<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended Commission File No. 0-22185
February 28, 1998
EXPROFUELS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2727901
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E., SUITE 250 78232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 490-9400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of April 20, 1998:
Common Stock $0.01 par value 4,000,000
(Class of Stock) (Number of Shares)
Total number of pages is 11
<PAGE>
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
Assets Feb 28, 1998 Aug 31, 1997
- ------ ------------ -----------
Current Assets
Cash and equivalents ............................. $ 21,898 $ 31,647
Accounts receivable, net ......................... 119,764 141,754
Inventories ...................................... 276,737 400,517
Prepaid expenses and other ....................... 26,874 34,159
--------- ---------
Total Current Assets ...................... 445,273 608,077
Property and Equipment
Transportation and other equipment ............... 128,611 133,883
Equipment under capital leases ................... 93,326 93,326
Fuel stations ............................ 284,292 280,889
Less accumulated depreciation and amortization ... (307,490) (270,436)
--------- ---------
Net property and equipment ................ 198,739 237,662
Other Assets
Investment in and advances to CNG International .. -0- -0-
Other assets ..................................... 33,991 45,099
--------- ---------
33,991 45,099
--------- ---------
Total Assets ....................... $ 678,003 $ 890,838
========= =========
See notes to financial statements.
<PAGE>
3
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity February 28, 1998 August 31, 1997
- ------------------------------------ ----------------- ---------------
<S> <C> <C>
Current Liabilities
Accounts payable and accrued expenses $ 535,310 $ 495,468
Current portion of long-term debt-others 1,761 8,945
Current portion of long-term debt-affiliates 877,342 561,225
Current portion of capital lease obligations 15,453 21,062
------------ --------------
Total Current Liabilities 1,429,866 1,086,700
Long-term Liabilities
Long-term debt-others 500,000 507,946
Long-term capital lease obligations 2,418 8,656
------------ ---------------
Total Long-term Liabilities 502,418 516,602
Stockholders' Equity
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued and outstanding
4,000,000 shares 40,000 40,000
Additional paid-in capital 3,486,136 3,486,136
Accumulated deficit (4,780,417) (4,238,600)
------------- ----------
Total Stockholders' Equity (1,254,281) (712,464)
------------- -----------
Total Liabilities and Stockholders' Equity $ 678,003 $ 890,838
============= ============
</TABLE>
See notes to financial statements.
<PAGE>
4
EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
Feb 28, 1998 Feb 28, 1997
Revenues:
Conversion sales ......................... $ 302,542 $ 108,175
Fuel station construction sales .......... 5,789 77,400
Alternative fuel sales ................... 60,974 99,330
--------- ---------
369,305 284,905
Costs and Expenses:
Cost of sales ............................ 300,536 227,439
Shop general and administrative .......... 106,940 102,779
Depreciation and amortization ............ 24,084 21,834
General and administrative .............. 118,392 149,359
--------- ---------
Total Costs and Expenses ......... 549,952 501,411
--------- ---------
Loss from operations ......................... (180,647) (216,506)
Other Income (Expense):
Sublease rental income ................... -0- -0-
Interest income .......................... 370 163
Interest expense ......................... (9,418) (7,891)
--------- ---------
(9,048) (7,728)
--------- ---------
Net loss ..................................... $(189,695) $(224,234)
========= =========
Amounts Per Common Share:
Basic loss per common share .................. $ (0.05) $ (0.06)
========= =========
See notes to financial statements.
<PAGE>
5
EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Six Months
Ended Ended
Feb 28, 1998 Feb 28, 1997
------------ ------------
Revenues:
Conversion sales ......................... $ 420,465 $ 265,508
Fuel station construction sales .......... 175,511 96,854
Alternative fuel sales ................... 133,710 185,024
----------- -----------
729,686 547,386
Costs and Expenses:
Cost of sales ............................ 720,467 431,428
Shop general and administrative .......... 204,082 218,779
Depreciation and amortization ............ 48,157 43,667
General and administrative .............. 276,018 288,284
----------- -----------
Total Costs and Expenses ......... 1,248,724 982,158
----------- -----------
Loss from operations ......................... (519,038) (434,772)
Other Income (Expense):
Sublease rental income ................... -0- 13,500
Interest income .......................... 598 371
Interest expense ......................... (23,377) (13,883)
----------- -----------
(22,779) (12)
----------- -----------
Net loss ..................................... $ (541,817) $ (434,784)
=========== ===========
Amounts Per Common Share:
Basic loss per common share .................. $ (0.14) $ (0.11)
=========== ===========
See notes to financial statements.
