Proposed Disclosure Statement 12/23/13

8/13/2019 Proposed Disclosure Statement 12/23/13

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

IN RE:

IMPERIAL PETROLEUM RECOVERY

CORPORATION

DEBTOR

Case No. 13-30466

Chapter 11

DEBTORS SECOND AMENDED DISCLOSURE STATEMENT

(PROPOSED BY IMPERIAL PETROLEUM RECOVERY CORPORATION)

(Dated December 23, 2013)

DEBTORS SECOND AMENDED DISCLOSURE STATEMENT HAS

BEEN APPROVED. THE CONFIRMATION HEARING HAS BEEN SET

ON FEBRUARY 4, 2014, AT 10:00 A.M., IN COURTROOM 600, UNITED

STATES COURTHOUSE, 515 RUSK STREET, HOUSTON, TEXAS, 77002.

THE DEADLINE FOR VOTING TO ACCEPT OR REJECT THE PLAN IS

5:00 P.M. ON JANUARY 28, 2014. THE DEADLINE TO FILE

OBJECTIONS TO CONFIRMATION IS JANUARY 28, 2014.

On or about January 31, 2013, an involuntary petition was filed against Debtor underchapter 7 of title 11 of the United States Code by petitioning creditors Don Carmichael(Carmichael), KK & PK Family LP (KK&PK), Barry Winston (Winston) and GaryEmmott (Emmott) (collectively the Petitioning Creditors). On April 3, 2013, Debtor filed amotion to convert the case to one under chapter 11 (ECF Document No. 14). On April 4, 2013,the Court entered an order for relief (ECF Document No. 21) and an order granting Debtorsmotion to convert (ECF Document No. 22).

If you are a Creditor or Interest Holder, you should read this Amended DisclosureStatement (the Disclosure Statement) carefully. The Debtor urges all holders of Claims inImpaired Classes receiving Ballots to accept the Amended Plan of Reorganization proposed by

the Debtor (the Plan), a true and correct copy of which is attached hereto as Exhibit 1.

This Disclosure Statement, any amendments, supplements, and exhibits thereto, theaccompanying Ballot form, if any, and the related materials delivered together herewith arebeing furnished by the Debtor to holders of Impaired Claims and Impaired Interests pursuant to

Case 13-30466 Document 245 Filed in TXSB on 12/23/13 Page 1 of 53


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1125,1in connection with the solicitation by the Debtor of votes to accept or reject the Plan and

the transactions as described therein.

This Disclosure Statement is designed to provide adequate information to enable holders

of Claims against and Interests in the Debtor to make an informed decision whether to vote infavor of or against the Plan. All Creditors are encouraged to read this Disclosure Statement in itsentirety before voting to accept or reject the Plan proposed by the Debtor. The projectedfinancial information contained herein has not been the subject of an audit, unless otherwisestated.

All holders of Impaired Claims should read and consider carefully the matters describedin the Disclosure Statement as a whole prior to voting on the Plan proposed by the Debtor. Inmaking a decision to accept or reject the Plan, each Creditor must rely on its own examination ofthe Debtor as described in this Disclosure Statement, including the merits and risks involved.You are encouraged to seek the advice of qualified legal counsel with respect to the legal effect

of any aspect of the Disclosure Statement. In addition, Confirmation and Consummation of thePlan are subject to conditions precedent that could lead to delays in Consummation of the Planproposed by Debtor. There can be no assurance that each of these conditions precedent will besatisfied or waived or that the Plan proposed by the Debtor will be consummated. Even after theEffective Date, distributions under the Plan proposed by the Debtor may be subject to delay sothat disputed claims can be resolved.

No party is authorized by the Debtor to give any information or make any representationswith respect to the Disclosure Statement other than that which is contained herein. Norepresentation or information concerning the Debtor, its business or the value of its propertieshas been authorized by the Debtor, other than as set forth herein. Any information orrepresentation given to obtain your acceptance or rejection of the Plan that is different from orinconsistent with the information or representations contained herein should not be relied uponby any holders of Claims or Interests in voting on the Plan proposed by the Debtor.

THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH

11 U.S.C. 1125 AND NOT IN ACCORDANCE WITH FEDERAL OR STATE

SECURITIES LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAW.

ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING

OR TRANSFERRING CLAIMS AGAINST, INTERESTS IN OR SECURITIES OF, THE

DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT ONLY IN LIGHT

OF THE PURPOSE FOR WHICH IT WAS PREPARED.

THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED

BY THE SECURITIES AND EXCHANGE COMMISSION (THE COMMISSION) OR

BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC,

GOVERNMENTAL OR REGULATORY AUTHORITY, AND NEITHER SUCH

1 All references to reference the applicable section of the Bankruptcy Code.



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COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY

OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

This Disclosure Statement shall not be construed to be providing any legal, business,

financial or tax advice. Each holder of a Claim or Interest should, therefore, consult with its ownlegal, business, financial and tax advisors as to any such matters concerning the solicitation, thePlan or the transactions contemplated thereby.

INCORPORATION OF DOCUMENTS BY REFERENCE

This Disclosure Statement incorporates by reference certain documents relating to theDebtor that are not presented herein or delivered herewith. The following documents have beenfiled in the Debtors bankruptcy case and are incorporated by reference herein in their entirety,including all amendments thereto filed prior to the date set for confirmation: (a) the Debtors

Schedules A, B, C, D, E, F and H filed on April 3, 2013 [ ECF Document 18]; Schedule G filedon April 12, 2013 [ECF Document 28]; Amended Schedules B and D filed on June 4, 2013[ECF Document 76]; Second Amended Statement of Financial Affairs filed July 30, 2013 [ECFDocument 112]; Monthly Operating Report for April 2013 [ECF Document 93]; MonthlyOperating Report for May 2013 [ECF Document 92]; Monthly Operating Report for June 2013[ECF Document 108]; Monthly Operating Report for July 2013 [ECF Document 118];Monthly Operating Report for August 2013 [ECF Document 142]. Monthly Operating Reportfor September 2013 [ECF Document 184]; Monthly Operating Report for October 2013 [ECFDocument 217]; and Monthly Operating Report for November 2013 [ECF Document 244].Documents and pleadings filed in this case are available at the following website:http://www.txsb.uscourts.gov/. You will need a PACER account in order to access these

documents, which can be obtained on the PACER website: www.pacer.gov.

TABLE OF CONTENTS Page

INCORPORATION OF DOCUMENTS BY REFERENCE ......................................................... 3I. INTRODUCTION AND SUMMARY ............................................................................... 5

A. THE SOLICITATION ............................................................................................ 5B. DEBTORS BUSINESS ......................................................................................... 5

1. Introduction ................................................................................................. 52. IPRCs Microwave Separation Technology (MST) ................................... 63. Competition................................................................................................. 85.

Potential Customers .................................................................................... 9

6. Protection of Intellectual Property .............................................................. 97. Management .............................................................................................. 10

C. ASSETS AS OF APRIL 4, 2013 .......................................................................... 121. Proprietary Technologies and Patent Status ............................................. 132. Agribiofuels, LLC (ABF) ...................................................................... 143. Contingent and Unliquidated Claims ........................................................ 15

D. CREDITORS AND DEBT AS OF APRIL 4, 2013 ............................................. 15



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E. PREPETITION FINANCIAL AND TAX INFORMATION ............................... 15F. PREPETITION LITIGATION ............................................................................. 17

1. The Montgomery County Lawsuit ............................................................ 172. The Harris County Lawsuit ....................................................................... 17

G.

TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES ...................... 17

1. Bankruptcy Court Proceedings ................................................................. 172. Current Business Development................................................................. 21

H. POST-PETITION FINANCIAL RESULTS OF OPERATION ........................... 24I. PUBLIC DISCLOSURES .................................................................................... 24

II. DEFINITIONS, RULES OF INTERPRETATION .......................................................... 24AND COMPUTATION OF TIME ............................................................................................... 24

A. DEFINITIONS. ..................................................................................................... 24B. RULES OF INTERPRETATION. ........................................................................ 27C. COMPUTATION OF TIME................................................................................. 27

III. BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS ..................... 28IV.

CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS . 28

A. CLASS 1 - Administrative Claims Professional Fee Claims and U.S. Trustee

Quarterly Fees ....................................................................................................... 28B. CLASS 2 All Other Administrative Claims....................................................... 29C. CLASS 3 Allowed Secured Claims of the Carmichaels, Winston, Emmott and

KK&PK Family, L.P............................................................................................. 30D. CLASS 4 Allowed Secured Claims of Taxing Authorities ............................... 34E. CLASS 5 Allowed Unsecured Claims of Debtor .............................................. 35 F. CLASS 6 Allowed Interests of Debtors Shareholders...................................... 38G. CLASS 7 Allowed Priority Claims of the Internal Revenue Service ................ 38

