Form 10-Q

Large accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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 ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

On January 31, 2012, there were 40,763,569 shares of the Registrant’s common stock issued and outstanding.

As used herein, unless we otherwise specify, the terms the “Company,” “we,” “us” and “our” means Imperial Petroleum, Inc.

This Report contains forward-looking statements concerning our financial condition, results of operations and business, including, without limitation, statements pertaining to:

These and other forward-looking statements are primarily in the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” Generally, you can identify these statements because they include phrases such as “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements are only predictions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those stated in this Report. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. Cautionary language in this Report provides examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

We have prepared the condensed consolidated financial statements included herein without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations. In our opinion, the accompanying statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of our company as of January 31, 2012, and its results of operations for the three months and six month periods ended January 31, 2012 and 2011 and its cash flows for the six month period ended January 31, 2012 and 2011. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of our annual report on Form 10-K.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results, which may be expected for the year ending July 31, 2012. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended July 31, 2011.

Imperial Petroleum, Inc. (the “Company”), a publicly held corporation, was organized under the laws of the state of Nevada.

The Company’s principal business consists of biodiesel production and oil and gas exploration and production in the United States. The Company, through its wholly-owned subsidiary, Arrakis Oil Recovery, LLC is developing and implementing a process for the recovery of heavy oil from mineable oil sands in the U.S. and internationally. At January 31, 2012, the Company has not fully implemented the oil recovery process.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ridgepointe Mining Company, Imperial Chemical Company (formerly The Rig Company), Hoosier Biodiesel Company (formerly Global-Imperial Joint Venture, Inc.), Arrakis Oil Recovery, LLC, and e-biofuels, LLC. All significant inter-company accounts and transactions have been eliminated in consolidation.

The presentation of financial statements in conformity with generally accepted U.S. accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts receivable are carried on a gross basis, with no discounting, less the allowance for doubtful accounts. We estimate the allowance for doubtful accounts based on existing economic conditions, the financial conditions of the customers, and the amount and the age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. There is no collateral held for accounts receivable. The allowance for doubtful accounts was $44,430 and $44,430 as of January 31, 2012 and July 31, 2011, respectively. Bad debt expense for the six months ended January 31, 2012 was $0. Bad debt expense for the year ended July 31, 2011, 2010, and 2009 was $44,430, $25,001 and $0, respectively.

Fair values of cash and cash equivalents, investments and short-term debt approximate their carrying values due to the short period of time to maturity. Fair values of long-term debt are based on quoted market prices or pricing models using current market rates, which approximate carrying values. See Note 12 for further details.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable.

The Company’s cash is deposited in three financial institutions. Cash and certificates of deposit at banks are insured by the FDIC up to $250,000. At times, the balances in these accounts may be in excess of federally insured limits. As of January 31, 2012, the Company had no deposits in excess of federally insured limits.

The Company currently operates in the biodiesel production industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. During the quarter ended January 31, 2012, the Company’s major purchasers of its biodiesel were 39% to Element Renewable Energy; 33% to Fusion Renewable and 19% to Ultra Green Energy Services. As of January 31, 2012, these three customers made up 0%, 0%, and 50% of the Company’s accounts receivable, respectively. During the year ended July 31, 2011, the Company’s major purchasers of its biodiesel were 36.3% to Fusion, 24.5% to Element, and 17.1% to Pilot.

The Company derives revenue from sales of oil, gas, and biodiesel products. The Company recognizes revenue when a formal arrangement exists, the price is fixed or determinable, all obligations have been performed pursuant to the terms of the formal arrangement, and collectability is reasonably assured. The Company also derives revenues from government incentive programs relating to biodiesel production. These revenues are recognized when the amount of the incentive is reasonably determinable and collection is reasonably assured.

The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized. All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

In addition, the capitalized costs are subject to a “ceiling test,” which basically limits such costs to the aggregate of the “estimated present value,” discounted at a 10-percent interest rate of future net revenues from proved reserves, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income.

Property and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of assets. Expenditures that significantly increase values or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation and depletion are eliminated from the respective accounts and the resulting gain or loss is included in current earnings.

Mining exploration costs are expensed as incurred. Development costs are capitalized. Depletion of capitalized mining costs will be calculated on the units of production method based upon current production and reserve estimates when placed in service.

Inventories are stated at the lower of cost or market. The inventory as of January 31, 2012 and July 31, 2011 was $40,086 and $1,293,171, respectively. All inventory pertains to our operations at e-biofuels. The balance of the inventory as of January 31, 2012 is made up of $39,930 in raw materials and $156 in finished goods. The balance of the inventory as of July 31, 2011 was made up of $641,331 in raw materials and $651,840 in finished goods. There is no allowance for obsolete inventory as of January 31, 2012 or July 31, 2011.

Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount of fair value less cost to sell.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of change in tax rates is recognized in income in the period that includes the enactment date.

Earnings (Loss) per common share-basic are computed by dividing reported net income (loss) by the weighted average common shares outstanding. Except where the result would be anti-dilutive, net income (loss) per common share-diluted has been computed assuming the exercise of stock warrants and stock options that are in-the-money as of period-end.

Certain reclassifications have been made to prior periods to conform to the current presentation.

In November 2011, the Company accepted the resignation of Jeffrey T. Wilson and Aaron M. Wilson from its Board of Directors. Mr. Jeffrey Wilson was the Chairman and President of the Company and resigned due to health issues. The original intent of the Company was to retain Mr. Wilson’s services as a technical consultant; however, the Company and Mr. Wilson were unable to reach a consulting agreement.

In November, 2011, Mr. Aaron Wilson resigned to allow for the appointment of Mr. Tim Jones, who was also promoted to Chief Financial Officer and President of the Company’s e-biofuels, LLC subsidiary, to the Board. Mr. Aaron Wilson retained his title as President of the Company’s Arrakis Oil Recovery, LLC subsidiary.

In November, 2011, the Board appointed Mr. John Ryer, a director of the Company, as its new Chief Executive Officer and President. In January 2011, Mr. Ryer resigned from the Board of Directors and as the Chief Executive Officer due to personal reasons. There were no disputes between Mr. Ryer and management of the Company or with its auditors. Mr. Robert Willmann was approved by the Board to replace Mr. Ryer as a Director until the next regular shareholders meeting.

In December 2011, Mr. Greg Thagard was appointed to the position of Chairman of the Board.

In January 2012, Mr. Tim Jones was approved as interim CEO and President of the Company.

In February 2012, the Company accepted the resignation of Mr. Robert Willmann from its Board of Directors. Mr. Willmann resigned due to time constraints and had no disagreements with the Management of the Company or with its independent accountants.

In February 2012, Mr. Aaron Wilson was terminated from his position as President of Arrakis Oil Recovery, LLC due to cash constraints.

The FASB issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent Events”), incorporating guidance on subsequent events into authoritative accounting literature and clarifying the time following the balance sheet date which management reviewed for events and transactions that may require disclosure in the financial statements. The Company has adopted this standard. The standard increased our disclosure by requiring disclosure reviewing subsequent events. ASC 855-10 is included in the “Subsequent Events” accounting guidance.

In June 2011, the FASB issued ASU 2011-05 Comprehensive Income (Topic 220 - Presentation of Comprehensive Income). Under this amendment, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are evaluating the provisions of ASU 2011-05 and do not believe it will have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification™ (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. We are evaluating the provisions of ASU 2011-04 and do not believe it will have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued Presentation of Comprehensive Income under ASU 2011-05 or ASU 2011-05. ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 will be effective for the Company’s first quarter of fiscal year 2013. The adoption of ASU 2011-05 may require a change in the presentation of the Company’s comprehensive income from the statement of capital shares and equities to the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendments in ASU 2011-05 are to be applied retrospectively. The adoption of ASU 2011-05 is not expected to have a material effect on the Company’s condensed financial statements.

In September 2011, the FASB issued Testing Goodwill for Impairment under ASU 2011-08, which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities with the option of performing a qualitative assessment to determine whether impairment testing is necessary. The revised standard will be effective for annual and interim goodwill impairment tests performed beginning in the first quarter of fiscal year 2012, with early adoption permitted under certain circumstances. The Company is currently evaluating options related to early adoption.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements

In November 2008, the Securities and Exchange Commission (“SEC”) issued for comment a proposed roadmap regarding potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Under the proposed roadmap, the Company would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments.

The Company’s financial statements for the three months and six months ended January 31, 2012 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company had a net loss for the six months ended January 31, 2012 of $8,162,687 compared to net income for the six months ended January 31, 2011 of $433,552. As of January 31, 2012, the Company has $139,147 of cash on hand and a working capital deficit of $14,871,901. The Company had $7,365,167 of debt mature on January 31, 2012 as discussed in Note 5.The Company’s working capital deficiency in conjunction with the Company’s history of operating losses raises doubt regarding the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is highly dependent upon (i) management’s ability to increase operating cash flows through existing biodiesel production (ii), management’s ability to work out an extension agreement with the current bank, or locate and obtain alternative financing, to fund the $7,365,167 in notes that matured on January 31, 2012 (iii) the ability to obtain the capital needed to initiate the tar sand operations.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring items) considered necessary for a fair presentation have been included.

In June of 2011, the Company issued 300,000 shares and 500,000 warrants for consulting services. The shares were valued at market price of $1.49 for $447,000. The warrants had a term of five years and a strike price of $1.00 per share. The warrants were valued at $704,706 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $1.00, market price of $1.49, volatility of 163% , and no yield. The total value of the stock and warrants, $1,151,706, was capitalized as a prepaid expense and will be amortized over the five-year period of the consulting agreement. As of July 31, 2011, $28,793 has been expensed and $1,122,914 remained in prepaid expenses. During the quarter ended October 31, 2011, this consulting agreement was terminated and the remaining $1,122,914 was expensed. As of October 31, 2011, $0 remained in prepaid expenses related to this agreement.

