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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-17454
NOXSO CORPORATION
(Name of small business issuer in its charter)
VIRGINIA 54-1118334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19 MAPLE LANE, RHINEBECK, NEW YORK 12572
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (914)266-4858
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
$0.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days. Yes [ ] No [X]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $951
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 2000: $0 (See Item 5)
Number of shares outstanding of registrant's common stock, $0.01 par value,
as of June 30, 2000: 1,000,000 (See Item 11)
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
NOXSO Corporation (the "Company") was incorporated in Virginia on August 28,
1979. Until June 1997, the Company was principally engaged in developing,
testing, and marketing a dry post-combustion emission control technology process
which used a regenerable sorbent to remove a high percentage of the pollutants
which cause "acid rain" and ground level ozone from flue gas generated by
burning fossil fuel.
On February 6, 1997, Olin Corporation ("Olin"), FRU-CON Construction Company
("FRU-CON") and Industrial Rubber & Safety Products, Inc. ("Industrial Rubber")
filed an involuntary petition in bankruptcy against the Company in the United
States Bankruptcy Court in the Eastern District of Tennessee (the "Bankruptcy
Court"). On June 4, 1997, the Company (i) consented to the jurisdiction of the
Court and was adjudicated bankrupt and (ii) converted the bankruptcy to a
proceeding under Chapter 11 of the Bankruptcy Code (case no. 97-19709). The
Company operated as a debtor-in-possession in the bankruptcy proceeding, until
the corporate entity was sold to an investor group on May 23, 2000.
Pursuant to the provisions of the Bankruptcy Code, the Company had the right to
file a plan of reorganization. An order approving interim debtor-in-possession
financing was entered in August of 1997. The Company subsequently applied to the
Bankruptcy Court for approval of additional debtor-in-possession financing in an
amount of up to $600,000. On August 18, 1997, the Bankruptcy Court entered a
final order authorizing the Company to obtain such financing from a group of
lenders (the "DIP Lenders"). Pursuant to such arrangement, the Company was
authorized to grant and did grant to the DIP Lenders a first priority lien in
certain of the Company's patents and laboratory equipment and was authorized to
issue 300,000 shares of its common stock in the aggregate to the DIP Lenders.
The DIP Lenders loaned $600,000 to the Company pursuant to the financing
arrangement, and the Company issued 300,000 shares of common stock to the DIP
Lenders. The loans from the DIP Lenders bore interest at the rate of 20% per
annum. Interest for a one-year period (a portion of which will be refunded to
the extent not earned) and a 5% origination fee have been paid from proceeds.
The Company's initial plan of reorganization included two principal elements.
These two elements were the sale of the Tennessee Facility as well as the
location of a site and the obtaining of funding (including reinstatement of DOE
funding) to construct a commercial-size demonstration of the NOXSO Process.
In September of 1997, the Company executed an asset purchase agreement for the
Tennessee Facility between the Company and Republic Financial Corporation.
However, the Company was unable to effect the commercial demonstration of the
NOXSO Process. Accordingly, the Company filed a Second Amended Plan of
Reorganization (as modified, the "Plan") that would result in liquidation of the
Company's assets.
On December 9, 1999, the Bankruptcy Court issued an Order confirming the Plan
under Chapter 11 of the Bankruptcy Code. Pursuant to the terms of the Order, the
Company was authorized to separately transfer the corporate entity and its
assets. The proceeds from these transfers are to be used for the distributions
to be made pursuant to the Plan, which will be in full and final satisfaction,
settlement, release and discharge as against the Company, of any and all claims
and interests of any nature whatsoever that arose before December 9, 1999.
The Plan provided for conveyance of the corporate entity to an investor group
including Mr. Robert Long, an officer, director and shareholder of the Company.
Simultaneously, the Company's sale of assets to FLS MILJO a/s free and clear of
liens was approved.
In connection with such distributions, equity interests based upon ownership of
existing securities or rights to acquire existing securities, including without
limitation vested and non-vested warrants, options, preemptive rights or other
rights, were cancelled on the consummation date.
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The Company, as a corporate entity, continues to exist as a reorganized entity.
Pursuant to the Plan, on May 23, 2000, all outstanding shares and options of the
Company were cancelled and 900,000 shares of common stock were issued to an
investor group consisting of Robert M. Long (360,000 shares), an officer,
director and shareholder of the Company prior to the sale of the corporate
entity, Robert Platek (450,000 shares), and Spencer Levy (90,000 shares).
Pursuant to the terms of the Plan an additional 100,000 shares have been issued,
pro-rata, to the Company's unsecured creditors with allowed claims, except for
the Department of Energy, which elected not to receive shares. As of June 30,
2000, the Company had a total of 93 shareholders of record.
Messrs. Long, Platek and Levy paid an aggregate of $50,000 cash, on a pro-rata
basis, under the terms of the Plan for the right to acquire control of the
Company and 90% of the outstanding shares of common stock.
In connection with the change of control, all of the Company's officers and
directors, with the exception of Mr. Long, were replaced on May 25, 2000. On May
25, 2000, the investor group elected Mr. Long, a director of the Company and
Secretary of the Company prior to the change of control, as a director and
President of the Company. Additionally, James Platek was elected as a director
and Treasurer of the Company, and Spencer Levy was elected as a director and
Secretary of the Company.
Pursuant to the Company's Second Amended Plan of Reorganization, as of May 23,
2000, the Company has no material assets. As such, the Company can be defined as
a "shell" company, whose sole purpose at this time is to locate and consummate a
merger or acquisition with a private entity. The Board of Directors of the
Company has elected to commence implementation of the Company's principal
business purpose, described below under "Plan of Operation."
INVESTMENT COMPANY ACT OF 1940
Although the Company will be subject to regulation under the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), management believes the Company will not
be subject to regulation under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), insofar as the Company will not be engaged in
the business of investing or trading in securities. In the event the Company
engages in business combinations which result in the Company holding passive
investment interests in a number of entities, the Company could be subject to
regulation under the Investment Company Act. In such event, the Company would be
required to register as an investment company and could be expected to incur
significant registration and compliance costs. The Company has obtained no
formal determination from the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act and, consequently, a
violation of such Act could subject the Company to material adverse
consequences.
INVESTMENT ADVISERS ACT OF 1940
Under Section 202(a)(11) of the Investment Advisers Act of 1940, as amended, an
"investment adviser" means any person who, for compensation, engages in the
business of advising others, either directly or through publications or
writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part of a
regular business, issues or promulgates analyses or reports concerning
securities. The Company shall only seek to locate a suitable merger or
acquisition candidate, and does not intend to engage in the business of advising
others in investment matters for a fee or otherwise.
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FORWARD LOOKING STATEMENTS
Pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "PSLRA"), the Company cautions readers regarding forward
looking statements found in the following discussion and elsewhere in this
report and in any other statement made by, or on the behalf of the Company,
whether or not in future filings with the Securities and Exchange Commission.
Forward looking statements are statements not based on historical information
and which relate to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon estimates
and assumptions that are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by or on behalf of the Company. The
Company disclaims any obligation to update forward looking statements. Readers
should also understand that under Section 27A(b)(2)(D) of the Securities Act,
and Section 21E(b)(2)(D) of the Securities Exchange Act, the "safe harbor"
provisions of the PSLRA do not apply to statements made in connection with an
initial public offering.
PLAN OF OPERATION
The Company intends to seek to acquire assets or shares of an entity in exchange
for its securities. The Company has not identified a particular acquisition
target and has not entered into any negotiations regarding such an acquisition.
Management intends to contact investment bankers, corporate financial analysts,
attorneys and other investment industry professionals. As of the date of this
report, none of the Company's officers, directors, promoters or affiliates have
engaged in any preliminary contact or discussions with any representative of any
other company regarding the possibility of an acquisition or merger between the
Company and such other company.