V. MEANS FOR EXECUTION OF THE PLAN.................................................................. 39A. EXECUTION OF ALL DOCUMENTS NECESSARY TO CONSUMMATE

THE PLAN. .......................................................................................................... 39B. MANAGEMENT OF THE DEBTOR. ................................................................. 39C. DISBURSING AGENT ........................................................................................ 39

VI. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE ........................................ 40A. ENTRY OF CONFIRMATION ORDER. ............................................................ 40B. FINALITY OF CONFIRMATION ORDER; WAIVER. ..................................... 41

VII. PRESERVATION OF RETAINED CLAIMS AND VESTING...................................... 41VIII. ACCEPTANCE OR REJECTION OF THE PLAN ......................................................... 42IX. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ......... 42X. MODIFICATIONS AND AMENDMENTS .................................................................... 42XI. RETENTION OF JURISDICTION .................................................................................. 43XII. EFFECTS OF CONFIRMATION .................................................................................... 44

A. BINDING EFFECT. ............................................................................................. 44B. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR

PAYMENT. .......................................................................................................... 44C. EXCULPATION AND LIMITATION OF LIABILITY. .................................... 45

XIII. DISCHARGE .................................................................................................................... 45XIV. MISCELLANEOUS PROVISIONS ................................................................................. 45



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remediate and recover the oil that resides in emulsions a sludge like material that results fromthe simultaneous presence of hydrocarbons, water and fine solids. The Companys initial marketfocus was on oil-water emulsion problems facing the petroleum and petrochemical industries,both in upstream and downstream applications. Approximately 1% - 3% of all oil produced and

refined consists of these oil based emulsions which translates to a daily requirement ofapproximately 2 million barrels per day world-wide.

The Companys technology is secured with three US patents. Additionally, a newpatent for processing Marine Bilge was recently awarded in July 2012 and will run for 20 yearsthat applies only to the USA. The Company also has two other provisional patents forprocessing Biodiesel and for processing Frac Water.

IPRC has approximately 722 shareholders who hold approximately 53,502,477 sharescollectively. Dr. Carmichael, KK & PK and Dr. Winston, three of the four Petitioning Creditors,collectively own 3,442,059 shares or 6%. The IPRC officers/directors, Springer and Hammond,

own 11,270,544 shares, or 21%.

IPRCs common stock currently listed for quotation on the Pink OTC Markets, Inc. PinkExchange under the trading symbol IREC.

2. IPRCs Microwave Separation Technology (MST)

IPRCs primary business has been the development, marketing and distribution of itsMicrowave Separation Technology. MST technology uses RF to separate water and oilemulsions.

IPRC has developed a proprietary, patented process using high-energy microwaves,called Microwave Separation Technology (MST). MST is designed to treat and eliminatehydrocarbon emulsions, which are homogenous mixtures of oil and water components (or othernormally immiscible components). Presently IPRC is capable of demonstrating an MST 1000Unit. This Unit is twelve years old. IPRCs goal is to become a leader in developing andmarketing innovative commercial radio frequency (RF) energy applications that can be usedwithin the petroleum, energy and other industries to treat emulsions containing oil, water, andsolids, using its patented technology to recover the oil, eliminate harmful bacteria in water;enhance process to increase efficiency and improve its customers financial performance.

Each MST system includes the following components:

A patented microwave applicator; A microwave transmitter; Waveguides and auto tuner; Instrumentation and computer automation; Pumps and drives if required; And safety monitors and failsafe interlocking systems



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In 2009, IPRC entered into a technical service agreement with Petroleo Barsileiro S.A.(Petrobras) pursuant to which IPRC agreed to provide a 16 month demonstration project of theMST technology in Brazil. The technical services agreement with Petrobras provided that IPRCwould operate a MST 150 unit at a refinery in Brazil and to conduct various tests of emulsions as

determined by the technical staff of Petrobras. Midway through the project Petrobras requested aredesign of the demonstration unit on site and a reconfiguration of the demonstration skid with afull patented applicator. This change was accomplished in September 2010 and the testcontinued until it was completed in November 2011. The Petrobas technical service agreementended in 2011.

IPRC initially offered MST primarily to the oil field and energy industries but hasexpanded the use of MST to treating emulsions in the marine industry for processing of MarineBilge and to treating the bacteria and pathogens used in Frac water emulsions. In 2010 IPRCdetermined it was in its best interest to focus its business on using its MST technology in thewater purification and remediation industries.

IPRC located its operations on the site of a fabricator and logistics company located inHouston, Texas This location enables IPRC to conduct demonstrations of the MST technology tointerested parties.

Debtors technology has been proven under one service contract for demonstration testing inBrazil with Petrobras, which ended in 2011. Additionally, a previous 3 year project at Torrancethat ended in 2003, produced technical reports jointly published by IPRC and Exxon MobilResearch & Engineering confirming MST effectiveness.

Oil and Gas Industry

Produced oil contains water that is costly to transport and damaging toinfrastructure. MST applies RF energy to separate the water and oil emulsions, allowing theremoval of the water and solids and enhancing the production of the oil. The RF energy breaksthe emulsion by preferentially heating the water inside the oil matrix, which creates differencesin surface tension and viscosity. After RF energy is applied, the materials are pumped into aseparation tank. If immediate separation is required, a centrifuge can be utilized. The separatedoil is then pumped into holding tanks for shipment to customers. The separated water andsediments can be handled in accordance with the customers environmental regulations.

The stated goal for finished oil recovered from the emulsions is a product that is 98% freeof water and solids; e.g., refinery grade crude. Each MST system is computer-controlled andcontains all the elements needed to reclaim oil from oil emulsion and rag layer water located inrefineries, tank storage and waste pits. In its initial refinery application, the MST system hasbeen used to improve the efficiency of desalination operations. MST systems are modular andcan be conjoined to handle larger capacity requirements as required by the customer.



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The Company offers its products for sale or lease directly to end-users or can provide theservices to a third party company that provides services to an established oil servicescompany. Some potential clients have requested IPRC provide an MST that is significantlyuser friendly and essentially could be managed by their staff on-site with a simple on-off

switch; a dial to set the power level and a temperature guide. These changes can beincorporated into the next design of the MST system.

Marine Industry

The provisional patent for the use of MST in marine on-board systems was originallyfiled in July 2006. The Marine Industry is being tasked by the EPA and other State agencies toimprove the efficiency of bilge water handling aboard large ships. Bilge water is a mixture ofwater and a very small percentage of oil that probably is inadvertently diverted from theengine. Companies that have ships typically try to have systems on-board to capture this small

percentage of oil (


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IPRC believes that IPRCs most significant competitors are fully integrated oil and gasprocessing companies. Smaller companies may also be significant competitors, particularlythrough collaborative arrangements with oil and gas industry companies. The Companys

competitors are national, regional and local, including recognizable companies such as BJServices, Baker Hughes and Suez. The Company anticipates that it will face additionalcompetition from new entrants that provide significant performance, price, creative or otheradvantages over those offered by the Company. Many of these competitors have greater namerecognition and resources than the Company.

Currently, the marine industry uses systems that are on board consisting of water/oilseparators; centrifuge systems; chemical systems that add specific chemical compounds tohelp separate the oil from the bilge water. Almost without exception these on-board systems donot collect all the oil in the bilge which results in the ships having to pump out the bilge whenthey get to port and have the bilge transported to a facility that specializes in these processes

using heat, chemicals and centrifuges. IPRC believes that its products will compete with theseproducts principally on the basis of improved and extended efficacy and reduction inenvironmental risks.

The Company believes that some of its current competitors have significantly greaterresources, experience and research and development capabilities.

5. Potential Customers

IPRC intends to market its technology by entering into strategic partnerships with thirdparties who can market and sell IPRCs products world-wide. The Company has establishedworking relationships with several prominent engineering companies that are currently workingwithin the petroleum industry. It is IPRCs intent to establish suitable joint ventures (JV) withone or more of these companies as a means to penetrate these industries.

IPRC has focused on exporting the MST technology to several large multinationalcorporations. A summary of current contract negotiations is contained in Part G.2, below.

6. Protection of Intellectual Property

The technology used in the MST process is proprietary. The Company has been issuedthree United States patents to protect its design, has 1 patent for the use of MST in the marineindustry and two provisional patents in the production of biodiesel and treatment of Fracwater. IPRC may seek additional patents in the future. There can be no assurance that anyfuture patent applications will result in patents being issued. Likewise, there can be no assurancethat the Companys patents will afford protection against competitors with similartechnology. In addition, there can be no guarantee that the patents will not be infringed upon,designed around by others, or challenged and held to be invalid or unenforceable. Proprietaryrights relating to the Company's products and processes generally will be protected from



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unauthorized use by third parties only to the extent that they are covered by valid andenforceable patents or are maintained in confidence as trade secrets. In the absence of patentprotection, competitors who independently develop substantially equivalent technology mayadversely affect the Companys business.