Soon after termination of the consulting agreement, the consultant began to demand payment of promised salaries and unpaid commissions. As the consultant had significant relationships with multiple customers and vendors of the Company and as a major supplier of the Company on the biodiesel side began to demand that the consultant be paid what was owed, the Company agreed to a 1-year Severance, Confidentiality and Nondisclosure Agreement with the former consultant. In order to get the 1-year agreement in place, the major supplier agreed to loan the money required to finalize the Agreement to the Company (see next paragraph). On December 2, 2011, the Company finalized the Severance, Confidentiality and Nondisclosure agreement with the former consultant for $1,237,500 in cash and 300,000 shares of common stock. The shares of common stock were valued at $0.59, the market price on the day the agreement was made for total value of $177,000. The total amount associated with the agreement, $1,414,500, was set up as a Non-compete Agreement asset and is currently being amortized over the 12 month term of the agreement. As of January 31, 2012, $235,750 of the costs associated with the Agreement have been expensed and $1,178,750 remain as a current asset.

In December 2011, the Company entered into a $1,200,000 unsecured promissory note with JAK Financial LLC to fund the payment of a Severance, Confidentiality and Nondisclosure Agreement with a former consultant. The original amount of the note was $1,200,000 and the effective interest rate on the note was 96.5%. The note was to be paid with 60 daily payments of $23,000 beginning on December 20, 2011 and continuing for the next 60 business days. The Company made 16 such payments before it was no longer able to do so. The balance due as of January 31, 2012 was $933,167 with accrued interest of $85,202. The company is currently in default on this note.

The Company in the course of funding its oil and gas and other activities, from time to time, enters into private notes primarily from its major shareholders.

As of January 31, 2012, the Company currently has no debt facilities in place other than as noted in the tables above.

In connection with the acquisition of e-biofuels, LLC as a wholly-owned subsidiary, the Company assumed senior debt under the following facilities: (1.) First Merchants Bank, N.A. Term Loans; (2.) Cienna Capital/Small Business Administration (“SBA”) Mortgage Note; (3.) SBA facilitated equipment loan and (4.) certain Capital Leases for vehicles. The following is a description of the terms and conditions of each facility as of January 31, 2012:

First Merchants Bank, N.A. Term Loans: The Company has three term loans with First Merchants Bank: Term Loan A has a balance due of $1,535,283 and an interest rate of 8%; Term Loan B has a balance due of $2,764,842 with an interest rate of 9%; and Term Loan C has a balance due of $3,065,042 with an interest rate of 12%. The Term loans expired on January 31, 2012, are currently in default, and are secured by all of the assets of e-biofuels; the personal guarantees of Craig Ducey and Chad Ducey and by a corporate guarantee of the Company. The amended loan agreements call for a continuation fee of $50,000 per month commencing as of October 31, 2011. The Company must pay the fee for each month they have not paid the loan in full on or before the last day of the month.

Cienna Capital/ Small Business Administration Mortgage Note: The Company has a mortgage secured by the real estate and facility located in Middletown, Indiana. The balance due is $1,540,026 with an interest rate of 5.125%. The note is further secured by the personal guarantees of Mr. Craig Ducey and Mr. Chad Ducey. The term of the note is 25.5 years from December 2007.

SBA Equipment Loan: The Company obtained a loan for the purchase of equipment through the issuance of a Debenture in December 2007 in the original amount of $772,000. The balance due is $497,982 with an interest rate of 6.5%. The note is secured by certain equipment located at the Middletown, Indiana plant and further secured by the personal guarantees of Mr. Craig Ducey and Mr. Chad Ducey. The term of the note is 120 months.

Capital Leases: The Company has capital leases related to equipment used in the operation of the facility at Middletown, Indiana which total $61,537 and have varying market based interest rates and varying maturity dates. See the table above.

During the six months ended January 31, 2012, the Company entered into an agreement to assign capital leases to another party. Fixed assets with a net book value of $337,453 were assigned along with capital lease payable in the amount of $228,358. The Company recognized a net loss on the assignment transaction of $109,095.

JAK Financial: In December 2011, the Company entered into an unsecured promissory note with JAK Financial LLC to fund the payment of a Severance, Confidentiality and Nondisclosure Agreement with a former consultant (See Note 4 for further details). The original amount of the note was $1,200,000 and the effective interest rate on the note was 96.5%. The note was to be paid with 60 daily payments of $23,000 beginning on December 20, 2011 and continuing for the next 60 business days. The Company made 16 such payments before it was no longer able to do so. The balance due as of January 31, 2012 was $933,167 with accrued interest of $85,202. The company is currently in default on this note.

Other Debt: The Company has private notes and debt with various individuals, small companies and its former Chairman that totals $765,965 as of January 31, 2012. Generally this debt is unsecured and bear market interest rates and flexible terms.

Interest expense relating to the above notes was $1,644,961 and $803,063 for the six months ended January 31, 2012 and 2011, respectively.

The Company has entered into transactions with its former chief executive officer, Jeffrey T. Wilson and a Company owned and controlled by Mr. Wilson, H.N. Corporation. The amount outstanding as of January 31, 2012 owed to HN Corporation was $90,000 and such amounts are included in the totals due Mr. Wilson. There were no outstanding amounts due HN Corporation as of July 31, 2010. The Company had accrued salaries payable to Mr. Wilson of $358,547 as of January 31, 2012.

The Company owes its former Chairman and Chief Executive Officer, Jeffrey T. Wilson, as a result of loans to the Company, a total of $538,786 in principal as of January 31, 2012 (including $90,000 owed to HN Corporation as discussed above). Interest rates on the loans are fixed at 9%. Accrued interest as of January 31, 2012 relating to these loans is $118,686.

Mr. Thagard, a director of the Company and Chairman of the Board, has received compensation as a consultant to the Company and its subsidiaries in the fiscal year ending July 31, 2011 in the amounts of $84,000. In November of 2010, Mr. Thagard used $4,000 of notes payable and $56,000 of accounts payable due him to exercise options that he held. See note 9 for further details. Mr. Thagard settled his accounts payable due him in the amount of $154,500 in exchange for restricted common stock in an amount of 259,542 shares and $20,000 in cash on June 21, 2011.

Mr. Craig Ducey, former president of e-biofuels, is part owner along with Mr. Chad Ducey of Werks Management, a company that provided management services to e-biofuels. Prior to February 2012, Werks Management received a contracted amount per month in consulting fees for such services. The contracted amount was $70,000 per month through October of 2010, $60,000 per month from November of 2010 to April of 2011, and $62,833 per month from May of 2011 to January of 2012. Mr. Craig Ducey and Mr. Chad Ducey provided management services for e-biofuels through January 31, 2012. The Company recorded expenses to Werks Management in the total of $758,500 for the year ended July 31, 2011 and $377,000 for the six months ended January 31, 2012. The Company owed Werks Management $0 and $90,238 as of January 31, 2012 and July 31, 2011, respectively. In February 2012, the Company terminated the Werks Management Agreement.

During July of 2011, the Company entered into a loan agreement loaning Mr. Chad Ducey $340,000 at an interest rate of 5%. The loan had a term of 25 years, was unsecured, and matured in July of 2036. The loan was paid off in October 2011. The balance of the note was $0 as of October 31, 2011.

In September of 2011, Mr. Brian Carmichael, a former owner of Werks Management and Sales Manager for e-Biofuels, signed a new consulting agreement with e-biofuels and will receive a commission of $0.015 per gallon of biodiesel sold through the Middletown, Indiana plant. The agreement was subsequently modified and the amount reduced as the Company began selling larger volumes of biodiesel to Mr. Carmichael’s company, Element Renewable Energy. The agreement has a term of one year and automatically renews in one year increments. Mr. Carmichael no longer owns an interest in Werks Management as a result of this agreement. The Company instituted sales controls during fiscal 2011 to provide additional management oversight of sales contracts to Element, wherein the CFO is required to approve any sales contracts by the Company to Element to insure the contracts are arms-length. The total paid to Mr. Carmichael and his company in relation to this agreement was $294,799 for the year ended July 31, 2011. The contract with Mr. Carmichael was subsequently terminated in October 2011 by mutual consent of both parties.

In April 2011 the company issued 975,000 warrants to purchase 975,000 shares of common stock to its directors and key employees for their services. The warrants had a term of two years and a strike price of $0.50 per share. The warrants were valued at $363,328 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $0.50, market price of $0.495, volatility of 163% , and no yield. The value of the warrants was expensed as compensation expense in the year ended July 31, 2011. See Note 8 for further information pertaining to the warrants.

In June 2011 the company issued 100,000 warrants to purchase 100,000 shares of common stock to a director for his services. The warrants had a term of two years and a strike price of $0.50 per share. The warrants were valued at $115,865 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $0.50, market price of $1.35, volatility of 163% , and no yield. The value of the warrants was expensed as compensation expense in the year ended July 31, 2011.

In October 2011, the Company agreed to purchase out of cash flow over 3 weeks, 2,000,000 shares of Imperial common stock from Craig and Chad Ducey for a total purchase price of $2,000,000. The stock purchase was necessitated by tax liabilities incurred by the Ducey’s in the conversion of their notes receivable from the Company to restricted common stock in June 2011 and due to the fact that the Ducey’s personally guarantee the Company’s senior debt and were unable to obtain credit elsewhere to pay their tax liabilities. As part of the share purchase, the Company retired the note receivable from Mr. Chad Ducey in exchange for common stock. As of January 31, 2012, the 2,000,000 shares are being held as treasury stock.

The Company is a named defendant in lawsuits, is a party in governmental proceedings, and is subject to claims of third parties from time to time arising in the ordinary course of business. While the outcome of lawsuits or other proceedings and claims against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company.

The Company has accrued revenue payable, legal and petty suspense accounts in the amount of $173,907, $409,671 and $8,948, respectively, as of January 31, 2012. The Company has accrued revenue payable, legal and petty suspense accounts in the amount of $173,907, $409,671 and $8,948, respectively, as of July 31, 2011. The Company has continued to research owner account information in order to properly distribute legal suspense accounts in the normal course of business. Suspense accounts are cleared out annually and paid to the owners.

The Company has no amounts reserved as a contingent liability as of January 31, 2012 against future losses associated with any such litigation.

We are subject to a variety of laws and regulations in all jurisdictions in which we operate. We also are involved in legal proceedings, claims or investigations that are incidental to the conduct of our business and cannot be avoided. Some of these proceedings allege damages against us relating to property damage claims (including injuries due to product failure and other product liability related matters), employment matters, and commercial or contractual disputes. We vigorously defend ourselves against all claims which require such action. In future periods, we could be subjected to cash costs or non-cash charges to earnings if any of these matters is resolved on unfavorable terms.