<PAGE>
6
EXPROFUELS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
Feb 28, 1998 Feb 28, 1997
------------ ------------
Operating Activities:
Net Loss ........................................... $(541,817) $(434,784)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization ..... 48,157 43,667
Changes in operating assets and liabilities:
Receivables ................................... 21,990 48,094
Inventory ..................................... 123,780 (158,600)
Prepaid expenses and other .................... 7,285 1,573
Accounts payable and accrued expenses ......... 39,842 6,745
--------- ---------
Net cash (used) in operating activities ............ (300,763) (493,305)
Investing Activities:
Purchases of property and equipment ........... (14,122) (4,546)
Proceeds from sale of equipment ............... 11,045 -0-
Investments in and advances to venture ........ -0- (31,798)
Other assets .................................. 4,951 1,432
--------- ---------
Net cash provided (used) in investing activities ... 1,874 (34,912)
Financing Activities:
Advances from affiliates ...................... 316,117 148,405
Proceeds from long-term debt obligations ...... -0- 400,000
Payments on long-term obligations ............. (26,977) (17,505)
--------- ---------
Net cash provided by financing activities .......... 289,140 530,900
--------- ---------
Increase (Decrease) in cash and equivalents ........ (9,749) 2,683
Cash and equivalents at beginning of period ........ 31,647 20,781
--------- ---------
Cash and equivalents at end of period .............. $ 21,898 $ 23,464
========= =========
See notes to financial statements.
<PAGE>
7
EXPROFUELS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements of ExproFuels, Inc.
(the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accounting
policies followed by the Company are set forth in Note A to the
audited financial statements contained in the Company's annual
report filed on Form 10-KSB.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. For further information, refer to the audited
financial statements and footnotes thereto included in the
Registrant Company's annual report on Form 10-KSB for the year
ended August 31, 1997 and its Registration Statement on Form 10-SB,
as amended, filed on August 27, 1997 for the three years ended
August 31, 1996, which are incorporated herein by reference.
2. Common Stock and Basic Loss Per Share
As of February 28, 1998, the Company had outstanding options to
purchase 300,000 shares of common stock at a price of 110% of the
share's appraised fair market value, which was $0.13 per share on
the date of grant and which expire through September 2006.
Basic loss per share is computed based on the weighted average
number of common shares outstanding during the periods presented as
follows:
Three Months Six Months
------------ ----------
February 28, 1998 ................... 4,000,000 4,000,000
February 28, 1997 ................... 4,000,000 4,000,000
Common stock equivalents are not considered in the computation of
net loss per common share as their effect is anti-dilutive.
3. Long Term Debt
At the beginning of the current quarter, the Company had an
outstanding balance of $500,000 under the terms of its four
separate unsecured convertible debentures, all with identical
terms, except for the due date, if not converted. Each debenture
required quarterly interest payments computed at 6%, and was
convertible at the payee's option into common stock of the Company
at the rate of $1 of debt to 1 share of common stock.
At January 1, 1998, the Company had not made the quarterly
interest payments due and was technically in default under the
terms of the agreements. Prior to the end of the current quarter,
the Company paid all accrued interest due on its debt and obtained
waivers on the default from all debenture holders. Effective
January 19, 1998, the Company restructured the interest payment
terms of two of the debentures, each with a face amount of $100,000
and both originally issued to parties related to the Company. The
modifications deferred all future payments of accrued interest
until the maturity dates of said notes on February 12 and April 11,
2000, respectively.
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8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended August 31, 1997, included
in the Company's Form 10-KSB.
