<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
/X/ EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
/ / EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_________________to_________________
Commission file No. 0-17454
NOXSO CORPORATION
Exact name of registrant as specified in its charter
VIRGINIA 54-1118334
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
2414 LYTLE ROAD
BETHEL PARK, PENNSYLVANIA 15102
Address of Principal executive offices Zip Code
Registrant's telephone number, including area code: (412) 854-1200
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___
As of May 14, 1996, the Company had 9,505,423 shares of Common Stock,
$.01 par value, outstanding.
Page 1
<PAGE> 2
NOXSO CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1996 and June 30, 1995 3
Consolidated Statements of Operations from August 28, 1979 (Date of Inception)
to March 31, 1996 and for the three months and nine months ended
March 31, 1996 and 1995 4
Consolidated Statements of Changes in Stockholders' Equity for the period
August 28, 1979 (Date of Inception) to March 31, 1996 5-7
Consolidated Statements of Cash Flows from August 28, 1979 (Date of Inception)
to March 31, 1996 and for the nine months
ended March 31, 1996 and 1995 8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE> 3
NOXSO CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 115,322 $ 461,360
Bank certificate of deposit 1,000,000 1,000,000
Accounts receivable 1,075,569 1,014,631
Prepaid expenses and other current assets 13,058 20,612
------------ ------------
Total Current Assets 2,203,949 2,496,603
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment 341,936 341,936
Furniture and Fixtures 111,661 95,314
Leasehold improvements 16,646 16,646
Construction in progress 4,554,462 847,955
------------ ------------
5,024,705 1,301,851
Less: Accumulated depreciation 401,295 378,889
------------ ------------
4,623,410 922,962
------------ ------------
OTHER ASSETS:
Deposits 4,308 4,308
------------ ------------
Total Assets $ 6,831,667 $ 3,423,873
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,674,000 $ 915,000
Accounts payable 535,212 693,426
Accrued compensation 16,879 28,259
Advanced Billings 1,238,381 194,575
Other current liabilities 92,354 81,984
------------ ------------
Total Current Liabilities 4,556,826 1,913,244
------------ ------------
OTHER LIABILITIES:
Minority Interest in Consolidated Subsidiary 5,120 --
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value: Authorized,
20,000,000 shares. Issued 9,349,560 shares and
9,098,810 shares, respectively 93,496 90,988
Paid-in capital 13,914,770 12,932,394
Deficit accumulated during the development stage (11,713,545) (11,487,753)
------------ ------------
2,294,721 1,535,629
Less: Cost of 2,985 shares of common stock held in treasury (25,000) (25,000)
------------ ------------
Total Stockholders' Equity 2,269,721 1,510,629
------------ ------------
Total Liabilities and Stockholders Equity $ 6,831,667 $ 3,423,873
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
NOXSO CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Three Months
Date of Inception, Ended March 31, Ended March 31,
August 28, 1979, ----------------------------- -----------------------------
to Mar. 31, 1996 1996 1995 1996 1995
----------------- ------------ ------------ ------------- ------------
(Not covered by
COSTS AND EXPENSES: auditor's report)
<S> <C> <C> <C> <C> <C>
Purchase of NOXSO Process $ 260,625 $ -- $ -- $ -- $ --
Contract development - concept testing 1,169,759 -- -- -- --
Contract development - demonstration testing 1,727,715 -- 698,925 -- 442,560
Designing, drafting and consulting 1,107,296 4,755 30,049 402 16,299
Supplies, instruments and equipment 1,948,882 14,358 81,659 5,920 37,245
Depreciation and amortization 522,237 22,405 23,985 8,892 8,061
Other research and development 386,309 -- 37,241 -- 17,837
Salaries and benefits 7,522,654 83,369 1,054,794 23,237 375,107
Professional fees 1,573,535 25,064 125,581 8,969 54,020
Rent 511,166 25,084 94,386 10,929 31,530
Other general and administrative 3,177,140 104,458 405,673 54,581 144,244