Depending upon the nature of the relevant business opportunity and the
applicable state statutes governing the manner in which the transaction is
structured, the Company's Board of Directors expects that it will provide the
Company's shareholders with complete disclosure documentation concerning a
potential business opportunity and the structure of the proposed business
combination prior to consummation. Such disclosure is expected to be in the form
of a proxy, information statement, or report.
While such disclosure may include audited financial statements of such a target
entity, there is no assurance that such audited financial statements will be
available. The Board of Directors does intend to obtain certain assurances of
value of the target entity's assets prior to consummating such a transaction,
with further assurances that audited financial statements would be provided
within sixty days after closing. Closing documents will include representations
that the value of the assets conveyed to or otherwise so transferred will not
materially differ from the representations included in such closing documents,
or the transaction will be voidable.
Due to the Company's intent to remain a shell company until a merger or
acquisition candidate is identified, it is anticipated that its cash
requirements will be minimal, and that all necessary capital, to the extent
required, will be provided by the directors or officers. The Company does not
anticipate that it will have to raise capital or acquire any plant or
significant equipment in the next twelve months, unless a merger or acquisition
target is identified.
GENERAL BUSINESS PLAN
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in business opportunities presented to it by
persons or firms who or which desire to seek the perceived advantages of an
Exchange Act registered corporation. The Company will not restrict its search to
any specific business, industry, or geographical location and the Company may
participate in a business venture of virtually any kind or nature. This
discussion of the proposed business is purposefully general and is not meant to
be restrictive of the Company's virtually unlimited discretion to search for and
enter into potential business opportunities. Management anticipates that it may
be able to participate in only one potential business venture because the
Company has nominal assets and limited financial
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resources. This lack of diversification should be considered a substantial risk
to shareholders of the Company because it will not permit the Company to offset
potential losses from one venture against gains from another.
The Company may seek a business opportunity with entities that have recently
commenced operations, or that wish to utilize the public marketplace in order to
raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The Company
may acquire assets and establish wholly-owned subsidiaries in various businesses
or acquire existing businesses as subsidiaries.
Management anticipates that the selection of a business opportunity in which to
participate will be complex and extremely risky. Due to general economic
conditions, rapid technological advances being made in some industries and
shortages of available capital, management believes that there are numerous
firms seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include, among other things, facilitating or improving
the terms on which additional equity financing may be sought, providing
liquidity for incentive stock options or similar benefits to key employees, and
providing liquidity (subject to restrictions of applicable statutes) for all
shareholders. Potentially, available business opportunities may occur in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex.
The Company has, and will continue to have, no capital with which to provide the
owners of business opportunities with any significant cash or other assets.
However, management believes the Company will be able to offer owners of
acquisition candidates the opportunity to acquire a controlling ownership
interest in a publicly registered company without incurring the cost and time
required to conduct an initial public offering. The owners of the business
opportunities will, however, incur significant legal and accounting costs in
connection with acquisition of a business opportunity, including the costs of
preparing annual (Form 10-K or 10-KSB), quarterly (Form 10-Q or 10-QSB) and
current reports (Form 8-K), agreements and related documents. The Exchange Act
specifically requires that any merger or acquisition candidate comply with all
applicable reporting requirements, which include providing audited financial
statements to be included within the numerous filings required under the
Securities Exchange Act. Nevertheless, the officers and directors of the Company
have not conducted market research and are not aware of statistical data which
would support the perceived benefits of a merger or acquisition transaction for
the owners of a business opportunity.
The analysis of new business opportunities will be undertaken by, or under the
supervision of, the officers and directors of the Company. Management intends to
concentrate on identifying preliminary prospective business opportunities which
may be brought to its attention through present associations of the Company's
officers and directors, or by the Company's shareholders. In analyzing
prospective business opportunities, management will consider such matters as the
available technical, financial and managerial resources; working capital and
other financial requirements; history of operations, if any; prospects for the
future; nature of present and expected competition; the quality and experience
of management services which may be available and the depth of that management;
the potential for further research, development, or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact the
proposed activities of the Company; the potential for growth or expansion; the
potential for profit; the perceived public recognition of acceptance of
products, services, or trades; name identification; and other relevant factors.
Officers and directors of the Company expect to meet personally with management
and key personnel of the business opportunity as part of their "due diligence"
investigation. To the extent possible, the Company intends to utilize written
reports and personal investigations to evaluate the above factors. The Company
will not acquire or merge with any company that cannot provide audited financial
statements within a reasonable period of time after closing of the proposed
transaction.
Management of the Company, while not especially experienced in matters relating
to the new business of the Company, shall rely upon their own efforts and, to a
much lesser extent, the efforts of the Company's shareholders, in accomplishing
the business purposes of the Company. It is not anticipated that any outside
consultants or advisors, except for the Company's legal counsel and accountants,
will be utilized by the Company to effectuate its business purposes. However, if
the Company does retain such an outside consultant or advisor, any cash fee
earned by such party will be paid by the prospective merger/acquisition
candidate, as the Company has no cash assets with which to pay such
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obligation. As of the date of this report, the Company does not have any
contracts or agreements with any outside consultants and none are contemplated.
Management will not restrict the Company's search to any specific kind of firms,
but may acquire a venture that is in its preliminary or development stage or is
already operating. It is impossible to predict at this time the status of any
business in which the Company may become engaged, in that such business may need
to seek additional capital, may desire to have its shares publicly traded, or
may seek other perceived advantages which the Company may offer. Furthermore,
management does not intend to seek capital to finance the operation of any
acquired business opportunity until possibly such time as the Company has
successfully consummated a merger or acquisition.
It is anticipated that the Company will incur nominal expenses in the
implementation of its business plan. Because the Company has no capital with
which to pay these anticipated expenses, present management of the Company will
pay these charges with their personal funds, as interest free loans to the
Company. If additional funding is necessary, management and/or shareholders will
continue to provide capital or arrange for outside funding. However, the only
opportunity which management has to have these loans repaid will be from a
prospective merger or acquisition candidate. Management's agreements with the
Company contain no negative covenants that would impede or prevent consummation
of a proposed transaction. There is no assurance, however, that management will
continue to provide capital indefinitely if a merger candidate cannot be found.
If a merger candidate cannot be found in a reasonable period of time, management
may be required reconsider its business strategy, which could result in the
dissolution of the Company.
ACQUISITION OF OPPORTUNITIES
In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. The Company may also
acquire stock or assets of an existing business. On the consummation of a
transaction, it is probable that the present management and shareholders of the
Company will no longer be in control of the Company. In addition, the Company's
directors may, as part of the terms of the acquisition transaction, resign and
be replaced by new directors without a vote of the Company's shareholders or may
sell their stock in the Company. Any and all such sales will only be made in
compliance with the securities laws of the United States and any applicable
state.
It is anticipated that any securities issued in any such reorganization would be
issued in reliance upon an exemption from registration under applicable federal
and state securities laws. In some circumstances, however, as a negotiated
element of its transaction, the Company may agree to register all or a part of
such securities immediately after the transaction is consummated or at specified
times thereafter. If such registration occurs, of which there can be no
assurance, it will be undertaken by the surviving entity after the Company has
successfully consummated a merger or acquisition and the Company is no longer
considered a "shell" company. Until a merger or acquisition is consummated, the
Company will not attempt to register any additional securities. The issuance of
substantial additional securities and their potential sale into any trading
market which may develop in the Company's securities may have a depressive
effect on the value of the Company's securities in the future, if such a market
develops, of which there is no assurance.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so-called "tax-free" reorganization under
Sections 368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to
obtain tax-free treatment under the Code, it may be necessary for the owners of
the acquired business to own 80% or more of the voting stock of the surviving
entity. In such event, the shareholders of the Company would retain 20% or less
of the issued and outstanding shares of the surviving entity, which would result
in significant dilution in the equity of such shareholders.
