NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization and business activity
Imperial Petroleum Recovery Corporation ( "IPRC"), a Nevada corporation, incorporated in 1982 commenced operations in the fiscal year 1995 and is committed to developing and marketing a proprietary oil sludge remediation process and microwave separation technology equipment (MST units) that use high energy microwaves to separate water, oil and solids.
2. Basis of Accounting
The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America. The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein.
3. Use of estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to the 2010 financial statements in order to conform to the 2011 financial statements presentation. These reclassifications have no impact on net loss.
5. Cash and cash equivalents
Cash and cash equivalents include cash and all highly liquid financial instruments with original purchased maturities of three months or less at the date of purchase. At various times during the year, the Company maintained cash balances in excess of FDIC insurable limits. Management feels this risk is mitigated due to the longstanding reputation of these banks. The Company has not experienced any losses related to these deposits.
8. Property and equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method and commences when the asset is placed in service. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon the sale of an asset, the cost and related accumulated depreciation are removed from the balance sheet, and any gains or losses on those assets are reflected in the accompanying statements of operations of the respective period.
The straight-line method estimated useful lives are as follows:
Buildings and improvements
3 ~ 25 years
Machinery and equipment
2 ~ 10 years
4 ~ 7 years
Furniture, fixtures and office equipment
1 ~ 5 years
9. Intangible assets
Intangible assets consist of patents which are amortized using the straight-line method over their estimated useful lives or statutory lives whichever is shorter and are reviewed for impairment upon any triggering event that may give rise to the assets ultimate recoverability as prescribed under the guidance related to impairment of long-lived assets.
10. Impairment of long-lived assets
We review our long-lived assets, which include intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying amount of such long-lived asset or group of long-lived assets (collectively referred to as "the asset") may not be recoverable. Such circumstances include, but are not limited to:
significant decrease in the market price of the asset;
a significant change in the extent or manner in which the asset is being used;
a significant change in the business climate that could affect the value of the asset;
a current period loss combined with projection of continuing loss associated with use of the asset;
a current expectation that, more likely than not, the asset will be sold or otherwise disposed of before the end of its previously estimated useful life.
We continually evaluate whether such events and circumstances have occurred. When such events or circumstances exist, the recoverability of the asset's carrying value shall be determined by estimating the undiscounted future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. To date, no such impairment has occurred. To the extent such events or circumstances occur that could affect the recoverability of our long-lived assets, we may incur charges for impairment in the future.
During 2011 and 2010 there was no impairment of long-lived assets.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The carrying value reflected in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term borrowings approximate fair value due to the short-term nature of these items. Management believes that long-term debt bears interest at rates which approximate prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximate fair value
12. Revenue recognition
Revenue is recognized when persuasive evidence of a sales arrangement exists, the price is fixed or determinable, title and risk of loss are transferred, collectability is reasonably assured, product returns are reasonably estimable and there are no remaining significant obligations or customer acceptance requirements.
Revenue from sales of biodiesel is recognized when title and risk of loss have passed to the customer, which is typically upon shipment.
Revenue from technical services provided related to IPRC's Microwave Separation Technology (MST) equipment are recognized upon performance of the related service which coincides with customer acceptance, and the other basic revenue recognition requirements.
Revenues from laboratory testing, consulting agreements and rental equipment contracts are recognized in accordance with the terms specified in the contracts.
13. Allowance for Doubtful Accounts
The Company uses the allowance method to account for uncollectible accounts receivable. The Company's estimate is based on historical collection experience and a review of the current status of accounts receivable. The company reviews its accounts receivable balances by customer for accounts greater than 90 days old and makes a determination regarding the collectibility of the accounts based on specific circumstances and the payment history that exists with such customers. The company also takes into account its prior experience, the customer's ability to pay and an assessment of the current economic conditions in determining the net realizable value of its receivables. The company also reviews its allowances for doubtful accounts in aggregate for adequacy following this assessment. Accordingly, the company believes that its allowances for doubtful accounts fairly represent the underlying collectibility risks associated with its accounts receivable.
14. Research and development
Research and development costs are expensed as incurred.
15. Income taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
16. Stock-based compensation
Stock-based compensation expense is recorded for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
17. Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company's common stock outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of our share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. The dilutive effect of our convertible notes is computed using the if-converted method, which assumes conversion at the beginning of the year.
For the years ended October 31, 2011 and 2010, common stock equivalents related to the convertible notes, warrants and options were not included in the denominators of the diluted earnings (loss) per share as their effect would be anti-dilutive.
18. Concentration of credit risk
We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits. We have not experienced any such losses in these accounts. Substantially all of our revenue is derived from one customer.
19. Recently Adopted Accounting Standards
Management does not anticipate that the recently issued but not yet effective accounting pronouncements will materially impact the Company's financial condition.