In February 2012, e-biofuels, LLC terminated the Management Agreement between Werks Management, LLC and e-biofuels, LLC. This agreement was dated May 1, 2010 and had an original 4 year term. The agreement was terminated due to cash constraints of the Company and the inability to work out a reduced management fee for the reduction in services provided by Werks Management. As a result of this termination, Werks Management demanded the entire balance of the remaining contract term. The amount demanded by Werks Management as a result of this termination was $1,685,309. The Company feels that it doesn’t owe the balance of the contract because the contracted services were not being performed at the time of the termination.

During the year ended July 31, 2011, the Company issued 1,300,000 warrants to purchase 1,300,000 shares of common stock for services. The warrants have terms ranging from 2 to 5 years and strike prices ranging from $0.25 to $1.35.

During the year ended July 31, 2011, a total of 1,225,000 warrants were exercised. 400,000 warrants (200,000 at $0.10 and 200,000 at $0.20) were exercised in return for the forgiveness of $56,000 of accounts payable and $4,000 of notes payable. 825,000 warrants were exercised in a cashless exercise for 609,744 shares of common stock.

During the quarter ended October 31, 2011, the Company issued 500,000 shares of common stock and 500,000 warrants with a term of two years and at an exercise price of $1.00/share to Caravan Trading LLC as part of the Feedstock Supply Agreement for e-biofuels, The common stock was valued at fair market value on the day of the agreement of $0.85 for a total of $425,000. The warrants were valued at $313,135 using the Black Scholes valuation method using the following factors; risk free interest rate of .30%, strike prices of $1.00, market price of $0.85, volatility of 164.86% , and no yield. The total of $738,135 was capitalized as prepaid expense and will be amortized over the two-year agreement. As of January 31, 2012, $99,345 has been expensed and $638,790 is in prepaid expenses.

During the quarter ended October 31, 2011, the Company issued 50,000 warrants with a term of five years and an exercise price of $1.05/share for consulting services, The warrants were valued at $51,682 using the Black Scholes valuation method using the following factors; risk free interest rate of .99%, strike prices of $1.05, market price of $1.10, volatility of 166.10%, and no yield. The $51,682 was capitalized as prepaid expense and will be amortized over the six-month period of the agreement. As of January 31, 2012, $22,970 has been expensed and $28,712 is in prepaid expenses.

During the quarter ended October 31, 2011, the Company issued 2,542,001 warrants in relation to the September stock financing. See note 9 for further details. The warrants have a term of five years and a strike price of $1.00.

During the six months ended January 31, 2012, 800,000 warrants (400,000 at $0.10 and 400,000 at $0.20) were exercised in a cash-less exercise into 611,764 shares of common stock. Also during the six months ended January 31, 2012, 400,000 options with a strike price of $0.20 expired.

The following schedule summarizes pertinent information with regard to the stock warrants for the six months ended January 31, 2012 and the year ended July 31, 2011:

As of July 31, 2010, the Company had 21,364,813 shares issued and outstanding. The Company also had 1,000,000 shares owed but not issued.

In August 2010, the Company issued 400,000 shares and 100,000 warrants for consulting services. The shares were valued at market price of $0.32 for $128,000. The warrants had a term of two years and a strike price of $0.25 per share. The warrants were valued at $22,572 using the Black Scholes valuation method using the following factors; risk free interest rate of .47%, strike prices of $0.25, market price of $0.32, volatility of 173% , and no yield. The total value of the stock and warrants, $150,572, was capitalized as a prepaid expense and amortized over the one year period of the consulting agreement. As of July 31, 2011 all $150,572 has been expensed and nothing remains in prepaid expenses.

In August of 2010, 1,000,000 shares that were owed but not issued as of July 31, 2010 were issued.

In November 2010 the Company issued 400,000 shares to Greg Thagard in connection with the exercise of 400,000 warrants. 200,000 warrants were exercised at $0.10 and 200,000 warrants were exercised at $0.20 for a total of $60,000. In exchange for the exercise, Mr. Thagard forgave $56,000 of accounts payable and $4,000 of notes payable due him from the Company.

In November 2010 the Company issued 310,581 shares to Malcolm Henley in connection with the cashless exercise of warrants. Mr. Henley exercised 200,000 warrants at $0.10 and 200,000 warrants at $0.20.

In December 2010 the Company issued 250,000 shares to Coquille Bay Production Company in connection with the purchase of its interest in the Coquille Bay field and pipeline. The shares were valued at market value of $0.51 per share for a total purchase price of $127,500.

In January 2011 the Company issued 200,000 shares to John Heskett in connection with the purchase of Heskett Holding II and its interest in Arrakis. The shares were valued at market value of $0.50 per share for a total value of $100,000.

In January 2011 the Company issued 1,500,000 shares to Metro Energy in connection with the purchase of certain oil and gas assets. The shares were valued at market value of $0.40 per share for a total purchase price of $600,000.

In January 2011 the Company issued 1,041,669 shares to Chrisjo Energy and others in connection with the purchase of their interest in the Coquille Bay pipeline. The shares were valued at market value of $0.40 per share for a total purchase price of $416,668.

In April 2011 the Company issued 400,000 shares to certain individuals for a consulting services agreement rendered to the Company. 200,000 of the shares are for services rendered and 200,000 are for services to be rendered over the six-month period of the agreement. The shares were valued at market value of $0.50 per share on the date of the agreement for a total amount of $200,000. $100,000 was expensed and $100,000 was capitalized as a prepaid expense to be amortized over the six-month life of the agreement. As of July 31, 2011, $66,668 has been expensed and $33,332 remains in prepaid expenses. As of October 31, 2011, the remaining $33,332 has been expensed and $0 remains in prepaid expenses.

In April 2011 the Company issued 219,943 shares to various individuals in connection with the conversion of certain notes payable and related accrued interest totaling $74,781 to common stock. The shares were converted at $0.34 per share.

In April 2011 the Company issued 40,000 shares to various individuals in connection with service rendered to the Company. The shares were valued at market value of $0.90 per share for a total expense of $36.000.

In May 2011 the Company issued 450,000 shares to Terry Louviere in connection with the settlement of certain outstanding accounts payable related to Coquille Bay. Accounts payable of $288,310 was converted to common stock at a conversion price of $0.64 per share.

In May of 2011, $3,750,000 of notes payable – related parties were converted to common stock along with the related accrued interest. A total of $4,037,969 ($3,750,000 of principal and $287,969 of accrued interest) was converted into 5,047,461 shares of common stock at a negotiated price of $0.80 per share.

In May 2011 the Company issued 250,000 shares to Vinmar in connection with the settlement of a lawsuit. The shares were valued at $0.87 per share which was the market value on the date of the settlement.

In June 2011 the Company issued 425,000 shares to Aventine in connection with the settlement of a lawsuit. The shares were valued at $0.90 per share which was the market value on the date of the settlement.

In June of 2011, the Company issued 50,000 warrants for services. The warrants had a term of two years and a strike price of $0.70 per share. The warrants were valued at $38,883 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $0.70, market price of $0.98, volatility of 163% , and no yield. The total value of the warrants has been expensed during the year ended July 31, 2011.

In June of 2011, the Company issued 535,714 shares to Ron Frank and Barbara Lyons in connection with the conversion of notes payable. A $500,000 loan and a $25,000 loan were borrowed in June of 2011. Both of these loans were converted to common stock immediately. The loans converted at the average closing price of the Company’s common stock for the thirty business days immediately preceding the conversion date. The loans were converted at $0.98 per share. No beneficial conversion feature was recorded on the transactions because the loan was converted immediately and was effectively treated as a stock sale. There was no interest expense related to these notes. No balance remains on these loans as of July 31, 2011.

In June 2011 the Company issued 30,000 shares to various individuals in connection with services rendered. The shares were valued at market value of $0.90 per share for a total expense of $27,000.

In June 2011 the Company issued 259,542 shares to Greg Thagard in connection with the settlement of certain outstanding accounts payable. Accounts payable of $154,500 was converted at $0.60 per share.

In June of 2011, the Company issued 300,000 shares and 500,000 warrants for consulting services. The shares were valued at market price of $1.49 for $447,000. The warrants had a term of five years and a strike price of $1.00 per share. The warrants were valued at $704,706 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $1.00, market price of $1.49, volatility of 163% , and no yield. The total value of the stock and warrants, $1,151,706, was capitalized as a prepaid expense and will be amortized over the five-year period of the consulting agreement. As of July 31, 2011, $28,793 has been expensed and $1,122,914 remains in prepaid expenses. During the quarter ended October 31, 2011, this consulting agreement was terminated and the remaining $1,122,914 was expensed. As of January 31, 2012, $0 remains in prepaid expenses related to this agreement.

In June of 2011, the Company issued 500,000 warrants for consulting services. The warrants had a term of five years and a strike price of $1.00 per share. The warrants were valued at $704,706 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $1.00, market price of $1.49, volatility of 163% , and no yield. The total value of the warrants, $704,706, was capitalized as a prepaid expense and will be amortized over the five-year period of the consulting agreement. As of July 31, 2011, $17,618 has been expensed and $687,088 remains in prepaid expenses. During the six months ended January 31, 2012, the Company felt that the consulting services under the contract were not being performed and management made the decision expense the remainder of the prepaid asset. $687,088 was expensed and $0 remains in prepaid expenses as of January 31, 2012, relating to this agreement.

In June 2011 the Company issued 100,000 shares and $150,000 to MDEChem Inc. in connection with the execution of a license agreement related to SANDKLENE 950. The cost of the licensing agreement was $250,000 so the shares were valued at $1.00 per share.

In June 2011 the Company issued 50,000 shares to Ben Campbell in connection with the purchase of certain mining claims in Utah. The shares were valued at market value of $1.49 per share for a total purchase price of $74,500.

In June of 2011, the Company issued 100,000 warrants to purchase 100,000 shares of common stock to as a signing bonus to a new employee. The warrants had a term of two years and a strike price of $1.35 per share. The warrants were valued at $114,143 using the Black Scholes valuation method using the following factors; risk free interest rate of .85%, strike prices of $1.35, market price of $1.49, volatility of 163% , and no yield. The value of the warrants was expensed as compensation expense in the year ended July 31, 2011.

