 2010, between Mara Energy, LLC and Imperial Oil and Gas, Inc.
10.4(4)
Supply of Services Agreement, dated April 1, 2010, between Sydney Oil & Gas, LLC, Robert R. Durbin and Imperial Oil and Gas, Inc.
10.5(4)
Consulting Services Agreement, dated April 1, 2010, between Mara Energy, LLC and Imperial Oil and Gas, Inc.
10.6(8)
Nunnelly Farmout Agreement
10.7(6)
Note Conversion Agreement dated as of December 10, 2010, made by and among Imperial Oil and Gas, Inc., and Coach Capital, LLC
10.8(6)
Securities Purchase Agreement dated December 31, 2010, pursuant to a private offering of $500,000 worth of common stock
10.9 (8)
Stateline Letter of Agreement dated January 20, 2011
10.10(8)
Convertible Promissory Note from Quarry Bay Capital, LLC, dated June 17, 2011
10.11
Oklahoma Letter Agreement dated July 10, 2010
10.12
Securities Purchase Agreement dated July 8, 2011, pursuant to a private offering of $150,000 worth of common stock
10.13
Securities Purchase Agreement dated April 16, 2012, pursuant to a private offering of $20,000 worth of common stock
10.14
Promissory Note from Quarry Bay Capital, LLC, dated March 6, 2012
10.15
Promissory Note from Quarry Bay Capital, LLC, dated May 28, 2012
10.16
Promissory Note from Quarry Bay Capital, LLC, dated June 18, 2012
10.17
Deed of Trust and Security Agreement on Hydro-FX Salt Water Disposal Facility
   
21
List of Subsidiaries
   
31.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
(1)
Incorporated by reference from our Registration Statement on Form S-1 filed on July 7, 2008.
(2)
Incorporated by reference to exhibits previously filed on our Current Report on Form 8-K filed on January 22, 2010.
(3)
Incorporated by reference to exhibits previously filed on our Current Report on Form 8-K filed on February 1, 2010.
(4)
Incorporated by reference to exhibits previously filed on our Current Report on Form 8-K filed on April 6, 2010.
(5)
Incorporated by reference to exhibits previously filed on our Current Report on Form 8-K.
(6)
Incorporated by reference to exhibits previously filed on our Quarterly Report on Form 10Q filed on February 18, 2011.
(7)
Incorporated by reference to exhibits previously filed on our Annual Report on Form 10K filed on July 9, 2010
(8)
Incorporated by reference to exhibits previously filed on our Annual Report on Form 10K filed on July 14, 2011
   
 
 
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SIGNATURES
 
Pursuant to the requirements of Section 13 and 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized
 
  IMPERIAL RESOURCES, INC.  
   (Registrant)  
       
Date: July 16, 2012
By:
/s/ Rob Durbin  
    Name: Rob Durbin  
    Title: President, Chief Executive Officer and Director (Principal Executive Officer)  
       
 
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature
 
Capacity
 
Date
         
/s/ Rob Durbin
 
President, Chief Executive Officer and Director
 
July 16, 2012
Rob Durbin
  
(Principal Executive Officer)
   
         
/s/ Mike Mackey
  
Chief Financial Officer
 
July 16, 2012
Mike Mackey
  
(Principal Financial Officer and Principal Accounting Officer)
   
         
/s/Tom Barr
 
 Director
 
 July 16, 2012
 Tom Barr
       
 

 
 
33

 

 

MADSEN & ASSOCIATES CPA’s INC.
684 East Vine Street, #3
Certified Public Accountants
Murray, Utah, 84107
 
Telephone 801-268-2632
 
Fax 801-262-3978

To the Board of Directors and
Stockholders of Imperial Resources, Inc. and Subsidiaries

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of Imperial Resources, Inc. and Subsidiaries (The Company) as of March 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.   Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial position of Imperial Resources, Inc. and Subsidiaries as of March 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company will need additional working capital to service its debt and for its planned activity, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in the notes to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.


“Madsen & Associates, CPA’s Inc.”
Salt Lake City, Utah
July 16, 2012
 
 

 
34

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of the Year Ended March 31, 2012 and 2011
 
   
March 31, 2012
   
March 31, 2011
 
             
ASSETS
           
             
Cash
  $ 92,464     $ 364,891  
Accounts receivable
    16,583       28,503  
Total Current Assets
    109,047       393,394  
                 
Investment in Oil and Gas properties
    300,080       322,126  
                 
Saltwater Disposal Facility
    1,,825,422       -  
                 
TOTAL ASSETS
  $ 2,234,549     $ 715,520  
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Accounts payable and accrued expenses
  $ 302,484     $ 82,697  
Current portion of  long term debt
    95,967          
   Total Current Liabilities
    398,451       82,697  
                 
