SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-17454
NOXSO CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1118334
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
2414 Lytle Road 15102
Bethel Park, PA Zip Code
Address of principal executive offices
Registrant's telephone number, including area code: (412) 854-1200
Not Applicable
Former name, former address and former fiscal year, if changed since last report
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 the latest practicable date.
Class Outstanding at April 30, 1997
Common stock, $.01 par value 10,286,944
<PAGE>
NOXSO CORPORATION
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION........................................... 1
Item 1. Consolidated Financial Statements .............................. 1
Consolidated Balance Sheets as of March 31, 1997 and
June 30, 1996................................................. 2
Consolidated Statements of Operations for the Cumulative
Period from Inception (August 28, 1979) to
March 31, 1997 and for the three and
nine months ended March 31, 1997 and 1996..................... 3
Consolidated Statements of Changes in Stockholders'
Equity for the Cumulative Period from Inception
(August 28, 1979) to March 31, 1997........................... 4
Consolidated Statements of Cash Flows for the Cumulative
Period from Inception (August 28, 1979) to March 31, 1997
and for the nine months ended March 31, 1997 and 1996......... 8
Notes to Consolidated Financial Statements...................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 15
PART II OTHER INFORMATION............................................... 21
Item 1. Legal Proceedings............................................... 21
Item 2. Changes in Securities........................................... 21
Item 3. Defaults Upon Senior Securities................................. 21
Item 6. Exhibits and Reports on Form 8-K................................ 22
SIGNATURES................................................................. 23
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (to follow on next page)
1
<PAGE>
NOXSO Corporation
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30, 1996
ASSETS 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 188,344 $ 464,723
Bank certificate of deposit 1,000,000 1,000,000
Accounts receivable 144,693 2,163,420
Prepaid expenses and other current assets 143,360 38,136
------------ ------------
Total Current Assets 1,476,397 3,666,279
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment 341,936 341,936
Furniture and Fixtures 156,830 111,661
Leasehold improvements 16,646 16,646
Construction in progress 11,434,869 7,469,545
------------ ------------
11,950,281 7,939,788
Less: Accumulated depreciation (441,990) (412,151)
------------ ------------
11,508,291 7,527,637
------------ ------------
Other assets 720 1,172
Deposits 4,308 4,308
------------ ------------
Total Assets $ 12,989,716 $ 11,199,396
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,124,000 $ 2,874,000
Accounts payable 8,517,873 3,424,692
Accrued compensation 17,831 98,975
Advanced billings 0 1,379,549
Deferred income taxes 115,094 0
Other current liabilities 731,958 290,945
------------ ------------
Total Current Liabilities 12,506,756 8,068,161
------------ ------------
OTHER LIABILITIES:
Minority interest in consolidated subsidiary 47,704 26,781
Long term debt obligation 394,616
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: Authorized,
20,000,000 shares. Issued 10,289,929 shares and
9,652,096 shares, respectively 102,901 96,523
Paid-in capital 16,172,030 14,914,953
Deficit accumulated during the development stage (16,209,291) (11,882,022)
------------ ------------
65,640 3,129,454
Less: Cost of 2,985 shares of common stock held in treasury (25,000) (25,000)
------------ ------------
Total Stockholders' Equity 40,640 3,104,454
------------ ------------
Total Liabilities and Stockholders' Equity $ 12,989,716 $ 11,199,396
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NOXSO Corporation
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Date of Inception, Nine Months Three Months
August 28, 1979, to Ended March 31, Ended March 31,
March 31, 1997
1997 1996 1997 1996
----------- ----------- ----------- ----------- -----------
(Not covered by
auditor's report)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES:
Purchase of NOXSO Process $ 260,625 $ -- $ -- $ -- $ --
Contract development - concept testing 1,169,759 -- -- -- --
Contract development - demonstration testing 1,727,715 -- -- -- --
Designing, drafting and consulting 1,120,681 13,390 4,755 5,900 402
Supplies, instruments and equipment 1,983,880 29,836 14,358 11,581 5,920
Depreciation and amortization 562,639 29,706 22,405 8,230 8,892
Other research and development 386,309 -- -- -- --
Salaries and benefits 8,090,714 475,796 83,369 281,256 23,237
Professional fees 1,692,473 110,679 25,064 5,398 8,969
Rent 610,044 90,461 25,084 41,452 10,929
Income tax expense 115,268 82,087 -- -- --
Other general administrative 5,191,296 1,895,491 104,458 1,264,209 54,581
ALCOA Project Expense 2,049,331 2,049,332 -- 116,849 --
----------- ----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 24,960,734 4,776,778 279,493 1,734,875 112,930
----------- ----------- ----------- ----------- -----------
LESS FUNDING AND OTHER:
Funding of research agreement 1,200,000 -- -- -- --
Reimbursement of project costs 4,991,274 91,302 -- 1,750 --
Government grant 1,128,020 -- -- -- --
Interest income 1,080,512 42,190 53,701 11,375 14,454
Other 399,905 336,638 4,820 50,930 4,820
----------- ----------- ----------- ----------- -----------
TOTAL FUNDING AND OTHER 8,799,711 470,130 58,521 64,055 19,274
----------- ----------- ----------- ----------- -----------
Minority interest in net income of
consolidated subsidiary 47,105 20,623 4,820 (5,271) 4,820
----------- ----------- ----------- ----------- -----------
NET LOSS 16,208,128 $(4,327,271) $ (225,792) $(1,665,549) $ (98,476)
=========== =========== =========== =========== ===========
LOSS PER COMMON SHARE $ (.44) $ (0.02) $ (0.16) $ (0.01)
AVERAGE NUMBER OF SHARES
OUTSTANDING 9,868,164 9,250,316 10,233,811 9,346,080
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
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, 1997
<TABLE>
<CAPTION>
Stockholders' Equity
-------------------------------------------------------------------------
Consideration Common Stock
---------------------------- --------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
-------- ------------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
AUGUST 28, 1979 (INCEPTION)
TO JUNE 30, 1991
(not covered by auditor's report):
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 for
Development Treasury Purchase of
Stage Stock Common Stock Total
----------- ------- --------- -----------
<S> <C> <C> <C> <C>
AUGUST 28, 1979 (INCEPTION)
TO JUNE 30, 1991
(not covered by auditor's report):
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 consolidated financial statements.