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 19,907,318 279,493 2,552,293 112,930 1,126,903
------------ ------------ ------------ ------------ ------------
LESS FUNDING AND OTHER:
Funding of research agreement 1,200,000 -- -- -- --
Reimbursement of project costs 4,854,190 -- 786,825 -- 213,761
Government grants 1,128,020 -- 22,909 -- --
Interest income 1,010,463 53,701 34,881 14,454 22,058
Other 7,085 4,820 -- 4,820 --
------------ ------------ ------------ ------------ ------------
TOTAL FUNDING AND OTHER 8,199,758 58,521 844,615 19,274 235,819
------------ ------------ ------------ ------------ ------------
MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED SUBSIDIARY 4,820 4,820 -- 4,820 --
------------ ------------ ------------ ------------ ------------
NET LOSS $(11,712,380) $ (225,792) $ (1,707,678) $ (98,476) $ (891,084)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE $ (0.02) $ (0.20) $ (0.01) $ (0.10)
AVERAGE NUMBER OF SHARES
OUTSTANDING 9,250,316 8,689,000 9,346,080 8,693,000
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
NOXSO CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 28, 1979, DATE OF INCEPTION, TO MARCH 31 1996
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------------------------
Consideration Common Stock
------------------- ------------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
------- --------- ----------- -------- ---------
AUGUST 28, 1979 (INCEPTION)
TO JUNE 30, 1991 (not covered by auditor's report):
<S> <C> <C> <C> <C> <C>
1979 - Issuance of Common Stock .005 $ 600(1) 120,000 $ 1,200 $ (600)
1980 - Issuance of Common Stock .563 956,250(2) 1,700,000 17,000 791,382
1980 - Issuance of Warrants -- 850(3) -- -- 850
1983 - Issuance of Common Stock .2813 28,125(4) 100,000 1,000 27,125
1986 - Issuance of Common Stock .125 155,000(1) 1,240,000 12,400 142,600
1986 - Issuance of Common Stock .125 32,500(5) 260,000 2,600 29,900
1987 - Issuance of Common Stock .50 134,000(1) 268,000 2,680 131,320
1987 - Issuance of Common Stock .50 42,900(5) 85,800 858 42,042
1988 - Issuance of Stock Option 250,000(6) -- -- 250,000
1989 - Issuance of Common Stock .675 27,000(7) 40,000 400 26,600
1989 - Issuance of Common Stock .50 147,500(8) 295,000 2,950 144,550
1989 - Issuance of Common Stock 2.50 4,000,000(2) 1,600,000 16,000 3,174,721
1989 - Issuance of Warrants 80(3) -- -- 80
1991 - Issuance of Common Stock 1.129 569,464(9) 504,620 5,046 564,418
1991 - Issuance of Common Stock .675 27,000(7) 40,000 400 26,600
1991 - Issuance of Common Stock .675 27,000(9) 40,000 400 26,600
Net loss -- -- --
--------- ----------- -----------
BALANCE, JUNE 30, 1991 6,293,420 $ 62,934 $ 5,378,188
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
-------------------------------------------------------------
Deficit Accumu- Notes
lated During Receivable
Development Treasury for Purchase of
Stage Stock Common Stock Total
------- ------- ------------ --------
AUGUST 28, 1979 (INCEPTION)
TO JUNE 30, 1991 (not covered by auditor's report):
<S> <C> <C> <C> <C>
1979 - Issuance of Common Stock $ -- $ -- $ -- $ 600
1980 - Issuance of Common Stock -- -- -- 808,382
1980 - Issuance of Warrants -- -- -- 850
1983 - Issuance of Common Stock -- -- -- 28,125
1986 - Issuance of Common Stock -- -- -- 155,000
1986 - Issuance of Common Stock -- -- -- 32,500
1987 - Issuance of Common Stock -- -- -- 134,000
1987 - Issuance of Common Stock -- -- -- 42,900
1988 - Issuance of Stock Option -- -- -- 250,000
1989 - Issuance of Common Stock -- -- (27,000) --
1989 - Issuance of Common Stock -- -- (30,000) 117,500
1989 - Issuance of Common Stock -- -- -- 3,190,721
1989 - Issuance of Warrants -- -- -- 80
1991 - Issuance of Common Stock -- -- -- 569,464
1991 - Issuance of Common Stock -- -- (27,000) --
1991 - Issuance of Common Stock -- -- -- 27,000
Net loss (3,278,694) -- -- (3,278,694)
----------- ---- ----------- -----------
BALANCE, JUNE 30, 1991 $(3,278,694) $ -- $ (84,000) $ 2,078,428
</TABLE>
(1) Sale of common stock for cash.
(2) Proceeds of public offering.
(3) Sale of warrants for cash.
(4) Value assigned to common stock issued in connection with purchase of NOXSO
Process.