Notes Payable, net of discount of $365,918 at March 31, 2012
    1,163,660       -  
Derivative liability
    509,628       -  
Total Liabilities
    2,071,739       82,697  
                 
STOCKHOLDERS’ EQUITY:
               
Common stock: 500,000,000 shares authorized, at $0.001 par value; 42,894,561 shares issued and outstanding at March 31, 2012; 42,362,100 shares issued and outstanding at March 31, 2011
    42,894       42,362  
Capital in excess of par value
    1,913,327 )     1,763,858  
Accumulated Deficit
    (1,793,411 )     (1,173,397 )
Total Stockholders’ Equity
    162,810       632,823  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  
  $ 2,234,549     $ 715,520  

The accompanying notes are an integral part of these consolidated financial statements.

 

 
35

 
 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the years ended March 31, 2012 and 2011

   
March 31, 2012
   
March 31, 2011
 
             
Operating Revenue:
           
   Natural Gas and condensate
  $ 85,923     $ 117,484  
                 
Operating Expenses:
               
    Lease operating costs
    18,999       73,435  
    Depletion
    26,012       69,612  
Depreciation
    126,936       -  
   Impairment of Oil & Gas Properties
    60,000       586,734  
   Accounting and audit
    123,239       30,873  
   Director’s Fees
    108,000       27,000  
   Insurance
    17,494       17,485  
   Professional fees
    15,440       16,699  
   Legal
    2,307       46,094  
   Management fees
    -       6,000  
   Travel and entertainment
    15,919       25,930  
   Other administrative expenses
    48,475       17,617  
Total Operating Expenses
    562,821       917,479  
                 
Loss from operations
    (476,898 )     (799,995 )
                 
 Other Income and (Expenses):                
    Net gain on sale of investment in oil and gas property     346,184       -  
    Gain on debt forgiveness from prior officers           60,699   
    Interest expense     (445,618 )     (33,750 )
    Loss on debt extinguishment     -       (276,260 )
    Gain on derivative liability     113,881       -  
           Total Other Income (Expenses)     14,447       (249,311 )
                 
 Net loss before extraordinary items     (462,451 )     (1,049,306 )
                 
 Extraordinary loss due to fire     (157,562 )     -  
                 
NET LOSS     (620,013 )     (1,049,306 )
                 
NET LOSS PER COMMON SHARE                
  Basic and diluted     (0.01 )     (0.03 )
WEIGHTED AVERAGE OUTSTANDING SHARES                
  Basic and diluted     42,894,561       40,803,297  

The accompanying notes are an integral part of these consolidated financial statements.

 
36

 
 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the years ended March 31, 2012 and 2011
 
    Common
Shares
     Stock
Amount
     Capital in Excess
of Par Value
     
Accumulated
Deficit
   
Total
 
                               
                               
                               
Balance as of March 31, 2010
    49,900,000     $ 49,900     $ 29,725     $ (124,092 )   $ $(44,467 )
                                         
Cancellation of common shares – April 29, 2010
    (9,900,000 )     (9,900 )     9,900       -       -  
Capital contributions-officer expenses
    -       -       7,800       -       7,800  
Note payable converted to 1,625,059 shares of common shares
    1,625,059       1,625       1,217,170       -       1,218,795  
Shares of common stock issued for cash
    737,041       737       499,263       -       500,000  
Net loss for the year ended March 31, 2011
    -       -       -       (1,049,306 )     (1,049,306 )
Balance as of March 31, 2011
    42,362,100       42,362       1,763,859       (1,173,398 )     632,823  
Shares of Common stock issued for cash
    532,461       532       149,468       -       150,000  
Net loss for the year ended March 31, 2012
    -       -       -       (620,013 )     (620,013 )
Balance as of March 31, 2012
    42,894,561     $ 42,894     $ 1,913,327     $ (1,793,411 )   $ 162,810  

The accompanying notes are an integral part of these consolidated financial statements


 
37

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended March 31, 2012 and 2011
 
   
March 31, 2012
   
March 31, 2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (620,013 )   $ (1,049,306 )
Add back extraordinary loss
    157,562          
Net loss before extraordinary loss
    (462,451 )     (1,049,306 )
Adjustments to reconcile net loss to net cash used in
operating activities:
               