In July 2011 the Company issued 99,163 shares to certain individuals in connection with their cashless exercise of warrants. 100,000 warrants were exercised at $0.25and 25,000 were exercised at $0.50.

In July of 2011, the Company issued 200,000 shares in connection with the exercise of 200,000 warrants at $0.10. A note payable in the amount of $20,000 was forgiven in exchange for the conversion. The Company also issued 31,250 shares for the accrued interest on the note of $3,125.

As of July 31, 2011, the Company has 34,905,136 shares of common stock issued and outstanding and 100,000 shares shown as owed but not issued.

In August of 2011, the Company issued 100,000 shares of common stock that were shown as owed but not issued as of July 31, 2011.

In September of 2011, the Company issued 10,000 shares for services. The shares were valued at the market price on the date of issuance for a total of $10,900.

In September of 2011, the Company issued 100,000 shares in connection with the extension of its senior bank debt to the parties that executed the personal guarantees of the debt. The shares were valued at the market price on the date of issuance for a total of $100,000. This amount has been capitalized in prepaid expenses and will be amortized over the six months of the loan extension. As of October 31, 2011, $50,000 has been expensed and $50,000 remains in prepaid expenses.

During the quarter ended January 31, 2012, the Company issued 300,000 shares of common stock in relation to a non-compete agreement. The shares were valued at market value on the date of the agreement and valued at $177,000. See Note 4 for further details.

During the six months ended January 31, 2012, 800,000 warrants (400,000 at $0.10 and 400,000 at $0.20) were exercised in a cash-less exercise into 611,764 shares of common stock.

On June 9, 2011, Imperial Petroleum, Inc. (hereinafter referred to as the “Company”, “we,” “us” or “our”) entered into an engagement agreement (the “Engagement Agreement”) with Rodman & Renshaw, LLC to act as our exclusive placement agent (the “Placement Agent”) in connection with an offering of the Company’s securities (the “Offering”). On September 21, 2011 (the “Closing Date”), pursuant to a securities purchase agreement (the “Securities Purchase Agreement”), the Company completed the closing of the Offering for total subscription proceeds of $3,177,501.50 through the issuance of (i) 4,236,669 shares of our common stock at a price of $0.75 per share (the “Purchased Shares”) and (ii) five-year warrants (the “Warrants”) exercisable into 2,118,334 shares of common stock (the “Warrants Shares”) equal to 50% of the Purchased Shares at an exercise price of $1.00 per share to certain accredited investors (the “Investors”). The number of shares of common stock to be received upon the exercise of the Warrants and the exercise price of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Closing Date.

In connection with the Offering, we granted the Investors registration rights pursuant to a registration rights agreement dated as of the Closing Date (the “Registration Rights Agreement”), in which we agreed to register (1) 100% of the Purchased Shares; (2) all Warrant Shares then issuable upon exercise of the Warrants (assuming on such date the Warrants are exercised in full without regard to any exercise limitations therein) and (3) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing (the “Registrable Securities”) on a registration statement or registration statements (the “Registration Statements”) to be initially filed with the Securities and Exchange Commission (the “SEC”) within seventy five (75) calendar days after the Closing Date (the “Filing Date”) and use our best efforts to have it declared effective within 120 calendar days after the Closing Date or within such other applicable Effectiveness Date as provided in the Registration Rights Agreement.

Subject to the terms of the Registration Rights Agreement, upon the occurrence of any event that shall incur liquidated damages, including, but not limited to, that the initial Registration Statement is not filed on or prior to the Filing Date, or we fail to file a pre-effective amendment and otherwise respond in writing to SEC comments on the Registration Statement within twenty (20) calendar days upon receipt of such comments, or the Registration Statement including the Registrable Securities is not declared effective by the applicable Effectiveness Date, we shall pay to each Investor an amount in cash, on monthly anniversary of each such Event Date as defined in the Registration Rights Agreement (the “Event Date”), equal to the product of (1) the product of (A) 1.0% multiplied by (B) the quotient of (I) the number of such Investor’s Registrable Securities that are not then covered by a Registration Statement that is then effective and available for use by such Investor divided by (II) the total number of such Investor’s Registrable Securities multiplied by (2) the aggregate purchase price paid by such Investor pursuant to the Securities Purchase Agreement; provided , however , that, in the event that none of such Investor’s Registrable Securities are then covered by a Registration Statement that is effective and available for use by such Investor, the quotient of (I) divided by (II) in clause (1)(B) herein shall be deemed to equal 1. Under the Registration Rights Agreement, the maximum aggregate liquidated damages payable to an Investor shall be 8% of the aggregate subscription amount paid by such Investor pursuant to the Securities Purchase Agreement. As of January 31, 2012, the company has incurred $95,325 in late fees and $976 in interest expense related to the failure to file the Registration Statement.

Pursuant to the terms of the Engagement Agreement, for the Placement Agent’s service we paid a cash placement fee equal to 7% of the aggregate purchase price paid by Investors that were placed in the Offering, and we agreed to pay a cash fee equal to 7% of the aggregate cash exercise price to be received by the Company upon the exercise of the Warrants, payable only in the event of the receipt by the Company of any proceeds of such cash exercise. We also agreed to issue the placement agent 423,667 warrants in relation to the offering. The warrants have a term of 5 years and a strike price of $1.00.

Total cash received from the financing was $2,921,576 which is the total proceeds of $3,177,501 less $222,425 in broker fees and $33,500 in closing fees.

Pursuant to the terms of the stock purchase agreement, the purchasers have per share purchase price protection. Under this protection, until the three year anniversary of the closing date, if the Company, directly or indirectly, issues or sells any shares of common stock or common stock equivalents for a consideration per share that is less than $0.75, then immediately after such Dilutive Issuance, the Company shall issue to each purchaser, without the payment of additional consideration, a number of additional shares of common stock equal to the product of (i) the fraction obtained by dividing (A) the sum of the number of Initial Shares (as defined below) and Additional Shares (as defined below) then held by such Purchaser on the date of the Dilutive Issuance by (B) the sum of the number of Initial Shares issued to such Purchaser on the Closing Date and all Additional Shares issued to such Purchaser after the Closing Date, multiplied by (ii) the difference between (A) the aggregate number of shares of Common Stock that would have been issued to such Purchaser at the Closing if the applicable portion of the Subscription Amount was divided by the Discounted Per Share Purchase Price minus (B) the aggregate number of shares of Common Stock equal to the sum of the Initial Shares, plus, to the extent there has been a previous issuance of Additional Shares to such Purchaser, the number of Additional Shares previously issued to such Purchaser.

This purchase price protection creates a derivative liability. The Company initially valued and recorded this derivative liability at $588,116 upon the closing of the financing on September 21, 2011. The Company used historical trends to make an estimate of how many shares might have to be issued in the future under the price protection provision. That estimate was then valued using the black schools method. As of January 31, 2012, the value of the derivative was revalued, based on information at January 31, 2012, at $281,184 and a resulting gain on valuation of derivative liability of $306,932 was recorded for the six months ended January 31, 2012.

The Company maintains office space at 101 NW 1st Street, Suite 213, Evansville, IN 47708. The Company maintains its current office space under a 3 year lease, ending March of 2014, at the rate of $2,583.33 per month. This lease agreement is currently in default.

Our wholly-owned subsidiary, Imperial Chemical Company’s principal executive offices are located at 4533 Brittmoore Road, Houston, TX under a 5 year lease, ending August of 2016, at the rate of $10,500 per month beginning in August 2011. The Company leases certain vehicles, equipment and railcars for its biodiesel operation in Middletown, IN under lease contracts with Stark Leasing, Trinity Industries and others. There are two vehicle leases, ending from March 2013 to March of 2014, ranging from $535 to $552 per month. Leases for two pieces of lab equipment end in September and April of 2014 and are $1,824 and $524 per month. Additional centrifuge equipment used in the biodiesel operations are leased on a month-to-month basis and are $10,500 per month. The Company has three lease obligations related to railcars. The first railcar lease is with GLNX and is for the use of 20 railcars. The GLNX lease ends in January 2014 and is $9,800 per month. Six railcars are also leased from Rampart Range through March 2012 at $3,900 per month. An additional 39 railcars are leased through Trinity until February 2014 at $19,500 per month. The Company is currently in default on the Trinity railcar lease and is working to return these cars to Trinity.

The Company also leases a rail spur in Muncie, Indiana for use in its biodiesel operations. The rail spur is leased through May 2012 and costs $2,065 per month.

Total future lease payments for the years ended July 31, under all of the above operating leases are:

We adopted ASC Topic 820-10, “Fair Value Measurements” at the beginning of fiscal year 2010 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact our combined financial position or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We have no level 3 assets or liabilities.

The tables below present reconciliation for all assets and liabilities measured at fair value on a recurring basis as of January 31, 2012 and July 31, 2011.

In February 2012, Imperial Petroleum, Inc. closed an Asset Sales Agreement (the “Agreement”) with Eleven Energy Corporation finalizing the sale of the Company’s share, effective January 31, 2012, in the ownership of the Coquille Bay Field located in Plaquemines Parish, Louisiana. Per the terms of the Agreement, the Company received consideration of $100 cash, was relieved of plugging liabilities associated with the wells, and was relieved of the requirement to provide a plugging bond with the State of Louisiana Department of Natural Resources in the amount of $1,400,000.

Included in the terms of the Agreement was the sale of 100% of the equity of Hillside Oil and Gas, an Approved Operator which had been operating the Coquille Bay facility as a contract operator for the Company. Prior to the Agreement, Hillside Oil and Gas was owned by Greg Thagard, Chairman of the Company’s Board of Directors. In consideration for the sale of Hillside Oil and Gas, Mr. Thagard received $100.

In determining the amount of consideration to accept, the Company reviewed the current operating costs of maintaining the assets and the estimated costs associated with returning the assets to an acceptable, operational status. The monthly cost of maintaining the assets totaled approximately $60,000. An independent third party estimated the costs of restoring the assets to a level necessary to continue production at approximately $750,000 to $1,000.000.

The fixed assets of the Coquille Bay Field had a net book value of $4,240,783 and had a related asset retirement obligation of $472,855. Cash proceeds from the sale were $100. During the six months ended January 31, 2012, the Company recognized a loss of $3,767,828 relating to this transaction.