(5) Value assigned to common stock issued for compensation and services.
(6) Sale of common stock option.
(7) Stock issued in connection with exercise of common stock warrants and
options for notes receivable.
(8) Stock issued in connection with exercise of common stock purchase warrants
for $117,500 cash and a $30,000 note receivable.
(9) Stock issued in connection with exercise of common stock option agreements.
See accompanying notes to financial statements.
5
<PAGE> 6
NOXSO CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 28, 1979, DATE OF INCEPTION, TO MARCH 31, 1996
(continued)
<TABLE>
<CAPTION>
Stockholders' Equity
-----------------------------------------
Consideration Common Stock
---------------------- ------------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
------- --------- ----------- -------- ---------
YEAR ENDED JUNE 30, 1992: (not covered in auditor's report)
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock $ 1.129 $ 683,356(9) 605,544 $ 6,056 $ 677,300
Issuance of Common Stock 7.50 2,000,000(1) 266,666 2,666 1,997,334
Issuance of Common Stock 2.75 5,500(9) 2,000 20 5,480
Issuance of Common Stock 2.00 69,124(10) 34,562 346 68,778
Issuance of Common Stock (11) 116,500 1,165 --
Satisfaction of notes receivable -- -- --
Net loss -- -- --
--------- --------- -----------
BALANCE, JUNE 30, 1992 7,318,692 73,187 8,127,080
YEAR ENDED JUNE 30, 1993:
Issuance of Common Stock 1.129 683,356(9) 605,544 6,056 677,300
Issuance of Common Stock 2.04 26,260(9) 12,866 129 26,131
Issuance of Common Stock .50 50,000 500 24,500
Acquisition of Common Stock for treasury -- -- --
Satisfaction of notes receivable -- -- --
Issuance of Common Stock 5.00 2,594,115(16) 571,250 5,712 2,588,403
Net loss -- -- --
--------- --------- -----------
BALANCE, JUNE 30, 1993 8,558,352 85,584 11,443,414
YEAR ENDED JUNE 30, 1994:
Issuance of Common Stock 1.129 113,888(9) 100,920 1,009 112,879
Issuance of Common Stock 2.00 23,624(13) 11,812 118 23,506
Net loss -- -- --
--------- --------- -----------
BALANCE, JUNE 30, 1994 8,671,084 $ 86,711 $11,579,799
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------------------------------------------
Deficit Accumu- Notes
lated During Receivable
Development Treasury for Purchase of
Stage Stock Common Stock Total
------- ------- ------------ --------
YEAR ENDED JUNE 30, 1992: (not covered in auditor's report)
<S> <C> <C> <C> <C>
Issuance of Common Stock $ -- $ -- $ -- $ 683,356
Issuance of Common Stock -- -- -- 2,000,000
Issuance of Common Stock -- -- -- 5,500
Issuance of Common Stock -- -- -- 69,124
Issuance of Common Stock (1,165) -- -- --
Satisfaction of notes receivable -- -- 57,000(12) 57,000
Net loss (2,223,382) -- -- (2,223,382)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1992 (5,503,241) -- (27,000) 2,670,026
YEAR ENDED JUNE 30, 1993:
Issuance of Common Stock -- -- -- 683,356
Issuance of Common Stock -- -- -- 26,260
Issuance of Common Stock -- -- (25,000) --
Acquisition of Common Stock for treasury -- 25,000(15) 25,000(15) --
Satisfaction of notes receivable -- -- 27,000(14) 27,000
Issuance of Common Stock -- -- -- 2,594,115
Net loss (2,292,197) -- -- (2,292,197)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1993 (7,795,438) (25,000) -- 3,708,560
YEAR ENDED JUNE 30, 1994:
Issuance of Common Stock -- -- -- 113,888
Issuance of Common Stock -- -- -- 23,624
Net loss (1,931,657) -- -- (1,931,657)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1994 $(9,727,095) $ (25,000) $ -- $ 1,914,415
</TABLE>
(1) Sale of common stock for cash.
(9) Stock issued in connection with exercise of common stock option agreements.
(10) Stock issued in connection with exercise of common stock warrant
agreements.
(11) Stock issued in exchange for warrant.
(12) Compensation in satisfaction of notes receivable.
(13) Stock issued in connection with exercise of common stock warrants.
(14) Payment in satisfaction of note receivable.
(15) Acquisition of 2,985 shares of treasury stock in satisfaction of notes
receivable.