4
<PAGE>
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, 1997 (continued)
<TABLE>
<CAPTION>
Stockholders' Equity
------------------------------------------------------------------------------
Consideration Common Stock
--------------------------- -------------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
-------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1992:
(not covered in auditor's report)
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:
(not covered in auditor's report)
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 for
Development Treasury Purchase of
Stage Stock Common Stock Total
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1992:
(not covered in auditor's report)
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:
(not covered in auditor's report)
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) 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 consolidated financial statements.
5
<PAGE>
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, 1997 (continued)
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------------------------------------------------------
Consideration Common Stock
----------------------- ---------------------------- ------------
Per Shares Par Paid-in
Share Total Issued Value Capital
-------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
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
=========== ============ ============
YEAR ENDED JUNE 30, 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
Issuance of Common Stock 3.21 503,209 (16) 156,763 1,569 501,640
Issuance of Common Stock 3.425 500,003 (16) 145,773 1,458 498,543
Net loss -- -- --
----------- ------------ ------------
BALANCE, JUNE 30, 1996 9,652,096 $ 96,523 $ 14,914,953
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
----------------------------
Deficit Accumu- Notes
lated During Receivable for
Development Treasury Purchase of
Stage Stock Common Stock Total
------------ ----------- ------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
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
============ =========== ======= ===========
YEAR ENDED JUNE 30, 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
Issuance of Common Stock -- -- -- 503,209
Issuance of Common Stock -- -- -- 500,001
Net loss (394,269) -- -- (394,269)
------------ ----------- ------- -----------
BALANCE, JUNE 30, 1996 $(11,882,022) $ (25,000) $ -- $ 3,104,454
============ =========== ======= ===========
</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 consolidated financial statements.
6
<PAGE>
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, 1997 (continued)
<TABLE>
<CAPTION>
Stockholders' Equity
------------------------------------------------------------------
Consideration Common Stock
---------------------- -----------------------
Per Shares Par Paid-in
Share Total Issued Value Capital
-------- ----------- ---------- -------- -----------
NINE MONTHS ENDED MARCH 31, 1997:
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock 3.63 27,188 (9) 7,500 75 27,113
Issuance of Common Stock 1.50 99,000 (16) 66,000 660 98,340
Issuance of Common Stock 1.50 351,000 (16) 234,000 2,340 348,660
Issuance of Common Stock 1.50 150,000 (16) 100,000 1,000 149,000
Issuance of Common Stock 1.50 5,000 (16) 3,333 33 4,966
Issuance of Common Stock 1.50 5,000 (16) 3,333 33 4,966
Issuance of Common Stock 1.50 35,500 (16) 23,667 237 35,263
Issuance of Common Stock 1.50 300,000 (16) 200,000 2,000 298,000
Debt Discount on Convertible Debt 290,769
Net Loss -- -- --
---------- -------- -----------
BALANCE, MARCH 31, 1997 10,289,929 $102,901 $16,172,030
========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity
--------------------------
Deficit Accumu- Notes
lated During Receivable for
Development Treasury Purchase of
Stage Stock Common Stock Total
------------ -------- -------- -----------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED MARCH 31, 1997:
Issuance of Common Stock -- -- $ -- 27,188
Issuance of Common Stock -- -- -- 99,000
Issuance of Common Stock -- -- -- 351,000
Issuance of Common Stock -- -- -- 150,000
Issuance of Common Stock -- -- -- 5,000
Issuance of Common Stock -- -- -- 5,000
Issuance of Common Stock -- -- -- 35,500
Issuance of Common Stock -- -- -- 300,000
Debt Discount on Convertible Debt 290,769
Net Loss (4,327,271) -- -- (4,327,271)
------------ -------- -------- -----------
BALANCE, MARCH 31, 1997 $(16,209,293) $(25,000) $ -- $ 40,640
============ ======== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 March 31, ----------------------------
1997 1997 1996
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C> <C>
Net loss $(16,208,128) $(4,327,271) $ (225,792)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 557,353 29,839 22,405
Minority interest 47,704 20,923 5,120
Deferred Debt Discount Amortization 145,385 145,385 --
Loss on disposal of property and equipment 5,752 -- --
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 (144,693) 2,018,727 (60,938)
Prepaid expenses and other assets (139,305) (104,772) 7,554
Deposits (4,308) -- --
Accounts payable 8,517,873 5,093,181 (158,214)
Accrued compensation 17,832 (81,144) (11,380)
Advanced billings -- (1,379,549) 1,043,806
Other current liabilities 847,054 556,109 10,370
------------ ----------- -----------
Net cash flows from operating activities $ (6,196,631) $ 1,971,428 $ 632,931
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of and deposits for property and equipment (12,075,789) (4,010,493) (3,722,854)
Bank certificate of deposit (1,000,000) -- --
Proceeds from the sale of property and equipment 4,546 -- --
------------ ----------- -----------
Net cash flows from investing activities $(13,071,243) $(4,010,493) $(3,722,854)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement offering 6,659,218 945,498 818,100
Proceeds from line of credit 3,025,000 -- 1,525,000
Proceeds from convertible debt 540,000 540,000
Payments of line of credit (2,025,000) -- (770,000)
Proceeds from commercial loan 250,000 250,000 --
Proceeds from issuance of common stock 7,760,647 -- --
Proceeds from sales of common stock
options and warrants 1,350,283 27,188 166,785
Proceeds from satisfaction of notes receivable 27,000 -- --
Proceeds from ACOA and Olin loans 2,874,000 -- 1,004,000
Payment of ACOA loan (1,000,000) -- --
Net loans to stockholders and officers (4,930) -- --
------------ ----------- -----------
Net cash flows from financing activities $ 19,456,218 $ 1,762,686 $ 2,743,885
------------ ----------- -----------
NET INCREASE (DECREASE), CASH AND
EQUIVALENTS $ 188,344 (276,379) (346,038)
CASH AND EQUIVALENTS, BEGINNING OF
PERIOD -- 464,723 461,360
------------ ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 188,344 $ 188,344 $ 115,322
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 392,811 $ 185,522 $ 106,798
============ =========== ===========
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>
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.
