U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-28686
OILEX, INC.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 33-0194489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3050 Post Oak Blvd.,Suite 1760 Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
(713) 629-5998
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____
The aggregate number of shares outstanding of the Issuer's Common
Stock, its sole class of common equity, was 33,425,041 as of
September 30, 1997.
This report consists of 24 pages.<PAGE>
Quarterly Report on Form 10-QSB
Index
Part I. Financial Information
Item I. Financial Statements (unaudited)
Balance Sheet - September 30, 1997; December 31, 1996
Statement of Operations -
Nine Months Ended September 30, 1996 and 1997,
and Quarter Ended September 30, 1996 and 1997
Statement of Cash Flows -
Nine Months Ended September 30, 1996 and 1997
Notes to Financial Statements
Statement of Changes in Stockholder's Equity
From January 1, 1997 to September 30, 1997
<PAGE>
OILEX, INC.
BALANCE SHEETS (UNAUDITED)
Sept 30, December 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 25,271 $ 14,630
Oil and Gas Receivables 10,429 9,929
Due from Related Parties 280,254 -
Prepaid Expenses - 11,503
Other Receivables 116,000 -
Total Current Assets 592,654 36,062
PROPERTY AND EQUIPMENT
Oil and Gas Properties, Using Full
Cost Accounting
Subject to amortizaton 9,151,500 7,519,000
Undeveloped Properties 1,217,000 1,217,000
Production Equipment 330,585 300,584
Furniture and Fixtures 98,201 61,081
Less:
Accumulated Depreciation, Depletion and
Amortization ( 90,182) ( 66,549)
Net Property and Equipment 10,707,104 9,031,116
Investment in Marketable 2,400,000 -
securities
Organization costs 54,311 59,252
TOTAL ASSETS $ 13,593,369 $9,126,430
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and
Accrued Expenses $ 168,042 $ 13,063
Amounts Due for Oil and
Gas Properties 130,000 925,000
Bonds Payable 154,848 220,348
Convertible debentures 1,092,709 -
(Net of Discount of 242,291)
Due to related parties 35,484 47,094
Total Current Liabilities 1,581,083 1,205,505
Deferred Tax Liability 3,032,000 3,032,000
Commitment and Contingencies - -
STOCKHOLDERS' EQUITY
Common Stock - $.001 Par Value Authorized
50,000,000 Shares; 33,425,041 and 24,726,775
Issued and Outstanding at Sept 30, 1997 and
December 31, 1996, respectively
33,425 24,727
Additional Paid-in Capital 18,211,949 12,768,434
Accumulated Deficit ( 9,265,088) ( 7,904,236)
TOTAL STOCKHOLDERS' EQUITY 8,960,286 4,888,925
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,593,369 $ 9,126,430
The Accompanying Notes are an Integral Part of the Financial
Statements.
<PAGE>
OILEX, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Quarter Ended For The Nine Months
Sept 30, Sept 30,
1997 1996 1997 1996
REVENUES
Oil and Gas Sales $ 59,137 $ 3,585 $ 124,853 $ 8,315
Other 11,299 - 33,936 -
Total Revenues 70,436 3,585 158,789 8,315
EXPENSES
Lease Operating 128,693 42,871 808,141 69,627
General and
Administrative 547,739 144,844 809,279 920,106
Interest Expense 63,887 5,502 73,647 16,506
Depreciation, Depletion
and Amortization 15,431 7,554 28,574 17,520
Total Expenses 755,750 200,771 1,519,841 1,023,759
LOSS BEFORE PROVISION FOR
INCOME TAXES ( 685,314) (197,186) (1,360,852)(1,015,444)
PROVISION FOR
INCOME TAXES - - - -
NET LOSS $( 685,314) $(197,186) (1,360,852)(1,015,444)
LOSS PER COMMON
SHARE $( .02) $( .01) $( .04) $( .04)
The Accompanying Notes are an Integral Part of the Financial
Statements.