As part of the Company's "due diligence" investigation, officers and directors
of the Company may meet personally with management and key personnel, may visit
and inspect material facilities, obtain independent analysis of verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures to the extent of the Company's
limited financial resources and management expertise. The
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manner in which the Company participates in an opportunity will depend on the
nature of the opportunity, the respective needs and desires of the Company and
other parties, the management of the opportunity and the relative negotiation
strength of the Company and such other management.
With respect to any merger or acquisition negotiations with a target company
management is expected to focus on the percentage of the Company, which the
target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any merger or acquisition. The percentage ownership may be
subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's then shareholders.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although the terms
of such agreements cannot be predicted, generally such agreements will require
some specific representations and warranties by all of the parties, will specify
certain events of default, will detail the terms of closing and the conditions
that must be satisfied by each of the parties prior to and after such closing,
will outline the manner of bearing costs, including costs associated with the
Company's attorneys and accountants, will set forth remedies on default and will
include miscellaneous other terms.
As stated previously, the Company will not acquire or merge with any entity that
cannot provide independent audited financial statements within a reasonable
period of time after closing of the proposed transaction. The Company is subject
to the reporting requirements of the Securities Exchange Act. Included in these
requirements is the affirmative duty of the Company to file independent audited
financial statements as part of its Form 8-K to be filed with the Securities and
Exchange Commission upon consummation of a merger or acquisition, as well as the
Company's audited financial statements included in its annual report on Form
10-K (or 10-KSB, as applicable). If such audited financial statements are not
available at closing, or within time parameters necessary to insure the
Company's compliance with the requirements of the Exchange Act, or if the
audited financial statements provided do not conform to the representations made
by the candidate to be acquired in the closing documents, the closing documents
will provide that the proposed transaction will be voidable at the discretion of
the present management of the Company. If such transaction is voided, the
agreement will also contain a provision providing for the acquisition entity to
reimburse the Company for all costs associated with the proposed transaction.
COMPETITION
The Company will remain an insignificant participant among the firms which
engage in the acquisition of business opportunities. There are many established
venture capital and financial concerns which have significantly greater
financial and personnel resources and technical expertise than does the Company.
In view of the Company's combined extremely limited financial resources and
limited management availability, the Company will continue to be at a
significant competitive disadvantage compared to the Company's competitors.
RISK FACTORS
The Company's business is subject to numerous risk factors, including the
following:
BANKRUPTCY, NO REVENUE AND MINIMAL ASSETS. The Company, as a result of the
bankruptcy proceedings, has no operations or revenues. The Company has no
significant assets or financial resources. The Company will, in all likelihood,
sustain operating expenses without corresponding revenues, at least until the
consummation of a business combination. This may result in the Company incurring
a net operating loss that will increase continuously until the Company can
consummate a business combination with a profitable business opportunity. There
is no assurance that the Company can identify such a business opportunity and
consummate such a business combination. In addition, since the Company has
previously filed bankruptcy other companies may be adverse to entering into a
business combination
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with the Company because of regulatory or disclosure requirements which may
limit the actions of such company and/or the negative perception which may exist
about a post-bankruptcy company.
SPECULATIVE NATURE OF COMPANY'S PROPOSED OPERATIONS. The success of the
Company's proposed plan of operation will depend to a great extent on the
operations, financial condition and management of the identified business
opportunity. While management intends to seek a business combination with an
entity having an established operating history, there can be no assurance the
Company will be successful in locating any candidates meeting such criteria. In
the event the Company completes a business combination, the success of its
operations may be dependent upon management of the successor firm or venture
partner firm and numerous other factors beyond the Company's control.
SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND COMBINATIONS. The
Company is and will continue to be an insignificant participant in the business
of seeking mergers with, joint ventures with and acquisitions of private
entities. A large number of established and well-financed entities, including
venture capital firms, are active in mergers and acquisitions of companies that
may be desirable target candidates for the Company. Nearly all such entities
have significantly greater financial resources, technical expertise and
managerial capabilities than the Company and, consequently, the Company will be
at a competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will also
compete in seeking merger or acquisition candidates with numerous other small
public companies.
NO AGREEMENT FOR BUSINESS COMBINATION OR OTHER TRANSACTION. The Company has no
arrangement, agreement or understanding with respect to engaging in a merger
with, joint venture with or acquisition of, a private entity. There can be no
assurance that the Company will be successful in identifying and evaluating
suitable business opportunities or in concluding a business combination.
Management has not identified any particular industry or specific business
within an industry for evaluation by the Company. There is no assurance
management will be able to negotiate a business combination on terms favorable
to the Company.
NO STANDARDS FOR BUSINESS COMBINATION. The Company has not established a
specific length of operating history or a specified level of earnings, assets,
net worth or other criteria which the Company will require a target business
opportunity to have achieved. Accordingly, the Company may enter into a business
combination with a business opportunity having no significant operating history,
losses, limited or no potential for earnings, limited assets, negative net worth
or other characteristics that are very often indicative of development stage
companies.
CONTROL BY INVESTOR GROUP. The investor group which, consists of Mr. Long,
Robert Platek and Spencer Levy, will, in the aggregate, beneficially own
approximately 90% of the shares of the Company's outstanding capital stock. As a
result, these stockholders possess the ability, among other things, to elect a
majority of the Company's Board of Directors and approve significant corporate
transactions. Such share ownership and control may also have the effect of
delaying or preventing a change in control of the Company, impeding a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company, thereby having a material and
adverse effect on the value of the Company's stock. In addition, investors may
have difficulty obtaining the necessary stockholder vote required for corporate
actions contrary to the wishes of the management.
CONTINUED MANAGEMENT CONTROL, LIMITED TIME AVAILABILITY. While seeking a
business combination, management anticipates devoting up to 15 hours per month
to the business of the Company. The Company has not entered into employment
agreements with any of its officers and is not expected to do so in the
foreseeable future. The Company has not obtained key man life insurance on any
of its officers or directors. Notwithstanding the combined limited experience
and time commitment of management, loss of the services of any of these
individuals would adversely affect development of the Company's business and its
likelihood of continuing operations. See "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance With Section 16(a) of the Exchange
Act."
CONFLICTS OF INTEREST - GENERAL. Officers and directors of the Company may
participate in business ventures which could be deemed to compete directly with
the Company. Additional conflicts of interest and non-arm's length
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transactions may also arise in the event the Company's officers or directors are
involved in the management of any firm with which the Company transacts
business.
REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION. Sections 13 and 15(d)
of the Securities Exchange Act require reporting companies to provide certain
information about significant acquisitions, including audited financial
statements for the company acquired, covering one, two, or three years,
depending on the relative size of the acquisition. The time and additional costs
that may be incurred by some target entities to prepare such statements may
significantly delay or essentially preclude consummation of an otherwise
desirable acquisition by the Company. Acquisition prospects that do not have or
are unable to obtain the required audited statements may be inappropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable.
LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION. The Company has neither
conducted, nor have others made available to it, results of market research
indicating that market demand exists for the transactions contemplated by the
Company. Moreover, the Company does not have, and does not plan to establish, a
marketing organization. Even in the event demand is identified for a merger or
acquisition contemplated by the Company, there is no assurance the Company will
be successful in completing any such business combination.
LACK OF DIVERSIFICATION. The Company's proposed operations, even if successful,
will in all likelihood result in the Company engaging in a business combination
with a business opportunity. Consequently, the Company's activities may be
limited to those engaged in by business opportunities which the Company merges
with or acquires. The Company's inability to diversify its activities into a
number of areas may subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks associated with
the Company's operations.