Depletion expense
    26,012       69,612  
Depreciation expense
    126,936       -  
Gain on sale of investment properties
    (349,894 )     -  
Impairment of oil and gas properties
    60,000       586,734  
Interest expense on derivative liability at inception
    173,511          
Discount amortization
    84,082          
Change in fair value of derivative liability
    (113,881 )        
Loss on note payable conversion to common stock
    -       276,260  
Gain on debt forgiveness
    -       (60,699 )
Capital contributions – expenses
    -       7,800  
Changes in accounts receivable
    11,920       1,222  
Changes in accounts payable
    219,788       113,027  
Net Cash Used in Operations
    (223,978 )     (55,349 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of salt water facility
    (500,000 )     -  
Purchase of salt water equipment and deepening well
    (1,609,919 )     -  
Proceeds from sale of oil and gas properties
    540,000          
Investments in oil and gas properties
    (254,073 )     (79,760 )
Net Cash Used by Investing Activities
    (1,823,992       (79,760 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from Notes payable for salt water facility
    1,700,000       -  
Repayment of notes payable
    (74,457 )     -  
Proceeds from issuance of common stock
    150,000       500,000  
Net Cash Provided by Financing Activities
    1,775,543       500,000  
                 
Net Increase (Decrease) in Cash
    (272,426 )     364,891  
Cash at Beginning of Period
    364,891       -  
CASH AT END OF PERIOD
  $ 92,464     $ 364,891  
                 
                 
Supplemental disclosures:
               
Note payable of $900,000 plus accrued interest of $42,534 converted into 1,625,059 shares of common stock
  $ -     $ 1,218,795  
Cash paid for interest
  $ 20,841     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
38

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011

1.
ORGANIZATION AND BASIS OF PRESENTATION

Imperial Resources, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on August 2, 2007 with the authorized capital stock of 500,000,000 shares at $0.001 par value. 

The Company was organized for the purpose of acquiring and exploring a mineral property and later abandoned it.  The Company has decided to focus its core activities on development and exploration of oil and gas assets in the United States through its wholly-owned subsidiary Imperial Oil & Gas Inc. (“Imperial Oil” or “IOG”) which was formed under the laws of the State of Delaware on January 8, 2010. Big Dig Operating, Inc., (“Big Dig”) was formed June 13, 2011 for the purpose of operating a salt water disposal facility, and is a wholly owned subsidiary of Imperial Oil & Gas, Inc.  In addition, Green Tide Water Disposal, Ltd. (“Green Tide”) was formed on June 15, 2011, as a limited partnership with Imperial owning a 99% limited partnership interest, and Big Dig owning a 1% general partnership interest. Green Tide has obtained a promissory note, the funds from which shall be applied solely for the purpose of bringing the salt water disposal facility back in to commercial operations, servicing associated liabilities existing at time and marketing services of the facility.

The Company is engaged in the exploration and development of oil and natural gas properties. The Company acquires the oil and gas interests in various manners, by purchasing them or via a farm-in whereby we earn our interests by developing the acreage of another. The Company acquires fee simple determinable interests in the oil and gas properties in either acquisition scenario. In addition, the Company has purchased a salt water disposal facility.
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

 (a)
Basis of Consolidation
The accompanying financial statements present the consolidated accounts of the Company and its subsidiaries. All intercompany account balances and transactions have been eliminated.

 (b)
Nature of Operations
The Company’s focus is on the acquisition, development and exploitation of long-lived oil and natural gas reserves and, to a lesser extent, exploration for new oil and natural gas reserves. The Company’s business activities are currently carried out in New Mexico, Oklahoma and Texas.
 
 (c)
Concentrations
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of unsecured accounts receivable from unaffiliated crude oil purchasers and the well operator. All of the Company's revenues are from one producing well and a successful test well.
 
 
39

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
 
 
 (d)
Investments in Oil and Gas Properties
We use the successful efforts method of accounting for exploration and evaluation expenditure in respect of each area of interest. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available.

Oil and natural gas properties:
We use the successful efforts method of accounting for exploration and evaluation expenditure in respect of each area of interest. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available.

Exploration Expenses:
We account for our oil and gas exploration and development costs using the successful efforts method. Geological and geophysical costs are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion. Exploratory wells which discover potentially economic reserves that are in areas where a major capital expenditure would be required before production could begin, and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized as long as the additional exploratory work is under way or firmly planned. The application of the successful efforts method of accounting requires management's judgment to determine the proper designation of wells as either developmental or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes. Once a well is drilled, the determination that economic proved reserves have been discovered may take considerable time and judgment. The evaluation of oil and gas leasehold acquisition costs included in unproved properties requires management's judgment to estimate the fair value of such properties.

Impairment:
We review our long-lived assets, consisting primarily of oil and gas properties whenever management determines that events or circumstances indicate that the recorded carrying value of such properties may not be recoverable. Proved oil and gas properties are reviewed for impairment on a field-by-field basis, which is the lowest level at which depletion of proved properties is calculated. We estimate the expected future cash flows of our proved oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the properties to test the carrying amount for recoverability. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the proved oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, the present value of future cash flows net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows.
 
