General

Imperial Petroleum Recovery Corporation (the "Company" or "IPRC"), with its wholly owned subsidiary Petrowave Corporation, is a Houston based company that has patented microwave technology for use in petroleum and alternative energy applications, called Microwave Separation Technology ("MST"). IPRC's goal is to become a leader in developing and marketing innovative commercial radio frequency ("RF") energy applications that can be used within the petroleum and other industries to treat emulsions containing oil, water, and solids, in the production process to enhance process efficiency and improve our customers' end product, or in the creation of biodiesel fuels.

IPRC was founded in 1990 as a Nevada corporation. Since 1995 our primary business has been the development, marketing and distribution of MST. During 2005, we began to focus on the use of MST in the production of biodiesel fuel by acquiring a 20% interest in Argibiofuels, LLC. The Company's offices are located at 1970 South Starpoint Drive, Houston, Texas, and our phone number is (281) 821-1110. Our common stock currently trades Over-The-Counter (OTC) as a Pink Sheet stock under the symbol "IREC".

Additional information about Imperial Petroleum Recovery Corporation can be found on our website, www.iprc.com. Reports filed with the Securities and Exchange Commission ("SEC") may be viewed or obtained at the SEC Public Reference Room in Washington D.C., or at the SEC's web site, www.sec.gov.

Products and Potential Products

We currently offer MST to the oil field industry and are developing the use of MST in the marine industry and in the production of biodiesel. MST technology uses RF to separate water and oil emulsions. Emulsions are homogenous mixtures of oil and water components (or other normally immiscible components).

Oil and Gas Industry

We have created four (4) MST systems to be used in the oil and gas industry, MST-1000, MST-2000, MST-4000 and MST-150, our self-contained mobile system. Produced oil contains water that is costly to transport and damaging to infrastructure. MST applies RF energy to separate the water and oil emulsions, allowing the removal of the water and production of the oil. The RF energy breaks the emulsion by preferentially heating the water inside the oil matrix, which creates differences in surface tension and viscosity. After RF energy is applied, the materials are pumped into a separation tank. If immediate separation is required, a centrifuge can be utilized.

The separated oil is then pumped into holding tanks for shipment to customers. The separated water and sediments can be handled in accordance with the customer's environmental regulations.

Each MST system is computer-controlled and contains all the elements needed to reclaim oil from oil emulsion and "rag layer" water located in refineries, tank storage and waste pits. In its initial refinery application, the MST system has been used to improve the efficiency of desalter operations. MST systems are modular and can be conjoined to handle larger capacity requirements as required by the customer. The MST 150 is a self-contained mobile unit that can be moved to a client's site to demonstrate the effectiveness of the large scale MST 1000 series in resolving various emulsion or process applications.

Each MST system includes the following components:

o A patented microwave applicator; o A microwave transmitter; o Waveguides and auto tuner; o Instrumentation and computer automation; o Pumps and drives; o If required, a separation unit; and o Safety monitors and failsafe interlocking system.

The Company offers its products for sale or lease directly to end-users. The products may be offered to existing oil emulsion and sludge processors through geographically specific marketing partnerships.

Marine Industry

We currently have a patent pending for the use of MST in marine on board systems. The Marine Industry MST is under development to improve the efficiency of bilge water handling aboard large ships. Bilge water is a mixture of water and a very small percentage of oil that probably is inadvertently diverted from the engine. Companies that have ships typically try to have systems on-board to capture this small percentage of oil (<1%) so that they avert the risk of heavy fines should the bilge with oil be accidentally discharged since it causes huge environmental problems.

Testing has been conducted employing the existing laboratory MST to treat bilge samples taken from several cruise ships ported in Galveston, Texas. Initial tests have been extremely successful in demonstrating the application of the MST to enhance the separation of existing on-board bilge water processing systems. While the Company intends to develop and/or refine marketing plans to penetrate the marine industry, MST use in the marine industry is in its early stages of development and there is no guarantee that it will be successful.