GOVERNMENT REGULATION. Although the Company will be subject to the reporting
requirements under the Exchange Act, management believes the Company will not be
subject to regulation under the Investment Company Act, insofar as the Company
will not be engaged in the business of investing or trading in securities. In
the event the Company engages in business combinations which result in the
Company holding passive investment interests in a number of entities, the
Company could be subject to regulation under the Investment Company Act. In such
event, the Company would be required to register as an investment company and
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission as to the status of the Company under the Investment Company Act and,
consequently, violation of such Act could subject the Company to material
adverse consequences.
PROBABLE CHANGE IN CONTROL AND MANAGEMENT. A business combination involving the
issuance of the Company's common stock will, in all likelihood, result in
shareholders of a private company obtaining a controlling interest in the
Company. Any such business combination may require management of the Company to
sell or transfer all or a portion of the Company's common stock held by them, or
resign as members of the Board of Directors of the Company. The resulting change
in control of the Company could result in removal of one or more present
officers and directors of the Company and a corresponding reduction in or
elimination of their participation in the future affairs of the Company.
REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING A BUSINESS COMBINATION. The
Company's primary plan of operation is based upon a business combination with a
private concern which, in all likelihood, would result in the Company issuing
securities to shareholders of any such private company. The issuance of
previously authorized and unissued common stock of the Company would result in a
reduction in the percentage of shares owned by present and prospective
shareholders of the Company and may result in a change in control or management
of the Company.
ABSENCE OF TRADING MARKET. There currently is no trading market for the
Company's stock and there is no assurance that a trading market will develop.
"PENNY" STOCK REGULATION OF BROKER-DEALER SALES OF COMPANY SECURITIES. The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks". Generally, penny stocks are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system). If the Company's
shares are traded for less than $5 per share, the shares
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<PAGE> 10
will be subject to the SEC's penny stock rules unless (1) the Company's net
tangible assets exceed $5,000,000 during the Company's first three years of
continuous operations or $2,000,000 after the Company's first three years of
continuous operations; or (2) the Company has had average revenue of at least
$6,000,000 for the last three years. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prescribed by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. As long as the Company's common stock is
subject to the penny stock rules, the holders of the common stock may find it
difficult to sell the common stock of the Company.
TAXATION. Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination the Company may undertake. Currently,
such transactions may be structured so as to result in tax-free treatment to
both companies, pursuant to various federal and state tax provisions. The
Company intends to structure any business combination so as to minimize the
federal and state tax consequences to both the Company and the target entity;
however, there can be no assurance that such business combination will meet the
statutory requirements of a tax-free reorganization or that the parties will
obtain the intended tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition of both federal and
state taxes which may have an adverse effect on both parties to the transaction.
REQUIREMENT OF AUDITED FINANCIAL STATEMENTS MAY DISQUALIFY BUSINESS
OPPORTUNITIES. Management believes that any potential business opportunity must
provide audited financial statements for review for the protection of all
parties to the business combination. One or more attractive business
opportunities may choose to forego the possibility of a business combination
with the Company, rather than incur the expenses associated with preparing
audited financial statements.
EMPLOYEES
The Company has no full time employees. The Company's officers and directors
have agreed to allocate a portion of their time to the activities of the
Company, without compensation. These officers and directors anticipate that the
business plan of the Company can be implemented by their devoting an aggregate
of 45 hours per month to the business affairs of the Company and, consequently,
conflicts of interest may arise with respect to the limited time commitment by
such officers and directors. The Company does not expect any significant changes
in the number of employees prior to the consummation of a business combination.
The Company's officers and directors may become involved with other companies
who have a business purpose similar to that of the Company. As a result,
potential conflicts of interest may arise in the future. If such a conflict does
arise and an officer or director of the Company is presented with business
opportunities under circumstances where there may be a doubt as to whether the
opportunity should belong to the Company or another "shell" company they are
affiliated with, they will disclose the opportunity to all such companies.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has no properties and at this time has no agreements to acquire any
properties. The Company intends to attempt to acquire assets or a business in
exchange for its securities.
The Company operates from its offices at 19 Maple Lane, Rhinebeck, New York
12572. Space is provided to the Company on a rent free basis by Mr. Long, an
officer, director and principal shareholder of the Company, and it is
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<PAGE> 11
anticipated that this arrangement will remain until such time as the Company
successfully consummates a merger or acquisition. Management believes that this
space will meet the Company's needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
GENERAL
On February 6, 1997, Olin, FRU-CON and Industrial Rubber filed an involuntary
petition in bankruptcy against the Company in the United States Bankruptcy Court
in the Eastern District of Tennessee. On June 4, 1997, the Company (i) consented
to the jurisdiction of the Bankruptcy Court and was adjudicated bankrupt and
(ii) converted the bankruptcy to a proceeding under Chapter 11 of the Bankruptcy
Code (case no. 97-19709). The Company operated as a debtor-in-possession in the
proceeding, until the corporate entity was sold to an investor group on May 23,
2000.
CONFIRMATION OF SECOND AMENDED PLAN OF REORGANIZATION
The Company's initial plan of reorganization included two principal elements.
These two elements were the sale of the Tennessee Facility as well as the
location of a site and the obtaining of funding (including reinstatement of DOE
funding) to construct a commercial-size demonstration of the NOXSO Process.
In September of 1997, the Company executed an asset purchase agreement between
the Company and Republic Financial Corporation pursuant to which the Company
agreed to sell the Tennessee Facility to Republic Financial Corporation.
However, the Company was unable to effect the commercial demonstration of the
NOXSO Process. Accordingly, the Company filed the Plan to liquidate the
Company's assets.
On December 9, 1999, the Bankruptcy Court issued an Order confirming the Plan
under Chapter 11 of the Bankruptcy Code. Pursuant to the terms of the Order, the
Company was authorized to separately transfer the corporate entity and it's
assets. The proceeds from these transfers are to be used for the distributions
to be made pursuant to the Plan, which will be in full and final satisfaction,
settlement, release and discharge as against the Company, of any and all claims
and interests of any nature whatsoever that arose before December 9, 1999.
The Plan provided for conveyance of the corporate entity to an investor group
which included Mr. Robert Long, an officer, director and shareholder of the
Company at the time. Simultaneously, the Company's sale of assets to FLS MILJO
a/s free and clear of liens was approved.
In connection with such distributions, equity interests based upon ownership of
existing securities or rights to acquire existing securities, including without
limitation vested and non-vested warrants, options, preemption rights or other
rights, were cancelled on the consummation date, and the equity interests will
receive nothing on account of those interests.
The Company, as a corporate entity, continues to exist as a reorganized entity.
Pursuant to the Plan, on May 23, 2000, all outstanding shares of the Company
were cancelled and 900,000 shares of common stock were issued to an investor
group consisting of Robert M. Long (360,000 shares), an officer, director and
shareholder of the Company prior to the sale of the corporate entity, Robert
Platek (450,000 shares), and Spencer Levy (90,000 shares). Pursuant to the terms
of the Plan an additional 100,000 shares have been issued, pro-rata, to the
Company's unsecured creditors with allowed claims, except for the Department of
Energy, which elected not to receive shares. As of June 30, 2000, the Company
had a total of 93 shareholders of record.
Messrs. Long, Platek and Levy paid an aggregate of $50,000 cash, on a pro-rata
basis, under the terms of the Plan for the right to acquire control of the
Company and 90% of the outstanding shares of common stock.
