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
November 31, 1997
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 January 9, 1997.
Common Stock $0.01 par value 4,000,000
(Class of Stock) (Number of Shares)
Total number of pages is 12
PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS NOVEMBER 30, 1997 AUGUST 31, 1997
- ------ -------- -------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 53,445 $ 31,647
Accounts receivable, net 228,811 141,754
Inventories 358,408 400,517
Prepaid expenses and other 26,122 34,159
Total Current Assets 666,786 608,077
PROPERTY AND EQUIPMENT
Transportation and other equipment 134,396 133,883
Equipment under capital leases 93,326 93,326
Fuel stations 284,292 280,889
Less accumulated depreciation and amortization (291,436) (270,436)
Net property and equipment 220,578 237,662
OTHER ASSETS
Investment in and advances to CNG International -0- -0-
Other assets 42,075 45,099
42,075 45,099
TOTAL ASSETS $ 929,439 $ 890,838
</TABLE>
See notes to financial statements.
PAGE>
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS EQUITY NOVEMBER 30, 1997 AUGUST 31, 1997
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 703,335 $ 495,468
Current portion of long-term debt 8,485 8,945
Current portion of long-term debt-affiliates 752,342 561,225
Current portion of capital lease obligations 20,677 21,062
Total Current Liabilities 1,484,839 1,086,700
LONG TERM LIABILITIES
Long-term debt 506,183 507,946
Long-term capital lease obligations 3,003 8,656
Total Long-term Liabilities 509,186 516,602
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 (4,590,722) (4,238,600)
Total Stockholders Equity (1,064,586) (712,464)
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 929,439 $ 890,838
============== =============
</TABLE>
See notes to financial statements.
<PAGE>
EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
REVENUES:
Conversion sales $ 117,923 $ 157,333
Fuel station construction sales 169,722 19,453
Alternative fuel sales 72,736 85,694
360,381 262,480
COSTS AND EXPENSES:
Cost of sales 419,931 203,988
Shop general and administrative 97,142 116,000
Depreciation and amortization 24,073 21,833
General and administrative 157,626 138,925
Total costs and expenses 698,772 480,746
Loss from operations (338,391) (218,266)
OTHER INCOME (EXPENSE):
Sublease rental income -0- 13,500
Interest income 228 208
Interest expense (13,959) (5,992)
(13,731) 7,716
Net loss $ (352,122) $ (210,550)
AMOUNTS PER COMMON SHARE:
Net loss $ (0.09) $ (0.05)
============ ==========
</TABLE>
See notes to financial statements.
<PAGE>
EXPROFUELS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (352,122) $ (210,550)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization 24,073 21,833
Changes in operating assets and liabilities:
Receivables (87,057) (5,255)
Inventory 42,109 (68,533)
Prepaid expenses and other 8,037 5,020
Accounts payable and accrued expenses 207,867 73,548
Net cash (used) in operating activities (157,093) (183,937)
INVESTING ACTIVITIES:
Purchases of property and equipment (3,916) (1,986)
Investments in and advances to venture -0- (31,798)
Other assets (49) (6,389)
Net cash (used) in investing activities (3,965) (40,173)
FINANCING ACTIVITIES:
Advances from former parent company 191,117 40,000
Proceeds from long-term debt obligations -0- 200,000
Payments on long-term obligations (8,261) (7,823)
Net cash provided by financing activities 182,856 232,177
INCREASE IN CASH AND EQUIVALENTS 21,798 8,067
Cash and equivalents at beginning of period 31,647 20,871
CASH AND EQUIVALENTS AT END OF PERIOD $ 53,445 $ 28,938
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
EXPROFUELS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED MAY 31, 1997 AND MAY 31, 1996
(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-Q 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 Companys 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 Companys 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 and the fiscal year ended August
31, 1996, which are incorporated herein by reference.
2. COMMON STOCK AND LOSS PER SHARE
The Companys 1996 Flexible Incentive Plan (the Plan) provides incentive stock
options for granting to its officers, directors and management, under which
options for the purchase of 400,000 shares of common stock have been reserved.
As of November 30, 1997, the Company had outstanding options for the purchase of
300,000 shares of common stock granted under the terms of the Plan, all of which
vest 50% in one year and 100% in two years. The options are exercisable at 110%
of appraised fair market value of the common stock, which was $0.13 per share on
the date of the grant and expire ten years from the date of the grant, or upon
termination of employment, if earlier.
In February, 1997 the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, effective for interim or annual periods ending after
December 15, 1997. Implementation of this Statement is not expected to have a
significant impact on the earnings per share calculation of the Company.