(16) Stock issued in connection with private placement.
See accompanying notes to financial statements.
6
<PAGE> 7
NOXSO CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 28, 1979, DATE OF INCEPTION, TO MARCH 31, 1996
(continued)
<TABLE>
<CAPTION>
Stockholders' Equity
-----------------------------------------------
Consideration Common Stock
------------------- ------------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
------- --------- ----------- -------- ---------
YEAR ENDED JUNE 30, 1995:
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock 2.00 47,252(10) 23,626 236 47,016
Issuance of Common Stock 2.75 11,000(9) 4,000 40 10,960
Issuance of Common Stock 3.85 497,500(16) 150,000 1,500 496,000
Issuance of Common Stock 3.56 800,795(16) 250,000 2,500 798,295
Issuance of Common Stock 3.25 325(17) 100 1 324
Net loss -- -- --
--------- ------------ ------------
BALANCE, JUNE 30, 1995 9,098,810 $ 90,988 $ 12,932,394
NINE MONTHS ENDED MARCH 31, 1996:
Issuance of Common Stock 3.25 81,250(9) 25,000 250 81,000
Issuance of Common Stock 1.91 19,063(9) 10,000 100 18,963
Issuance of Common Stock 3.625 5,438(9) 1,500 15 5,423
Issuance of Common Stock 3.625 1,813(9) 500 5 1,808
Issuance of Common Stock 4.55 409,725(16) 100,000 1,000 408,725
Issuance of Common Stock 4.54 408,375(16) 100,000 1,000 407,375
Issuance of Common Stock 4.56 45,626(9) 10,000 100 45,526
Issuance of Common Stock 3.625 9,063(9) 2,500 25 9,038
Issuance of Common Stock 3.625 2,719(9) 750 8 2,711
Issuance of Common Stock 3.625 1,812(9) 500 5 1,807
Net loss -- -- --
------------ ------------ ------------
BALANCE, MARCH 31, 1996 9,349,560 $ 93,496 $ 13,914,770
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------------------------------------------
Deficit Accumu- Notes
lated During Receivable
Development Treasury for Purchase of
Stage Stock Common Stock Total
------- ------- ------------ --------
YEAR ENDED JUNE 30, 1995:
<S> <C>
Issuance of Common Stock -- -- -- 47,252
Issuance of Common Stock -- -- -- 11,000
Issuance of Common Stock -- -- -- 497,500
Issuance of Common Stock -- -- -- 800,795
Issuance of Common Stock -- -- -- 325
Net loss (1,760,658) -- -- (1,760,658)
---------- -------- ------ ------------
BALANCE, JUNE 30, 1995 (11,487,753) $ (25,000) $- $ 1,510,629
NINE MONTHS ENDED MARCH 31, 1996:
Issuance of Common Stock -- -- -- 81,250
Issuance of Common Stock -- -- -- 19,063
Issuance of Common Stock -- -- -- 5,438
Issuance of Common Stock -- -- -- 1,813
Issuance of Common Stock -- -- -- 409,725
Issuance of Common Stock -- -- -- 408,375
Issuance of Common Stock -- -- -- 45,626
Issuance of Common Stock -- -- -- 9,063
Issuance of Common Stock -- -- -- 2,719
Issuance of Common Stock -- -- -- 1,812
Net loss (225,792) -- -- (225,792)
----------- ------------ -- ------------
BALANCE, MARCH 31, 1996 (11,713,545) $ (25,000) $- $ 2,269,721
=========== ============ == ============
</TABLE>
(9) Stock issued in connection with exercise of common stock option agreements.
(10) Stock issued in connection with exercise of common stock warrant
agreements.
(16) Stock issued in connection with private placement.
(17) Stock issued as contribution.
See accompanying notes to financial statements.