Third-party patents relating to technology utilized by the Company may now exist or maybe issued in the future. The Company may need to acquire licenses or contest the validity of anysuch patents. Significant funds may be required to defend against third party claims of patentinfringement. Any such claim could adversely affect the Company until the claim isresolved. Furthermore, any such dispute could result in a rejection of any patent applications orthe invalidation of any patents the Company owns. There can be no assurance that any licenserequired under any such patent would be available to the Company or, if available, available onacceptable terms. In addition, there is no guarantee that the Company would prevail in anylitigation involving such patent. Any of the foregoing could have a material adverse effect onthe Company and its results of operations.

The Company seeks to protect the technology used in the MST process in part byconfidentiality agreements with its advisors, employees, consultants, suppliers and vendors. TheCompany also protects its technology by building interlocking security measures into itsproducts. There can be no assurance, however, that these agreements and security measures willnot be breached or that competitors will not discover the Companys trade secrets. In addition,there can be no assurance that persons or institutions providing research to the Company will notassert rights to intellectual property arising out of such research.

7. Management

Alan B. Springer, Chairman of the Board, CEO & Chief Financial Officer

Mr. Springer graduated from the University of Akron with a Bachelor of Science inindustrial management and from the University of Utah (1978) with an MBA in marketing andfinance. Postgraduate studies include the Naval Post Graduate School in Monterey, Californiafor international finance.

Mr. Springer spent more than twenty-three years working within the U.S. Department ofDefense, serving from 1978 to 1994 in various financial management positions includingassignments as the Resource Management Officer of the 8th Infantry Division in Germany, 5thSignal Command and the Corps of Engineers in Germany. During this period Mr. Springer wasan adjunct professor in the Business College of the European Division of the University ofMaryland from 1978 1986 and is currently an adjunct professor at Lone Star College inHouston since 2009.

Prior to joining IPRC, Mr. Springer was the Chief Financial Officer for IKON OfficeSolutions - Document Services Division in Houston, Texas from 1994-1998. IKON OfficeSolutions is an office technology company providing total document solutions for many Fortune500 companies



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James W. Hammond, Board Member

James W. Hammond served as a founder and Senior Vice President of Administaff until

his retirement in 1998. During his career with Administaff, responsible for the development,integration and maintenance of the company's infrastructure and technology department. Helater developed and headed the company's General Service department, which was responsiblefor all internal support services, including procurement, security, facilities management andstrategic planning for the company's national expansion program. Mr. Hammond does notactively participate in the management of Debtor, does not actively participate in financialdecisions of Debtor, does not provide engineering expertise to Debtor, and has had limitedinvolvement with Debtor's business, spending approximately only 6 hours of time devoted toDebtor matters in the past year.

Mr. Hammond has a Bachelor of Science degree from Virginia Polytechnic Institute and

has done graduate work in economics from the University of Houston. After graduating from theVirginia Polytechnic Institute, Mr. Hammond began his career at Exxon where he developed andimplemented informational technologies. He holds patents in hydrofining and agriculturalproducts. Mr. Hammond started, managed and sold various companies, including theManagement Services Institute. He is a board member of Lutheran Social Services and theLutheran Board of Directors and is actively involved in community and corporate developmentprojects. Mr. Hammond has been a Director at IPRC since 2003.

Ryan A. Boulware, Director of Operations, Field Testing and Training

Ryan A. Boulware joined IPRC in May 2010 following 10 years working in the oil andgas industry as a mud engineer in the USA with several of the major oil companies (BP,Halliburton, Shell, etc). Prior to joining IPRC in 2010, Mr. Boulware had never been exposed toan MST unit or the MST technology. However, his 10 years of technical experience and fieldoperations has provided a unique background for his subsequent work with microwave energywhere he has gained extensive experience on crude oil analysis and environmental applications,specifically related to emulsion mitigation and treatment technologies. Since joining IPRC, Mr.Boulware has coordinated technical activities related to the companys laboratory, commercialand marketing programs and was the primary technical expert on the new patents granted toIPRC in the areas of marine and FRAC water remediation. He was the project manager atIPRCs site in South America until September 2011 and since that time has worked on redesignand upgrade of the various MST models and components. He is the primary expert on alloperational issues involving MST systems and components. Mr. Boulware has an undergraduatedegree in Geography from Sam Houston State University

Note: Currently, the only employess of the Debtor are Mr. Springer and Mr. Boulware.



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C. ASSETS AS OF APRIL 4, 2013

The significant assets of the Company include its patents and intellectual property upon

which its Microwave Separation Technology is based; its 20% interest in Agribiofuels, LLC; andits contingent and unliquidated claims for fraud, etc. against the Petitioning Creditors. Acomplete list of IPRCs assets is set forth in the following table. These values are estimates byAlan Springer, Chief Executive Officer of IPRC, and are the fair market values, unless otherwiseindicated. Estimates of the value of certain litigation claims of the company are those of EricYollick, litigation counsel for the Debtor:

Category Description Value ($)

Cash on Hand Accounts @ JPMorgan Chase Bank and

Wells Fargo

$15,000

Stock and interests inincorporated and unincorporatedbusinesses

20% ownership interest in Agribiofuels,LLC

$00.002

Contingent and unliquidatedclaims

Claims for fraud, breach of fiduciary dutyand tortious interference, tax credits, etc., asset forth in Adversary Proceeding No. 13-03087.

At least$1,200,000

Patents and intellectual property MST and related technologies $500,000

Automobiles, trucks, trailers andother vehicles and accessories

18-Wheeler Trailer (salvage value) $5,000

Office equipment, furnishingsand supplies

HP laptop computer $250

Machinery, fixtures, equipment MST-1000 Unit (12 years old); MST $10,000

2Debtors position regarding the value of the Debtors interest in ABF is that such interest is zero based on recentfinancial statements presented by ABF in discovery, which indicate that the liabilities of ABF exceed $9,000,000.Debtor was unaware of the amount of debt on the books of ABF until it received such financial information on or aboutOctober 20, 2013. Debtor had engaged an appraiser to appraise the property owned by ABF, Ronald P. Little, MAI, butit was Mr. Littles preliminary opinion that the value that he would place on ABF would never be sufficiently highenough so as to argue that value of ABFs assets exceeded the debts of ABF. That being the case, Debtor decided not tospend the funds necessary for an appraisal, as it did not appear there was any value for ABFs equity interest holders,including the Debtor, who owns a 20% interest in ABF.



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Category Description Value ($)

and supplies shipping container; spare skid; spare parts;generator

1. Proprietary Technologies and Patent Status

The following table identifies and describes each of the Companys United States patentsand patent applications:

TitleApplication

No.

Patent

No.Status Expiration

MICROWAVE-ENHANCED

PROCESS TO TREAT FRACWATER

61/577,334

Provisional

Patent Submitted12/19/11

MICROWAVE-ENHANCEDPROCESS TO MAXIMIZEBIODIESEL PRODUCTIONCAPACITY

11/340,137 Reinstated

MICROWAVE- ENHANCEDPROCESS TO TREATMARINE EMULSION

WASTES

11/489,919 Granted 12/17/2032

RADIO FREQUENCYMICROWAVE ENERGYAPPARATUS AND METHODTO BREAK OIL ANDWATER EMULSIONS

08/936,063 5914014 Granted 9/23/2017

RADIO FREQUENCYMICROWAVE ENERGYMETHOD TO BREAK OILANDWATER EMULSIONS

09/295,565 6077400 Granted 9/23/2017

RADIO FREQUENCYMICROWAVE ENERGYAPPLICATOR APPARATUSTO BREAK OIL ANDWATER EMULSIONS

09/295,566 6086830 Granted 9/23/2017



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CERTAIN ADDITIONAL INFORMATION REGARDING DEBTORS PATENTS3

1. All of Debtors patents have been registered only in the USA, and the option toregister the patents worldwide is not available any longer as to Debtors current patents. Thisdiminishes the value of Debtors current patents because international firms could all take one ofDebtors units; reverse engineer it and manufacture it overseas, and Debtor would not be able tocontest it.

2. The three patents dealing with oil/water emulsions expire in 3 years; therefore,these patents have limited value. However, there would be far greater value if IPRC introducednew changes to the technology, which it believes is possible, and file for patent protectiondomestically and worldwide. If that were done and extended world-wide, these patents would beworth considerably more. 4. the marine bilge is only USA and it is good for 17 years, but thenegatives in paragraph 1 apply here as well.

3. The biodiesel and frac water patents are provisional, which affects the value of thepatents in a negative fashion.

4. Finally, IPRC has never received an offer for any of these patents and this alsowould apparently affect the valuation downward.

2. Agribiofuels, LLC (ABF)

Agribiofuels, LLC (ABF) (http://www.agribiofuels.com) is a Texas limited liability

company formed March 31, 2005.