Reserves Estimates:
It should not be assumed that the present value of future net cash flows included in this Annual Report as of March 31, 2012, is the current market value of our estimated proved reserves. Changes in crude oil and natural gas prices can cause revisions in our estimates if the sales price on which reserves are based makes it uneconomical to continue producing the reserves based on our current production costs. Estimates of proved reserves may materially impact depletion expense. If the estimates of proved reserves decline, the rate at which we record depletion expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomical to drill for and produce higher cost fields. In addition, a decline in proved reserve estimates may impact the outcome of our assessment of our producing oil and gas properties for impairment.

 
40

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011

 
Depletion:
Depletion of the cost of proved oil and gas properties are calculated using the unit–of–production method. The reserve base used to calculate depletion, depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account

Amortization rates of depletion are updated to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions, and 4) impairments.
 
Property and Equipment-Salt Water Disposal Facility:

Property plant and equipment is recorded at its original cost of construction or fair value of assets purchased. Expenditures that extend the useful life or increase the expected output of property, plant and equipment, as well as major improvements are capitalized. Repair and maintenance costs are expensed as incurred.

Depreciation is computed using the following estimated useful lives: 
   
Disposal wells
10 years
Machinery and equipment
7 years

Upon retirement or disposition of assets other than oil and natural gas properties, the cost and related accumulated depreciation are removed from the accounts with the resulting gains or losses, if any, recognized in income. Depreciation of other property and equipment is computed using the straight-line method based on the estimated useful lives of the property and equipment.
 
(e)
Impairment of Long-Lived Assets:
The Company reviews and evaluates long-term assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable.  The assets are subject to impairment consideration under ASC 60-10-35-17 if events or circumstances indicate that their carrying amount might not be recoverable.   When the Company determines that an impairment analysis should be done, the analysis will be performed using the rules of ASC 930-360-35 Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Term Assets.
 
(f)
Income Taxes
We follow the FASB’s new guidance issued within ASC Topic No. 740, Accounting for Income Taxes, for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

 
41

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
 (g)
Basic and Diluted Net Loss Per Share
Net loss per share is presented in accordance FASB ASC Topic No. 260 Earnings Per Share. Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period. There are no potentially dilutive common stock equivalents such as stock options or warrants outstanding, and as such basic and diluted net loss per share is the same. 

 h)
Use of Estimates in the Preparation of Consolidated Financial Statements
Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
 (i)
Fair value of financial instruments
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes. The carrying amounts and fair values for Convertible debt are presented in the following Notes.
 
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available (Level 1). If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters (Level 2). Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters (Level 3). Any such valuation adjustments are applied consistently over time.

(j)
Derivative Instruments
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments with embedded conversion features of debt that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for option-based derivative financial instruments is determined using the Black-Scholes Option Pricing Model. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.
 
(k)
Cash Equivalents
 For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, money market accounts and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.
 
 (l)
Revenue Recognition
Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and natural gas sold to purchasers. The Company did not have any oil or natural gas imbalances recorded. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
 
(m) Recent Accounting Pronouncements
The Company does not expect the adoption of any recent accounting pronouncements to have a material impact on its financial statements.

 
42

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
 
3.
OIL AND GAS PROPERTIES

The Company has $300,080 in investments in oil and gas properties as of March 31, 2012, as follows: 

    March 31, 2011     Additions     Depletion and other reductions (1)     March 31, 2012  
Producing Wells, net of impairments totaling $216,439 as of March 31, 2011
  $ 313,266     $ 10,560     $ -     $ 323,826  
Accumulated depletion
    (70,900 )     -       (26,012 )     (96,912 )
Net producing wells
    242,366               (26,012 )     (226,914 )
Undeveloped wells
    79,760       243,513       (250,106 )     73,167  
Total oil and gas
  $ 322,126     $ 254,073     $ (276,119 )   $ 300,080  

Cochran #1 Well
On January 20, 2010, the Company acquired a 14.9% working interest in the oil, gas and mineral leases in the Greater Garwood hydrocarbon exploration project located in Colorado County, Texas (the “Project”). The Project has one producing well known as the Cochran #1 Well, which is being operated by El Paso E & P Company, L.P. As of March 31, 2012, the investment totaled $226,914.

Oklahoma Project
On July 12, 2010, Imperial Oil entered into a participation agreement, four areas of mutual interest (AMI) agreement and joint operating agreement to acquire leases on up to 5,000 acres in Oklahoma. The agreement provided for a 50% working interest in horizontal oil and gas drilling projects. During the year ended March 31, 2012, the Company had incurred $210,770 in acquisition of acreage and a nominal interest in one successful test well.