7
<PAGE> 8
NOXSO CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Date of Inception, Nine Months
August 28, 1979, Ended March 31,
to Mar. 31, 1996 1996 1995
---------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C> <C>
Net loss $(11,712,380) $ (225,792) $ (1,707,678)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 516,818 22,405 23,985
Loss on disposal of property and equipment 5,752 -- --
Minority Interest 5,120 5,120 --
Issuance of common stock for compensation and other 75,725 -- --
Issuance of common stock for purchase of NOXSO Process 28,125 -- --
Compensation in satisfaction of notes receivable 57,000 -- --
Changes in operating assets and liabilities:
Accounts receivable (1,075,569) (60,938) 722,351
Prepaid expenses and other current assets (8,128) 7,554 15,366
Deposits (4,308) -- --
Accounts payable 535,212 (158,214) 127,832
Accrued compensation 16,879 (11,380) (24,898)
Advanced Billings 1,238,381 1,043,806 --
Other current liabilities 92,354 10,370 162,742
------------ ------------ ------------
Net cash flows from operating activities (10,229,019) 632,931 (680,300)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of and deposits for property and equipment (5,150,528) (3,722,854) (2,298)
Bank certificate of deposit (1,000,000) -- 29,157
U.S. Government fund -- -- --
Proceeds from the sale of property and equipment 4,546 -- --
------------ ------------ ------------
Net cash flows from investing activities $ (6,145,982) (3,722,854) 26,859
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement offering 4,710,510 818,100 --
Proceeds from line of credit 3,025,000 1,525,000 725,000
Payments of line of credit (2,025,000) (770,000) (400,000)
Proceeds from issuance of common stock 7,760,647 -- --
Proceeds from sales of common stock
options and warrants 1,323,096 166,785 58,252
Proceeds from satisfaction of notes receivable 27,000 -- --
Proceeds from ACOA and Olin loans 1,674,000 1,004,000 340,000
Net loans to stockholders and officers (4,930) -- --
------------ ------------ ------------
Net cash flows from financing activities 16,490,323 2,743,885 723,252
------------ ------------ ------------
NET INCREASE (DECREASE), CASH AND EQUIVALENTS 115,322 (346,038) 69,720
CASH AND EQUIVALENTS, BEGINNING OF PERIOD -- 461,360 85,815
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 115,322 $ 115,322 $ 155,535
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 183,961 $ 106,798 $ 52,113
============ ============ ============
NONCASH FINANCING ACTIVITIES:
Issuance of common stock for notes receivable $ 84,000 $ -- $ --
============ ============ ============
Acquisition of common stock into treasury to satisfy
notes receivable $ (25,000) $ -- $ --
============ ============ ============
Issuance of common stock in exchange for warrant $ 1,165 $ -- $ --
============ ============ ============
Compensation in satisfaction of notes receivable $ 57,000 $ -- $ --
============ ============ ============
</TABLE>
See Accompanying notes to financial statements.
8
<PAGE> 9
NOXSO CORPORATION (A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has
been derived from the audited balance sheet contained in the Company's Form 10-K
and is presented for comparative purposes. All other financial statements are
unaudited. In the opinion of management, all adjustments which include only
normal recurring adjustments necessary to present fairly the financial position,
results of operations, changes in stockholders' equity and cash flows for all
periods presented, have been made. The results of operations for interim periods
are not necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the published rules and regulations of the Securities
and Exchange Commission. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the most recent fiscal year.
Note 2 - Full-Scale Commercial Demonstration:
On August 30, 1994, a Project Agreement between the Company
and Alcoa Generating Company ("AGC") was executed for the design, construction,
and operation of a proposed demonstration facility at AGC's Warrick Generating
Station in Newburgh, Indiana, upon satisfaction of certain conditions. One of
the conditions in the agreement is that the sulfur by-product of the NOXSO
process be removed from the Warrick site and converted into liquid SO(2). The
Company must secure a long term buyer of the liquid SO(2) at a price suitable to
the financial requirements of the project. This and all the other conditions of
the AGC agreement have been met with the exception of obtaining the remaining
funds to cover the Company's costs of the project. The Company expects to
satisfy the remaining condition through the sale of revenue bonds issued and
guaranteed by the State of Indiana. On January 22, 1996 the Governor of Indiana
signed a document granting the Company a $40,000,000 guarantee for the bonds. A
financing enhancement letter of credit is now being negotiated with a major
bank. Management believes this letter of credit will be obtained and the bonds
sold prior to the end of the third calendar quarter of 1996.
On February 24, 1995, the Company was granted a $1,000,000
loan from the Aluminum Company of America ("ACOA") for a one year term at 8.75%
interest payable quarterly in arrears. As an inducement to make the loan the
Company granted ACOA a warrant to purchase 60,000 shares of the Company's common
stock between February 24, 1995 and February 24, 1997 at market (3.75 per share)
on the day of execution of the AGC agreement (August 29, 1994). The term of the
loan was extended from one year to one year and 45 days or to April 8, 1996, on
that date the loan was repaid in full along will all interest due.