AgriBioFuels is a privately held LLC involved in the production and supply of renewablefuels to the United States domestic energy market. The companys first venture was theconstruction of a biodiesel production facility in Dayton, Texas that started up in January, 2007.The plant was to initially produce 20 million gallons of biodiesel per year, and was designed toallow expansion to 40 million gallons of biodiesel per year. To optimize its process, the plantwas going to utilize the advanced, Microwave Separation Technology provided by ImperialPetroleum Recovery Corporation. While Imperial Petroleum Recovery Corporations primaryfocus has been the growth of its MST technology business within the conventional petroleumindustry, the companies sought to jointly exploit the favorable capability of MST to enhance the

biodiesel production process. As such, IPRC provided the operating and management supportfor the biodiesel facility, and holds a minority ownership position in ABF.

3This is the opinion of the CEO, Alan B. Springer, based on discussions Mr. Springer has had with a proposed

expert on valuation of intellectual property rights, A. John Demarco, of the law firm of Pillsbury Winthrop ShawPittman LLP. Mr. Demarcos opinion is attached hereto as Exhibit 9.



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The Manager/Director is Edward C. Gaiennie. Gaiennie was also an officer and directorof IPRC through the early part of January 2008.

The members/owners of ABF are Don Carmichael, Mary Jane Carmichael, Rex Lewis,

Kirk Kanady, Barry Winston, Philip Leggett, Edward Gaiennie, and IPRC, which holds a 20%interest in the company.

IPRC established ABF in 2005 and a management agreement between the twoorganizations was signed on August 1, 2005 with Mr. Springer signing for ABF and JamesHammond (IPRC Director) signing for ABF. None of the other 5 investors in ABF weremanagers, directors or officers they were all passive investors and members of the LLC. The 3year agreement had a provision for renewals to be made 30 days prior to the expiration for anadditional 3 years. It gave IPRC the right to terminate the agreement if ABF failed to makepayments. IPRC would hire and pay employees to run the plant, cover all operational andadministrative expenses with fees paid under the Agreement.

ABF was established with funds from 5 individuals and IPRC was awarded 20% of theequity in ABF by virtue of the promote and for the continued management of the business.Don Carmichael and his mother were the largest investors with about $3M of the total $6.7Minvested (44%). Another large investor from Las Vegas, Rex Lewis, also had $2.150Minvested); Funds raised purchased 25 acres of land and IPRC built a biodiesel plant with in-houseresources and began production in December 2006.

ABF lost money in 2006 thru 2011 but remained operational even though over 95% ofthe existing biodiesel facilities in the United States closed during this period due to changes inState law and feedstock costs that made operations unprofitable. ABF had very low operatingcosts since equity capital was used to purchase land and build the plant.

3. Contingent and Unliquidated Claims

On January 31, 2012, IPRC and Mr. Springer filed suit against Don Carmichael, et al, forbreach of fiduciary duty, fraud, tortious interference, securities fraud and statutory fraud.

On March 9, 2012, Defendants filed a general denial and asserted the affirmativedefenses of statute of limitations, laches, unclean hands, fraud, and the business judgment rule.Defendants also asserted a counterclaim alleging that IPRC and Mr. Springer wrongfullydiverted $1.5 million of ABF earnings. Additional information regarding this lawsuit is providedbelow.

D. CREDITORS AND DEBT AS OF APRIL 4, 2013

The Debtors creditors and debts are summarized and broken down in section IV, infra, atpp 29-36.

E. PREPETITION FINANCIAL AND TAX INFORMATION



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SEC Form 10-K for Imperial Petroleum Recovery Corporation covering FY endingOctober 31, 2006 October 31, 2010..

SEC Form 10-K for Imperial Petroleum Recovery Corporation covering FY ending

October 31, 2011.

Any creditor or interest holder who wishes to have a copy of the said Form 10-Ks canrequest a copy from Debtors counsel, at the following address:

Leonard H. Simon, Esq.

The Riviana Building2777 Allen Parkway, Suite 800Houston, Texas 77019(713) 737-8207 (Direct)(832) 202-2810 (Direct Fax)

[email protected]

See Monthly Operating Report for November 31, 2013, attached hereto as Exhibit 2.

SEC Forms 10-K have been filed for the periods identified above. No unaudited financialstatements have been filed. Debtor filed tax returns for 2008, 2009, 2010, 2011 and 2012 afterApril 4, 2013. The Debtor reported losses for each tax year. The Debtor has no present source ofincome. The Debtor did not withhold federal taxes from compensation paid to Debtor'sPresident, Alan Springer, because Debtor believed that Mr. Springer was a contract employee,and no withholding was required. Therefore no Federal Income tax liability of Debtor for "trustfund liability" will occur for not withholding on such compensation. The Debtor shall amend thecreditor matrix to add the IRS as a creditor using the following address: Internal RevenueService, Centralized Insolvency Operation, P.O. Box 7346, Philadelphia, PS 19101-7346, andIRS Special Procedures, 1919 Smith Street, Stop 5022, Houston, Texas 77002. Debtorsaccountant, Michael Jayson, believes that IPRCs tax liability for the tax years 2008-2012cumulatively would be understated by approximately $9,315.00, which would amount toapproximately $1,863 per year for the period from 2008 through 2012. See ECF Document 164-3. The Petitioning Creditors have alleged that that the Debtors withholding tax liability wouldbe much larger.

In addition, the Debtor has no credit facilities with any financial institutions, and from 2008through April 3, 2013, has primarily relied on personal advances from Debtor's President, AlanSpringer and James Hammond, to operate, and such advances have, in part, arisen from theCompanys use of Mr. Springers credit cards.

The claim of Alan Springer is an insider claim, and consists of a claim for $1,199,297 foraccrued salary per Mr. Springers Employment Agreement with the Debtor for the periodFebruary 2008 through January 31, 2013. The balance of the claim, $38,512, represented non-interest bearing loans made by Mr. Springer to the Debtor between November 1, 2012 and



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January 31, 2013. These loans were from Mr. Springers personal bank account into theDebtors bank account. There are no written loan agreements with the Debtor, and Debtormaintains no formal accounting of the loans in writing; however, the dollar value of the loans arerecorded on the financial records of IPRC and are reflected on the official 10K filings submitted

to the SEC.

F. PREPETITION LITIGATION

1. The Montgomery County Lawsuit

On January 31, 2012, IPRC and Alan Springer filed suit against Don Carmichael, et al, for

breach of fiduciary duty, fraud, tortious interference, securities fraud and statutory fraud.

This case was removed by the Defendants, and it is currently pending as Adversary

Proceeding No. 13-3087.

2. The Harris County Lawsuit

On March 27, 2012, Don Carmichael, et al, filed suit against IPRC for breach of several

promissory notes and to foreclose on certain property owned by IPRC pursuant to the notes and

security agreements held by the plaintiffs, and to appoint a receiver.4 On April 23, 2012, IPRC filed

a general denial and plea in abatement.

This case was removed by the Defendants, and it is currently pending as Adversary

Proceeding No. 13-03098.

G. TIMELINE OF POST-PETITION ORDERS AND ACTIVITIES

1. Bankruptcy Court Proceedings

The following table sets forth the significant bankruptcy orders and events:

Date Description Docket #

04-04-2013 Court entered order for relief. 21

04-04-2013 Court granted IPRCs motion to convert the case to a reorganization case 22

4Cause No. 2012-18010; Don Carmichael, Mary Jane Carmichael, KK & PK Family LP, Barry Winston and GarryEmmott vs. Imperial Petroleum Recovery Corporation; In the 270thJudicial District Court of Harris County, Texas.



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under Chapter 11 of the Bankruptcy Code

05-02-2013 The Montgomery County Lawsuit (Imperial Petroleum Recovery Corporation

and Alan Springer vs. Don Carmichael, Mary Carmichael, Kirk Kanady,Barry Winston, Edward Gaiennie, Rex Lewis and Agribiofuels, LLC) wasremoved to the Bankruptcy Court and docketed under Adversary No. 13-03087

39

05-14-2013 The Harris County Lawsuit (Don Carmichael, Mary Jane Carmichael, KK &PK Family LP, Barry Winston and Garry Emmott vs. Imperial PetroleumRecovery Corporation) was removed to the Bankruptcy Court and docketedunder Adversary No. 13-03098

50

05-23-2013 The Court entered an order granting IPRCs application to employPendergraft & Simon, LLP as bankruptcy counsel

65

05-23-2013 The Court entered an order granting IPRCs application to employ MichaelJayson as accountant for the Debtor.

66

07-11-2013 Alan Springer assigned all claims and causes of action owned by him in theMontgomery County Lawsuit to IPRC.

97

07-24-2013 The Court entered an order granting IPRCs application to employ EricYollick as Special Counsel to represent it in the two pending adversary cases.

109

08-02-2013 The Court entered an order extending the exclusivity period for the Debtor tofile a chapter 11 plan of reorganization.

116

08-27-2013 Debtor filed a motion for authority to obtain unsecured credit. 119

08-30-2013 Debtor filed an application to employ National Realty Consultants asappraisers.