As a result of the sale of the Coquille Bay Field, the Company will no longer have any business operations related to traditional oil and gas production. During the six months ended January 31, 2012, the Coquille Bay project produced $133,775 in revenue and had related production costs of $395,981 for a net loss of $262,206. During the year ended July 31, 2011, the Coquille Bay project produced $398,988 in revenue and had related production costs of $1,096,727 for a net loss of $697,739. The oil and gas operations of Coquille Bay were not reported as a discontinued operation on these financial statements because the amounts are not material to the financial statements as a whole.

The Company has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. There were no subsequent events requiring recognition or disclosure in these financial statements other then as noted below.

In February 2012, Mr. Robert Willmann resigned from the Board due to time constraints. There were no disputes between Mr. Willmann and management of the Company or with its auditors.

In February 2012, Mr. Aaron Wilson was terminated from his position as President of Arrakis Oil Recovery, LLC due to cash constraints.

On March 6, 2012, e-biofuels, LLC received a Notice of Default from Trinity Industries Leasing Company related to their outstanding note and railcar lease balances. Per the default notice, the outstanding principle and interest balance on the note payment due to Trinity as of March 2012 is $590,003. Per the default notice, the unpaid railcar rental invoices due to Trinity as of March 2012 totaled $44,434.

The factors which most significantly affect the Company’s results of operations are (i) the sale prices of biodiesel, biodiesel feedstocks, crude oil and natural gas, (ii) the level of biodiesel, crude oil and natural gas sales, (iii) the level of direct and lease operating expenses, and (iv) the level of and interest rates on borrowings. The same factors listed above will apply to the sale of minerals and metals mined by the Company. As a result of the collapse of the world economies into recession, crude oil and natural gas prices decreased significantly during fiscal 2009 from 2008 and have rebounded somewhat in fiscal 2010, 2011, and 2012. Commodity prices for crude oil based on West Texas Intermediate (“WTI”) prices quoted at approximately $98/Bbl for oil and $2.47 per Mmbtu for natural gas at January 31, 2012. Since that time crude oil prices rebounded slightly with crude oil prices currently around $107/bbl and while natural gas has continued to decline with natural gas at around $2.33/Mmbtu. Diesel prices are impacted by crude oil prices and determine biodiesel prices to a large degree. Biodiesel prices have steadily climbed during calendar 2011 until the September-October 2011 timeframe when prices declined slightly from previous highs of about $5.43/gal to around $5.00 per gal and were quoted at approximately $4.74 per gallon at January 31, 2012 based on the average spot price. Currently biodiesel is quoted at $4.60/gallon. The following graph shows the relation of biodiesel and diesel fuel prices compared to crude oil prices on a $/gallon basis.

The impact of the volatility of fuel prices has contributed to uncertainty in the energy markets. If pricing remains high, by demand or artificial methods employed by the oil producing countries, the impact will be positive on revenues and cash flow and the exploitation of existing properties owned by the Company, however, continued high prices will reduce the availability of quality acquisitions and could change the Company’s future growth strategy. At the present time the Company believes it has a substantial inventory of quality development opportunities to sustain its growth strategy without additional acquisitions. The Company expects oil and gas prices to continue to widely fluctuate and to be influenced by global economic turmoil, Asian economies and potential disruptions in supplies, in particular events in the Middle East and North Korea. Feedstock prices, and in particular waste grease prices, generally track biodiesel prices. Virgin oil feedstocks however are at times priced too high for use as a biodiesel feedstock. Since the highest value for most waste greases is obtained by selling these commodities to the biodiesel industry, we expect that despite volatility in biodiesel prices, these waste grease feedstocks will continue to track biodiesel prices, both upward and downward and therefore maintain an acceptable margin for biodiesel production.

Because our biodiesel plant is a feedstock flexible facility, we can take advantage of variations in feedstock prices and utilize multiple feedstocks in our plant. For the quarter ended January 31, 2012, gross margins declined from last fiscal year’s average of $0.50/gallon to approximately 6% of the price of biodiesel or about $0.18/gallon due to uncertainty in the future of tax incentives and turmoil in the market resulting from enforcement issues related to RFS2. We expect our margins to remain at these levels until clarity is achieved in the marketplace and the demand for biodiesel production increases sometime in the middle of calendar year 2012.

Six months ended January 31, 2012 compared to Six months ended January 31, 2011.

Revenues for the six months ending January 31, 2012 were $49,828,772 compared to revenues of $29,117,392 for the comparable quarter ended January 31, 2011. The significant increase is the result of the expansion of operations at e-biofuels, LLC, which accounted for 99% of our total revenues for the period. Coquille Bay continued to suffer from a lack of available gas for gas lift and as a result the Company continued to conserve natural gas and limits sales. We presently expect that our biodiesel sales will account for the majority of our revenues during the current fiscal year until such time as we are operational on our tar sand business.

Total operating expenses for the six months ended January 31, 2012 were $52,755,885 compared to $28,672,681 for the same period ended a year earlier. Direct operating expenses have increased due to the costs associated with e-biofuels. Our gross margin from the production of

biodiesel is approximately 6%. We experienced limited activity in Coquille Bay field for the period. General and administrative costs (“G&A”) for the six months ended January 31, 2012 were $5,795,966 compared to $2,037,685 for the six months ended January 31, 2011. Administrative costs include approximately $1,681,947 in non-cash write-offs associated with the termination of certain prepaid consulting agreements. We expect G&A costs to decline as a result of the elimination of these non-cash charges and we do not anticipate the addition of significant staff at e-biofuels and as a result we anticipate increased overall margins. Interest costs increased to $1,644,961for the six months ended January 31, 2012 compared to $803,063for the six months ended January 31, 2012 as a result of the acquisition of e-biofuels and its debt. We expect interest rates to remain at or near the current levels in fiscal 2012.

The Company incurred a net after tax loss of $8,162,687($0.210 per share) for the six months ended January 31, 2012 compared to an after tax gain of $433,552 ($0.019 per share) for the prior year six months ended January 31, 2011. The net loss for the current six months is primarily the result of the sale of the Coquille Bay Field, which resulted in a loss of $3,767,827; increased costs charged to G&A as discussed above; losses in our oil and gas operations and weakness in the market for biodiesel during January 2012.

Three months ended January 31, 2012 compared to three months ended January 31, 2011.

Revenues for the three months ending January 31, 2012 were $13,227,815 compared to revenues of $13,090,859 for the comparable quarter ended January 31, 2011. The lack of significant growth in revenues compared to the prior period is due to the uncertainty experienced in the biodiesel market related to the expiration of tax incentives and turmoil in the market resulting from enforcement issues related to RFS2. E-biofuels accounted for 99% of our total revenues for the period, as Coquille Bay continued to suffer from a lack of available gas for gas lift and as a result the Company continued to conserve natural gas and limits sales. We presently expect that our biodiesel sales will account for the majority of our revenues during the current fiscal year until such time as we are operational on our tar sand business.

Total operating expenses for the quarter ended January 31, 2012 were $15,804,224 compared to $13,461,529 for the same period ended a year earlier. Direct operating expenses have increased due to the costs associated with e-biofuels. Our gross margin from the production of biodiesel is approximately 6%. We experienced limited activity in Coquille Bay field for the period. General and administrative costs (“G&A”) for the three months ended January 31, 2012 were $2,887,867 compared to $731,839 for the three months ended January 31, 2011. Administrative costs include approximately $695,117 in non-cash write-offs associated with the termination of certain prepaid consulting agreements. We expect G&A costs to decline as a result of the elimination of these non-cash charges and we do not anticipate the addition of significant staff at e-biofuels and as a result we anticipate increased overall margins. Interest costs increased to $888,275for the three months ended January 31, 2012 compared to $471,483for the three months ended January 31, 2012 as a result of the acquisition of e-biofuels and its debt.

The Company incurred a net after tax loss of $7,064,656($0.175 per share) for the three months ended January 31, 2012 compared to an after tax loss of $255,821 ($0.011 per share) for the prior year three months ended January 31, 2011. The net loss for the current three months is primarily the result of the sale of the Coquille Bay Field, which resulted in a loss of $3,767,827; increased costs charged to G&A as discussed above; losses in our oil and gas operations and weakness in the market for biodiesel during January 2012.

In connection with the acquisition of e-biofuels, LLC as a wholly-owned subsidiary, the Company assumed senior debt under the following facilities: (1.) First Merchants Bank, N.A. Term Loans; (2.) Cienna Capital/Small Business Administration (“SBA”) Mortgage Note; (3.) SBA facilitated equipment loan and (4.) certain Capital Leases for vehicles. See Note 5 for further information pertaining to the debt.

The Company has also has obtained certain unsecured loans from various individuals and from its former Chairman and President, Jeffrey T. Wilson, in the approximate amounts of $1,466,378 and $538,786 as of January 31, 2012. With the exception of a loan from JAK Financial, which bears interest at an annual rate of 96.5%, these loans bear market rates of interest and flexible terms and are generally unsecured. With the exception of the loan from JAK Financial, which was used to fund the Severance, Confidentiality and Nondisclosure Agreement described in Note 4, these funds have been used to maintain the Company’s biodiesel, oil and gas and mining activities and fund its overhead requirements. As of January 31, 2012, the Company has accrued salaries due its former Chairman and President of $358,547. Management believes that the Company may need to borrow additional funds from these sources in the future, however there is no assurance such funding sources will continue to make advances to the Company.

At January 31, 2012, the Company had current assets of $2,803,573, including $139,147 in cash and cash equivalents, $109,385 in trade and oil and gas accounts receivable, $504,328 in prepaid expenses, $1,178,750 related to a non-compete agreement, $821,677 in advanced biofuels funds due from the USDA and the IRS and $40,086 in inventories. The Company had current liabilities of $17,675,474, which resulted in negative working capital of $14,871,901. The negative working capital position is comprised of senior debt of $7,502,780; trade accounts payable of $2,667,812; of accrued expenses payable of $4,864,960consisting primarily of accrued liabilities for feedstock purchases of $2,745,135, accrued salaries payable to the Company’s President of $358,547, accrued income taxes of $355,000, and oil and gas suspense accounts; notes payable to the related parties of $538,786; and short-term unsecured third party notes payable of $1,699,132.