 On January 10, 2012, Imperial Oil sold $190,106 of acreage, including approximately $160,000 acreage cost plus associated land and title costs, acquired during the year, and relinquished any future interest in the 5,000 acres in Oklahoma. Proceeds from the sale totaled $540,000, which resulted in a gain on the sale of investment of $346,184, after selling costs of $3,710. The Company retained a successful test well which the Company acquired an interest in as part of its due diligence. In addition, the Company has the right to acquire new acreage in a new area of mutual interest (“AMI”) with a 90% working interest and the right to operate. As of March 31, 2012, the Company’s investment in the project totaled $17,664, including $10,400 in acquisition costs and lease operating expenses.
 
Nunnelly #1 Project
On January 10, 2011, the Company entered into an Oil and Gas lease with the mineral owner of approximately 35 acres and an existing wellbore in Montague County Texas. The lease agreement provides for the development of the Project lease area and the existing well, known as Nunnelly #1. The mineral owners’ will retain a 25% royalty interest in the acreage. Imperial has the option, to pay the costs associated with deepening and completion of the well, or alternatively, the drilling and completion of a new well. As of March 31, 2012, $63,062 is capitalized relating to surface preparation work at the site.
 
 
43

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
Stateline

On January 25, 2011, the Company entered into a Farm out Agreement ("Agreement") with a private oil and gas exploration company, for the right to earn acreage by drilling up to four wells in an infill development project ("Stateline") in the existing Sawyer Field, in Lea County, New Mexico. The Agreement required the Company to pay a spud fee of $60,000, and to drill between one and four wells to earn a 77% net revenue interests in 40 acres for each well drilled, subject to a reservation by the assigning party of a 10% working interest in each well drilled. The Agreement required that not later than 270 days, drilling would commence on the first well. As the Company was not able to commence drilling in the agreed upon period, or negotiate with new owners, the agreement has been terminated and the investment has been written down to zero as of March 31, 2012.

4.
SALT WATER DISPOSAL FACILITY

On April 27, 2011, Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 42 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas.  The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note totaling $450,000. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period.

Green Tide obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned.  The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity until the opening of the facility. As of March 31, 2012, $1,200,000, had been drawn down on this note.  

The Company deepened the well to a depth currently approved by the Texas Railroad Commission. As of March 31, 2012, the Company had incurred $2,109,919 in capitalized costs related to the acquisition of the facility and deepening of the well.  The well was deepened and completed and the SWDF was set to open November 9, 2011 when the facility was struck by lightning on November 8, 2011.  A significant portion of the surface equipment was lost of which the carrying value has been reflected as an extraordinary loss in the Statement of Operations as of March 31, 2012, totaling $157,562. The Company has completed clean-up of the site and has purchased and largely installed the replacement tanks and equipment. The Company anticipates the testing and opening of the facility in July 2012.

On March 6, 2012, the Company obtained an additional convertible note for $125,000 for clean-up and rebuilding of the facility. As of March 31, 2012, $50,000 had been drawn down on this note.

The Company’s net investment as of March 31, 2012 is as follows:.
 
   
March 31, 2012
 
Purchase of salt water facility
   $ 500,000  
Additions to well
    1,609,920  
Loss of equipment due to lightning strike
    (157,562 )
   Total
    1,952,358  
         
Accumulated depreciation
    (126,936 )
Total property and equipment related to salt water facility
   $ 1,825,422  
 
 
44

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
5.
NOTES PAYABLE

On April 27, 2011 Imperial Oil entered into a Purchase and Sale Agreement to purchase approximately 41 acres of land, a related salt water disposal facility (”SWDF”) consisting of surface equipment, and a wellbore and associated permits, located in Wise County, Texas.  The total purchase price of $500,000 was made through a $50,000 signing payment, plus the execution of a Convertible Promissory Note (the “Note”) totaling $450,000. The Note is secured over the SWDF assets.
 
The note is repayable monthly at $9,529.59 for fifty four months at a 6% fixed interest rate, commencing on September 1, 2011.  The outstanding principal balance plus any accrued interest under the Note was convertible into common shares six months after execution of the agreement upon the option of the Holder.  The Note was convertible into the number of shares equal to the balance of the principal and interest being converted divided by a 15% discount to the daily volume weighted average price per share for the ten business days prior to the date of the conversion notice. The note is secured over the SWDF assets, and was convertible subsequent to a six month waiting period. In addition, the conversion is limited to at least $25,000 in principal and accrued unpaid interest with a maximum of $75,000 in any one calendar month.

The above embedded conversion feature was determined to be a derivative liability, and such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The fair value was determined using the Black-Scholes Option Pricing Model using the following assuptions at each measurement date: risk-free interst rates ranging from .96% to 2.06%; expected life of 3.33 to 4.25 years; and, expected volatility of 166% based on historical stock prices of the Company. The gains and losses resulting from changes in the fair value of derivatives are recorded in the Consolidated Statement of Operations.