Loss per share is computed based on the weighted average number of common shares
outstanding during the periods presented as follows:
<TABLE>
<CAPTION>
THREE MONTHS
------------
<S> <C>
November 30, 1997 4,000,000
November 30, 1996 4,000,000
</TABLE>
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 November 30, 1997, 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
requires quarterly interest payments computed at 6%, and are convertible at the
payees option into common stock of the Company at the rate of $1 of debt to 1
share of common stock. At November 30, 1997, the Company had accrued and unpaid
interest due of $6,049. As of January 1, 1998, the Company had not made the
quarterly interest payment due and was technically in default under the terms of
the agreements. Subsequently, on January 20, 1998, the Company paid all accrued
interest due on its debt, had obtained waivers on the default pertaining to a
$200,000 portion of the outstanding debentures, and was in process of obtaining
waivers on the remaining portion.
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 Companys audited financial
statements and notes thereto for the fiscal year ended August 31, 1997, included
in the Companys Form 10-KSB.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At August 31, 1997, the Company had cash on hand of $31,647, a working capital
deficiency of $478,623 based on current assets of $608,077 and current
liabilities of $1,086,700, and a stockholders deficit of $712,464. This
compared to cash on hand of $53,445 at November 30, 1997, a working capital
deficiency of $818,053 based on current assets of $666,786 and current
liabilities of $1,484,839 resulting in a stockholders deficit of $1,064,586.
Through the three months ended November 30, 1997 the Company raised cash from
its net operating activities of $21,798, while its principal source of working
capital came in the form of advances from its former parent, The Exploration
Company (TXCO), totaling $191,117 for the period. The Company used available
capital to fund its net loss of $352,122 and capital investments totaling $3,965
for purchases of property and equipment during the period.
In order to meet the Companys 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 anticipates returning to the same financiers of its
Convertible Debt for funding its additional debt or equity financing needs;
however, the Company has secured no commitment for such additional financing as
of the date hereof, nor has it obtained firm commitments from any of its lenders
or creditors to refinance its outstanding debt when it comes due. In addition,
while the Companys former Parent, had committed additional working capital
funds through December 31, 1997, TXCO has advised the Company that no additional
funds will be available from this source after that date. All of these factors
raise substantial doubt as to the Companys ability to continue as a going
concern.
The Companys 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 Managements efforts to raise additional
capital are not successful, the Companys financial condition and liquidity and
its ongoing ability to maintain its operations as a going concern, will be
materially adversely affected.
RESULTS OF OPERATIONS
ExproFuels total revenues for the three months ended November 30, 1997 increased
by 37.3% to $360,381 compared to the same quarter of 1996. Contributing most
significantly was an increase of $150,269 in fuel station construction revenues
increasing from $19,453 for the first quarter of 1996 to $169,722 for the
current quarter. This increase was due to five new fuel station construction
contracts in the San Antonio area. This increase was partially offset by a 25%
decrease in conversion sales of $39,410, from $157,333 in the prior year to
$117,923 during the current quarter due to the completion of existing contracts
during the period while less new contracts were added during the quarter.
Additionally offsetting the increase was a 15% decrease in alternative fuel
sales of $12,958 from $85,694 last year to $72,736 for the same quarter this
year 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
during the current quarter.
Costs and expenses increased $218,026 to $698,772 in the current quarter from
$480,746 for the same quarter last year. Costs of sales increased $215,943
primarily due to inventory adjustments resulting from the physical inventory
taken at November 30, 1997 and costs associated with new fuel station
construction projects during the period.
Sublease rental income decreased to $0 in the first quarter compared to $13,500
in the same period of 1997 due to the expiration of the Companys original lease
of its old Louisiana shop facility which had been subleased on a breakeven basis
since 1995. Interest expense for the current quarter increased by $7,967 as a
result of borrowings under its working capital credit agreement provided by the
Companys former parent.
Subsequent to the end of the current quarter, 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
Companys markets, with the immediate goal of reducing ongoing operating losses.
By strenghtening 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.
<PAGE>
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. Recent actions have resulted in the consolidation of the lawsuits in
federal court in Memphis, Tennessee with the parties being directed to enter
into arbitration. ExproFuels intends to pursue its claims and vigorously defend
itself against ATIs and AEIs 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. Subsequently, on January 20, 1998, the Company paid all accrued
interest due, had obtained waivers on the default for a $200,000 portion of the
outstanding debentures, and was in process of obtaining waivers of its default
on the remaining portion.
Management is confident that it will obtain waivers of its default from its
remaining debenture holders as provided for under the terms of the agreements
and further expect to restructure the remaining debt with more favorable terms
during the second quarter of Fiscal 1998.
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
<PAGE>
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: January 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXPROFUELS,
INC. UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED NOVEMBER 30, 1997 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> SEP-1-1997
<PERIOD-END> NOV-30-1997
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<ALLOWANCES> 10000
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<PP&E> 512014
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<CURRENT-LIABILITIES> 1484839
<BONDS> 509186
0
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</TABLE>