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<PAGE> 12
In connection with the change of control, all of the Company's officers and
directors, with the exception of Mr. Long, were replaced on May 25, 2000. On May
25, 2000, the investor group elected Mr. Long, a director of the Company and
Secretary of the Company prior to the change of control, as a director and
President of the Company. Additionally, James Platek was elected as a director
and Treasurer of the Company, and Spencer Levy was elected as a director and
Secretary of the Company.
Pursuant to the Company's Second Amended Plan of Reorganization, as of June 30,
2000, the Company had no material assets. As such, the Company can be defined as
a "shell" company, whose sole purpose at this time is to locate and consummate a
merger or acquisition with a private entity. The Board of Directors of the
Company has elected to commence implementation of the Company's principal
business purpose, described above in Item 1. Description of Business - Plan of
Operation.
Prior to the change of control, there were 15,383,468 shares of common stock
issued and outstanding. Subsequent to the change of control and pursuant to the
Plan, there are 1,000,000 shares of common stock issued and outstanding.
Immediately prior to confirmation of the Plan, the Company had assets totaling
approximately $314,863 and liabilities totaling approximately $3,868,078.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of the date of this report no public market exists for the Company's shares.
Management intends to seek market makers to quote the Company's shares on the
Over-the-Counter Bulletin Board (the "OTC Bulletin Board") once the Company
qualifies for listing. Management does not know if, or when, a market will exist
for the Company's shares.
The Company's common stock traded on the OTC Bulletin Board from June 4, 1997
until May 25, 2000, under the symbol "NOXOQ". Prior to June 4, 1997, it was
traded in the Nasdaq Small Cap Market System. The following table sets forth the
range of high and low closing bid quotations of the common stock for each fiscal
quarter within the two most recent fiscal years and for the interim period
ending March 31, 2000:
<TABLE>
<CAPTION>
BID OR TRADE PRICES
2000 FISCAL YEAR HIGH LOW
<S> <C> <C>
Quarter Ending 09/30/99................................... $0.060 $0.036
Quarter Ending 12/31/99................................... $0.060 $0.010
Quarter Ending 03/31/00................................... $0.030 $0.000
1999 FISCAL YEAR HIGH LOW
Quarter Ending 09/30/98................................... $0.270 $0.010
Quarter Ending 12/31/98................................... $0.035 $0.005
Quarter Ending 03/31/99................................... $0.037 $0.006
Quarter Ending 06/30/99................................... $0.460 $0.020
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
1998 FISCAL YEAR HIGH LOW
<S> <C> <C>
Quarter Ending 09/30/97................................... $0.625 $0.125
Quarter Ending 12/31/97................................... $0.406 $0.170
Quarter Ending 03/31/98................................... $0.490 $0.220
Quarter Ending 06/30/98................................... $0.350 $0.190
</TABLE>
As of June 30, 2000, there were no market makers in the Company's shares. The
last reported trade by the OTC Bulletin Board was on May 25, 2000 at $0.010 per
share.
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
As of June 30, 2000, there were 93 record holders of the Company's common stock.
During the last two fiscal years, no cash dividends have been declared on the
Company's common stock and management does not anticipate that dividends will be
paid in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
NOXSO Corporation was incorporated in Virginia on August 28, 1979. Until June
1997, the Company was principally engaged in developing, testing, and marketing
a process of dry post-combustion emission control technology which used a
regenerable sorbent to remove a high percentage of the pollutants which cause
"acid rain" and ground level ozone from flue gas generated by burning fossil
fuel.
On February 6, 1997, Olin, FRU-CON and Industrial Rubber filed an involuntary
petition in bankruptcy against the Company in the United States Bankruptcy Court
in the Eastern District of Tennessee. On June 4, 1997, the Company (i) consented
to the jurisdiction of the Court and was adjudicated bankrupt and (ii) converted
the bankruptcy to a proceeding under Chapter 11 of the Bankruptcy Code (case no.
97-19709). The Company operated as a debtor-in-possession in the bankruptcy
proceeding, until the corporate entity was sold to an investor group on May 23,
2000. See "Item 1. Description of Business" and "Item 3. Legal Proceedings."
The corporate entity was conveyed to the investor group without any assets or
liabilities, excluding the value, if any, of any tax loss carryforwards
attributed to the Company. As such, the financial statements of the Company
prior to the sale, including the financial statements included herein, are not
representative of the Company's future operations.
As of the date of this report the Company had no source of income and must rely
entirely upon loans and equity investments from affiliates to pay operating
expenses.
PLAN OF OPERATION
The Company currently has no capital to fund operations or on-going expenses.
The Company must rely upon loans and investments from affiliates to pay
operating expenses. There are no assurances that such affiliates will continue
to advance funds to the Company or will continue to invest in the Company's
securities. In the event the Company is unable to obtain additional capital or
funding it may be unable to identify and/or acquire a suitable business
opportunity. During the twelve months following the filing of this report,
management intends to seek to acquire assets or shares of
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<PAGE> 14
an entity actively engaged in a business that generates revenues, in exchange
for its securities. The Company has not identified a particular acquisition
target and has not entered into any negotiations regarding such an acquisition.
Management intends to contact investment bankers, corporate financial analysts,
attorneys and other investment industry professionals through various media. As
of the date of this report, none of the Company's officers, directors, promoters
or affiliates have engaged in any preliminary contact or discussions with any
representative of any other company regarding the possibility of an acquisition
or merger between the Company and such other company.
Depending upon the nature of the relevant business opportunity and the
applicable state statutes governing the manner in which the transaction is
structured, the Company's Board of Directors expects that it will provide the
Company's shareholders with complete disclosure documentation concerning a
potential business opportunity and the structure of the proposed business
combination prior to consummation. Such disclosure is expected to be in the form
of a proxy, information statement, or report.
While such disclosure may include audited financial statements of such a target
entity, there is no assurance that such audited financial statements will be
available. The Board of Directors does intend to obtain certain assurances of
value of the target entity's assets prior to consummating such a transaction,
with further assurances that audited financial statements would be provided
within sixty days after closing. Closing documents will include representations
that the value of the assets conveyed to or otherwise so transferred will not
materially differ from the representations included in such closing documents,
or the transaction will be voidable.
Due to the Company's intent to remain a shell company until a merger or
acquisition candidate is identified, it is anticipated that its cash
requirements will be minimal, and that all necessary capital, to the extent
required, will be provided by the Company's directors or officers. The Company
does not anticipate that it will have to raise capital or acquire any plant or
significant equipment in the next twelve months, unless possibly a merger or
acquisition target is identified.
LIQUIDITY
The Company's cash flows from operating activities during 1999 and 1998 were
$(397,602)and $(8,888,695), respectively. The Company did not have any cash
flows from investing activities or financing activities during the fiscal year
ended June 30, 1999. The Company's cash flows from investing activities during
1998 were $12,000,000. Cash flows from investing activities during 1998
consisted of the proceeds from the sale of the Company's Tennessee Facility to
Republic Financial Corporation ($11,000,000) and the proceeds from the sale of
the Company's certificate of deposit ($1,000,000). During the fiscal year ended
June 30, 1998, the Company had cash flows of $(2,737,436) from financing
activities. During 1998 financing activities consisted of proceeds from the sale
of common stock and the conversion of loans to common stock, in addition, the
Company repaid loans, which resulted in the negative cash flow from financing
activities.
At June 30, 1999 and 1998, the Company had a working capital deficiency of
$3,496,226 and $3,324,485, respectively.
The changes in the Company's working capital deficiency relate to the payment of
liabilities as part of the Company's bankruptcy plan. The Company continues to
incur liabilities and operating expenses. As part of the Company's Second
Amended Plan, the corporate entity was sold to an investor group in May 2000.