120

08-30-2013 Debtor filed a motion for extension of time to file its 10-K disclosures withthe SEC.

121

09-17-2013 Debtor filed its Combined Plan of Reorganization and Disclosure Statement. 129

09-17-2013 Debtor filed an objection to the claim of Don Carmichael. 131

09-17-2013 Debtor filed an objection to the claim of Barry Winston 132

09-18-2013 Debtor filed an objection to the claim of Mary Jane Carmichael 133

09-18-2013 Debtor filed an objection to the claim of KK & PK Family LP 134

09-18-2013 Debtor filed an objection to the claim of Gary Emmott 135

09-19-2013 The Court entered an order authoring Debtor to obtain unsecured credit. 139

09-20-2013 Debtor filed an objection to the claim of Agribiofuels, LLC 140



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09-20-2013 Debtor filed an objection to the claim of Edward Gaienie. 141

09-25-2013 The Court entered an order extending the deadline for Debtor to file its 10-K

disclosures until the end of December.

147

09-25-2013 The Court entered an order authorizing Debtor to employ NRC asprofessional appraisers to appraiser Debtors 20% interest in ABF.

149

09-29-2013 Don Carmichael, et al, filed a motion to deny Debtors disclosure statement 152

10-01-2013 Objection to the motion to deny Debtors disclosure statement filed by IPRC 153

10-01-2013 Don Carmichael, et al, filed a motion to compel production of AlanSpringers personal tax returns.

154

10-01-2013 The Court entered an order setting a hearing on Don Carmichael, et als,

motion to deny Debtors disclosure statement and motion to compel. Hearingscheduled for 10-10-2013.

155 & 156

10-06-2013 Don Carmichael, et al, filed their witness list related to their motion tocompel.

159

10-06-2013 Don Carmichael, et al, filed a certificate of service return on witnesssubpoena, related to their motion to compel

160

10-07-2013 Debtor filed its witness and exhibit list, related to the objection to disclosurestatement and motion to compel.

161 & 162

10-10-2013 Debtor filed its objection and corrected objection to the motion to compel. 163 & 164

10-10-2013 Motion to quash subpoena and objection to motion to compel filed by AlanSpringer.

165

10-11-2013 The Court entered an order denying Alan Springers motion to quashsubpoena.

173

10-11-2013 The Court entered an order on Don Carmichael, et als motion regardingprotective order.

181

10-14-2014 Debtor filed an amended objection to claim no. 10 filed by Agribiofuels, LLC 166

10-14-2013 Debtor filed an amended objection to claim no. 5 filed by Don Carmichael 167

10-14-2013 Debtor filed an amended objection to claim no. 11 filed by Edward Gaiennie. 168

10-14-2013 Debtor filed an amended objection to claim no. 7 filed by Gary Emmott 169

10-14-2013 Debtor filed an amended objection to claim no. 6 filed by KK & PK FamilyLP

170

10-14-2013 Debtor filed an amended objection to claim no. 8 filed by Mary Jane 171



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Carmichael.

10-14-2013 Debtor filed an amended objection to claim no. 9 filed by Barry Winston. 172

10-16-2013 Debtor filed a notice to all creditors and parties-in-interest of Debtorswithdrawal of combined plan of reorganization and disclosure statement.

178

10-16-2013 Debtor filed its chapter 11 plan of reorganization 179

10-16-2013 Debtor filed its amended disclosure statement. 180

10-21-2013 Debtor filed its monthly operating report for September 2013. 184

10-21-2013 The Court entered a protective order related to Don Carmichael, et als,motion to compel.

185

10-21-2013 The Court entered on order granting Don Carmichael, et als, motion tocompel.

186

10-21-2013 The Court entered an agreed order granting Don Carmichael, et als,objection to disclosure statement.

187

10-21-2013 The Court entered an agreed order setting deadlines for filing amended claimobjections.

188

10-27-2013 Debtor filed its second motion to extend the exclusivity period for obtainingacceptances of its plan of reorganization.

193

10-28-2013 Don Carmichael, et al, filed a notice of intention to take the deposition of the

Debtor.

194

10-28-2013 Don Carmichael, et al, filed a notice of intention to take the deposition ofRyan Boulware.

195

10-29-2013 The Court entered an order setting a hearing on Debtors motion to extend theexclusivity period.

196

10-30-2013 Debtor filed a notice of hearing on Debtors motion to extend the exclusivityperiod.

197

10-31-2013 Don Carmichael, et al, filed a motion to strike claim objections. 198

10-31-2013 Don Carmichael filed a response to the Debtors objection to his claim. 199

10-31-2013 Gary Emmott filed a response to the Debtors objection to his claim. 200

10-31-2013 KK & PK Family LP filed a response to the Debtors objection to its claim. 201

10-31-2013 Mary Jane Carmichael filed a response to the Debtors objection to its claim. 202

10-31-2013 Barry Winston filed a response to the Debtors objection to its claim. 203



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10-31-2013 Agribiofuels, LLC filed a response to the Debtors objection to its claim. 204

10-31-2013 Edward Gaiennie filed a response to the Debtors objection to its claim. 205

11-01-2013 Debtor filed adversary no. 13-3305 to equitably subordinate claims pursuantto Section 510(c) of the Bankruptcy Code.

206

11-07-2013 Debtor filed its exhibit and witness list related to its motion to extend theexclusivity period.

208

11-07-2013 Agribiofuels, LLC filed an objection to Debtors motion to extend theexclusivity period.

209

11-10-2013 Don Carmichael, et al, filed an objection to Debtors motion to extend theexclusivity period.

210

11-15-2013 Don Carmichael, et al, filed a notice of intent to take the deposition of JamesHammond.

213

11-15-2013 Debtor filed a notice of hearing on Debtors amended disclosure statementand deadline to file objections.

215

11-19-2013 The Court entered into an order denying motion to extend exclusivity period. 216

11-20-2013 Debtor filed its monthly operating report for October 2013 217

11-27-2013 Agribiofuels, LLC filed its response/objection to Debtors amendeddisclosure statement.

222

11-27-2013 Don Carmichael, et al, file a response/objection to Debtors amendeddisclosure statement.

223

12-05-2013 The Court entered an order granting Don Carmichael, et als, motion to strike. 225

2. Current Business Development

Since April 4, 2013, Debtor has concentrated its efforts on obtaining contracts fromseveral multinational corporations. A summary of these potential customers is provided below:

One of IPRCs key prospects is a division of one of the worlds largest oil servicescompanies located in Houston, Texas. This division has a focus on oil and gas drilling andproduction. They operate in over 85 countries. IPRC began discussions with this company inNovember 2011 and over the past 20 months have conducted 5 technical demonstrations ofvarious emulsions from several locations in the US. All of the demonstrations were deemedexcellent by the technical staff of the Company. In July 2013 IPRC was advised the R&Ddivision had strongly recommended the technology be added to the portfolio of specializedequipment for oil and gas operations in the field world-wide. During a meeting in July 2013 the



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company presented a proposal for a long-term marketing and licensing agreement forconsideration. During a subsequent meeting in October 6, 2013 a contract proposal wasrequested from IPRC which was submitted. A follow-up meeting held on October 8, 2013 wasattended by two business line managers and an Agreement was reached in principle for IPRC to

provide a unit for one of their operations for extensive field testing at a remote site in Canada.An updated contract proposal was submitted on October 9, 2013 for a 6 month period whichcould be extended or allow the purchase of the unit used in the demonstration. We were thenadvised in November that the specific emulsion our MST would be processing at this site wasbeing sent to one of their labs for evaluation to insure the material was suitable for ourdemonstration. Target date for the lab completion was December 1, 2013. Once the lab reportsare received and evaluated, our contract proposal would be converted into a firm contract with astart date during the 1st quarter 2014. IPRC was further advised if the initial results of thedemonstration were successful, IPRC would be engaged in providing MST units for several otherlocations. The total value of the initial contract was $970,000.

A second key prospect for IPRC is one of the largest aluminum companies in the worldoperating in over 30 countries with over 200 individual locations. The division we have beenworking with produces products for Boeing, Airbus and NASA. The challenge is for IPRC toincorporate the MST technology with other specialized technology in order to remediate thelarge volumes of water (100K gallons daily) contaminated with hydraulic fluids, oils and othermaterials so the water can be safely disposed of. This identical opportunity exists in multipleplants throughout the world. IPRCs first meeting on-site in August 2013 was very positive andIPRC subsequently conducted a lab test evaluation of samples from 8 different locationsthroughout the plant. Over the next several weeks it was determined the Company wanted asample of the material processed through the full scale MST 1000 unit since this is the unit thatwould be used on site. This was a reasonable request and we agreed to coordinate the testingwith the new material. A conference call with their key engineers was conducted on December6, 2013 and confirmed a delivery of approximately 300 gallons of their emulsion for MST testingwould be delivered to our plant in Houston to be processed through our MST 1000 in December2013 if the material arrives in time. IPRC believes IPRC technology could solve the problems atthis particular plant. The Company indicated they would want the new MST 1000 units to becommissioned in the 2

ndquarter 2014. Total value of the initial contract: $10,000,000.