<PAGE>
OILEX, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
For The Nine Months Ended
Sept 30,
1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,360,852)
Adjustments to Reconcile Net Loss to Net
Cash Provided (Used) by Operating Activities:
Common Stock Cancelled for Services
Not Performed ( 100,000)
Common Stock Issued for Services 12,500
Depreciation, Depletion and
Amortization 28,574
Changes in Certain Assets and Liabilities:
Increase in Due from Related
Parties ( 214,254)
Increase in Prepaid Expenses 11,503
Increase in Accounts Payable and
Accrued Expenses 156,542
Increase in Amounts Due for Oil and
Gas Properties 130,000
Increase in Due to Related Parties 738,389
Increase in other receivables (116,500)
Net Cash Provided (Used) by Operating ----------
Activities (714,098)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Oil and Gas Properties (132,500)
Purchase of Marketable Securities (200,000)
Increase in Deferred Tax Liability -
Purchase of Furniture and Equipment (67,120)
-------
Net Cash Provided (Used) By Investing
Activities (399,620)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of Treasury Stock ( 350)
Cancellation of Preferred Stock -
Issuance of convertible notes 1,124,709
---------
Net cash provided by financing
Activities 1,124,359
---------
Net Increase (Decrease) in Cash and
Cash Equivalents 10,641
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 14,630
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 25,271
<PAGE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES:
1) On January 24, 1997, the Company issued common stock
totalling 500,000 shares as payment of an outstanding related
party payable;
2) On January 24, 1997, the Company issued common stock
totalling 1,000,000 shares in exchange for amounts due for oil
and gas properties;
3) On February 20, 1997, the Company issued common stock
totalling 500,000 shares in exchange for certain oil and gas
properties;
4) On February 20, 1997, certain bondholders converted their
15.0% bonds totalling $131,500 and related accrued interest of
$1,563 in exchange for 436,000 shares of the Company's common
stock;
5) On February 20, 1997, the Company issued common stock
totalling 25,000 shares in exchange for personal services.
6) On April 16, 1997, the Company issued common stock totalling
125,000 shares in exchange for amounts due for oil and gas
properties;
7) On April 16, 1997, the Company cancelled common stock
totalling 200,000 shares relating to consulting services that
were never performed;
8) On April 16, 1997, the Company issued common stock totalling
3,000,000 shares for an investment.
9) On June 9, 1997, the Company issued common stock totalling
1,000,000 shares as payment of an outstanding related party
payable;
10) On June 9, 1997, the Company issued common stock totalling
2,500,000 shares in exchange for certain oil and gas properties;
The Accompanying Notes are an Integral Part of the Financial
Statements.
<PAGE>
OILEX, INC.
NOTES TO FINANCIAL STATEMENTS
SEPT 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Nature of Business
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair
presentation have been included.
For further information refer to the financial statements
and footnotes included in Form 10-KSB for the year ended December
31, 1996.
The accompanying financial statements include the accounts
of Oilex, Inc., (the "Company"), incorporated under the laws of
the State of Nevada on June 10, 1986 under the name of Akteck,
Inc. The Company subsequently changed its name to Oilex
International Investments, Inc. and then in July, 1996 changed
its name to Oilex, Inc. The Company is active in oil and gas
exploration and development primarily in Texas, Mississippi,
Colorado, West Virginia and Utah.
Certain financial statement items have been reclassified to
conform to the current period's format.
(b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and other
cash equivalents which mature within three months of the date of
purchase.
(d) Oil and Gas Properties
The Company follows the full cost method of accounting
whereby all costs, including direct and general and
administrative expenses, associated with property acquisition,
exploration and development activities are capitalized. Cost
associated with proved reserves are amortized by the
unit-of-production method using independent engineers' estimates
of unrecorvered proved oil and gas reserves. The costs of
unproved properties are excluded from amortization until the
properties are evaluated. Interest is capitalized on oil and gas
properties not subject to amortization and in the process of
development. Proceeds from the sale of properties are accounted
for as reductions to capitalized costs unless such sales involve
a significant change in the relationship between costs and the
estimated value of proved reserves or the underlying value of
unproved properties, in which case, a gain or loss is recognized.
Unamortized costs of proved properties are subject to a ceiling
which limits such costs to the estimated present value of oil and
gas reserves reduced by future operating expenses, development
expenditures and income taxes.
(e) Depreciation and Amortization
Furniture, fixtures and equipment are stated at cost and are
depreciated using the straight-line method over their estimated
useful lives.
The cost of maintenance and repairs are charged to expense
when incurred; costs of renewals and betterments are capitalized.