Production of Bio-Diesel

We currently have a patent pending for the use of MST in the production of biodiesel. In 2005, we began laboratory and field trials to determine the value of employing MST technology to enhance the throughput and settling times for existing biodiesel production processes, in response to the Federal Directives outlined in the US Energy Policy Act of 2005 and related legislation in the United States and the European Union.

In August 2005, we licensed the use of MST in the production of biodiesel to Agribiofuels. Agribiofuels plans to build and operate a high-efficiency, cost effective 36 million gallon/year biodiesel production facility. In connection with the license, IPRC entered into a management agreement with Agribiofuels. Pursuant to the management agreement, IPRC agreed to provide certain general business, financial consultation and advice and management services to Agribiofuels in connection with the operation of its business and to provide technology and training in operating MST in the manufacture of biodiesel products. In addition Agribiofuels agreed to pay IPRC a management fee equal to $75,000 per month through Dec. 31, 2005, and $120,000 thereafter during the development and construction period. In addition, once the biodiesel facility is operational, Agribiofuels will pay IPRC a technology and licensing fee based upon the greater of a throughput fee of $0.15 per gallon of biodiesel produced or all personal cost.

Pure biodiesel contains no petroleum, is derived from many kinds of seed and vegetable oils produced in the U.S., and can be directly blended with petroleum diesel. When blended with petroleum diesel, the fuel can be readily used in diesel powered vehicles with no mechanical alterations to the engines. The exhaust from a vehicle that is switched to a biodiesel mixture immediately produces cleaner, healthier emissions, and biodiesel is the only alternative to fuel certified by the Environmental Protection Agency that fulfills the requirements of Section 211 (B) of the Clean Air Act.

The 2005 Energy Policy Act, specifically its Renewable Fuels Standard has created a domestic renewable fuels utilization requirement of 8 billion gallons per year by 2012 with an intermediate goal of 4 billion gallons per year by 2008. The 2005 Energy Policy Act identifies specific groups of consumers who must comply with the Federal guidelines or face economic penalties in the form of lost or reduced tax credits, diverted budget appropriations, and possible fines, including, with certain exceptions:

o State, federal and local government agencies, o Large trucking companies, o School districts with bus fleets, o Mass transit companies and contractors doing business with the Federal Government.

In addition to the potential penalties for non-compliance, there are incentives to producers, blenders and consumers who use alternative fuels.

The U.S. consumes over 170 billion gallons of petroleum fuel annually. Of this amount, petroleum diesel accounts for about 40%, or 65 billion gallons. The Energy Policy Act of 2005 mandates that each of these potential diesel customers must use a B20 blend (BXX - where the XX represents the % of biodiesel in the blended product formulation; the difference being the amount of petroleum diesel found in the blend). The most common biodiesel blend used today is referred to as B20, indicating a formulation of 20 percent biodiesel and 80 percent petroleum diesel. The B20 blend is the minimum blend percentage required to comply with all legislative mandates currently in effect.

The Company believes its MST can be added to existing bio-diesel production processes which can enable plants to increase its throughput rates by turning a batch or semi-batch process into a continuous process. While the Company intends to develop and/or refine marketing plans to penetrate the biodiesel field, MST use in the production of biodiesel is in its early stages of development and there is no guarantee that it will be successful.

Research and Development

In fiscal year 2005 we incurred $30,633 in research and development costs compared to minimal costs in 2004. IPRC restarted its research and development efforts as of January 2005 to identify other applications for the use of MST, which includes the use of MST in both the marine industry and in the production of biodiesel fuel. In addition, we continue to broaden our petroleum industry focus to both the private and governmental sectors of others industries that we have identified.

Customers

We intend to market our technology by entering into strategic partnerships with third parties who can market and sale our products world wide. In August 2005, Stone & Webster Management Consultants, Inc., a wholly-owned subsidiary of The Shaw Group, agreed to market and sell our MST systems and technology in the fields of crude oil production, refining and transport, biodiesel and alternative fuels production, bilge water treatment and environmental clean up projects. In exchange we granted Stone & Webster Management Consultants the right to fabricate and integrate all MST systems to be delivered to customers in and outside the United States.