The fair value of the derivative liability at April 27, 2012 was $623,510. The fair value as of March 31, 2012 was $509,629. The Company has categorized its derivative liability measured at fair value into the three-level fair value hierarchy based upon the priority of inputs to respective valuation techniques. Liabilities included within level 3 of the fair value hierarchy include a share conversion feature on convertible debt. The valuation methodology for liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value.  The debt discount related to the derivative totaled $450,000 at April 27,2012. Amortization totaled $84,082 for the year ended March 31, 2012.

 On June 15, 2011, the Green Tide Water Disposal, Ltd., was formed as a limited partnership with Imperial Oil & Gas, Inc. being a limited partner owning 99% and Big Dig Operating, Inc., a wholly owned subsidiary of Imperial Oil & Gas, Inc., being the general partner and owning 1%, and obtained a Convertible Promissory Note on June 17, 2011, for amounts up to $1,200,000 to rework and operate the SWDF. The note provides that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned.  The lender may convert at its option, the unpaid balance of the note into limited partner interests in Green Tide of up to 50% of the equity, until the facility officially opens. There was determined to be no beneficial conversion feature at the date of the note. As of March 31, 2012, $1,200,000 in proceeds had been received, plus an additional note for replacement and clean up of the facility totaling $125,000 was received with the same terms. As of March 31, 2012, $1,250,000 had been received related to the notes. Interest expense of $445,618 was accrued on the notes and is also included in total interest expense of $215,025 in the Statement of Operations for the year ended March 31, 2012.

Notes payable are summarized as follows:
 
Description
 
Amount
 
       
Convertible note payable
  $ 375,544  
Other convertible borrowings
    1,250,000  
Total borrowings
    1,625,544  
         Less Current Portion
    (95,967 )
         Less debt discount
    (365,918 )
Long term notes payable as of March 31, 2012
    1,163,660  

 
45

 

IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
6.
CAPITAL STOCK

On October 31, 2007, Company completed a private placement consisting of 198,000,000 post dividend common shares sold to directors and officers for a total consideration of $3,000. On December 31, 2007, the Company completed a private placement of 49,665,000 post dividend common shares for a total consideration of $37,625. On November 3, 2009, the Company issued a stock dividend to shareholders of record whereby the Company issued sixty-five shares of its common stock for each share of common stock held by such investors (all share references in these consolidated financial statements have been retroactively adjusted for this stock dividend). On October 22, 2009, 168,300,000 post dividend common shares were returned to Treasury and cancelled, and on January 27, 2010, a further 29,465,000 post dividend common shares were returned to Treasury and cancelled, leaving an outstanding balance at March 31, 2011 of 49,900,000 common shares. On April 29, 2010, a stockholder of the Company returned 9,900,000 shares of the Company’s common stock to treasury for cancellation. As a result, the number of shares of the Company’s common stock outstanding was reduced from 49,900,000 to 40,000,000.

The Greater Garwood Project was acquired from the issuance of a $900,000 note payable. On December 10, 2010, the note payable of $900,000 plus $42,534 in accrued interest was converted to 1,625,059 shares of the Company’s common stock at $0.58 per share. The fair value of the shares on the date of exchange was $1,218,794, resulting in a loss on debt extinguishment of $276,260, which is included in other expenses in the Statement of Operations.

On December 10, 2010 Imperial Resources, Inc. (the “Company”) and its wholly owned subsidiary, Imperial Oil and Gas, Inc. (“IOG”) entered into a Note Conversion Agreement (“the “Agreement”) with Coach Capital LLC (“Coach) relating to a Loan Note (“Note”) from Coach to IOG dated January 19, 2010. At December 10, 2010, the debt under the Note was $900,000 in principal and $42,534 in accrued interest, totaling $942,534. On December 10, 2010, under the Agreement, Coach served a valid notice on the Company to fully convert the Note. Accordingly Coach has been issued 1,625,059 shares of the Company’s common stock. The Note and its terms are cancelled.
 
On December 31, 2010, Imperial entered into a Securities Purchase Agreement with an accredited investor. This Agreement provided that in the Investor’s sole discretion that, in addition to the first subscription of $500,000, it could subscribe for shares of the Company’s common stock until March 31, 2012, from a minimum subscription amount of $500,000 to a maximum subscription amount of $2,500,000, to be priced at a 15% discount to the Volume Weighted Average closing Price (“VWAP”) for the ten business days prior to the date of each subscription or the price of $0.6784 per share, whichever was greater.  The total subscription price of $500,000 (“First Subscription”) was paid in cash within fourteen days of the Agreement. No commission or other fee is payable. We issued all of the shares to one (1) U.S. person under the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission  under the Securities Act.  
 