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 the
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.
Note 2 - Full Scale Commercial Demonstration:
In August 1994, the Company entered into a Project Agreement (the "Alcoa Project
Agreement") with Alcoa Generating Corporation ("Alcoa") for the design,
construction, and operation of the first commercial-size demonstration of the
NOXSO Process at Alcoa's Warrick Generating Station in Newburgh, Indiana. The
United States Department of Energy (the "DOE") agreed to fund one-half of the
costs of the Alcoa Project and the related project at a facility owned by Olin
Corporation that is described below, up to $41.1 million, (subject to a
commitment by the Company to repay amounts provided by the DOE for the Olin
project if the failure to obtain financing resulted in failure to complete the
Alcoa Project). Although the project definition and design phases of the Alcoa
Project were completed by the Company and the construction phase had been
commenced, the Company was unable to raise sufficient financing by January 31,
1997, the amended designated date under the Alcoa Project Agreement, to fund
completion of the project. Alcoa refused to further extend the designated date
beyond January 31, 1997 and terminated the Alcoa Project Agreement. As a result,
the Company is obligated, under an amendment to its agreement with the DOE,
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to repay DOE for the facility the Company has constructed under its License,
Construction Lease and Sulfur Supply Agreement with Olin Corporation ("Olin") as
described in Note 3 below, plus interest, calculated pursuant to a formula
contained in the agreement, from November 1, 1996. The Company is to pay DOE an
amount equal to 2/3 of the revenue received by the Company under the Olin
Agreement (after repayment of amounts due to Praxair, Inc., a supplier to the
Company, of approximately $3.0 million described below). The entire liability to
the DOE becomes due and payable on January 1, 1999 if repayment has not
commenced by that time. The Company is currently seeking an alternate site to
construct a commercial demonstration facility. The Company is currently seeking
from DOE approval to utilize DOE's funding at an alternate site, if one can be
located, and is also attempting to work with DOE regarding the repayment
obligation referred to above. The DOE is currently not providing any funding to
the Company. Even if the Company is able to obtain DOE's approval to reinstate
funding, it will need to secure significant additional funding in order to
continue as a going concern and complete a commercial demonstration facility.
The Company is currently seeking funding for its immediate needs through private
placements of equity securities and convertible debt securities. There can be no
assurance that the Company will be successful in locating an alternate site, in
obtaining DOE's approval to utilize DOE funding at such a site or in obtaining
the needed additional financing.
Effective July 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and accordingly has continued to evaluate whether an impairment to the Alcoa
Project (i.e., construction in progress) has occurred. Due to the termination of
the Alcoa Project Agreement and the fact that no further contracts have been
entered into with respect to the costs capitalized to date, the Company believes
that the carrying amount of this asset will not be recoverable, and has
therefore recognized an impairment loss in accordance with SFAS No. 121 in the
amount of $2,049,331.
Note 3 - Olin Facility and Loan:
In April 1995, the Company entered into a License, Construction, Lease and
Sulfur Supply Agreement (the "Olin Agreement") with Olin to construct a facility
(the "Tennessee Facility") in Charleston, Tennessee to convert elemental sulfur
into liquid sulfur dioxide. Under the Olin Agreement, as amended, provided that
the Tennessee Facility produces liquid sulfur dioxide in accordance with
specifications set forth in the Olin Agreement, Olin is required for a 10-year
period after the Tennessee Facility is operational, to pay the Company
approximately $3.2 million annually (subject to escalation under certain
circumstances), and the Company is to deliver to Olin 16,000 short tons per year
of elemental sulfur. Unless and until a commercial facility using the NOXSO
Process and capable of producing the required amount of elemental sulfur becomes
operational, the Company would have to pay the costs of purchasing elemental
sulfur from suppliers. The Company believes the Tennessee Facility was
substantially completed in January 1997, and the Company and Olin had commenced
testing in order to cause it to become fully operational.
Under the terms of the Olin Agreement, the Company's failure to complete the
Olin Facility by September 1, 1996 entitled Olin to require that the Company pay
to Olin the amount by which (i)
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the costs Olin incurs to purchase up to 2,667 short tons of sulfur dioxide per
month until the Olin Project is operational exceeds (ii) the cost of such amount
of sulfur dioxide at a price of $130 per short ton. The Company has accrued
approximately $380,000 as of March 31, 1997 with respect to sulfur dioxide
purchases by Olin.