9
<PAGE> 10
The cost of the proposed facility through construction is
currently estimated at $72,600,000. Of this amount, $17,730,000 has been spent
as of March 31, 1996, leaving $54,870,000 as the estimate to complete
construction. Of the funds expended to date, $8,865,000 have been provided by
the U.S. Department of Energy ("DOE") and NOXSO has provided the remaining
$8,865,000 through equity financing and a loan of $1,674,000 from Olin
Corporation and ACOA. The funds currently anticipated to be needed for
completion of the construction of the facility are $27,435,000 from the DOE and
NOXSO expects to sell approximately $40,000,000 in revenue bonds to pay for its
share. This is the amount necessary to match the amount provided by the DOE,
plus cover the estimated financing costs and cash reserves required by the bond
issue. There is no assurance that the Company will be able to obtain such
funding, and the Company does not currently have an alternate means of financing
its share. The Company does not currently know if or when it will be able to
secure state and local funding.
Note 3 - Olin Loan:
On April 2, 1996 the Company obtained from Olin Corporation a
loan in the amount of $1,200,000 to be repaid on or before August 1, 1996 at a
rate of 10% interest. These funds are being used to pay the Company's share of
construction costs on the project. It is expected that funds from the sale of
bonds will be used to repay the loan.
Note 4 - Formation of Construction Management Company:
------
During November 1995, the Company formed a new subsidiary
called Projex, Inc. The Company holds 70% of the stock in Projex while two
managing principles of Projex hold the remaining 30% of such stock. Projex was
capitalized with contributions of $1,000. Projex was formed to perform
construction management services. The first contract obtained by Projex is a
$2,500,000 contract to perform the construction management on the NOXSO
full-scale demonstration facility. Because of the Company's majority ownership
of Projex, Projex's financial statements are consolidated herein.
Note 5 - Private Placement of Company Shares:
------
In April 1996, the Company sold in a private sale 155,863
shares of its Common Stock. The Company received net proceeds of $500,000 from
such private placement. These funds are being used to provide funding for the
full-scale demonstration facility.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company is a development stage Company engaged in
developing and testing the NOXSO Process. Since inception, the Company has
dedicated substantially all its resources to the acquisition, development and
testing of the NOXSO Process. Since its inception, the Company's capital
resources have been derived from various sources including the sale of the
Company's common stock in both public and private offerings, government grants,
research contracts, cooperative research activities, and interest income.
The Company's resources have been used to conduct a series of
test programs which provided the data necessary to bring the NOXSO Process to
its present stage of development. The first of these programs began in 1980 in
Paducah, Kentucky, at the TVA Shawnee Steam Plant. The second phase of
development began in 1985, after a move to DOE's Pittsburgh Energy Technology
Center, near Pittsburgh, Pennsylvania, and these tests continued through June of
1989. This development program was continued by a Pilot-Scale facility at the
Ohio Edison power plant located at Toronto, Ohio. This Pilot-Scale Project was
completed in December of 1992 with over 10,000 hours of testing.
During the nine months ended March 31, 1996 cash and
equivalents decreased by $346,038 to $115,322. This decrease is due to the
payment of the Company's share of the construction costs on the full-scale
demonstration project which were $3,721,273 for the period. These costs were in
part covered by a loan from Olin Corporation of $674,000 and a private placement
of the Company's common shares (200,000) netting the Company $818,000. In the
fourth quarter of fiscal 1995 the Company began to capitalize its share of costs
associated with the full-scale demonstration facility. This appears on the
balance sheet as construction in progress. These costs are the Company's share
of the total costs of the project net of the funds received from the U.S.
Department of Energy (DOE). The amount of $4,554,462 represents these costs
expended since the fourth quarter of fiscal 1995. Notes payable increased by
$1,759,000 due to the final disbursement of $330,000 from ACOA, a $674,000 loan
from Olin and a draw against the Company's line of credit. These funds have been
used to provide cash for the Company's 50% share of the construction costs of
the full-scale demonstration facility. These notes are due for repayment upon
the receipt of the bond funds. Monies anticipated from billings to the DOE prior
to the costs being incurred on the full-scale demonstration facility are in the
amount of $1,238,381. The costs associated with these monies will be incurred
during the month subsequent to billing. The Company's current ratio decreased
from 1.3:1 at June 30, 1995 to .48:1 at March 31, 1996. This decrease is the
result of increased liabilities from advance payments and notes payable. As of
March 31, 1996 the Company had negative $2,352,877 in working capital. This
deficiency will be rectified upon receipt of the funds from the sale of the
Indiana state revenue bonds. The decrease in working capital is the result of
the Company funding its share of the costs for the full-scale demonstration
facility.