Upon the sale of retirement of furniture, fixtures and equipment,
the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is
included in operations.
(f) Organization Costs
Organization costs consist of legal and other administrative
costs incurred relating to the formation of the Company. These
costs have been capitalized and are being amortized over a period
of five years.
(g) Fair Value of Financial Instruments
The Company's financial instruments consist of cash,
accounts receivable and accounts payable. The carrying amounts
of cash, accounts receivable and accounts payable approximate
fair value due to the highly liquid nature of these short-term
instruments. The fair value of bonds payable was determined
based upon interest rates currently available to the Company for
borrowings with similar terms. The fair value of bonds payable
approximates the carrying amounts as of Sept 30, 1997.
(h) Long-Lived Assets
Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the related carrying amount may not be recoverable. When
required, impairment losses on assets to be held and used are
recognized based on the fair value of the asset and long-lived
assets to be disposed of are reported at the lower of carrying
amount or fair value less cost to sell.
(i) Income Taxes
Income taxes are provided for based on the liability method
of accounting pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". The
liability method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
temporary differences between the reported amount of assets and
liabilities and their tax basis.
(j) Loss Per Share
Loss per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding
during the period. Weighted average common shares outstanding
were 32,425,823 and 18,079,703 at Sept 30, 1997 and 1996,
respectively. Average common equivalent shares outstanding have
not been included, as the computation would be dilutive.
NOTE 3 - BONDS PAYABLE
Bonds payable consisted of the following at:
Sept 30, December 31,
1997 1996
10.0% bonds payable, secured by certain
of the Company's oil and gas properties;
due on demand and convertible into
common stock at $2.00 per share. $184,848 $ 154,848
15.0% convertible subordinated bonds
payable, due April, 1997, and
convertible into common stock at
$0.28 per share. - 65,500
$184,848 $ 220,348
During January, 1997, an additional $66,000 of 15%
convertible subordinated bonds were issued.
On February 20, 1997, the 15.0% convertible bonds totalling
$131,500 and the related accrued interest of $1,563 were
converted into 238,000 shares of the Company's common stock.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
a) The Company's future minimum annual aggregate
rental payments required under operating leases that have an
initial or remaining non-cancelable lease term in excess of one
year are dependent upon production only.
b) The Company is currently in dispute with a
corporation owned by certain stockholders of the Company. These
stockholders were formerly part of the management team of the
Company. They contend that the Company owes this corporation
approximately $141,000 on a demand note. The Company believes
and has recorded a related liability of $35,484 as of Sept 30,
1997. The liability is included in due to related parties. The
amount in dispute is related to certain general and
administrative expense reimbursements. Although no lawsuit has
been filed, management intends to vigorously defend its position
in this matter should a lawsuit arise. It believes that the
amounts recorded in its financial statements at Sept 30, 1997,
for this liability is correct and accurate. Accordingly, no
provision has been made for the disputed difference herein.
NOTE 5 - STOCKHOLDERS' EQUITY
On February 20, 1997, the holders of the 15.0% Convertible
Subordinated Bonds elected to convert their bonds into 238,000
shares of Oilex common stock, par value $0.001 per share, at
$0.28 per share.
Additionally, on February 20, 1997, the Company issued
198,000 shares of Oilex common stock, par value $0.001 per share,
to three individual investors.
In January, 1997, the Board of Directors approved the
acquisition from a related party of a 20% interest it owned in
Oil Retrieval Systems, Inc. ("ORS"), an Arizona corporation. ORS
designs, engineers, produces and sells portable swabbing units to
the oil and gas industry. ORS is a development stage company.
Oilex issued 3,000,000 shares of common stock to the related
party in exchange for its ownership of 1,205,420 common shares of
ORS.
NOTE 6 - SIGNIFICANT SUBSEQUENT EVENTS:
In May 1997, Funscape Corp. (formerly Imperial Energy
Corp.), a Colorado corporation, acquired ORS. Funscape Corp.
issued 2.5 million shares of its common stock in exchange for all
of the outstanding shares of ORS.
Funscape Corp. has stockholders and management who are also
stockholders and have management responsibilities in Oilex and
ORS.