Financial Condition and Capital Resources
During the six months ended February 28, 1998. The Company's principal source of
working capital came in the form of advances under existing credit agreements
from its former parent, The Exploration Company, totaling $241,117, including
$50,000 advanced during the current quarter. Also during the current quarter,
new unsecured borrowings of $75,000 were obtained from an affiliated company,
with an additional $25,000 advanced during March 1998. Uses of available capital
for the six month period included funding cash used in operating activities of
$300,763, capital investments totaling $14,122 for purchases of property and
equipment and payments on long term obligations of $26,977. Capital uses were
offset by $11,045 realized from the sale of a company vehicle during the period.
As a result of these activities, the Company ended the second quarter of fiscal
1998 with negative working capital of $984,593 and a current ratio of .31 to 1.
This compares to a negative working capital of $478,623 and a current ratio of
.56 to 1 at August 31, 1997.
In order to meet the Company's obligations, ExproFuels must continue to seek
additional sources of operating capital through additional debt or equity
financing. Further, until such time as the Company attains profitable
operations, additional capital will be required to fund recurring cash losses
from operations. The Company has returned to the same financiers of its
Convertible Debt for funding of its additional debt or equity financing needs,
however, the Company has secured only limited commitment for such additional
financing as of the date hereof, and has obtained no firm commitments from its
unaffiliated lenders or creditors to refinance its outstanding debt when it
comes due. In addition, while the Company's former Parent provided additional
working capital funds through December 31, 1997, no additional funds will be
available from this source in the future. All of these factors raise substantial
doubt as to the Company's ability to continue as a going concern.
The Company's financial position poses certain risks, including the risk that
(i) cash flow from operations will be insufficient to maintain operations or;
(ii) it will be unable to obtain financing in the future for working capital,
debt service, capital expenditures and general corporate purposes; and (iii) the
Company will be more vulnerable to economic downturns and may be unable to
withstand competitive pressures. If Management's efforts to raise additional
capital are not successful, the Company's financial condition and liquidity and
its ongoing ability to maintain its operations as a going concern, will be
materially adversely affected.
Forward-looking statements in this 10-Q are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties. Among the factors that could cause actual results to differ
materially are environmental, tax or other regulatory developments, as well as
general market conditions, competition, pricing and ongoing availability of debt
or equity capital. Please refer to ExproFuels' Securities and Exchange
Commission filings, copies of which are available from the Company without
charge, for additional information.
<PAGE>
9
Results of Operations
ExproFuels total revenues for the second quarter and the six months ended
February, 1998 increased by approximately 30% over the same periods of fiscal
1997. Contributing most significantly was the increase in fuel station
construction revenues to $169,722 during the first quarter of 1998 from $19,454
in the first quarter of 1997. This increase was due to five new fuel station
construction contracts in the San Antonio area subsequent to the same period of
fiscal 1997. This increase was further due to a 58% increase in conversion sales
for the six month period reflecting new, higher value CNG and LNG conversion
contracts in Arizona and continued propane conversion demand in the Texas
market. Offsetting the increase somewhat was the 39% decrease in alternative
fuel sales for the second quarter of fiscal 1998 primarily due to the expiration
of fleet fueling contracts with the City of Plano and the Texas Department of
Criminal Justice facility at Beeville, Texas, as well as the unseasonably mild
winter, during the current period.
Current costs and expenses increased 10% and 27% from the respective second
quarter and six months of fiscal 1997. Contributing most significantly for the
six month period was the increase in costs of sales of $289,039 which increased
in part due to higher sales, as well as inventory adjustments during the period.
30, 1997. Reductions in general and administrative expenses reflect the results
of ongoing, company-wide cost cutting efforts, including reduced advertising,
promotion and outside consulting services expenses during the current quarter.
Subsequent to the end of the current quarter, ongoing monthly savings from
reduced operating and staffing levels in the Dallas and Tucson markets and the
elimination of associated office and shop overhead expenses should exceed
$16,000. The reduction in shop and overall general and administrative expense
for the six month period was offset somewhat by the opening of a new company
owned conversion facility in Mesa, Arizona, during the current quarter. Located
in the Phoenix metropolitan area, the 7,400 square foot facility will provide
full service and warranty support for existing customers and provides the
company with additional growth capacity as that local market develops.