11
<PAGE> 12
Private Placement of Company Shares. In April 1996, the
Company sold in a private sale 155,863 shares of its Common Stock. The Company
received net proceeds of $500,000 from such private placement to provide funding
for the full-scale demonstration facility.
Olin Loan. On April 2, 1996 the Company obtained from Olin
Corporation a loan in the amount of $1,200,000 to be repaid on or before August
1, 1996 at a rate of 10% interest. These funds are being used to pay the
Company's share of construction costs on the project. It is expected that funds
from the sale of bonds will be used to repay the loan.
Full-Scale Commercial Demonstration. On August 30, 1994, a
Project Agreement between the Company and Alcoa Generating Company ("AGC") was
executed for the design, construction, and operation of a proposed demonstration
facility at AGC's Warrick Generating Station in Newburgh, Indiana, upon
satisfaction of certain conditions. One of the conditions in the agreement is
that the sulfur by-product of the NOXSO process be removed from the Warrick site
and converted into liquid SO(2). The Company must secure a long term buyer of
the liquid SO(2) at a price suitable to the financial requirements of the
project. This and all the other conditions of the AGC agreement have been met
with the exception of obtaining the remaining funds to cover the Company's
costs of the project. The Company expects to satisfy the remaining condition
through the sale of revenue bonds issued and guaranteed by the State of
Indiana. On January 22, 1996 the Governor of Indiana signed a document
granting the Company a $40,000,000 guarantee for the bonds. A financing
enhancement letter of credit is now being negotiated with a major bank.
Management believes this letter of credit will be obtained and the bonds sold
prior to the end of the third calendar quarter of 1996.
On February 24, 1995, the Company was granted a $1,000,000
loan from Aluminum Company of America ("ACOA") for a one year term at 8.75%
interest payable quarterly in arrears. As an inducement to make the loan the
Company granted ACOA a warrant to purchase 60,000 shares of the Company's common
stock between February 24, 1995 and February 24, 1997 at market (3.75 per share)
on the day of execution of the AGC agreement (August 29, 1994). The term of the
loan was extended from one year to one year and 45 days or to April 8, 1996, on
that date the loans was repaid in full along will all interest due.
The cost of the proposed facility through construction is
currently estimated at $72,600,000. Of this amount, $17,730,000 has been spent
as of March 31, 1996, leaving $54,870,000 as the estimate to complete
construction. Of the funds to date, $8,865,000 have been provided by the U.S.
Department of Energy ("DOE") and NOXSO has provided the remaining $8,865,000
through equity financing and the loan from Olin Corporation. The funds currently
anticipated to be needed for completion of the construction of the facility are
$27,435,000 from the DOE and NOXSO expects to sell approximately $40,000,000 in
revenue bonds. This is the amount necessary to match the amount provided by the
DOE, plus cover the financing costs and cash reserves required by the bond
issue. There is no assurance that the Company will be able to obtain such
funding, and the Company does not currently have an alternate means of financing
its share. The Company does not currently know if or when it will be able to
secure state and local funding. The Company currently anticipates spending
approximately $2,000,000 of its own resources in the 1996 fiscal year or the
project and approximately $4,600,000 over the term of
12
<PAGE> 13
the project. This use of capital may decrease liquidity materially, but should
not preclude the Company from continuing its normal operations.
The Company is currently negotiating with Olin Corporation to
provide an advance against revenues that Olin would pay to the Company over the
first two years of the liquid SO(2) purchase agreement. The amount of the
advance is anticipated to be $4,700,000 which, when coupled with an equal
$4,700,000 in matching funds from the DOE, will be sufficient to complete the
liquid SO(2) plant at the Olin facility in Tennessee. In the event the Company
is unable to meet the remaining condition required under the AGC project
agreement the Company would lose $27,575,000 of the DOE funding. This loss of
funding would probably mean that the Company would not find an alternate site
at which to conduct the full-scale commercial demonstration, and would require
that greater emphasis be placed upon the test results of the Company's pilot
plant tests conducted at Toronto, Ohio and the 7 megawatt demonstration
project on which construction was completed in late 1994 and the demonstration
of which currently is expected to be completed in the Spring of 1996 in
Denmark by FLS miljo a/s, the Company's European licensee. Because of the
reluctance of regulated utilities to purchase process technology which has not
been tested on a commercial scale and due to the uncertainty of cost
considerations, the Company believes that it would be much more difficult to
secure sales of the NOXSO Process to public utilities if no full-scale
commercial demonstration is conducted. This might require the Company to shift
the emphasis of its initial sales efforts away from public utilities and more
towards industrial applications.