<PAGE>
OILEX, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, 1997 TO JUNE 30, 1997
<TABLE>
Common Stock Paid-in
Accumulated
Shares Amount Capital
Deficit Total
<S> <C> <C> <C> <C>
<C>
Balance at December 31, 1996 24,726,775 24,727
12,768,434 (7,904,236) 4,888,925
Common Stock Issued in Exchange
for Oil and Gas Properties 3,000,000 3,000
1,497,000 - 1,500,000
Common Stock Issued for Personal
Services 25,000 25
12,475 - 12,500
Common Stock Issued for Personal
Services (Refunded) ( 200,000) ( 200) (
99,800) - (100,000)
Common Stock Issued for Conversion
of Subordinated Bonds 436,000 436
132,627 - 133,063
Retirement of Treasury Stock ( 350,000) ( 350)
- - - ( 350)
Common Stock Issued for Conversion
of Amount Due for Oil and Gas
Properties to Common Stock 1,125,000 1,125
923,875 - 925,000
Common Stock Issued for Conversion
of Amount Due to Related Parties
to Common Stock 1,500,000 1,500
748,500 - 750,000
Common Stock Issued for Investment
in Oil Retrieval Services 3,000,000 3,000
2,197,000 - 2,200,000
Common Stock Issued for Conversion
of Debentures 162,266 162
31,838 - 32,000
Net Loss for the Period from
January 1, 1997 to June 30, 1997 - -
- - ( 675,538) (675,538)
33,425,041 $33,425
$18,211,949 (9,100,088) 9,145,286
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the third quarter, the Company issued $1,375,000 in
debentures, $40,000 worth of which were repaid during quarter by
conversion to common stock of the Company (162,266 shares). A
copy of the debenture agreement is attached as an exhibit.
The Company also acquired an option to purchase 40% of the
common stock controlled by Rife Oil Company in Titan Energy,
Inc., a publicly traded company, in exchange for $3.50 per share
acquired, payable in either cash or stock of the Company (Oilex).
The Company also purchase, for its own account as a
marketable security, $200,000 of Titan Energy stock on the open
market.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports of Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
November 20, 1997
OILEX, INC.
(Registrant)
By: /s/ Oliver Timmins III
Oliver Timmins III, President
<PAGE>
<PAGE>
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES
LAWS.
No._______________
US $250,000
OILEX , INC.
12% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE JULY 31, 1998
THIS DEBENTURE is one of a duly authorized issue of
Debentures of Oilex , Inc., a corporation duly organized and
existing under the laws of Texas (the "Company") designated as
its 12% Series A Senior Subordinated Convertible Redeemable
Debentures Due July 31, 1998, in an aggregate principal face
amount not exceeding One Million, Three Hundred Seventy-Five
Thousand Dollars (US $1,375,000) which Debentures are being
purchased at 80% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to Austost
Anstalt Schaan , the registered holder hereof and its
successors and assigns (the "Holder") the principal face sum of Two
Hundred Fifty Thousand Dollars (US $250,000) on July 31, 1998 (the
"Maturity Date"), and to pay interest on the principle sum
outstanding, at the rate of 12% per annum due and payable
quarterly commencing _______________, 1997 pursuant to paragraph
4(b) herein and pursuant to the terms and conditions of the
Subscription Agreement dated as of July 24, 1997 between the
Company and Austost Anstalt Schaan (the "Subscription
Agreement"). Accrual of interest shall commence on the date
hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for.
The interest so payable will be paid to the person in whose name
this Debenture (or one or more predecessor Debentures) is
registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee
of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions
of the Subscription Agreement. The principle of, and interest
(with the exception of the prepaid interest set forth in Section
4(b) herein) on, this Debenture are payable in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts,
at the address last appearing on the Debenture Register of the
Company as designated in writing delivered to the Company by the
Holder hereof from time to time. The Company will pay the
outstanding principal due upon this Debenture before or on the
Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Debenture no later than the tenth
(10th) day prior to the Maturity Date by check or on the Maturity
Date by wire transfer and addressed to such Holder at the last
address appearing on the Debenture Register. The forwarding of
such check or wire transfer shall constitute a payment of
outstanding principal hereunder and shall satisfy and discharge
the liability for principal on this Debenture to the extent of
the sum represented by such check or wire transfer plus any
amounts so deducted. Interest shall be payable in Common Stock
(as defined below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional
provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized demoninations , as
requested by the Holders surrendering the same but not less than
U.S. $10,000. No service charge will be made for such
registration or transfer or exchange, except that transferee
shall pay any tax or other governmental charges payable in
connection therewith.
2. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any
amounts required to be withheld under the applicable provisions
of the United States income tax or other applicable laws at the
time of such payments.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be
transferred or exchanged in the U.S. only in compliance with the
Securities Act of 1933, as amended (the Act ) and applicable
state securities laws. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered
on the Company s Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by
notice to the contrary. Any holder of this Debenture, electing
to exercise the right of conversion set forth in Section 4(a)
hereof, in addition to the requirements set forth in Section
4(a), and any prospective transferee of the Debenture, is also
required to give the Company (I) written confirmation that it is
not a U.S. Person and the Debenture is not being converted on
behalf of a U.S. Person ( Notice of Conversion ) or (ii) an
opinion of U.S. counsel to the effect that the Debenture and
shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt
from such registration. In the event a Notice of Conversion or
opinion of counsel is not provided the Holder hereof will not be
entitled to exercise the right to convert or transfer the
Debentures.
4. (a) The Holder of this Debenture is entitled, at its
option, at any time commencing 45 days after closing of the
Offering hereof to convert all or any amount over $10,000 of the
principal face amount of this Debenture then outstanding into
shares of common stock, $0.001 par value per share, of the
Company (the Common Stock ), at a conversion price for each
share of Common Stock equal to the lower of (a) 80% of the
closing bid price of the Common Stock for the business day
immediately preceding the date of receipt by the Company of
notice of conversion or (b) 80% of the average of the closing bid
price of the Common Stock for the five (5) business days trading
day immediately preceding the closing date ( Conversion Shares )
as reported by the National Association of Securities Dealers
( NASDAQ ) (the Conversion Price ). If the number of
resultant
Conversion Shares would as a matter of law or pursuant to
regulatory authority require the Company to seek shareholder
approval of such issuance, the Company shall, as soon as
practicable, take the necessary steps to seek such approval. If
such approval is not received within 45 days then Company shall
be required to redeem the Debenture pursuant to paragraph 4
herein. Such conversion shall be effectuated by surrendering the
Debentures to be converted (with a copy, by facsimile or courier,
to the Company) to the Company with the form of conversion notice
attached hereto as Exhibit I, executed by the Holder of the
Debenture evidencing such Holder s intention to covert this
Debenture or a specified portion (as above provided) hereof, and
accompanied by proper assignment hereof in blank. Accrued by
unpaid interest shall be subject to conversion. No fractional
shares or script representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The transferee or issuer shall
execute such investment representations or other documents as are
respectively required by counsel in order to ascertain the
available registration exemption. The date on which notice of
conversion is given shall be deemed to be the date on which the
Holder has delivered this Debenture, with the assignment and
conversion notice duly executed, to the Company or, if earlier,
the date set forth in such notice of conversion if the Debenture
is received by the Company within five (5) business days
thereafter. The transferee or issuer shall execute such
investment representations or other documents as are reasonably
required by counsel in order to ascertain the available
registration exemption.
(b) Interest at the rate of 12% per annum shall be
payable in advance, quarterly commencing ____________, 1997.
However, at Closing , the Company shall prepay the first 3 months
interest by issuing in Common Stock of the Company as follows:
Based on the average closing bid prices of the Common Stock for
the last 5 consecutive trading days prior to Closing ( Market
Price ) the Company shall issue to the Holder shares of Common
Stock in an amount equal to the total monthly interest accrued
and due divided by 80% of the Market Price (the Interest
Shares ). Common Stock issued pursuant hereto shall be issued
pursuant to Regulation S or other applicable exemption to federal
and state securities laws in accordance with the terms of the
Subscription Agreement. Thereafter, commencing 91 days after
Closing the Company shall pay interest on a quarterly basis in
cash (or Common Stock, based on the above formula, at the
Company s option).