In April, 1996 the Company obtained from Olin Corporation a loan in the amount
of $1,874,000 (the "Olin Note") that bears interest at the rate of 10% per
annum. The Company also contends that the parties had agreed to extend the
January 31, 1997 due date for the Olin Note and to set off the amount of the
Olin Note against purchase price payments which Olin is obligated to make on the
Tennessee Facility when it becomes fully operational.
Note 4 - Financing
In order to provide for construction of the Olin facility, the Company obtained
a loan from Olin in the amount of $1,874,000 as discussed in Note 3. In August
1996, the Company also obtained the agreement of Praxair Inc. ("Praxair"), an
air products company, to defer payment of the $2,700,000 balance owed for the
air separation plant until no later than September 30, 1996. In connection with
said agreement with Praxair, the Company agreed to pay late charges of .3% per
week from the date of each outstanding invoice and to assign revenues it is
entitled to receive under the Olin Agreement to Praxair until the Company's
obligations to Praxair are paid in full. At March 31, 1997, the Company has
accrued approximately $302,600 owed to Praxair with respect to these late
charges.
On February 28, 1997, the Company issued $540,000 in convertible debt securities
(the "Debentures") at an interest rate of 6%. The conversion of these Debentures
will be at a price per share which is discounted at a maximum of 35% from
market. Commencing at any time on or after sixty days from the issuance date of
the Debentures, the holders of the Debentures are entitled, at their option, to
convert up to 100% of the original principal amount of the Debentures into
shares of common stock of the Company at a conversion price equal to the lesser
of: (i) $15/16 per share; or (ii) the average closing price of the common stock
for the five business days prior to conversion multiplied by the conversion
percentage, as defined in the Debentures Subscription Agreement.
On September 23, 1996, the Company obtained a short term commercial loan in the
amount of $250,000 at a rate of 9.75%. This loan matured on October 30, 1996.
The lender agreed to extend the term of this loan to June 15, 1997.
Additionally, the Company's $1,000,000 committed line of credit expired on
October 15, 1996. The Company is currently in default with respect to this line
of credit.
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Note 5 - 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 principals 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. There is no related party
relationship between the minority shareholders and the Company, its employees or
Directors.
Due to the termination of the Alcoa Project Agreement, the Company is offering
construction management services to companies, other than Noxso, through Projex.
During March 1997, however, the managing principals of Projex resigned, and the
operations of Projex were shut down.
Note 6 - Common Stock, Options and Warrants:
On January 7, 1997 and January 23, 1997, the Company issued 30,333 shares and
200,000 shares, respectively of common stock at $1.50 per share for an aggregate
of $345,500. Each share of common stock issued contains a warrant to purchase
one share of common stock at an exercise price of $1.50 per share. The warrant
and the common stock issuable upon exercise have not been registered or
qualified for sale under the Securities Act of 1933, as amended or any state
securities law.
Note 7 - Contingencies:
In late August 1996 a Complaint was filed against the Company in the District
Court of Jefferson County, Texas, by Calabrian Corporation ("Calabrian")
relating to a Purchase Agreement dated October 16, 1995 between the Company and
Calabrian and a related License Agreement, dated effective as of September 1,
1995, between the Company and Calabrian. The complaint alleges that the Company
took over direction and supervision of Calabrian's subcontract relating to the
construction of components of the Olin Facility, disrupting Calabrian's plans
with respect to the facility and constituting an unlawful interference with
Calabrian's contractual relationships with its subcontractors, and that the
Company defaulted in certain payment obligations to Calabrian under the Purchase
Agreement. The complaint requests damages in the amount of $665,000,
representing the balance of the fee allegedly owed to Calabrian under the
Purchase Agreement, unspecified damages caused Calabrian as a result of the
alleged interference with contract, any additional damages caused Calabrian by
the Company's conduct, and an order prohibiting the Company from disclosing to
any third party, other than Olin, and confidential and proprietary information
of Calabrian. The Company has removed the action to the United States District
Court for the Eastern District of Texas, Beaumont Division.
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In October 1996, Calabrian amended its complaint to withdraw its request for a
temporary and permanent injunction enjoining the Company from using Calabrian's
technology.
The Company's Counsel has advised that it believes the causes of action in
Calabrian's complaint are without merit. The Company has filed an answer and
counterclaim denying the substantive allegations of the complaint and requesting
(i) actual damages caused the Company by Calabrian's abandonment and resulting
breach of its contract with the Company without cause or justification and for
tortious interference with its contract with Olin (ii) exemplary damages as a
result of its tortious interference with the Olin contract, (iii) the Company's
legal fees and costs, and (iv) any and all other damages caused the Company by
Calabrian's filing of an action against the Company that is without merit.
On January 30, 1997, the Company received notice from Olin purporting to
terminate the Olin Agreement as a result of alleged defaults by the Company and
claiming that Olin had the right to take title to the Tennessee Facility. Olin's
notice also claimed that the Company has defaulted on the Olin Note issued in
connection with a loan by Olin to the Company as partial funding for
construction of the Tennessee Facility (see Note 3).