The results of operations of the Company are seasonal due to seasonal fluctuations in the market prices for biodiesel, crude oil and natural gas. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of results, which may be realized on an annual basis. Because of regional issues with cold weather, biodiesel sales are generally lower in colder climates during the winter months. The Company estimates that seasonal issues related to weather impacts result in a loss of sales of about 8-10%.

The Company’s revenues and the value of its biofuels, oil and natural gas and mining properties have been and will be affected by changes in the prices for biodiesel, crude oil, natural gas and gold prices. The Company’s ability to obtain additional capital on attractive terms is also substantially dependent on the price of these commodities. Prices for these commodities are subject to significant fluctuations that are beyond the Company’s ability to control or predict. Government incentives significantly affect the price of biodiesel as discussed previously.

Our major commodity price risk exposure is to the prices received for our biodiesel and prices paid for biodiesel feedstock. Realized prices for our production are the spot prices applicable to biodiesel. Purchase prices for biodiesel feedstocks are generally based on spot prices and are under short term contracts, usually month to month. Prices received for biodiesel are volatile and unpredictable and are beyond our control.

The breakeven price for biodiesel assuming that feedstock costs remain constant and do not decrease with decreasing biodiesel prices is approximately $4.13 per gallon. Currently biodiesel prices are approximately $4.60 per gallon. However, it should be noted that as shown earlier, changes in waste grease prices generally mirror biodiesel prices due to the fact that the highest value that can be obtained by marketers of waste greases is currently in sales to biodiesel producers. Consequently, it is likely that as long as abundant supplies of waste greases remain available for biodiesel production, very little impact would actually occur due to price adjustments in biodiesel until such prices reach the marginal price under which such waste greases can be sold as animal feed additives.

Government incentives significantly affect the price of biodiesel in the market, as discussed above. The Blender’s Credit ($1.00/gallon tax credit received by parties that blend B100 with petroleum diesel) expired at the end of calendar 2011. While the Company generally does not receive this credit, indirectly, the subsidy has an impact on overall biodiesel prices and their relation to petroleum diesel prices. Previously in early 2010, when the Blender’s Tax Credit was allowed to expire, as a result of the mandated requirements imposed by RFS2, RIN values increased over a period of a few months and offset the impact to biodiesel prices by the loss of the credit. RIN values are again increasing as a result of the expired 2011 Blender’s Tax Credit. In December 2011, RIN values were approximately $1.24 per RIN. Current RIN prices are approximately $1.46 per RIN. As a result, we would estimate that the short term impact to a loss of the Blender’s Tax Credit would be reduction in revenues over a three month period.

A legislative change that eliminated the RFS2 incentives could have a material adverse effect on our biodiesel sales prices by reducing the price of biodiesel to an equivalent price for petroleum diesel and by eliminating the significant demand premium that biodiesel currently receives.

We have long-term debt subject to risk of loss associated with movements in interest rates.

In connection with the preparation of this quarterly report on Form 10-K/A, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2012, pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation , our Chief Financial Officer concluded that as of January 31, 2012 our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Security and Exchange Commission’s rules and forms; and to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to management, including our certifying officers, as appropriate, to allow timely decisions regarding required disclosures.

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(c) and (d) of the Exchange Act. Our internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, financial disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable and in accordance with generally accepted accounting principles of the United States of America (GAAP).

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

As part of our compliance efforts relative to Section 404 of the Sarbanes-Oxley Act of 2002, our management assessed the effectiveness of our internal control over financial reporting as of January 31, 2012. In making this assessment, management used the criteria set forth in the Internal Control – Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). We evaluated control deficiencies identified through our test of the design and operating effectiveness of controls over financial reporting to determine whether the deficiencies, individually or in combination, are significant deficiencies or material weaknesses. In performing the assessment, our management had identified two material weaknesses in internal control over financial reporting existing as of July 31, 2011 which included (i.) a segregation of duties issue related to a lack of accounting personnel and (ii.) the inability of the Company’s prior accounting system to adequately track real-time purchases of feedstock and sales of biodiesel on a contract-by-contract basis. In connection with the remediation of these issues, the Company took the following steps: (i.) we added additional accounting personnel, including a Chief Financial Officer, a Controller and a logistics individual at e-biofuels, and (ii.) we implemented a new accounting system at e-biofuels to allow our accounting staff to more effectively track sales and inventory and to improve the overall accuracy of our reporting and we consolidated our overall accounting functions under the control of our accounting staff at e-biofuels and under the direction of our new CFO. Our evaluation of the significance of each deficiency and their remediation included both quantitative and qualitative factors. Based on that evaluation, the Company’s management concluded that as of January 31, 2012, and as of the date that the evaluation of the effectiveness of our internal controls and procedures was completed, the Company’s internal controls are now effective.

In addition to the other information set forth elsewhere in this Form 10-Q, you should carefully consider the following factors when evaluating the Company. An investment in the Company is subject to risks inherent in our business. The trading price of the shares of the Company is affected by the performance of our business relative to, among other things, competition, market conditions and general economic and industry conditions. The value of an investment in the Company may decrease, resulting in a loss. The risk factors listed below are not all inclusive.

An investment in us involves a high degree of risk and may result in the loss of all or part of your investment. You should consider carefully all of the information set out in this document and the risks attaching to an investment in us, including, in particular, the risks described below. The information below does not purport to be an exhaustive list and should be considered in conjunction with the contents of the rest of this document.

We have had a history of net operating losses. There is no assurance that our current fiscal year results can be sustained.

The federal excise tax credit for biodiesel is set to expire on December 31, 2011 and Congress has not enacted legislation to extend this credit. If the credit is not renewed, our cost of producing biodiesel may increase and our sales price for biodiesel could be reduced, which could have an adverse effect on our financial position.

In October 2004, Congress passed a biodiesel tax incentive, structured as a federal excise tax credit, as part of the American Jobs Creation Act of 2004. The credit amounted to one cent for each percentage point of vegetable oil or animal fat biodiesel that was blended with petrodiesel (and one-half cent for each percentage point of recycled oils and other non-agricultural biodiesel), subsequently amended and increased to one cent. For example, blenders that blended B20 made from soy, canola and other vegetable oils and animal fats received a 20¢ per gallon excise tax credit. The tax incentive generally was taken by petroleum distributors and was passed on to the consumer. It was designed to lower the cost of biodiesel to consumers in both taxable and tax-exempt markets. The tax credit was scheduled to expire at the end of 2006, but was extended in the Energy Policy Act of 2005 to December 31, 2008 and most recently it was extended to December 31, 2011.

Congress did not enact any legislation to extend this tax credit beyond December 31, 2009 and it expired at that time. In December 2009, the United States House of Representatives passed a bill extending this credit to December 31, 2010. On March 10, 2010, the United States Senate passed a similar bill as part of the American Workers, State and Business Relief Act, H.R. 4213. In addition to extending the credit to December 31, 2011, both bills retroactively apply the credit to the beginning of 2010. If the tax credit is not renewed, our biodiesel sales prices could potentially decrease by $1.00 per gallon. If biodiesel feedstock costs do not decrease significantly relative to biodiesel prices, we will realize a negative gross margin on biodiesel. As a result, we would cease producing biodiesel, which could have an adverse effect on our financial condition.

The current volatility in global economic conditions and the financial markets may adversely affect our industry, business and results of operations.

The volatility and disruption to the capital and credit markets since mid-2008 have affected global economic conditions, resulting in significant recessionary pressures and declines in consumer confidence and economic growth. These conditions have led to economic contractions in the developed economies and reduced growth rates in the emerging markets. Despite fiscal and monetary intervention, it is possible that further declines in consumer spending and global growth rates may occur in the foreseeable future. Reduced consumer spending may cause changes in customer order patterns including order cancellations, and changes in the level of inventory held by our customers, which may adversely affect our industry, business and results of operations. The impact of the credit crisis and economic slowdown will vary by region and country. The diversity of our geographic customer and operating footprint limits our reliance and exposure to any single economy.

These conditions have also resulted in a substantial tightening of the credit markets, including lending by financial institutions and other sources of credit and liquidity. This tightening of the credit markets has increased the cost of capital and reduced the availability of credit. We cannot predict how long the current economic and capital and credit market conditions will continue, whether they will deteriorate and which aspects of our products or business could be adversely affected. However, if current levels of economic and capital and credit market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse impact, which may be material, on our business, the cost of and access to capital and credit markets, and our results of operations. In addition, we monitor the financial condition of our customers on a regular basis based on public information or data provided directly to us. If the financial condition of one of our major customers was negatively impacted by market conditions or liquidity, we could be adversely impacted in terms of accounts receivable and/or inventory specifically attributable to them.

The biodiesel industry, as well as the oil and gas business, are highly competitive. There is competition within these industries and also with other industries in supplying the energy, fuel and chemical needs of industry and individual consumers. We will compete with other firms in the sale or purchase of various goods or services in many national and international markets. We will compete with large national and multi-national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than we do. In addition, we will compete with several smaller companies capable of competing effectively on a regional or local basis, and the number of these smaller companies is increasing. Our competitors may be able to respond more quickly to new or emerging technologies and services and changes in customer requirements. As a result of competition, we may lose market share or be unable to maintain or increase prices for our products and/or services or to acquire additional business opportunities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Although we will employ all methods of competition which are lawful and appropriate for such purposes, no assurances can be made that they will be successful. A key component of our competitive position, particularly given the expected commodity-based nature of many of our products, will be our ability to manage expenses successfully, which requires continuous management focus on reducing unit costs and improving efficiency. No assurances can be given that we will be able to successfully manage such expenses.

Our competitive position in the markets in which we participate is, in part, subject to external factors in addition to those that we can impact. Natural disasters, changes in laws or regulations, war or other outbreak of hostilities, or other political factors in any of the countries or regions in which we operate or do business, or in countries or regions that are key suppliers of strategic raw materials, could negatively impact our competitive position and our ability to maintain market share.

Fluctuations in commodity prices may cause a reduction in the demand or profitability of the products or services we produce.