Further, the inability to meet the Project Agreement
conditions could result in the loss of revenues expected to be generated as
utilities retrofit in order to comply on a timely basis with Phase II
requirements of the Clean Air Act. If this occurred, the Company would
concentrate its marketing efforts on those power stations having the ability to
postpone compliance beyond the year 2000 as well as to new power plants. Utility
companies with multiple power stations would be able to postpone compliance
beyond the year 2000 by accumulating the regulatory allowances gained by their
power plants already in compliance and applying these allowances to their other
plants that are not in compliance.
The Company believes that present funds on hand and collection
of accounts receivable together with reimbursement of a portion of its costs in
connection with the full-scale demonstration, will be sufficient to fund its
proposed operations for the next 12 months. If the Company is to proceed with
the full-scale commercial demonstration, the Company will be required to obtain
approximately $36,300,000 to pay the unfunded portion of the expected
$72,600,000 cost of the commercial demonstration. These funds will have to be
obtained by the Company either through funding agreements with private parties
or by the Company's own capital raising efforts. It is presently anticipated
that these funds will come from the sale of revenue bonds. No assurance can be
given that the Company will be able to obtain the necessary funding commitments,
although the Company has received commitments aggregating $2,000,000, of which
$500,000 is from EPRI and $1,500,000 is from Gas Research Institute. The
remaining $34,300,000 remains unfunded, and no assurance can be given that the
Company would be able to raise the necessary funds. Consequently, the Company's
future liquidity could be adversely affected.
13
<PAGE> 14
During November 1995, the Company formed a new subsidiary
called Projex, Inc. The Company holds 70% of the stock in Projex while two of
the managing principles of Projex holds the remaining 30% of such stock. Projex
was formed to perform construction management services. The first contract
obtained by Projex is a $2,500,000 contract to perform the construction
management on the NOXSO full-scale demonstration facility.
Over the next twelve months, the Company also expects to spend
up to approximately $250,000 for marketing and approximately $200,000 on further
engineering, modeling and testing of the NOXSO Process.
RESULTS OF OPERATIONS
Inception to March 31, 1996.
To date, the Company has not derived any revenues from
operations. All revenues to date have consisted of research funding, government
grants, reimbursement of project costs and interest income, aggregating
$8,199,758 through March 31, 1996. As a result of the significant expenses
incurred from inception through March 31, 1996 in connection with the
acquisition, development and testing of the NOXSO Process, as well as general
and administrative expenses that have been incurred, the Company had an
accumulated deficit of $11,712,380 at March 31, 1996. Since inception through
March 31, 1996, the Company's total costs and expenses were $19,907,318,
including $7,522,654 relating to salaries and benefits.
Nine Months Ended March 31, 1996
Compared to the Nine Months Ended March 31, 1995.
Total funding, interest income and reimbursement of project
costs for the nine months ended March 31, 1996 and 1995 were $58,521 and
$844,615, respectively, while total costs and expenses for the same periods were
$279,493 and $2,552,293, respectively. These decreases reflect the
capitalization as construction in progress of project costs, net of DOE
reimbursements, related to the full-scale commercial demonstration during the
nine months ended March 31, 1995.
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995.
Total funding, interest income and reimbursement of project
costs for the three months ended March 31, 1996 and 1995 were $19,274 and
$235,819, respectively, while total costs and expenses were $112,930 and
$1,126,903, respectively for the same periods. These decreases reflect the
capitalization as construction in progress of project costs, net of DOE
reimbursements, related to the full-scale commercial demonstration during the
three months ended March 31, 1996.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5 - NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports - None
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.
NOXSO CORPORATION
Registrant
Date: February 13, 1996 By: /s/ Lewis G. Neal
-----------------------------
Lewis G. Neal, President
(On behalf of the Registrant)
Date: February 13, 1996 By: /s/ John L. Haslbeck
-----------------------------
John L. Haslbeck, Treasurer
15
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