At any time on of after 90 days the Company shall
have the option to pay to the Holder 120% of the principal amount
of the Debenture, in full, to the extent conversion has not
occurred pursuant to paragraph 4(a) herein, or prepay upon
maturity if the Debenture is not converted, the Company shall
give the Holder 5 days written notice and the Holder shall have
the option to convert the Debenture or any part thereof into
shares of Common Stock at a conversion price equal to the average
of the closing bid price of the Common Stock for the 5
consecutive trading days prior to the date of such conversion or
accept the cash repayment. Any shares issued pursuant to the
options shall be issued pursuant to Regulation S or a
Registration Statement. Payment hereunder shall be made within 3
business days.
5. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin currency,
herein prescribed.
6. The Company hereby expressly waives demand and
presentment for payment notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to
accelerate, bringing of suit and diligence in taking any action
to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and, without any notice, diligence,
act or omission as or with respect to the collection of any
amount called for hereunder.
7. The Company agrees to any all costs and expenses,
including reasonable attorneys fees, which may be incurred by
the Holder in collecting any amount due under this Debenture.
8. If one or more of the following described Events of
Default shall occur (and shall not be caused by
misrepresentation or omission by Holder in Holders Subscription
Agreement) and continue for 30 days unless a differed period is
otherwise stated below:
(a) The Company shall default in the payment of
principal or interest on this Debenture; or
(b) Any of the representations or warranties made by
the Company herein, in the Subscription Agreement, or in any
certificate or financial or other written statements heretofore
or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture or
the Subscription Agreement shall be false or misleading in any
material respect at the time made; or
The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture [and
such failure shall continue uncured for a period of thirty (30)
days after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit
in writing its liability to pay its debts generally as they
mature; (3) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4) apply for or
consent to the appointment of a trustee, liquidator or receiver
for its or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial portion
of the properties or assets of the Company and shall not be
dismissed within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment,
or similar process, in excess of One Hundred Thousand ($100,000)
Dollars in the aggregate shall be entered or filed against the
Company or any of its properties or other assets and shall remain
unpaid, unvacated , unbonded or unstayed for a period of
fifteen (15) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within thirty (30) days after
such instruction of the Company shall be any action or answer
approved of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a
petition filed in any such proceeding; or
(I) The Company shall have its Common Stock delisted
from the over-the-counter market.
(j) The Company shall fail to issue the Common Stock
within seven (7) business days pursuant to paragraph 4 herein and
as permitted by then current SEC guidelines for this type of
offering without a restrictive legend.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent default) at the option of the Holder and in the
Holder s sole discretion, the Holder may consider this Debenture
immediately due and payable, without presentment, demand, protest
or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything
herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of
the Holder s rights and remedies provided herein or any other
rights or remedies afforded by law.
9. (a) This Debenture represents a secured obligation of
the Company and only the Company pursuant to paragraph 9(b)
herein. However, no recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any
claim based hereon, or otherwise in respect hereof, against any
subsidiary or incorporator, shareholder, officer or director, as
such past, present, or future of the Company or any successor
corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty
or otherwise, all such liability being, by the acceptance hereof
and as part of the consideration for the issue hereof, expressly
waived and released.
(b) Company shall contemporaneously with the issuance
of this Debenture grant the Holder a first lien against the
assets described in Exhibit B. All Holders of the Debentures
shall have equal priority in such lien, regardless of the time of
their purchase.
10. The Holder of this Debenture, by acceptance hereof,
agrees that this Debenture is being acquired for investment and
that such Holder will not offer, sell or otherwise dispose of
this Debenture or the Shares of Common Stock issuable upon
exercise thereof except under circumstances will not result in a
violation of the Act or any applicable state Blue Sky law or
similar laws relating to the sale of securities.
11. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be
adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
12. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and
agreement between the Company and the Holder with respect to the
subject hereof. Neither this Debenture nor any term hereof may
be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
13. This Debenture shall be governed by and construed in
accordance with the laws of New York. Holder hereby waives trial
by jury and consents to exclusive jurisdiction and venture in the
State of New York.
14. Any controversy or claim relating to this Agreement
( Arbitrable Dispute ) shall be settled by arbitration in
accordance with the Commercial Arbitration rules of the American
Arbitration Association (the AAA ) as such rules may be modified
herein or as otherwise agreed by the parties in controversy. The
forum for arbitration shall be New York, New York. Broker agrees
to submit to the jurisdiction of the New York Courts for purposes
of confirming any award.