A third key prospect for IPRC is a Chinese Energy Company based out of Beijing withoffices in Houston and other countries. IPRCs focus has been with their division dealing withenergy and environmental clean-up projects in China to include the remediation of FRACwater and also for waste water treatment plants. IPRC had a meeting on November 7thwith theGeneral Manager from Beijing and his key management team here in Houston. It was agreed anLOI would be prepared by IPRC which would enable the relationship to be formalized.Subsequent meeting with the Houston staff resulted in a Letter of Intent (LOI) being submittedon November 19thwhich encompassed three major deliverables: (1) A marketing and licensingagreement between IPRC and this Company for a one-time fee of $3,000,000; (2) The purchaseof MST 1000 units for a total of $6,675,000 over the next three years; and (3) authorization offuture manufacturing agreements of MST units to be done in China with the exception of thepatented applicator which will continue to be manufactured by IPRC. A conference call on



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December 6th

concluded the financial terms of the LOI have been approved in principal by theGeneral Manager and he directed the document be finalized over the next two weeks. Moreoverhe has requested a demonstration of the MST technology be conducted for the technical staff ofthis Company in December at the IPRC plant location so his technical staff could evaluate the

MST in operation. Total potential value of this contract: $9,675,000.

A fourth key prospect is one of the worlds largest integrated oil companies that haveinterest in incorporating MST technology to several upstream production fields where they areunable to process emulsions without the use of chemicals. They are attempting to substitutemicrowave energy for chemicals as an environmentally superior solution. IPRC have reneweddiscussions that began in 2007 and have recently begun with a focus on processing oil emulsionsthat exist upstream in several locations within the US. IPRC has conducted technicaldemonstrations of these emulsions under the direction of their R&D Division in Houston. IPRCbelieves there is an opportunity for IPRCs technology to be incorporated into both the upstreamand eventually downstream operations. The most recent discussion with this prospect took

place in November and it was proposed the Company would find a suitable location in the fieldfor the MST Technology where it would be operated by their personnel for a period of at least 6months; very similar to the plan with prospect #1. This was discussed with the business linemanagers and a location in California was considered the most likely candidate. Total potentialvalue of this contract for the 6 month demonstration and related costs is: $850,000.

A fifth major prospect is one of the largest integrated oil companies in the world basedout of the Middle East with the highest proven reserves of any Company. Their focus is onexploration, drilling, refinery operations and extensive chemical businesses. They have jointrefining operations in China, Japan, Korea and the United States. IPRC was contacted onOctober 23rd by one of their major contractors in the Middle East who proposed IPRC couldbecome a prime vendor for this major Company. During our discussions over the past severalweeks we discussed the best approach might be to bring the MST technology to one of their jointrefinery operations here in the US and this was indorsed by the prospect. On November 25,2013 we were advised a proposal to incorporate MST into a refinery operation in the US jointlyrun by a US company and the prospect had been formally proposed and that IPRC should submitthe documentation for approval and acceptance of the parent Company. This was accomplishedon December 2, 2013 and we are now awaiting approval of that project which would becontained in the Companys FY2014 budget. It is too early to estimate the exact value of thisrelationship but this company is the worlds largest oil producer of almost 10,000,000 barrels perday (bpd) so the potential is very high so at a minimum we are estimating $1,000,000 for theinitial project.

A sixth major prospect is a small salt water disposal (SWD) company located in theHouston environment. An NDA was signed and sample material was delivered to IPRC fortesting. The results of the testing were satisfactory and a meeting was held on October 8, 2013 atwhich time additional samples were provided to IPRC for additional testing. This Company ispreparing a Letter of Intent (LOI) which we expect to receive before December 31, 2013. TheLOI outlines the delivery of one of our MST units to their site for a 3 week field test; if



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successful, the unit would remain there on a long-term lease with an option to buy. Based uponour discussions we dont see any technical reason why our MST will not be successful in thisenvironment and we expect the deliver and test phase to begin in January 2014. Total potentialvalue of this contract is: $950,000.

In summary, the total potential value of these business initiatives is summarized below:

Prospect 1: $970,000Prospect 2: $10,000,000Prospect 3: $9,675,000Prospect 4: $850,000Prospect 5: $1,000,000Prospect 6: $950,000

Total Potential Contracts: $23,445,000

H. POST-PETITION FINANCIAL RESULTS OF OPERATION

Debtors Monthly Operating Report for the period October 2013, is attached hereto asExhibit 2.

I. PUBLIC DISCLOSURES

Debtor has filed all 10-K and 10-Q public disclosures through 2011 with the SEC.Debtor obtained an order from the Bankruptcy Court to file the 2012 10-K and 10-Q disclosures

by December 31, 2013. The Debtor presently intends to file its required disclosures by January31, 2014, and will ask the Court for an extension due to the need to engage a new accountingfirm, as Debtors former accountant has gone in-house with Debtors auditor. If Debtor does notcure the delinquency, the Debtor could face sanctions and/or fines from the SEC.

II. DEFINITIONS, RULES OF INTERPRETATION

AND COMPUTATION OF TIME

A. DEFINITIONS.

For purposes of this Disclosure Statement, except as expressly provided or unless thecontext otherwise requires, all capitalized terms not otherwise defined shall have the meaningsascribed to them in this Article. Any term used in this Disclosure Statement that is not definedherein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaningascribed to that term in the Bankruptcy Code or Bankruptcy Rules. Whenever the contextrequires, such terms shall include the plural as well as the singular number, the masculine gendershall include the feminine, and the feminine gender shall include the masculine.



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which has been set for Tuesday, February 4, 2014, at 10:00 a.m. in Courtroom 600, United StatesCourthouse, 515 Rusk Street, Houston, Texas.

"Confirmation Order" means the order entered by the Bankruptcy Court confirming the Plan.

DIP means the Debtor-in-Possession that continues in possession of its property and isoperating its business as a debtor-in-possession pursuant to 11 U.S.C. 1107, 1108.

Disclosure Statement shall mean this Second Amended Disclosure Statement dated December23, 2013.

Effective Date means the date when the Confirmation Order becomes a Final Order.

"Final Order" means an order or judgment of the Bankruptcy Court, as entered on the docket inthe Debtors Bankruptcy Case, the operation or effect of which has not been stayed, reversed, or

amended and as to which order or judgment (or any revision, modification, or amendmentthereof) the time to appeal or seek review or rehearing has expired and as to which no appeal orpetition for review or rehearing was filed or, if filed, remains pending.

"Impaired" means, when used with reference to a Claim or Equity Interest, a Claim or EquityInterest that is impaired within the meaning of 1124.

"Person means an individual, corporation, partnership, governmental unit, joint venture,association, joint stock company, limited liability company, limited liability partnership, trust,estate, unincorporated organization, or other entity.

"Plan" means the Second Amended Plan of Reorganization filed on December 23, 2013, a trueand correct copy of which is attached hereto as Exhibit 1.

"Plan Documents" means any documents referenced in the Plan that are intended to be executedpursuant to the Confirmed Plan.

Priority Claim means a Claim asserted under 507(a)(3-10) against the Debtors BankruptcyEstate.

Retained Claims shall mean all claims, rights, defenses, offsets, recoupments, causes of action,actions in equity, or otherwise, whether arising under the Bankruptcy Code or federal, state, orcommon law, which constitute property of the Estate within the meaning of Section 541 of theBankruptcy Code, as well as all claims, rights, defenses, offsets, recoupments, claims forsubordination, and causes of action arising under Chapter 5 of the Bankruptcy Code (includingwithout limitation the Avoidance Actions and Subordination Claims) with respect to the Debtor,shall be and hereby are preserved for the benefit of the Reorganized Debtor, and shall be andhereby are deemed to be part of the assets vesting in the Reorganized Debtor. The foregoingincludes, but is not limited to, all claims and causes of action referenced in the Debtorsbankruptcy Schedules, statement of financial affairs, and disclosure statement as presently



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existing or as may be amended hereafter, including those listed below on pages 41-2.

Reorganized Debtor shall mean the post-Effective Date Debtor who shall be vested with theBankruptcy Estates assets that are not distributed pursuant to this DS/Plan, who shall continue

to pursue the Retained Claims, and who shall continue to conduct the business of the Debtor asdescribed below on pages 39 and 41.

"Secured Claim" means a Claim, other than a Setoff Claim, that is secured by an Encumbrance,or the proceeds of the sale of such property, in which the Debtor has an interest, to the extent ofthe value, as of the Effective Date or such later date as is established by the Bankruptcy Court, ofsuch interest or Encumbrance as determined by a Final Order of the Bankruptcy Court pursuantto 506 or as otherwise agreed upon in writing by Debtor and the holder of such Claim.