On February 4, 1997, the Company sought and was granted a preliminary injunction
against Olin in the Court of Common Pleas of Allegheny County, Pennsylvania,
preventing Olin from (i) terminating the Olin Agreement, (ii) taking any action
in violation of the Company's title to the Tennessee Facility, (iii) performing
any work on the Tennessee Facility, (iv) interfering with the Company's
completion of the Tennessee Facility or (v) taking any action to foreclose
against the Tennessee Facility. The Company also requested a declaratory
judgment requiring Olin, among other things, to perform its obligations under
the Olin Agreement and a permanent injunction having substantially the same
terms as the preliminary injunction. In the alternative, the Company seeks
damages in excess of $32 million, which is the aggregate purchase price payable
by Olin over the ten-year term of the Olin Agreement. In its action, the Company
contends, among other things, that it has committed no material breach of the
Olin Agreement and that the Company has substantially completed construction of
the Tennessee Facility two months prior to the contractually agreed deadline.
The Company also contends that the parties had agreed to extend the January 31,
1997 due date for the Olin Note and to set off the amount of the Olin Note
against purchase price payments which Olin is obligated to make on the Tennessee
Facility when it becomes fully operational. Proceedings in the Company's suit
against Olin have been stayed as a result of the pendency of the bankruptcy
proceedings discussed below.
On February 6, 1997, Olin and FRU-CON Construction Company and Industrial Rubber
& Safety Products, Inc., two of the Company's suppliers, filed an involuntary
petition in bankruptcy against the Company in the United States Bankruptcy Court
in the Eastern District of Tennessee. The Company's motions to dismiss the
petition or to transfer the case to the United States Bankruptcy Court for the
Western District of Pennsylvania were dismissed without prejudice to the
Company's right to reassert its arguments to transfer venue of the case. A
hearing in the matter has been scheduled for May 19, 1997. As a result of the
pendency of the bankruptcy proceedings, the litigation proceedings with Olin
described above have been stayed.
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The Company is also engaged in utilizing its engineering expertise to develop
other technologies, processes, substances and facilities that can be used to
assist in complying with environmental laws, although all such efforts are at
this time developmental in nature. The Company also from time to time performs
research and development for others on a project basis. The Company has also
licensed the NOXSO Process for distribution in Europe and Asia under a License
Agreement with FLS miljo a/s, a Danish corporation engaged in the construction
and design of utility power plants ("FLS").
If the Company is unable to obtain DOE's approval to reinstate DOE funding
and/or to find the necessary additional financing, the Company does not expect
to be able to complete a full-scale commercial demonstration of the NOXSO
Process even if an alternate site is found. Inability to complete a commercial
demonstration facility would require that greater emphasis be placed upon the
test results of the Company's pilot plant conducted at Toronto, Ohio and on a
demonstration currently being conducted by FLS in Denmark. Because of the
reluctance of regulated utilities to purchase process technology which has not
been tested on a commercial scale, due to the uncertainty of cost
considerations, the Company believes that it will make it much more difficult
for the Company to market and sell the NOXSO Process if an alternate site for a
commercial demonstration facility is not located in the near future or if
financing for such a facility, both from the DOE and other sources, is not
secured. Further, the termination of the Alcoa Project Agreement and the
consequent delay in completing a commercial demonstration facility even if an
alternate site is found and financing is obtained may result in the loss of
revenues from utilities which retrofit prior to the year 2000 in order to comply
with requirements of the 1990 amendments to the Clean Air Act. In such event,
the Company customer base would be limited principally to those power stations
having the ability to postpone compliance beyond the year 2000. Additionally,
although the Company believes that Olin had no right to terminate the Olin
Agreement, to take title to the Tennessee Facility or to foreclose on the
Tennessee Facility as a result of the alleged default on the Olin Note, Olin's
notice of termination and the ensuing litigation make it unlikely that the
Company will, at least in the near term, receive payments from Olin under the
Olin Agreement.
The above matters raise substantial doubt about the Company's ability to
continue as a going concern. If the Company is unable to continue as a going
concern, the Company's ability to recover its construction in progress in the
accompanying consolidated balance sheet is uncertain.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview and Recent Developments
NOXSO Corporation (the "Company") is a development stage company
principally engaged in developing, testing, and marketing of a process (the
"NOXSO Process") to remove a high percentage of the pollutants which cause "acid
rain" from flue gas generated by burning fossil fuel. In August 1994, the
Company entered into a Project Agreement (the "Alcoa Project Agreement") with
Alcoa Generating Corporation ("Alcoa") for the design, construction, and
operation of the first commercial-size demonstration of the NOXSO Process at
Alcoa's Warrick Generating Station in Newburgh, Indiana. Although the project
definition and design phases of the Alcoa Project were completed by the Company
and the construction phase had been commenced, the Company was unable to raise
sufficient financing by January 31, 1997, the designated date under the Alcoa
Project Agreement, to fund completion of the project. Alcoa refused to extend
the designated date beyond January 31, 1997 and terminated the Alcoa Project
Agreement. The Company is currently seeking an alternate site to construct a
commercial demonstration facility. The United States Department of Energy (the
"DOE") agreed to fund one-half of the costs of the Alcoa Project and the related
project at a facility owned by Olin Corporation that is described below, up to
$41.1 million (subject to a commitment by the Company to repay amounts provided
by DOE for the Olin project if failure to obtain financing resulted in failure
to complete the Alcoa Project.) The Company is currently seeking from DOE
approval to utilize DOE's funding at an alternate site, if one can be located,
and is also engaged in discussions with DOE regarding the repayment obligation
referred to above. However, DOE is not currently providing any funding to NOXSO.