 
On July 8, 2011 Imperial Resources, Inc., pursuant to the Securities Purchase Agreement with an accredited investor dated December 31, 2010, entered into a second Securities Purchase Agreement with the accredited investor, by reducing the minimum subscription amount to $100,000 and then subscribing $150,000 for 532,461 shares of common stock at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.2817 per share, as mutually agreed between the Company and the accredited investor.
 
Following the aforementioned issuances the total number of issued shares of the Company’s common stock was 42,894,561 as of March 31, 2012.

 
 
46

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011

 
7.
INCOME TAXES
 
For the years ended March 31, 2012 and 2011, the Company had net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At March 31, 2012, the Company has accumulated operating losses totaling approximately $1,793,000. The net operating loss carry forwards will begin to expire in 2028 if not utilized. The Company has recorded net operating losses in each year since its inception through March 31, 2012. Based upon all available objective evidence, including the Company’s loss history, management believes it is more likely than not that the net deferred assets will not be fully realized. Therefore, the Company has provided a valuation allowance against its deferred tax assets at March 31, 2012 and 2011.

Non-current deferred tax assets for the years ended March 31, are as follows:
 
   
March 31, 2012
   
March 31, 2011
 
Net losses
  $ 608,635     $ 397,831  
Less valuation allowance
    (608,635 )     (397,831 )
Net noncurrent deferred tax asset
  $ -     $ -  
 
Reconciliation between the income tax benefit determined by applying the applicable Federal statutory income tax rate to the pre-tax loss is as follows for the period indicated:

   
March 31, 2012
   
March 31, 2011
 
Tax benefit at statutory income tax rate
  $ (210,804 )   $ (355,640 )
Change in valuation allowance
    210,804       355,640  
Tax benefit reported
  $ -     $ -  
 
8.
SIGNIFICANT TRANSACTIONS WITH RELATED PARTY

Sydney Oil and Gas Overriding Royalty Interest

On April 1, 2010, Imperial Oil entered into an Assignment of Overriding Royalty Interest Agreement to assign or pay Sydney Oil & Gas, LLC (“Sydney”), a gross overriding royalty of 6.5% of 8/8 for each lease or working interest acquired by Imperial Oil.  Imperial’s CEO owns an interest in and controls Sydney. At March 31, 2012 no royalties have been paid.

9.
GOING CONCERN

The Company intends to seek business opportunities that will provide a profit. However, the Company does not have the working capital necessary to be successful in this effort and to service its debt, which raises substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through additional loans and equity funding, which will enable the Company to operate for the coming year.
 
 
47

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
10.
SUBSEQUENT EVENTS

On April 16, 2012, Imperial Resources, Inc., pursuant to a Securities Purchase Agreement with an accredited investor issued 75,153 common shares for $20,000 at a 10% discount to the Volume Weighted Average closing Price for the ten business days prior to the Agreement, this being a price of $0.26 per share. Following the issuance the total number of issued shares of the Company’s common stock will be 42,969,714.

In addition, the Company obtained two convertible promissory notes on May 28, 2012 and June 18, 2012, totaling $50,000 and $60,000 respectively.  The notes provide that Green Tide will pay interest at a rate of twenty percent per annum with principal and interest paid monthly in amounts equal to eighty percent of the net cash flow generated by the operations of the SWDF, until such time that the cumulative distribution equals the principal amount loaned. The notes were to continue to complete and open the SWDF.
 
11.
SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES

Oil and Gas Reserves
 
Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” natural gas and crude oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.

In January 2010, the FASB issued ASC Topic No. 932 to amend existing oil and gas reserve accounting and disclosure guidance to align its requirements with the SEC’s Modernization of Oil and Gas Reporting rule. The significant revisions involve revised definitions of oil and gas producing activities, changing the pricing used to estimate reserves at period end to a twelve month arithmetic average of the first day of the month prices and additional disclosure requirements. In contrast to the SEC rule, the FASB does not permit the disclosure of probable and possible reserves in the supplemental oil and gas information in the notes to the financial statements. The amendments are effective for annual reporting periods ending on or after December 31, 2009. Application of the revised rules is prospective and companies are not required to change prior period presentation to conform to the amendments. Application of the amended guidance has only resulted in changes to the prices used to determine proved reserves. The new guidelines have also expanded the definition of proved undeveloped reserves that can be recorded from an economic producer.

The opportunity to prove reasonable certainty for spacing areas located more than one direct development spacing area from economic producer did not impact the Company’s proved developed or undeveloped reserves.