The corporate entity was sold without any liabilities which were incurred prior
to the sale. Mr. Long, in connection with the purchase and sale of the corporate
entity, engaged auditors and legal counsel prior to the change of control. After
the change of control, the auditors and legal counsel engaged by Mr. Long were
engaged by the Company. The Company will reimburse Mr. Long for professional
fees advanced by Mr. Long on the Company's behalf.
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<PAGE> 15
Since the Company has no significant source of revenue, working capital will
continue to be depleted by operating expenses. See "Results of Operations"
below. The Company presently has no external sources of cash and is dependent
upon its management and shareholders for funding.
ASSETS
At June 30, 1999 the Company had total assets of $106,852, compared to total
assets of $504,454 at June 30, 1998. The majority of the Company's assets at
June 30, 1999 consisted of prepaid expenses relating to legal fees. At June 30,
1998, the majority of the Company's assets consisted of cash and cash
equivalents. During the fiscal year ended June 30, 1998, the Tennessee Facility
was sold to Republic Financial Corporation. As of the date of this report, the
Company has essentially no assets.
RESULTS OF OPERATIONS
The Company has no current operations and has not generated any revenue from its
operations since the change of control. The Company must rely entirely upon
loans from affiliates to pay operating expenses.
During the fiscal years ended June 30, 1999 and 1998, the Company had net losses
of $171,741 and $2,465,232, respectively. Due to the sale of the corporate
entity and the elimination of the Company's assets and debts as a result of the
bankruptcy proceedings, as of the date of this report, the Company essentially
has no operations and no source of revenue. The Company continues to incur
professional fees and other expenses. If the Company does not find a suitable
acquisition target or other source of revenue, the Company will continue to
incur net losses and may have to cease operations entirely. This factor, among
others, raises substantial and compelling doubt about the Company's ability to
continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to identify and close an acquisition with a suitable target company,
obtain additional financing or refinancing as may be required, and ultimately to
attain profitability. There are no assurances that the Company will be able to
identify a suitable acquisition target, close such acquisition, obtain any such
financing or, if the Company is able to obtain additional financing, that such
financing will be on terms favorable to the Company. The inability to obtain
additional financing when needed will have a material adverse effect on the
Company's operating results.
The Independent Accountant's Report and Note 4 of the Notes to Financial
Statements accompanying this report state that substantial doubt has been raised
about the Company's ability to continue as a going concern. The Company's
present business operations do not generate sufficient revenues to cover its
expenses. The Company would have to obtain other business operations or severely
reduce its expenses to remain viable, and there can be no assurance that the
Company will be able to do so.
ITEM 7. FINANCIAL STATEMENTS.
Please refer to the pages beginning with F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of the Company are:
<TABLE>
<CAPTION>
Name Age Title(s)
---- --- --------
<S> <C> <C>
Robert Long 41 President since May 2000
Director since November 1988
Secretary from March 1993 to
May 2000.
James Platek 32 Treasurer since May 2000
Director since May 2000
Spencer Levy 43 Secretary since May 2000
Director since May 2000
</TABLE>
The directors of the Company are elected by the shareholders and the officers
are appointed annually by the Board of Directors. Vacancies in the Board of
Directors are filled by the Board of Directors. Directors of the Company receive
no compensation for their service as directors. Set forth below are brief
descriptions of the recent employment and business experience of the Company's
officers and directors.
James Platek is the brother of Robert Platek, a controlling shareholder of the
Company. There are no other family relationships between any executive officer
and director of the Company.
ROBERT M. LONG, PRESIDENT AND DIRECTOR. Mr. Long holds a bachelors degree in
Economics from the University of the South (Sewanee, Tennessee), and a Masters
of Business Administration from The College of William and Mary (Williamsburg,
Virginia). Mr. Long has been self-employed as a financial consultant throughout
his career, which has included providing financial consulting services to early
stage companies. Since 1997, Mr. Long has been the president and sole
shareholder of LongView Partners, Inc., an investment banking company. Through
LongView Partners, Inc. Mr. Long provides clients with investment banking
services, including assistance with financing and investor relations. From 1983
to 1996, Mr. Long was a self-employed financial consultant, providing investment
banking services. Mr. Long has been a director of the Company since November
1988 and served as Secretary from March 1993 until May 25, 2000. Mr. Long was an
officer and director of the Company at the time the Company filed bankruptcy.
Mr. Long is the Chairman of the Board of Directors of Regent Group, Inc., a
public company listed on the OTC-Bulletin Board.
JAMES PLATEK, TREASURER AND DIRECTOR. Mr. Platek holds a bachelors degree in
History from Rutgers University. Since 1998, Mr. Platek has been a self-employed
financial consultant and private investor. From 1997 to 1998, Mr. Platek was a
retail broker for Morgan Stanley Dean Witter, New York, New York. From 1995 to
1998, Mr. Platek was the Director of Marketing for Plymouth Partners, New York,
New York. Mr. Platek was responsible for marketing, analysis and fund raising.
Plymouth Partners is a private company which assists companies with funding and
marketing. Mr. Platek is the Vice President of Institutional Marketing of Regent
Group, Inc.
SPENCER LEVY, SECRETARY, DIRECTOR. Mr. Levy holds a bachelors degree in Liberal
Arts from New York University, and a Masters Degree in Anthropology from the
University of Chicago. Since 1996, Mr. Levy has been a employee/consultant for
LongView Partners, Inc. Mr. Levy performs investment banking services for
LongView Partners, Inc., including assisting clients with financing and investor
relations. From 1993 to 1995, Mr. Levy was an Associate for Glaser Capital
Management, Inc., New York, New York, where he interacted with the partners and
provided
16
<PAGE> 17
bookkeeping services. Glaser Capital Management, Inc. provides investor
relations to its clientele. Mr. Levy is the Vice President of Editorial Content
of Regent Group, Inc.
PRIOR "SHELL" COMPANY EXPERIENCE
With the exception of Mr. Long and Mr. Levy, none of the Company's officers
and/or directors has had any direct experience in identifying emerging companies
for investment and/or business combinations.
CONFLICTS OF INTEREST
Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates they will devote only a minor amount of time to the
Company's affairs.
The officers and directors of the Company are now and may in the future become
shareholders, officers or directors of other companies which may be formed for
the purpose of engaging in business activities similar to those conducted by the
Company. Accordingly, additional direct conflicts of interest may arise in the
future with respect to such individuals acting on behalf of the Company or other
entities. Moreover, additional conflicts of interest may arise with respect to
opportunities which come to the attention of such individuals in the performance
of their duties or otherwise. The Company does not currently have a right of
first refusal pertaining to opportunities that come to management's attention
insofar as such opportunities may relate to the Company's proposed business
operations.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. If the Company or
the companies in which the officers and directors are affiliated with both
desire to take advantage of an opportunity, then said officers and directors
would abstain from negotiating and voting upon the opportunity. However, all
directors may still individually take advantage of opportunities if the Company
should decline to do so. Except as set forth above, the Company has not adopted
any other conflict of interest policy with respect to such transactions.
As of June 30, 2000, the Company did not have any standing audit, nominating, or
compensation committees of the Board of Directors.
During the fiscal year ended June 30, 1999, the Board of Directors held meetings
on September 22, 1998 and August 3, 1998. Mr. Toedtman, a director at the time
of the meetings, was the only director not present at those meetings. No
meetings of the then existing compensation committee were held during the fiscal
year ended June 30, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and Nasdaq. Officers,
directors and greater than 10% percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the best of the Company's knowledge, no Form 5's were filed by the
following persons, who were officers and directors of the Company, for the
fiscal years ended June 30, 1998 and June 30, 1999: Robert Long, Edwin Kilpela,
Stephen C. Voss, John M. Toedtman, Lewis G. Neal, or John L. Haslbeck. In
addition, to the best of the Company's knowledge, no reports were filed by W.R.