In April 1995, the Company entered into a License, Construction, Lease and
Sulfur Supply Agreement (the "Olin Agreement") with Olin Corporation ("Olin") to
construct a facility (the "Tennessee Facility") in Charleston, Tennessee to
convert elemental sulfur into liquid sulfur dioxide. Under the Olin Agreement,
as amended, provided that the Tennessee Facility produces liquid sulfur dioxide
in accordance with specifications set forth in the Olin Agreement, Olin is
required for a 10-year period after the Tennessee Facility is operational, to
pay the Company $3.2 million annually (subject to escalation under certain
circumstances), and the Company is to deliver to Olin 16,000 short tons per year
of elemental sulfur. Unless and until a commercial facility using the NOXSO
Process and capable of producing the required amount of elemental sulfur becomes
operational, the Company would have to pay the costs of purchasing elemental
sulfur from suppliers.
The Tennessee Facility was substantially completed in January 1997, and the
Company and Olin had commenced startup of the Tennessee Facility in order to
cause it to become fully operational. The Company received notice from Olin, by
letter dated January 30, 1997, purporting to terminate the Olin Agreement as a
result of alleged defaults by the Company and claiming that Olin had the right
to take title to the Tennessee Facility. Olin's notice also claimed
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that the Company had defaulted on a $1.8 million note (the "Olin Note") issued
in connection with a loan by Olin to the Company as partial funding for
construction of the Tennessee Facility. The Olin Note has borne interest of 10%
per annum since April 12, 1996.
On February 4, 1997, the Company sought and was granted a preliminary
injunction against Olin in the Court of Common Pleas of Allegheny County,
Pennsylvania, preventing Olin, among other things, from terminating the Olin
Agreement or taking any action in violation of the Company's title to the
Tennessee Facility. In its complaint, the Company also requested a declaratory
judgment requiring Olin, among other things, to perform its obligations under
the Olin Agreement and a permanent injunction having substantially the same
terms as the preliminary injunction. In the alternative, the Company has sought
damages in excess of $32 million, which is the approximate aggregate purchase
price payable by Olin over the ten-year term of the Olin Agreement.
On February 6, 1997, Olin and FRU-CON Construction Company and Industrial
Rubber & Safety Products, Inc., two of the Company's suppliers, filed an
involuntary petition in bankruptcy against the Company in the United States
Bankruptcy Court in the Eastern District of Tennessee. The Company's motions to
dismiss the petition or to transfer the case to the United States Bankruptcy
Court for the Western District of Pennsylvania were dismissed without prejudice
to the Company's right to reassert its arguments to transfer venue of the case.
The Company has answered the petition on the merits, and a hearing in the matter
has been scheduled for May 19, 1997. As a result of the pendency of the
bankruptcy proceedings, the litigation proceedings with Olin described above
have been stayed.
The Company is also engaged in utilizing its engineering expertise to
develop other technologies, processes, substances and facilities that can be
used to assist in complying with environmental laws, although all such efforts
are at this time developmental in nature. The Company may also from time to time
perform research and development for others on a project basis. The Company has
also licensed the NOXSO Process for distribution in Europe and Asia under a
License Agreement with FLS miljo a/s, a Danish corporation engaged in the
construction and design of utility power plants ("FLS"). In addition, the
Company offered construction management services to others through its 70%-owned
subsidiary, PROJEX, Inc. During March 1997, however, the managing principals of
Projex resigned, and the operations of Projex were shut down.
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 of 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
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contracts and cooperative research activities. The total of capital raised from
inception through March 31, 1997 was approximately $19.7 million.
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
state of development. The first of these programs began in 1982 in Paducah,
Kentucky, at the TVA Shawnee Steam Plant. The next phase of development began in
1985, after a move to DOE's Pittsburgh Energy Technology Center, and these tests
continued through June of 1989. This development program was followed by
operation and testing of a pilot-scale facility at the Ohio Edison power plant
located at Toronto, Ohio. This pilot-scale project facility was completed in
August of 1993 with over 10,000 hours of testing. In June 1995, the Company
began construction of the first commercial size demonstration facility for the
NOXSO Process at Alcoa's Warrick Generating Station pursuant to the terms of the
Alcoa Project Agreement. Under the terms of the Alcoa Project Agreement, the
Company was required to have in hand by a designated date sufficient financial
resources to perform its obligations under the Alcoa Project Agreement. The
designated date was extended on several occasions, most recently until January
31, 1997. The Company was unable to obtain the financing required to complete
the project by the deadline, and Alcoa terminated the Alcoa Project Agreement on
February 3, 1997. As a result, the Company is obligated, under an amendment to
its agreement with DOE, to repay DOE for all funds provided by DOE for the
Tennessee Facility, plus interest, calculated pursuant to a formula contained in
the agreement, from November 1, 1996. The Company is to pay DOE an amount equal
to 2/3 of the revenue received by the Company under the Olin Agreement (after
repayment of amounts due to Praxair, Inc., a supplier to the Company, described
below). The entire amount becomes due and payable on January 1, 1999 if
repayment has not commenced by that time.
The Company is currently seeking an alternate site to build a
commercial-size demonstration of the NOXSO Process and to obtain approval from
the DOE to utilize funding granted by the DOE for the Alcoa project at an
alternate site and is also engaged in discussions with DOE regarding the
repayment obligation described above. DOE is not currently providing any funding
to the Company. Even if the Company is able to retain the DOE funding, it will
need to secure significant additional funding in order to continue as a going
concern and complete a commercial demonstration facility. The Company is
currently seeking funding for its immediate needs through private placements of
equity securities and convertible debt securities. The Company is also currently
involved in efforts to sell the future income stream under the Olin Agreement or
to sell the Tennessee Facility. In order for these efforts to succeed, the
Company will need, among other things, to achieve some resolution of its dispute
with Olin. There can be no assurance that the Company will be successful in
locating an alternate site, in obtaining DOE's approval to utilize DOE funding
at such a site, in obtaining the needed additional financing or in realizing any
funds from its interests under the Olin Agreement.