Sublease rental income decreased to $0 for the current six month period due to
the expiration of the Company's former Louisiana shop facility sublease.
Interest expense increased over the previous fiscal periods due to the higher
level of debt outstanding for the entire current period of fiscal 1998.
Throughout fiscal 1998, the Company has continued in its efforts to identify new
opportunities to install additional fuel stations domestically, and to obtain
additional conversion contracts in Texas and Arizona. Management continues to
reevaluate operating activities in each of the Company's markets, with the
immediate goal of reducing ongoing operating losses. By strengthening its
affiliate shop relationships in selected markets, the Company intends to
maintain adequate service levels for its existing customer base, while reducing
operating overhead levels associated with company owned facilities. Accordingly,
the Company has completed the restructuring of its presence in the Dallas and
Tucson markets to affiliate shop status, insuring ongoing support for its
customer base, existing service contracts and warranty obligations.
<PAGE>
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any significant matters of litigation
incidental to its business, except for the following:
Disputes between ExproFuels and CNG International, AEI and ATI resulted
in the filing of two lawsuits in July, 1997, one by ExproFuels in
federal court in San Antonio, Texas, and the other by ATI and AEI in
state court in Memphis, Tennessee. In its lawsuit, ExproFuels claims
breach of contract and is seeking, among other things, (i) damages in
the amount of ExproFuels' investment in CNG International
(approximately $381,000), ExproFuels' unreimbursed expenses advanced to
CNG International (approximately $239,000) and ExproFuels' lost profits
or (ii) recision of ExproFuels' arrangement with CNG International and
a refund of all monies invested in or advanced to CNG International.
ATI and AEI, in their lawsuit, have sued ExproFuels for breach of
contract, tortious interference with contract, libel, slander,
defamation and unfair competition. ATI and AEI are seeking a
declaratory judgment that ExproFuels' interest in CNG International is
null and void as well as unspecified compensatory and exemplary
damages. During January 1998, both cases were consolidated into one
case, to be adjudicated in federal court in the Western District of
Tennessee. Both parties have reached a preliminary agreement to enter
into court-annexed non-binding mediation proceedings. A non-jury trial
date of March 22, 1999 has now been set. Should mediation efforts not
be successful, ExproFuels intends to pursue its claims and vigorously
defend itself against ATI's and AEI's claims. While the Company and its
counsel remain optimistic ExproFuels will prevail in the matter, it is
difficult to predict with any certainty the likelihood of an
unfavorable outcome of such litigation as of the date of this writing.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At November 30, 1997, the Company had accrued and unpaid interest due
of $6,049. As of the January 1, 1998 due date, the Company had not made
its quarterly interest payment and was technically in default under the
terms of the agreements. Prior to the end of the current quarter, the
Company paid all accrued interest due on its debt and obtained waivers
on the default from all debenture holders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXPROFUELS, INC.
(Registrant)
/s/ Roberto R. Thomae
Roberto R. Thomae,
Chief Financial Officer
(Signing on behalf of the Registrant and as
chief accounting officer)
Date: April 20, 1998
<PAGE>
12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXPROFUELS,
INC. UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED FEBRUARY 28, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<CIK> 0001034651
<NAME> EXPROFUELS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> DEC-1-1997
<PERIOD-END> FEB-28-1998
<CASH> 21898
<SECURITIES> 0
<RECEIVABLES> 129764
<ALLOWANCES> 10000
<INVENTORY> 276737
<CURRENT-ASSETS> 445273
<PP&E> 506229
<DEPRECIATION> 307490
<TOTAL-ASSETS> 678003
<CURRENT-LIABILITIES> 1429866
<BONDS> 502418
0
0
<COMMON> 40000
<OTHER-SE> 1294281
<TOTAL-LIABILITY-AND-EQUITY> 678003
<SALES> 369305
<TOTAL-REVENUES> 369305
<CGS> 300536
<TOTAL-COSTS> 549952
<OTHER-EXPENSES> (370)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9418
<INCOME-PRETAX> (189695)
<INCOME-TAX> 0
<INCOME-CONTINUING> (189695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (189695)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