Grace & Co. - Conn, a principal stockholder of the Company.
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<PAGE> 18
ITEM 10. EXECUTIVE COMPENSATION.
CURRENT COMPENSATION ARRANGEMENTS
None of the Company's officers and/or directors receives any compensation for
services rendered to the Company, nor has any received such compensation in the
past, excluding Mr. Long. They all have agreed to act without compensation until
authorized by the Board of Directors, which is not expected to occur until after
consummation of a merger or acquisition; however, the officers and directors are
reimbursed for expenses incurred on behalf of the Company, including travel
expenses. As of the date of this report, the Company has no funds available to
pay directors. Further, none of the directors are accruing any compensation
pursuant to any agreement with the Company.
It is possible that after the Company successfully consummates a merger or
acquisition with another entity that entity may desire to employ or retain one
or a number of members of the Company's management for the purposes of providing
services to the surviving entity or otherwise provide other compensation to such
persons. Each member of management has agreed to disclose to the Company's Board
of Directors any discussions concerning possible compensation to be paid to them
by any entity which proposes to undertake a transaction with the Company and
further, to abstain from voting on such transaction. Therefore, as a practical
matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective merger or acquisition candidate,
the proposed transaction cannot be approved by the Company's Board of Directors
due to the inability of the Board to affirmatively approve such a transaction.
Specifically, under section 13.1-691 of the Virginia Stock Corporation Act, a
transaction in which a director has a director or indirect personal interest is
not voidable by a corporation if:
1. The material facts are disclosed to the board of directors and
a majority of the disinterested directors (which must be more
than one director) approve the transaction;
2. The material facts are disclosed to the shareholders and a
majority of the shareholders approve the transaction; however,
the shares of interested directors are not counted in
determining whether to approve the transaction; or
3. The transaction is fair to the corporation.
It is possible that persons associated with management may refer a prospective
merger or acquisition candidate to the Company. In the event the Company
consummates a transaction with any entity referred by associates of management,
it is possible that such an associate will be compensated for their referral in
the form of a finder's fee. It is anticipated that this fee will be either in
the form of restricted common stock issued by the Company as part of the terms
of the proposed transaction, or will be in the form of cash consideration.
However, if such compensation is in the form of cash, such payment will be
tendered by the acquisition or merger candidate, because the Company has
insufficient cash available. The amount of such finder's fee cannot be
determined as of the date of this report, but is expected to be comparable to
consideration normally paid in like transactions. No member of management of the
Company will receive any finder's fee, either directly or indirectly, as a
result of their respective efforts to implement the Company's business plan.
No retirement, pension, profit sharing, stock option or insurance programs or
other similar programs have been adopted by the Company for the benefit of its
employees.
FISCAL 1998 AND 1999 COMPENSATION ARRANGEMENTS
The following table sets forth information for Edwin J. Kilpela, the Chief
Executive Officer ("CEO") of the Company during the fiscal years ended June 30,
1997 and 1998 and 1999. No disclosure need be provided for any executive
officer, other than the CEO, whose total annual salary and bonus for the last
completed fiscal year did not exceed $100,000. Accordingly, no other executive
officers of the Company are included in the table.
18
<PAGE> 19
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------- -----------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPEN- AWARD(S) OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) ($) SARS($) PAYOUTS($) SATION($)
------------------ ---- --------- -------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edwin J. Kilpela, 1999 28,462 -0- -0- -0- -0- -0- -0-
President, Chief 1998 165,433 58,702 -0- -0- 25,000(2) -0- -0-
Executive Officer 1997 32,019 -0- -0- -0- 275,000(2) -0- -0-
and Director(1)
------------------ ---- --------- -------- ---------- ---------- ---------- ----------- ---------
John Haslbeck 1999 24,240 -0- -0- -0- -0- -0- -0-
Vice President, 1998 100,601 -0- -0- -0- 15,000(2) -0- -0-
Treasurer and 1997 71,250(4) -0- -0- -0- 15,000(2) -0- -0-
Director(3) 1996 90,385 -0- -0- -0- 15,000(2) -0- -0-
------------------ ---- --------- -------- ---------- ---------- ---------- ----------- ---------
</TABLE>
(1) Mr. Kilpela joined the Company in February 1997 and resigned from the
Board of Directors in February 2000. Due to the sale of the corporate
entity to the investor group, Mr. Kilpela was replaced as the President
and CEO of the Company by Mr. Long on May 25, 2000.
(2) All of these options were terminated in connection with the Order of
the Bankruptcy Court. See "Item 1. Description of Business" and "Item
3. Legal Proceedings."
(3) Due to the sale of the corporate entity to the investor group, Mr.
Haslbeck was replaced as an officer and director of the Company on May
25, 2000.
(4) Estimated.
The Company does not have any employment contracts with any of its officers or
directors. Such persons are employed by the Company on an at will basis, and the
terms and conditions of employment are subject to change by the Company. At June
30, 1998 and 1999, Mr. Kilpela held stock options to acquire 300,000 shares of
stock. At June 30, 1998 and 1999, Mr. Haslbeck held stock options to acquire
115,075 shares of stock. All of these options were cancelled as part of the
Bankruptcy Proceedings.
STOCK OPTION PLANS
As of the date of this report, the Company does not have a stock option plan. As
a result of the Bankruptcy Proceedings, the Company's 1990 Stock Option Plan was
terminated, along with all outstanding options granted under the 1990 Stock
Option Plan. As of the date of this report there are no outstanding stock
options.
FISCAL 1999 AND 1998 OPTION AWARDS
The following table sets forth information concerning options to purchase the
Company's common stock or stock appreciation rights ("SARs") with respect to the
Company's common stock granted to named executive officer during fiscal 1998 and
1999.
19
<PAGE> 20
OPTION/SAR GRANTS IN FISCAL YEAR 1998 AND 1999
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTION/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Edwin J. Kilpela
1998 12,500 6.58% $0.9375 March 19, 2000
12,500 6.585% $0.9375 March 19, 2000
1999 -0- N/A N/A N/A
John Haslbeck
1998 7,500 3.95% $0.9375 March 19, 2000
7,500 3.95% $0.9375 March 19, 2000
1999 -0- N/A N/A N/A
</TABLE>
(1) All of the options shown were cancelled as part of the Bankruptcy
Proceedings.
FISCAL 1998 AND 1999 OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named executive
officer, concerning the exercises of options during fiscal year 1998 and 1999
and the number and value of unexercised options held as of the end of fiscal
year 1998 and 1999.
AGGREGATED OPTION/SAR EXERCISES IN 1999 AND 1998 FISCAL YEARS
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT FISCAL
NO. OF SHARES FISCAL YEAR-END (#) YEAR-END ($)(2)
ACQUIRED ON VALUE REALIZED ----------------------------- ------------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Edwin J. Kilpela
1998 -0- -0- 37,500 262,500 -0- -0-
1999 -0- -0- 50,000 250,000 -0- -0-
John Haslbeck
1998 -0- -0- 107,575 7,500 -0- -0-
1999 -0- -0- 115,075 -0- -0- -0-
</TABLE>
(1) Value realized is calculated to equal the market price of the common stock
at the exercise date less the exercise price.
(2) Based on $0.26 and $0.0625, the market prices of the common stock on June
30, 1998 or 1999 (fiscal year end), as applicable, and the exercise price of the
options. None of the options are exercisable as of the date of this report.
20
<PAGE> 21
EMPLOYMENT AGREEMENTS
Mr. Kilpela was employed under an employment agreement dated as of February 13,
1997. The agreement had a term of two years and provided that Mr. Kilpela would
serve as the President and Chief Executive Officer of the Company at an annual
base salary of $185,000 with additional increases to be determined by the Board
of Directors. The agreement required that Mr. Kilpela devote his full business
time to the operations of the Company and also contained certain covenants not
to compete with the Company in exchange for payment of one year's salary to Mr.