If the Company is unable to obtain DOE's approval to reinstate DOE funding
and/or to find the necessary additional financing, the Company does not expect
to be able to complete a full- scale commercial demonstration of the NOXSO
Process even if an alternate site is found. Inability
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to complete a commercial demonstration facility would require that greater
emphasis be placed upon the test results of the Company's pilot plant conducted
at Toronto, Ohio and on a demonstration currently being conducted by FLS in
Denmark. Because of the reluctance of regulated utilities to purchase process
technology which has not been tested on a commercial scale, due to the
uncertainty of cost considerations, the Company believes that it will make it
much more difficult for the Company to market and sell the NOXSO Process if an
alternate site for a commercial demonstration facility is not located in the
near future or if financing for such a facility, both from the DOE and other
sources, is not secured. Further, the termination of the Alcoa Project Agreement
and the consequent delay in completing a commercial demonstration facility even
if an alternate site is found and financing is obtained may result in the loss
of revenues from utilities which retrofit prior to the year 2000 in order to
comply with requirements of the 1990 amendments to the Clean Air Act. In such
event, the Company customer base would be limited principally to those power
stations having the ability to postpone compliance beyond the year 2000.
Pursuant to the Olin Agreement, the Company has substantially completed
construction of a facility at Olin's plant in Charleston, Tennessee, which will
convert elemental sulfur into liquid sulfur dioxide. As described above under
"Overview and Recent Developments", Olin has purported to terminate the Olin
Agreement and to take title to the Tennessee Facility. Olin also has claimed
that the Company has defaulted under the Olin Note. The Company has obtained a
preliminary injunction which, among other things, prevents Olin from taking such
action, and the Company and Olin are currently in the process of litigation with
respect to the Olin Agreement. Olin and two other creditors have also filed an
involuntary petition in bankruptcy against the Company, and the Company's
litigation against Olin has been stayed as a result of those proceedings.
The Tennessee Facility consists of an air separation plant supplied to the
Company by Praxair, Inc. ("Praxair") and a liquid sulfur dioxide production
facility. In August 1996, Praxair agreed to defer payment of the $2.7 million
balance owed to Praxair for the air separation plant. The Company has agreed to
pay late charges of .3% a week from the date of each outstanding invoice and to
assign to Praxair amounts the Company is entitled to receive under the Olin
Agreement until the Company's obligations to Praxair are paid in full. As of
March 31, 1997, the Company owed Praxair $3.0 million (including late charges).
In addition, following repayment of Praxair, unless the Company succeeds in
restructuring its agreement with DOE, the Company will be obligated to pay DOE
an amount equal to 2/3 of the revenue received under the Olin Agreement until
the funds provided by DOE for the Tennessee Facility, plus interest, have been
repaid. The Company is also in default under a line of credit in the amount of
$1,000,000.
Since the Company's rights under the Olin Agreement are the only
significant anticipated source of operating revenue for the Company in the near
term, failure of the Company (i) to realize on those rights, by successfully
concluding its litigation with Olin in such a manner that Olin meets its
obligations to make annual payments on the Tennessee Facility or otherwise pays
the Company for the Tennessee Facility or by selling the Company's rights in the
revenue stream
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under the Olin Agreement or its rights in the Olin Facility and (ii) to
restructure its repayment obligation to DOE will make it difficult for the
Company to meet its obligations to suppliers (including Praxair), lenders and
others and would raise significant doubt as to the Company's ability to continue
as a going concern.
The decrease in the Company's cash and equivalents at March 31, 1997 was
the net result of several transactions. The major cash inflow was proceeds of
$885,500 from investments in equity securities and convertible debt securities
of the Company. These funds, together with cash and cash equivalents on hand at
December 31, 1996, were used during the third quarter to pay expenses of
operating the Company as well as to cover the costs associated with the building
of the Tennessee Facility and the commercial size demonstration facility which
the Company had been constructing under the Alcoa Project Agreement (the "Alcoa
Project") prior to its termination effective January 31, 1997. The Company's
current ratio decreased from 0.17:1 at December 31, 1996 to 0.12:1 at March 31,
1997. This decrease is the result of operating expenses and costs of the
Tennessee Facility and the Alcoa Project exceeding the funds received by the
Company. As of March 31, 1997, the Company had working capital of ($11.0
million) as compared to ($9.5 million) at December 31, 1996. This decrease is
the result of lack of DOE funding and costs incurred related to the search for
an alternate site to build a commercial size demonstration facility.
The Company's advance billings decreased to zero, and its accounts
receivable also decreased, as a result of notice received from the DOE during
the second quarter requiring the Company to bill the DOE for costs reimbursable
under the Company's contract with DOE only as such costs are incurred and paid
by the Company rather than the Company being permitted to estimate future costs
and receive advance payments. In May 1997 DOE notified the Company that it would
no longer reimburse the Company for expenses paid by the Company until DOE
approves an agreement to construct a commercial size demonstration facility at
an alternate site and a financing plan for such project.
The reductions in the Company's total stockholder's equity and the increase
in its deficit accumulated during the development stage resulted primarily from
operating expenses exceeding funds received by the Company and from the writeoff
of an additional $116,849 in costs relating to the Alcoa Project which can no
longer be capitalized as a result of termination of the Alcoa Project Agreement.