Prices for alternative fuels tend to fluctuate widely based on a variety of political and economic factors. These price fluctuations heavily influence the oil and gas industry. Lower energy prices for existing products tend to limit the demand for alternative forms of energy services and related products and infrastructure. Historically, the markets for alternative fuels have been volatile, and they are likely to continue to be volatile. Wide fluctuations in alternative fuel prices may result from relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and other factors that are beyond our control, including:

These factors and the volatility of the commodity markets make it extremely difficult to predict future alternative fuel price movements with any certainty. There may be a decrease in the demand for our products or services and our profitability could be adversely affected.

We are reliant on certain strategic raw materials (such as soybean oil, waste greases and fats and methanol) for our operations. We have implemented certain risk management tools, such as hedging, as appropriate, to mitigate short-term market fluctuations in raw material supply and costs. There can be no assurance, however, that such measures will result in cost savings or that all market fluctuation exposure will be eliminated. In addition, natural disasters, changes in laws or regulations, war or other outbreak of hostilities, or other political factors in any of the countries or regions in which we operate or do business, or in countries or regions that are key suppliers of strategic raw materials, could affect availability and costs of raw materials.

While temporary shortages of raw materials may occasionally occur, these items have historically been sufficiently available to cover current requirements. However, their continuous availability and price are impacted by natural disasters, plant interruptions occurring during periods of high demand, domestic and world market and political conditions, changes in government regulation, and war or other outbreak of hostilities. In addition, as we increase our biodiesel capacity, we will require larger supplies of raw materials which have not yet been secured and may not be available for the foregoing reasons, or may be available only at prices higher than current levels. Our operations or products may, at times, be adversely affected by these factors.

Our ability to market our biodiesel may be impaired by capacity constraints, modifications to third party facilities and by weather issues.

We generally sell our biodiesel to large retail outlets such as Element Renewable, Fusion Renewables, Flying J, Pilot and others and much of that product is transported by truck. As such adverse weather conditions or modifications to facilities owned by others could limit our ability to sell our products and result in increased inventories or plant shut-downs.

The alternative fuel industry may be substantially affected by rapid and significant changes in technology. Examples include competitive product technologies, such as green gasoline and renewable diesel produced from catalytic hydroforming of renewable feedstock oils and competitive process technologies such as advanced biodiesel continuous reactor and washing designs that increase throughput. These changes may render obsolete certain existing products, energy sources, services and technologies currently used by us. We cannot assure you that the technologies used by or relied upon by us will not be subject to such obsolescence. While we may attempt to adapt and apply the services provided by us to newer technologies, we cannot assure you that we will have sufficient resources to fund these changes or that these changes will ultimately prove successful.

Failure to comply with governmental regulations could result in the imposition of penalties, fines or restrictions on operations and remedial liabilities.

The biofuel industry subject to extensive federal, state, local and foreign laws and regulations related to the general population’s health and safety and those associated with compliance and permitting obligations (including those related to the use, storage, handling, discharge, emission and disposal of municipal solid waste and other waste, pollutants or hazardous substances or waste, or discharges and air and other emissions) as well as land use and development. Existing laws also impose obligations to clean up contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the contamination. Compliance with these laws, regulations and obligations could require substantial capital expenditures. Failure to comply could result in the imposition of penalties, fines or restrictions on operations and remedial liabilities. These costs and liabilities could adversely affect our operations.

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on our business segments in general and on our results of operations, competitive position or financial condition. We are unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially adversely increase our cost of doing business or affect our operations in any area.

Under certain environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or contamination, or if current or prior operations were conducted consistent with accepted standards of practice. Such liabilities can be significant and, if imposed, could have a material adverse effect on our financial condition or results of operations.

Our biofuels operations may be harmed if the government were to change current laws and regulations.

Alternative fuels businesses benefit from tax credits and government subsidies and is highly regulated. If any of the state or federal laws and regulations relating to the tax credits, government subsidies, RFS2, RINS change, the ability to recover capital expenditures from our alternative fuels business could be harmed. Our biofuels platform is subject to federal, state, and local laws and regulations governing the application and use of alternative energy products, including those related specifically to biodiesel. For instance, biodiesel products benefit from being the only alternative fuel certified by the U.S. Environmental Protection Agency that fulfills the requirements of Section 211(B) of the Clean Air Act. If agency determinations, laws, and regulations relating to the application and use of alternative energy are changed, the marketability and sales of biodiesel production could be materially adversely affected.

Market conditions or transportation impediments may hinder access to raw goods and distribution markets.

Market conditions, the unavailability of satisfactory transportation, or the location of our manufacturing complex from more lucrative markets may hinder our access to raw goods and/or distribution markets. The availability of a ready market for biodiesel depends on a number of factors, including the demand for and supply of biodiesel and the proximity of the plant to trucking and terminal facilities. The sale of large quantities of biodiesel necessitates that we transport our biodiesel to other markets since the Indiana regional market is not expected to absorb all of our contemplated production. Currently, common carrier pipelines are not transporting biodiesel. This leaves trucks, barges, and rail cars as the means of distribution of our product from the plant to these storage terminals for further distribution. However, the current availability of rail cars is limited and at times unavailable because of repairs or improvements, or as a result of priority transportation agreements with other shippers. If transportation is restricted or is unavailable, we may not be able to sell into more lucrative markets and consequently our cash flow from sales of biodiesel could be restricted.

The biodiesel industry also faces several challenges to wide biodiesel acceptance, including cold temperature limitations, storage stability, fuel quality standards, and exhaust emissions. If the industry does not satisfy consumers that these issues have been resolved or are being resolved, biodiesel may not gain widespread acceptance which may have an adverse impact on our cash flow from sales of biodiesel.

Our insurance may not protect us against our business and operating risks.

We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions,

premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Although we will maintain insurance at levels we believe are appropriate for our business and consistent with industry practice, we will not be fully insured against all risks which cannot be sourced on economic terms. In addition, pollution and environmental risks generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations.

If a significant accident or other event resulting in damage to our operations (including severe weather, terrorist acts, war, civil disturbances, pollution, or environmental damage) occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it could adversely affect our financial condition and results of operations.

We depend on key personnel, the loss of any of whom could materially adversely affect our future operations.

Our success will depend to a significant extent upon the efforts and abilities of our executive officers. The loss of the services of one or more of these key employees could have a material adverse effect on us. Our business will also be dependent upon our ability to attract and retain qualified personnel. Acquiring or retaining these personnel could prove more difficult to hire or cost substantially more than estimated. This could cause us to incur greater costs, or prevent us from pursuing our expansion strategy as quickly as we would otherwise wish to do.

We depend heavily on the services of Tim Jones our interim Chief Executive Officer, chief financial officer, and President of e-biofuels, LLC. We have employment agreements with Mr. Jones. We do not presently have a “key person” life insurance policy on the lives of any of these individuals to offset our losses in the event of their death.

If we are unable to effectively manage the commodity price risk of our raw materials or finished goods, we may have unexpected losses.

We hedge our raw materials and/or finished products for our biofuels segment to some degree to manage the commodity price risk of such items. This requires the purchase or sale of commodity futures contracts and/or options on those contracts or similar financial instruments. We may be forced to make cash deposits available to counterparties as they mark-to-market these financial hedges. This funding requirement may limit the level of commodity price risk management that we are prudently able to complete. If we do not or are not capable of managing the commodity price risk of our raw materials and/or finished products for our biofuels segment, we may incur losses as a result of price fluctuations with respect to these raw materials and/or finished products.

If we are unable to acquire or renew permits and approvals required for our operations, we may be forced to suspend or cease operations altogether.

The operation of our manufacturing plant requires numerous permits and approvals from governmental agencies. We may not be able to obtain all necessary permits (or modifications thereto) and approvals and, as a result, our operations may be adversely affected. In addition, obtaining all necessary renewal permits (or modifications to existing permits) and approvals for future expansions may necessitate substantial expenditures and may create a significant risk of expensive delays or loss of value if a project is unable to function as planned due to changing requirements.

The lack of business diversification may adversely affect our results of operations.

Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of a single industry, it is possible that we will not have the resources to diversify effectively our operations or benefit from the possible spreading of risks or offsetting of losses.

Our indebtedness may limit our ability to borrow additional funds or capitalize on acquisition or other business opportunities.

Our biofuels subsidiary operates under an extension to its credit facility through January 31, 2012. There is no assurance that the bank will grant an additional extension of time if we are unable to secure alternative financing. The restrictions governing this indebtedness may reduce our ability to incur additional indebtedness, engage in certain transactions or capitalize on acquisition or other business opportunities. If we are unable to meet our future debt service obligations and other financial obligations, we could be forced to restructure or refinance such indebtedness and other financial transactions, seek additional equity or sell assets.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.


Imperial Petroleum, Inc.

By:		/s/ Tim Jones
		Tim Jones, Chief Financial Officer


Nevada		95-3386019
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

710 Norfleet Drive West		47356
Middletown, Indiana		(Zip Code)


		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.		4

Condensed Consolidated Balance Sheets as of July 31, 2011 and January 31, 2012			5

Condensed Consolidated Statements of Operations for the three month and six months ended January 31, 2012 and 2011			7

Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2012 and 2011			8

Notes to Condensed Consolidated Financial Statements			9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		25

Item 4.	Controls and Procedures		25

PART II – OTHER INFORMATION

The information called for by Item 1. Legal Proceedings, Item 1A. Risk Factors, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, Item 3. Defaults Upon Senior Securities, Item 4. Submission of Matters to a Vote of Security Holders and Item 5. Other Information are not applicable			27-31

Item 6.	Exhibits		31

SIGNATURES			32


	January 31, 2012			July 31, 2011
ASSETS
Current Assets:
Cash	$	139,147		$	900,883
Accounts Receivable		109,385			1,549,154
Accounts Receivable (Government Incentives)		821,677			3,344,919
Inventory		40,086			1,293,171
Non-compete Agreement, net of accumulated amortization of $235,750		1,178,750			—
Prepaid expenses (current portion)		504,328			910,407
Loan Receivable (related party)		—			6,440
Other Current Assets		10,200			157,166

Total current assets		2,803,573			8,162,140
Property, plant and equipment:
Mining claims, options, and development costs		74,500			74,500
Fixed Assets		12,124,299			11,969,451
Land		515,900			515,900
Oil and gas properties (full cost method)		—			4,690,765

		12,714,699			17,250,616
Less: accumulated depreciation, depletion and amortization		(2,874,399	)		(3,092,503	)