15. As set forth herein, the Company shall use all
reasonable efforts to issue and deliver, with seven (7) business
days after the Holder has fulfilled all conditions and submitted
all necessary documents duly executed and in proper form required
for conversion (the Deadline ), to the Holder or any part
receiving a Debenture by transfer from the Holder (together, a
Holder ), at the address of the Holder on the books of the
Company, a certificate or certificates for the number of Shares
of Common Stock to which the Holder shall be entitled. It is
understood by both parties that such certificates must comply
with the then enacted SEC regulations governing this transaction.
The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Deadline could result in
economic loss to the Holder. As compensation to the Holder for
such loss, the Company agrees to pay as liquidated damages to the
Holder for late issuance of Shares (not resulting from causes out
of Company s control) upon conversion in accordance with the
following schedule (where no. Business Days Late is defined as
the number of business days beyond ten (10) business days from
the date of receipt by the Company and the transfer agent of a
Notice of Conversion of all necessary documentation duly executed
and in proper form required for conversion, including the
original Debenture to be converted, all in accordance with the
Debenture, Subscription Agreement and the requirement of the
transfer agent):
Liquidated Damages per
No. Business Days Late $100,000 of Debenture
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond
10 days
The Company shall pay the Holder any liquidated damages
incurred under this Section by check upon the earlier to occur of
(I) issuance of the Shares to the Holder or (ii) each monthly
anniversary of the receipt of the Company of such Holder s Notice
of Conversion.
The Company shall at all times reserve and have available
all Common Stock necessary to meet conversion of the Debentures
by all Holders of the entire amount of Debentures then
outstanding. If, at any time Holder submits a Notice of
Conversion and the Company does not have sufficient authorized by
unissued shares of Common Stock available to effect, in full, a
conversion of the Debentures (a Conversion Default , the date of
such default being referred to herein as the Conversion Default
Date ), the Company shall issue to the Holder all of the shares
of Common Stock which are available, and the Notice of Conversion
as to any Debentures requested to be converted by not converted
(the Unconverted Debentures ), upon Holder s sole option, may be
deemed null and void. The Company shall provide notice of such
Conversion Default ( Notice of Conversion Default ) to all
existing Holders of outstanding Debentures, by facsimile, within
one (1) business day of such default (with the original delivered
by overnight or two day courier) and the Holder shall give notice
to the Company by facsimile within five (5) business days of
receipt of the original Notice of Conversion Default (with the
original delivered by overnight or two day courier) of its
election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding
Debentures, as liquidated damages, payments for a Conversion
Default ( Conversion Default Payments ) in the amount of (N/365)
x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N
= the number of days from the Conversion Default Date to the date
(the Authorization Date ) that the Company authorizes a
sufficient number of shares of Common Stock to effect conversion
of all remaining Debentures. The Company shall send notice
( Authorization Notice ) to each Holder of outstanding Debentures
that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder s accrued Conversion
Default Payments. The accrued Conversion Default shall be paid
in cash or shall be convertible into Common Stock at the
Conversion Rate, at the Holder s option, payable as follows: Ii)
in the event Holder elects to take such payment in cash, cash
payments shall be made to such Holder of outstanding Debentures
by the fifth day of the following calendar month, or (ii) in the
event Holder elects to take such payment in stock, the Holder may
convert such payment amount into Common Stock at the conversion
rate set forth in Section 4(a) at anytime after the 5t h day of
the calendar month following the month in which the Authorization
Notice was received, until the maturity date.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunto duly authorized.
Dated:____________________
OILEX, INC.
By:___________________________
Title:__________________________
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 25271
[SECURITIES] 2200000
[RECEIVABLES] 406683
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 431954
[PP&E] 10797286
[DEPRECIATION] 90182
[TOTAL-ASSETS] 13593369
[CURRENT-LIABILITIES] 1581083
[BONDS] 154848
[COMMON] 33425
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 13593369
[SALES] 158789
[TOTAL-REVENUES] 158789
[CGS] 0
[TOTAL-COSTS] 1519641
[OTHER-EXPENSES] 1445994
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 73647
[INCOME-PRETAX] (1360852)
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1360852)
[EPS-PRIMARY] (.04)
[EPS-DILUTED] (.04)
</TABLE>