"Substantial Consummation" shall have the meaning given to that term in 1101(2). SubstantialConsummation shall occur on the Effective Date.

"Unimpaired Claim" means a Claim that is not an Impaired Claim.

Unsecured Claim shall mean a Claim that is not a Secured Claim and that is not entitled topriority under 507(a)(1-9), and includes the deficiency portions of any Secured Claim.

"Voting Deadline" means Tuesday, January 28, 2014, at 5:00 p.m., the deadline by which Ballotsto accept or reject the Plan must be received by Debtors counsel in order to be counted.

B. RULES OF INTERPRETATION.

For purposes of this Disclosure Statement, (a) any reference in this Disclosure Statementto a contract, instrument, release, indenture, or other agreement or document being in a particularform or on particular terms and conditions means that such document shall be substantially insuch form or substantially on such terms and conditions; (b) any reference in this DisclosureStatement to an existing document or exhibit filed or to be filed means such document or exhibitas it may have been or may be amended, modified, or supplemented; (c) unless otherwisespecified, all references in this Disclosure Statement to Sections, Articles, Schedules, andExhibits are references to Sections, Articles, Schedules, and Exhibits of or to this DisclosureStatement; (d) the words "herein" and "hereto" refer to this Disclosure Statement in its entiretyrather than to a particular portion of this Disclosure Statement; (e) captions and headings toArticles and Sections are inserted for convenience of reference only and are not intended to be apart of or to affect the interpretation of this Disclosure Statement; and (f) the rules ofconstruction set forth in 102 and in the Bankruptcy Rules shall apply.

C. COMPUTATION OF TIME.

All times referenced in thisDisclosure Statement are prevailing Central Time. Incomputing any period of time prescribed or allowed by this Disclosure Statement, the provisionsof Fed. R. Bankr. P. 9006(a) shall apply.



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III. BAR DATES AND TREATMENT FOR ADMINISTRATIVE CLAIMS

With respect to all requests for payment of professional fees pursuant to 327, 328,

330, 331, 503(b), 506(c) or 1103 for services rendered and expenses incurred prior to theEffective Date, such professionals shall file and serve an application for final allowance ofcompensation and reimbursement of expenses no later than 30 days after the entry of theConfirmation Order.

IV. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS

All Claims and Interests are placed in the Classes set forth below. A Claim or Interest isplaced in a particular Class only to the extent that the Claim or Interest falls within thedescription of that Class, and is classified in other Classes to the extent that any portion of theClaim or Interest falls within the description of such other Classes. A Claim is also placed in a

particular Class for the purpose of receiving distributions pursuant to the Plan only to the extentthat such Claim is an Allowed Claim in that Class and such Claim has not been paid, released, orotherwise settled.

A. CLASS 1 - Administrative Claims Professional Fee Claims and U.S. Trustee

Quarterly Fees

Description. All Claims entitled to administrative priority under 330(a)(1), 503(b)(2)incurred during the Debtor Bankruptcy Case and U.S. Trustee Quarterly Fees AssessedPursuant to 28 U.S.C. 1930(a)(6). A summary of the claims in Class 1 are as follows:

Claimant Estimated Fees and Expenses

Through February 4, 2014

United States Trustee 4thQuarter Estimate Estimated based on quarterly fee paid for Third Quarterof 2013.

$1,000.00

Jayson & Frisby, Accountant for the Debtor Estimatedbased on unpaid fees and expenses due as of November30, 2013, in the amount of $49,300.00.

$65,000.00

Pendergraft & Simon, LLP, Counsel for the Debtor Estimated based on unpaid fees and expenses due as of

November 30, 2013, in the amount of $191,158.58.

$250,000.00

Eric Yollick, Esq., Special Counsel for the Debtor -Estimated based on unpaid fees and expenses due as ofNovember 30, 2013, in the amount of $34,152.89.

$75,000.00

Attorney and Account to complete public filings withSEC

$50,000.00



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Treatment. To the extent an Administrative Claim is allowed by the Court as of theEffective Date, it shall be paid by the Debtor in full on the Effective Date, unless a creditorholding an Allowed Administrative Claim agrees to a different treatment. To the extent an

Administrative Claim is allowed after the Effective Date, the Debtor shall pay such claimon the date the order allowing such claim becomes a Final Order. The DebtorsBankruptcy Estate shall be responsible for timely payment of the United States Trusteequarterly fees incurred pursuant to 1930(a)(6). Any fees due as of the date ofconfirmation of the Plan will be paid in full on the Effective Date of the Plan. The Debtoralso shall timely pay post-confirmation quarterly fees assessed pursuant to 28 U.S.C. 1930(a)(6) until such time as the Bankruptcy Court enters a final decree closing thischapter 11 case, or enters an order either converting this case to a case under chapter 7 ordismissing this case. After confirmation, the Debtor shall file with the Bankruptcy Courtand shall transmit to the United States Trustee a true and correct statement of alldisbursements made by the Debtor for each quarter, or portion thereof that this chapter 11

case remains open in a format prescribed by the United States Trustee.

Pendergraft & Simon, LLP, Jayson & Frisby, Eric Yollick or and any other administrativeprofessional engaged by the bankruptcy estate shall have the option, but not the obligation,in lieu of receiving cash upon allowance of their Administrative Claims, of convertingsome or all of their Allowed Administrative Claims into freely trading common stock ofthe company issued on the Effective Date pursuant to the provisions of 11 U.S.C. 1145(a) at a rate of exchange based on the average trailing share price for the 30 dayspreceding confirmation as reflected on the pink sheets (Allowed Amount of Claim average trailing share price for the 30 days preceding confirmation). For example, if theaverage trailing share price for the 30 days preceding confirmation is equal to 5 cents pershare, and the Allowed Amount of Claim is equal to $10,000, then the number of sharesissued would be 200,000.

The Class 1 professionals, with the exception of the attorney and accountant to completepublic filings, have agreed to exchange their claims for stock, if necessary in order tosatisfy the confirmation requirements of 11 U.S.C. 1129(a)(9). The attorney andaccountant completing public filings may also elect to exchange their claims for stock,but, if not, will be paid by advances from either Alan B. Springer and/or James Hammond,as will the payments for UST Quarterly fees.

B. CLASS 2 All Other Administrative Claims.

Description. All Claims entitled to Administrative Priority under 503(b)(2) other thanClass 1 Administrative Claims. Debtor shall request that the Court set an AdministrativeClaim Bar Date for the same day the Court sets the hearing on Confirmation of theDebtors Plan. The Order Setting the Administrative Claim Bar Date shall be disseminatedto all creditors of the Debtor. Only Administrative Claims that are timely filed by theAdministrative Claim Bar Date shall be allowed in this class. Debtor is unaware of anyclaims in this class at this time.



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Any Creditor with an Allowed Claim in this Class shall have the option, but not theobligation, in lieu of receiving cash upon allowance of their Administrative Claims, ofconverting some or all of their Allowed Administrative Claims into freely trading common

stock of the company issued on the Effective Date pursuant to the provisions of 11 U.S.C. 1145(a) at a rate of exchange based on the average trailing share price for the 30 dayspreceding confirmation as reflected on the pink sheets (Allowed Amount of Claim average trailing share price for the 30 days preceding confirmation). For example, if theaverage trailing share price for the 30 days preceding confirmation is equal to 5 cents pershare, and the Allowed Amount of Claim is equal to $10,000, then the number of sharesissued would be 200,000..

Treatment. Allowed Administrative Claims in Class 2 shall be paid in full on theEffective Date, or as soon thereafter as such claims are allowed by Final Order.

C. CLASS 3 Allowed Secured Claims of the Carmichaels, Winston, Emmott andKK&PK Family, L.P.

Description.

Class 3-A consists of the Allowed Secured claim of Don B. Carmichael, M.D. Dr.Carmichael filed a proof of claim against the Debtor in the amount of $3,171,275.32. Inhis proof of claim, Dr. Carmichael claims a security interest in virtually all assets of theDebtor. Debtor has signed security agreements with Dr. Carmichael which describes thesecurity provided by Debtor to such Creditors, and provide a description of the securityprovided by Debtor under the Security Agreements. Dr. Carmichael is also the holder of1,767,594 shares of restricted common shares of the Debtor.

Class 3-B consists of the Allowed Secured claim of Mary Jane Carmichael. Ms.Carmichael filed a proof of claim against the Debtor in the amount of $ $458,371.01. Inher proof of claim, Ms. Carmichael claims a security interest in virtually all assets of theDebtor. Debtor has signed security agreements with Ms. Carmichael which describes thesecurity provided by Debtor to such Creditors, and provide a description of the securityprovided by Debtor under the Security Agreements. Ms. Carmichaels claim may beunsecured, as the UCC Financing Statement filed on February 14, 2012, did not includeher as a secured party.