Net property, plant and equipment		9,840,300			14,158,113
Other assets:
License agreements, net of accumulated amortization.		442,756			442,756
Loan Receivable (related party)		—			332,989
Deposits		10,850			—
Prepaid expenses		269,717			1,438,722

Total Other Assets		723,323			2,214,467

Total assets	$	13,367,196		$	24,534,720


	January 31, 2012			July 31, 2011
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,667,812		$	1,307,654
Accrued expenses		4,864,960			5,183,849
Derivative liability		281,184			—
Customer Deposit Liability		120,820			2,901,054
Notes payable – current portion		9,201,912			11,162,479
Notes payable – related parties		538,786			540,286

Total current liabilities		17,675,474			21,095,322
Long-term liabilities:
Mortgage Note		1,498,141			1,525,641
Notes Payable, Other		463,791			1,009,602
Asset retirement obligation		—			472,855

Total long-term liabilities		1,961,932			3,008,098
STOCKHOLDERS’ EQUITY:
Common stock of $.006 par value; authorized 150,000,000 shares; 40,763,569 and 34,905,136 issued and outstanding at January 31, 2012 and July 31,2011, respectively		244,582			209,431
Common stock, owed but not issued - 0 and 100,000 shares at January 31, 2012 and July 31, 2011, respectively		—			600
Paid-in capital		25,404,412			21,977,786
Retained deficit		(29,919,204	)		(21,756,517	)
Treasury Stock, 2,000,000 shares at January 31, 2012		(2,000,000	)		—

Total stockholders’ equity		(6,270,210	)		431,300

Total liabilities and stockholders’ equity		13,367,196			24,534,720


	Three Months Ended						Six Months Ended
	1/31/2012			1/31/2011			1/31/2012			1/31/2011
Revenues and other income:
Biodiesel	$	13,227,815		$	13,090,859		$	49,253,214		$	28,921,186
Biodiesel Government Incentives		24,573			0			416,073			0
Oil and gas		58,618			75,228			133,775			104,179
Other revenue		25,710			29,200			25,710			92,027

Total operating income	$	13,336,716		$	13,195,287		$	49,828,772		$	29,117,392

Costs and expenses:
Biofuels Direct Costs		12,640,083		$	12,275,542			46,144,258		$	25,853,710
Oil and Gas expenses		75,359			240,078			395,981			354,043
General and administrative		2,887,867			731,839			5,795,966			2,037,685
Depreciation, depletion and amortization		200,914			214,070			419,679			427,243

Total costs and expenses		15,804,223			13,461,529			52,755,884			28,672,681

Net Income (Loss) from operations		(2,467,507	)		(266,242	)		(2,927,112	)		444,711
Other income and (expense):
Interest expense		(888,275	)		(471,483	)		(1,644,961	)		(803,063	)
Interest income		0			0			2,826			0
Other income (expense)		(49,311	)		481,904			(23,449	)		791,904
Gain (loss) on sale of assets		(3,876,922	)		0			(3,876,922	)		0
Gain (loss) on valuation of derivative liability		217,360			0			306,932			0

Total other income and (expense)		(4,597,148	)		10,421			(5,235,574	)		(11,159	)

Net income (loss) before income tax		(7,064,655	)		(255,821	)		(8,162,686	)		433,552
Provision for income taxes		0			0			0			0

Net Income (Loss)	$	(7,064,655	)	$	(255,821	)	$	(8,162,686	)	$	433,552

NET INCOME/(LOSS) PER SHARE (basic)	$	(0.175	)	$	(0.011	)	$	(0.211	)	$	0.019

WEIGHTED AVERAGE SHARES OUTSTANDING (basic)		40,432,800			23,825,127			38,743,028			23,162,748
NET INCOME/(LOSS) PER SHARE (diluted)		N/A			N/A			N/A		$	0.018

WEIGHTED AVERAGE SHARES OUTSTANDING (diluted)		N/A			N/A			N/A			24,215,020


	For the Six Months Ended 1/31/2012			For the Six Months Ended 1/31/2011
Operating activities:
Net income (loss)	$	(8,162,686	)	$	433,552
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		419,679			427,243
Loss on sale of fixed asset		3,876,922			—
Gain on sale of licensing rights		—			(500,000	)
(Gain) Loss on valuation of derivative liability		(306,932	)		—
Stock and warrants issued for services		60,900			160,572
Amortization of stock and options issued for services		2,102,055			76,875
Change in accounts receivable		1,439,770			(2,310,978	)
Change in Accts. Rec – government incentives		2,766,123			—
Change in inventory		861,239			(299,388	)
Change in prepaid expenses		952,941			—
Change in accounts payable		1,279,418			(139,097	)
Change in other assets		(106,767	)		(11,962	)
Change in customer deposits		(2,773,484	)		—
Change in other liabilities		—			2,048,200
Change in accrued expenses		(241,697	)		806,458

Net cash provided by (used in) operating activities		2,167,481			691,475

Investing activities:
Purchase of fixed assets		(680,101	)		(355,474	)
Loans made (payments received) to related parties, net		339,429			—
Proceeds of sale of assets		100			275,000

Net cash provided by (used in) investing activities		(340,572	)		(80,474	)

Financing activities:
Purchase of treasury stock		(2,000,000	)		—
Payments on notes payable		(3,510,221	)		(592,383	)-
Proceeds from notes payable-related party		—			9,712
Sale of common stock, net of expenses		2,921,576			—

Net cash provided by (used in) financing activities		(2,588,645	)		(582,671	)

Net change in cash and cash equivalents		(761,736	)		28,330
Cash and cash equivalents, beginning of year		900,883			28,525

Cash and cash equivalents, end of year		139,147			56,855

Supplemental disclosures for cash flow information:
Cash paid during the period for:
Interest		1,446,640			357,405
Income taxes		—			—
Supplemental schedule of non-cash investing and financing:
Stock and warrants issued for prepaid expenses		1,066,817			—
Stock and warrants issued for services		60,900			160,572
Note payable issued for fixed assets		—			479,424
Options exercised for notes and accounts payable		—			60,000
Note payable issued for pre-paid non-compete agreement		1,200,000			0


	Jan 31, 2012		July 31, 2011
John Ryer, secured promissory note, dated December 8, 2010, due July 25, 2011, interest at 10%	$	—	$	20,000
William Stratton, secured by 10% of proceeds at Coquille Bay, dated June 6, 2011 due July 31, 2012, interest at 8%		—		50,000
Trinity Industries, secured promissory note, dated January 1, 2010, interest at 6%, collateralized by rail cars, currently in default.		500,139		597,484
Various unsecured promissory notes of e-biofuels, dated July 1, 2006 through September 11, 2009, interest varying from 5.5% to 14%		265,827		627,707
JAK Financial LLC, unsecured promissory note, dated December 7, 2011 due in 60 equal daily installments of$23,000		933,167		—
Mortgage note due a Bank, dated July 1, 2006, secured by facility and real estate of e-biofuels, variable interest rate at 5.125% as of July 31, 2011. Due in monthly payments through December of 2031.		1,540,026		1,560,589
Various equipment capital leases due to Stark Equipment, principal due from August 2011 to May 2014 plus interest at a variable rates range from 9.3% to 18.2% as of 7/31/11. Collateralized by the equipment.		61,537		384,662
Equipment note due a SBA, dated October 8, 2007, principal matures on November 2017 plus interest at a variable rate, 6.5% as of 7/31/11. Collateralized by certain equipment.		497,981		533,945
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 8%. Collateralized by the assets of e-biofuels.		1,535,283		2,079,944
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 9%. Collateralized by the assets of e-biofuels.		2,764,842		4,728,224
Term Note Payable to a Bank, debt due 1/31/12, monthly. Interest due monthly at 12%. Collateralized by the assets of e-biofuels.		3,065,042		3,115,167

Total		11,163,844		13,697,722

Less: current portion		9,201,912		11,162,479

Long-term notes payable		1,961,932		2,535,243


7/31/12		9,201,912
7/31/13		143,770
7/31/14		148,871
7/31/15		136,206
7/31/16		140,320
Thereafter		1,392,765

Total	$	11,163,844


	Jan 31, 2012		July 31, 2011
Officer—9.0% demand note		538,786		540,286
Employee—8% demand note		0		0

Total		538,786		540,286

Less Current		538,786		540,286

Long Term		0		0


	January 31,2012				July 31, 2011
	Weighted Average Shares-Exercise Outstanding-Price				Weighted Average Shares-Exercise Outstanding-Price
Beginning of period		3,325,000	$	.558		2,200,000	$	0.154
Granted		3,092,001		1.00		2,350,000		0.74
Exercised		800,000		0.15		1,225,000		0.186
Forfeited		—		—		—		—
Expired		400,000		0.20		—		—

End of period		5,217,001		0.91		3,325,000	$	0.558

Exercisable		5,217,001		—		3,325,000		—


	2012		2013		2014		2015		2016		Thereafter		Total
Total operating lease obligations	$	148,177	$	281,383	$	209,675	$	126,524	$	126,000		10,500	$	902,259


	January 31, 2012		July 31, 2011
Revenue in suspense		592,525	$	592,525
Accrued officer salary—CEO		358,547		377,678
Accrued interest on notes		416,679		221,584
Accrued Settlements		5,673		250,574
Accrued feedstock purchase liabilities		2,745,135		2,945,135
Accrued income taxes		355,000		355,000
Other		391,401		441,353

		4,864,960		5,183,849


	January 31, 2012
	Fair Value Measurements
	Level 1 Quoted Prices in Active Markets Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs		Assets/ Liabilities At Fair Value
Assets:
Cash	$	139,147		—		—	$	139,148
Accounts receivable		—	$	931,062		—	$	931,062
Liabilities
Accounts payable, accrued and other liabilities		—	$	7,934,776		—	$	7,934,776
Notes payable		—	$	11,702,630		—	$	11,702,630


10.		Purchase and Sale Agreement, dated January 31, 2012 incorporated herein by reference to Form 8-K filed February 16, 2012.

31.1		Section 302 Certification of CFO

32.		Section 906 Certification by CFO

101		The following materials from Imperial Petroleum, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Cash Flows; (iv) Condensed Consolidated Statements of Shareholders’ Equity; and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.