Currently, we have only leased one MST and sold one MST. However, there are more than 700 oil refineries worldwide with 149 of these located in the United States. Each is a potential customer of the Company. The Company's marketing strategy is to:

o Focus on commercialization of microwave technology

o Concentrate initially on the 45 refineries in Texas and Louisiana

o Execute existing pipeline of contacts and leads.

Additionally, we have licensed the use of our MST technology in the production of bio-fuels to Agribiofuel, a company which we own an interest.

Competition

Oil and Gas Industry

The Company's competitors are firms that employ heat, pressure, chemical and centrifuge processes to dispose of solid and oily non-hazardous oil field wastes. We believe that our products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks. The efficacy of applying microwaves to sludge problems has been well documented in a series of reports prepared for the Electric Power Research Institute/Center for Materials Production between 1992 and 1994 by Carnegie Mellon Research Institute, (Reports CR-103872, CR-105736, and CR-109994, all focusing on Application of Microwave to Oil Water Sludge).

We believe that our most significant competitors are fully integrated oil and gas processing companies. Smaller companies may also be significant competitors, particularly through collaborative arrangements with oil and gas industry companies. The Company's competitors are national, regional and local, including recognizable companies such as BJ Services, Baker Hughes and Nalco. The Company anticipates that it will face additional competition from new entrants that provide significant performance, price, creative or other advantages over those offered by the Company. Many of these competitors have greater name recognition and resources than the Company.

Marine Industry

Currently, the marine industry uses systems that are on board consisting of water/oil separators; centrifuge systems; chemical systems that add specific chemical compounds to help separate the oil from the bilge water. Almost without exception these on-board systems do not collect all the oil in the bilge which results in the ships having to pump out the bilge when they get to port and have the bilge transported to a facility that specializes in these processes using heat, chemicals and centrifuges. We believe that our products will compete with these products principally on the basis of improved and extended efficacy and reduction in environmental risks.

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

Production of Bio-diesel

Competition related to the development of alternative fuels, specifically hydrogen and biodiesel, is difficult to determine due to the nature of the areas of hydrogen and biodiesel fuel generation. According to National Biodiesel Board, as of January 13, 2006 there were 53 biodiesel production plants with stated capacity of 354 million gallons per year in the U.S., of which 11 are in Texas. The Company believes the requirements of the 2005 Energy Policy Act will cause a spike in demand that will far outpace supply for the next ten years and beyond. Already, biodiesel is the fastest growing renewable fuel in the U.S. The National Biodeisel Board's estimates of US sales volume growth have exceeded 100% over the last five years and we believe it will accelerate while the full implications of the 2005 Energy Policy Act are understood

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

Protection of Intellectual Property

The technology used in the MST process is proprietary. The Company has been issued three United States patents to protect its design, has 2 patent applications pending for the use of MST in the marine industry and in the production of biodiesel and may seek additional patents in the future. There can be no assurance that any future patent applications will result in patents being issued. Likewise, there can be no assurance that the Company's patents will afford protection against competitors with similar technology. 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. Proprietary rights relating to the Company's products and processes generally will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. In the absence of patent protection, competitors who independently develop substantially equivalent technology may adversely affect the Company's business.

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

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

Suppliers

The Company primarily uses standard parts and components from a variety of suppliers to produce the hardware for its products. Certain components are currently available only from a few limited sources. To date, the Company has not had difficulty obtaining parts and components in sufficient quantity in a timely manner. Several Houston-based fabrication companies have been identified to manufacture MST systems as required. These firms meet the fabrication standards required by petroleum companies worldwide. The Company does not expect to have difficulty fabricating, testing and delivering machines if and when sales of MST systems accelerate.

Government Regulation

The Company's products are subject to various federal, local, state and international laws and regulations as well as regulations relating to occupational health and safety and the environment including regulations from the U.S. Environmental Protection Agency. Failure to comply with these occupational health and safety and environmental laws and regulations or associated permits may result in the assessment of fines and penalties and the imposition of investigatory and remedial obligations. The Company believes that its products meet or exceed all applicable safety and environmental regulations. All units will be manufactured to meet United States, Canadian and European standards for construction and safety.

Employees

As March 6, 2006, the Company had five full-time employees, one part-time employee and two part-time consultants.