As of March 31, 2012, the Company adopted the guidance in ASC 932 related to oil and gas reserve estimation and disclosures in conjunction with the year-end reserve reporting as a change in accounting principle that is inseparable from a change in accounting estimate. The impact of the adoption of this guidance on the Company’s financial statements was not practicable to estimate due to the challenges associated with computing a cumulative effect of adoption by preparing reserve reports under both the old and new guidance.
 
 
48

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
Oil and Gas Producing Activities
Estimates of total proved reserves for the producing Cochran #1 Well At March 31, 2012 and 2011, were based on December 2009 studies performed by  Grant Twanow, our former Director, President and Chief Executive Officer. Mr. Twanow was a Petroleum Reservoir Engineering Specialist based in North America with extensive experience in oil and gas joint ventures and operations. The December 2009 reserve report estimates were based on year end prices for oil and natural gas. As there were no  major discoveries or other favorable or unfavorable events since the report was issued, there was deemed no material change in the estimates of proved developed reserves for the Cochran #1 Well since the December 2009 report.

Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history, and changes in economic factors.
 
Capitalized Costs Relating to Oil and Gas Producing Activities

The following table illustrates the total amount of capitalized costs relating to natural gas and crude oil producing activities for Cochran #1 producing well and the total amount of related accumulated depreciation, depletion and amortization. The Company also owns a nominal interest in a test well, however, as the operations from this well are not considered material only the Cochran #1 producing well information has been presented.

   
March 31, 2012
   
March 31, 2011
 
 Cochran #1 Well
           
Capitalized costs
  $ 242,366     $ 529,705  
Accumulated Depletion
    (26,012 )     (70,900 )
Impairment
    -       (216,439 )
Total Producing well
  $ 226,914     $ 242,366  
 
Costs Incurred in Oil and Gas Producing Activities:

   
March 31, 2012
   
March 31, 2011
 
 Cochran #1 Well
           
Acquisition costs-proved and developed-Cochran #1 Well
  $ 313,216     $ 529,705  
Exploration costs
    -       - )
Impairments
    -       (216,439 )
 Total Costs Incurred
  $ 313,216     $ 313,216  

Results of Operations from Oil and Gas Producing Activities:

All our results of operations are from the Cochran #1 Well production and sales, which are reported in the Statement of Operations for the periods ended March 31, 2012 and 2011.
 
 
49

 
 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
Our proved developed reserves are summarized in the table below in Mmcfe. 

   
March 31, 2012
   
March 31, 2011
 
 Cochran #1 Well
           
Beginning of the period
  $ 198.93     $ 222.77  
Revisions of previous estimates
    -          
Extensions and discoveries
    -       -  
Production
    (14.61 )     (23.84 ))
End of the period
  $ 184.32     $ 198.93  

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The December 2009 reserve report estimates were based on year end prices for oil and natural gas. As there were no  major discoveries or other favorable or unfavorable events since the report was issued, there was deemed no material change in the estimates of proved developed reserves for the Cochran #1 Well since the December 2009 report. Based on internal analysis the standardized value was estimated to be approximately $122105 as of March 31, 2012.
 
Management does not solely use the following information when making investment and operating decisions. These decisions are based on a number of factors, including estimates of proved reserves, and varying price and cost assumptions considered more representative of a range of anticipated economic conditions.

Standardized Measure is as follows:

   
March 31, 2012
   
March 31, 2011
 
 Cochran #1 Well
           
Future cash inflows
  $ 416,305     $ 604,549  
Future production costs
    (126,742 )     (101,432 )
Future development costs
    -       -  
Future net cash flows
    289,563       503,117  
10% annual discount
    (140,823 )     (76,326 )
Standardized measure
  $ 148,741     $ 240,137  

Income taxes are expected to be zero.

Changes in the Standardized Measure
 
 
50

 
IMPERIAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
 
The principal sources of change in the standardized measure of discounted future net cash flows for the years ended March 31, 2012 and 2011 were as follows:

   
March 31, 2012
   
March 31, 2011
 
 Cochran #1 Well
           
Balance - beginning of year
  $ 240,137     $ 1,288,000  
Sales, net of operating expenses
    (79,791 )     (44,048 ) )
Extensions and discoveries
    -       -  
Accretion of discount
    -       -  
Net changes in prices and productions costs
    11,606       (1,003,815 )
Revisions of prior estimates
    -       - )
Balance - end of year
  $ 148,741     $ 240,137  

Income taxes are expected to be zero.

 
51

 

PINX:IPRC Imperial Resources Inc Annual Report 10-K Filling

Imperial Resources Inc PINX:IPRC Stock - Get Annual Report SEC Filing of Imperial Resources Inc PINX:IPRC stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:IPRC Imperial Resources Inc Annual Report 10-K Filing - 3/31/2012
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