As a result of the decrease in the Company's stockholders' equity, it is
possible that the Company's Common Stock might be delisted from the Nasdaq Small
Cap Market System. If the Common Stock were no longer traded on the Nasdaq Small
Cap Market System, it might only be able to be traded over the counter in the
"pink sheets" or the NASD OTC Bulletin Board. The liquidity of the Company's
Common Stock could be materially adversely affected if it were to be delisted
from the Nasdaq Small Cap Market System.
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Results of Operations
Inception to March 31, 1997
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 $8.8 million
through March 31, 1997. As a result of the significant expenses incurred from
inception through March 31, 1997 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 $16.2 million
at March 31, 1997. Since inception through March 31, 1997, the Company's total
costs and expenses were $25.0 million, including $8.1 million relating to
salaries and benefits.
Three Months Ended March 31, 1997 Compared to the Three
Months Ended March 31, 1996
Total funding, interest income and reimbursement of project costs for the
three months ended March 31, 1997 and 1996, respectively, were $64,055 and
$19,274 while total costs and expenses for the same periods were $1,734,875 and
$112,930, respectively. The increase in revenues for the three month period
ended March 31, 1997 compared to March 31, 1996 is due to the inclusion of
revenues from PROJEX, which began operations in November 1995. The increase in
costs and expenses for the three months ended March 31, 1997 compared to March
31, 1996 is primarily the result of the costs incurred related to locating an
alternate site to build a commercial size demonstration facility and the
writeoff of $116,849 in costs associated with the Alcoa Project. These costs can
no longer be capitalized as a result of termination of the Alcoa Project
Agreement.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No.128, "Earnings per Share," ("SFAS No. 128") in February
1997. SFAS No. 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings per Share." SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS,
which includes only the weighted average common shares outstanding and does not
include any dilutive securities in the calculation. Diluted EPS under SFAS No.
128 differs in certain calculations compared to fully diluted EPS under the
existing standards. Adoption of SFAS No. 128 is required for interim and annual
periods ending after December 15, 1997. Had the Company applied the provisions
of SFAS No. 128 in the third quarter of fiscal 1997, there would have been no
impact compared to that which was reported.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Calabrian Litigation
See Part II, Item 1 of Amendment No. 1 to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1996 for information on the
Company's litigation with Calabrian Corporation
Olin Litigation
See Part II, Item 1 of Amendment No. 1 to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1996 for information on the
Company's litigation with Olin Corporation and the involuntary proceedings in
bankruptcy commenced against the Company by Olin and two other creditors.
Proceedings in the Company's suit against Olin have been stayed as a result of
the pendency of the bankruptcy proceedings. A hearing in the bankruptcy
proceedings has been scheduled for May 19, 1997.
Item 2. Changes in Securities.
During January 1997, the Company sold to four accredited investors an
aggregate of 230,333 Units for an aggregate purchase price of $345,500, in
reliance on Section 4(2) under the Securities Act of 1933, as amended, and Rule
506 promulgated thereunder. Each Unit consisted of one share of Common Stock and
a Warrant to purchase one share of Common Stock. The Warrants are exercisable at
a price of $1.50 per share. These transactions were previously reported in the
Company's Quarterly Report on Form 10-Q for the period ended December 31, 1996.
Item 3. Defaults Upon Senior Securities.
On January 30, 1996, the Company received notice from Olin declaring that
the Company had defaulted under the $1.8 million Olin Note which by its written
terms was due on January 31, 1997. The Olin Note was issued by the Company to
Olin in connection with funding of construction costs for the construction of
the Tennessee Facility built by the Company under the Olin Agreement. In a
complaint filed by the Company against Olin in connection with Olin's purported
termination of the Olin Agreement and Olin's claim of a default under the Olin
Note, the Company states that the parties had agreed to extend the January 31,
1997 due date for the Olin Note and to set off the amount of the Olin Note
against purchase price payments which Olin is obligated to make under the Olin
Agreement when the Tennessee Facility becomes fully operational.
The Company has also defaulted in payment of a $1,000,000 line of credit.
21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) The Company filed a Form 8-K on February 14, 1997 reporting several
matters under "Item 5. Other Events" including the termination of the Alcoa
Project Agreement, the purported termination of the Olin Agreement and purported
default under the Olin Note, the preliminary injunction issued against Olin, the
lawsuit filed by the Company against Olin and the involuntary petition in
bankruptcy filed by Olin and two other creditors against the Company. The
Company filed a Form 8-K on March 13, 1997 reporting the sale of $540,000 in
Convertible Debentures under Regulation S.
22
<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 thereunder duly authorized.
NOXSO CORPORATION
Registrant
Dated: May 15, 1997 /s/ Edwin J. Kilpela
----------------------------
Edwin J. Kilpela
President
/s/ John L. Haslbeck
----------------------------
John L. Haslbeck
Vice President
23
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 188,344
<SECURITIES> 1,000,000
<RECEIVABLES> 144,360
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,476,397
<PP&E> 11,950,281
<DEPRECIATION> (441,990)
<TOTAL-ASSETS> 12,989,716
<CURRENT-LIABILITIES> 12,506,756
<BONDS> 394,616
0
0
<COMMON> 102,901
<OTHER-SE> (37,261)
<TOTAL-LIABILITY-AND-EQUITY> 12,989,716
<SALES> 0
<TOTAL-REVENUES> 64,055
<CGS> 0
<TOTAL-COSTS> 1,734,875
<OTHER-EXPENSES> (5,271)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,665,549)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,665,549)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,665,549)
<EPS-PRIMARY> (0.16)
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