Class 3-C consists of the Allowed Secured claim of Barry D. Winston, M.D. Dr. Winstonfiled a proof of claim against the Debtor in the amount of $239,580.91. In his proof ofclaim, Dr. Winston claims a security interest in virtually all assets of the Debtor. Debtorhas signed security agreements with Dr. Winston which describes the security provided byDebtor to such Creditors, and provide a description of the security provided by Debtorunder the Security Agreements.

Class 3-D consists of the Allowed Secured claim of Gary Emmott. Mr. Emmott filed a



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proof of claim against the Debtor in the amount of $61,727.48. In his proof of claim, Mr.Emmott claims a security interest in virtually all assets of the Debtor. Debtor has signedsecurity agreements with Mr. Emmott which describes the security provided by Debtor tosuch Creditors, and provide a description of the security provided by Debtor under the

Security Agreements.

Class 3-E consists of the Allowed Secured claim of KK&PK Family, L.P. (KK&PK).KK&PK filed a proof of claim against the Debtor in the amount of $486,820.17. In itsproof of claim, KK&PK claims a security interest in virtually all assets of the Debtor.Debtor has signed security agreements with KK&PK which describes the security providedby Debtor to such Creditors, and provide a description of the security provided by Debtorunder the Security Agreements. KK&PK is also the holder of 1,460,179 shares ofrestricted common shares of the Debtor.

The claims of the Creditors in this Class 3 are summarized in the below table:

CREDITOR

NAMECLAIM NO. AMOUNT NUMBER OF

SHARES

HELD

1. Don B.Carmichael,M.D.

5 $3,171,275.32 1,767,59452. Mary Jane

Carmichael8 $458,371.01 0

3. Barry D.Winston, M.D.

9 $239,580.91 214,286

4. Gary Emmott 7 $61,727.48 0

5. KK&PKFamily, L.P.

6 $486,820.17 1,460,1791

TOTAL: $4,417,774.89 3,442,059

Treatment.

Debtor has filed objections to each of the claims of Don B. Carmichael, Mary JaneCarmichael, Barry D. Winston, and KK&PK (hereinafter referred to as the Class 3Claims held by the Class 3 Creditors). The Court can either direct that these claimobjections be litigated, adjudicated and liquidated and all offsets determined in Adversary

5Shares are restricted.



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Nos. 13-03087 and 13-03098, or can proceed to litigate, adjudicate and liquidate saidclaims through the claims objection process. For purposes of confirmation, the Court hasset a hearing on January 7, 2014, to estimate and temporarily allow such claims inaccordance with 11 U.S.C. 502(c) and Bankruptcy Rule 3018(a). On October 31, 2013,

the five Creditors in this Class filed a Motion to Strike Debtors Amended Objections toProof of Claims. The Debtor failed to respond and the Court, on December 5, 2013,entered an order granting said motion. ECF Documents 198 and 225. The Court hasdetermined that the original claims objections filed in September 2013, remain viable andoutstanding, and that the Debtor and the Class 3 Creditors must proceed with the claimsestimation hearing scheduled for January 7, 2014.

The Debtor has requested that the Court make a determination under 11 U.S.C. 506(a)and Bankruptcy Rule 3012, of the value of the collateral held by the Class 3 Creditors, thesecured portion of the Class 3 Creditors Claims and the unsecured portion of the Class 3Creditors. The Debtor has filed an Expedited Motion Under Bankruptcy Rule 3012 and 11

U.S.C. 505(a) for Valuation of Security of Alleged Secured Creditors in Class 3 Under theDebtors Plan. ECF Document 236. Therein, the Debtor has taken the position that thevalue of the collateral held by the Class 3 Creditors is as follows:

COLLATERAL DESCRIPTION VALUE

Stock and interests inincorporated and unincorporatedbusinesses

20% ownership interest inAgribiofuels, LLC

00.00

Patents and intellectual property MST and relatedtechnologies

$500,000

Automobiles, trucks, trailers andother vehicles and accessories

18-Wheeler Trailer (salvagevalue)

$5,000

Office equipment, furnishingsand supplies

HP laptop computer $250

Machinery, fixtures, equipmentand supplies

MST-1000 Unit (12 yearsold); MST shippingcontainer; spare skid; spareparts; generator

$10,000

TOTAL: $515,250.00



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The Debtor believes that the Court has stated that the secured and unsecured portion of theClass 3 Creditors Claims will be determined along with the estimation of the Class 3Creditors Claims at the January 7, 2014, hearing.

To the extent that the Class 3 Claims are allowed, and are determined to be secured claims,they will be satisfied in the following fashion:

1. Option 1. To the extent that any portion of the claims of the Class 3 Creditorsare determined to be Allowed Secured Claims, Debtor shall have the option topay such claim in cash on the later to occur of (a) the Allowance of suchSecured Claim by Final Order, or (b) the Effective Date, whereupon the Class3 Creditors shall release their security interests against the Debtors assets byfiling termination statements with the Secretary of State of the State of Texasor taking such other action as may be necessary to release such securityinterests, and the Bankruptcy Court shall specifically retain jurisdiction to

enforce such obligation..

2. Option 2. To the extent that any portion of the claims of the Class 3 Creditorsare determined to be Allowed Secured Claims, alternatively, Debtor shall havethe option to pay the balance of the allowed claims by issuing a Class 3 PlanNote to each Class 3 Creditor in an amount of such Creditors AllowedSecured Claim. Each Class 3 Note shall provide for payment of the note in 20equal quarterly installments of principal and interest at a rate of interest equalto 5% or such other rate of interest chosen by the Court at the ConfirmationHearing, said payments to commence on the first day of the first calendarquarter after such claims are finally adjudicated and allowed by Final Orders,or after the Effective Date, which ever is the later to occur.

Lien Retention: The Class 3 Creditors shall retain all lien rights they held onany property of the Debtor. However, upon payment in full of all five Class 3Notes, the Class 3 Creditors shall be obligated to release such lien rights, andthe Bankruptcy Court shall specifically retain jurisdiction to enforce suchobligation.

Default Language: Any default by the Reorganized Debtor in theperformance of its obligations under any one or more of the Class 3 PlanNotes shall constitute a default, and any holder of such defaulted noteobligation may then exercise all of their remedies set forth in their prepetitionloan documents, including any rights to obtain possession and foreclose upontheir collateral, provided, however, before exercising any right or remedyunder applicable non-bankruptcy law that may be available, (a) said creditorsmust give written notice of non-monetary default and an opportunity to curesuch default for a period of 30 days from the date of service of such writtennotice of a non-monetary default, and (b) said creditors must give writtennotice of monetary default and an opportunity to cure such default for a period



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of 5 days from the date of service of such written notice of a monetary default.Such written notice shall be served by certified mail, return receipt requested,or by messenger, and shall be addressed to the Debtor, at 61. S.ConcordForest Circle, The Woodlands, TX 77381 , and its legal counsel, Pendergraft

& Simon, LLP., The Riviana Building, 2777 Allen Parkway, Suite 800,Houston, Texas 77019. These noticing addresses shall be binding upon theDebtor unless different addresses are provided in writing to the attorneys forthe Class 3 Creditors, John Marek and Karen Emmott.

Cram Down. In the event that any of the Class 3 Creditors rejects the Plan,the Debtor shall seek to confirm the Plan over the rejection by invoking 11U.S.C. 1129(b)(2)(A)(i). Specifically, the Debtor will provide each Class 3Creditor with a promissory note for the amount of said creditors claim,payable in 24 equal quarterly installments of principal and interest calculatedat an rate of interest equal to 5% or such other rate of interest chosen by the

Court at the Confirmation Hearing, said payments to commence on the firstday of the first calendar quarter after such claims are finally adjudicated andallowed by Final Orders, or after the Effective Date, which ever is the latest tooccur, and (a) said creditors shall retain their liens securing Claims; (b) thedeferred cash payments will total at least the allowed amount of such claim,regardless of whether said creditors make the 11 U.S.C. 1111(b)(2) election;and (c) the deferred cash payments will have at least a value equal to the valueof said creditors interest in the estates interest in their collateral. The LienRetention and Default Language provisions above shall apply.

To the extent the Class 3 Creditors Claims are allowed and are determined to beunsecured claims, they will receive the same treatment as the unsecured claims ofCreditors in Class 5; however Debtor submits that the Class 3 Creditors are judiciallyestopped from claiming that their claims are unsecured based on the proofs of claim theyhave filed.

D. CLASS 4 Allowed Secured Claims of Taxing Authorities

Description. Class 4 consists of the Allowed Secured Claims of Taxing Authorities, asfollows:

Class 4-A. Harris County Tax Assessor Collector has filed a proof of claim in theamount of $9,374.94. Debtor is still investigating this claim to determine whether a claimobjection will be necessary.

Class 4-B. Aldine ISD has filed a proof of claim in the amount of $35,042.68.Debtor is still investigating this claim to determine whether a claim objection will be necessa