Kilpela following termination of the agreement if Mr. Kilpela had complied with
such covenants. The Company had the right to waive the provisions of the
covenant not to compete and, in such event, would have no further monetary
obligation with respect thereto. The agreement was terminable by Mr. Kilpela
under various conditions including a change in control of the Company, in which
case Mr. Kilpela was entitled to a lump sum payment equal to the greater of his
then annual compensation, or the remaining total compensation payable to him for
the unexpired term of the agreement. Additionally, the agreement required that
all ideas, inventions, discoveries, developments or improvements conceived by
Mr. Kilpela during the term of his employment which are within the scope of the
Company's business (whether or not patentable), were and should remain the
exclusive property of the Company. Mr. Kilpela's employment agreement was
terminated as a result of the Bankruptcy Proceedings and is a general creditor
in those proceedings.
Prior to February 1, 1997, Dr. Neal was employed pursuant to the terms of
employment agreements effective as of April 22, 1992, which had an initial term
of two years and which governed his employment until that time. The agreement
provided that Dr. Neal would serve as the President, at an annual base salary of
$150,000 with additional increases to be determined by the Board of Directors
and certain bonuses payable upon the achievement of certain corporate goals. In
connection with the hiring of Mr. Kilpela as President and Chief Executive
Officer of the Company, Dr. Neal and the Company entered into an employment
agreement dated as of February 1, 1997, terminating and superseding Dr. Neal's
previous employment agreement. The agreement was terminable by either party upon
written notice. It provided for compensation at an annual rate of $150,000 (the
"Annual Salary"); provided that so long as other employees of the Company were
serving under salaries reduced from the rate payable in January 1997, Dr. Neal's
compensation under the agreement was at a rate equal to 50% of the Annual
Salary. Pursuant to the agreement, when Dr. Neal's employment with the Company
was terminated by the Company on April 18, 1997, he was entitled to receive, in
a lump sum payment, an amount equal to the Annual Salary, 70,000 shares of the
Company's common stock and a warrant to purchase 70,000 shares of the Company's
common stock at an exercise price of $1.50 per share. The common stock and
Warrant were issued, and Dr. Neal has filed a claim in the Company's bankruptcy
proceeding relating to the cash severance payment, and Dr. Neal is a general
creditor in the bankruptcy proceedings. The agreement also contained certain
covenants not to compete with the Company in exchange for payment of an
additional one year's salary to Dr. Neal following termination of the agreement
if Dr. Neal has complied with such covenants. Pursuant to the agreement, the
Company waived the provisions of the covenant not to compete and, as a result,
has no further monetary obligation with respect thereto. The agreement required
that all ideas, inventions, discoveries, developments or improvements conceived
by Dr. Neal during the term of his employment which are within the scope of the
Company's business (whether or not patentable), were to remain the exclusive
property of the Company. As a result of the Bankruptcy Proceedings, the Company
no longer has any rights to ideas, inventions, discoveries, developments or
improvements conceived by Dr. Neal.
Mr. Haslbeck was employed pursuant to the terms of an employment agreement
effective as of April 29, 1992, which had an initial term of two years, but
continued to govern his employment until the agreement was terminated as a
result of the Bankruptcy Proceedings. Mr. Haslbeck's employment agreement
provided that Mr. Haslbeck would serve as the Vice President, at an annual base
salary of $90,000 with additional increases to be determined by the Board of
Directors. In February 1997, the compensation of all of the Company's employees,
including Mr. Haslbeck, was reduced to one-half of their previous compensation.
In July 1997, such compensation was increased to 3/4 of an employee's
pre-February 1997 compensation. The agreement required that Mr. Haslbeck devote
his full business time to the operations of the Company and also contained
certain covenants not to compete with the Company in exchange for payment of one
year's salary to Mr. Haslbeck following termination of the agreement if Mr.
Haslbeck had complied with such covenants. The agreement was terminable by Mr.
Haslbeck under various conditions including a change in control of the Company,
in which case Mr. Haslbeck was entitled to a lump sum payment equal to the
greater of his then annual compensation, or the remaining total compensation
payable to him for the unexpired term of the agreement. Additionally, the
agreement
21
<PAGE> 22
required that all ideas, inventions, discoveries, developments or improvements
conceived by Mr. Haslbeck during the term of his employment which were within
the scope of the Company's business (whether or not patentable), were and should
remain the exclusive property of the Company. As a result of the Bankruptcy
Proceedings, the Company no longer has any rights to any ideas, inventions,
discoveries, developments or improvements conceived by Mr. Haslbeck.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
During fiscal 1998 and 1999, Robert M. Long and Stephen H. Voss served on the
Company's Compensation Committee. Mr. Long was the Secretary of the Company at
the time. Mr. Voss was Vice President of the Company from August 1979 to March
1992. Matters relating to the compensation of Mr. Kilpela and Dr. Neal were made
by the Board of Directors as a whole, with the affected executive having excused
himself from the discussion. As of June 30, 2000, the Company did not have a
Compensation Committee.
DIRECTORS' COMPENSATION
Prior to June 1997, the Company's outside directors had been entitled to receive
an annual fee of $30,000 for serving as members of the Board of Directors and
members of the Executive Committee. The Board had previously agreed to defer
indefinitely payment of the annual fee, and in June 1997, the Board determined
to eliminate the annual director's fee. Each director and former director who
would have been entitled to a fee for past services also waived his right to any
unpaid annual fee. Directors are reimbursed for their expenses in connection
with attendance at each Board Meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information, as of June 30, 2000, with respect to
the beneficial ownership of the Company's common stock by each person known by
the Company to be the beneficial owner of more than five percent of the
outstanding common stock and by directors and officers of the Company, both
individually and as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERS SHARES OWNED BENEFICIALLY PERCENT OF CLASS(1)
<S> <C> <C>
Robert Long 360,000 36%
19 Maple Lane
Rhinebeck, New York 12572
Robert Platek(2) 450,000 45%
5 Halls Lane
Rye, New York 10580
Spencer Levy 90,000 9%
11 Waverly Place #6H
New York, New York 10003
James Platek(2) -0- 0%
335 Garden Street, Apt. #4
Hoboken, New Jersey 07030
All officers and directors, as a 450,000 45%
group (3 persons)
</TABLE>
----------
(1) Percentages are based on 1,000,000 shares of common stock outstanding
as of June 30, 2000.
(2) Robert Platek and James Platek are brothers.
22
<PAGE> 23
CHANGES OF CONTROL
A business combination involving the issuance of the Company's common stock
will, in all likelihood, result in shareholders of a private company obtaining a
controlling interest in the Company. Any such business combination may require
the current shareholders of the Company to sell or transfer all or a portion of
their common stock and/or resign from their positions as officers and/or
directors of the Company. The resulting change in control of the Company could
result in removal of the current management, and a corresponding reduction in or
elimination of their participation in the future affairs of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as disclosed below, none of the present directors, officers or
principal shareholders of the Company, nor any family member of the foregoing,
nor, to the best of the information and belief of the present management of the
Company, any of the former directors, senior officers or principal shareholders
of the Company, nor any family member of such former directors, officers or
principal shareholders, has or has had any material interest, director or
indirect, in any transaction, within the two years prior to the date of this
report, or in any proposed transaction which has materially affected or will
materially affect the Company. Management believes the following transactions
are as fair to the Company and similar to terms which could be obtained from
unrelated third parties.
1. Pursuant to the Plan, on May 23, 2000, all outstanding shares of the
Company were cancelled and 900,000 shares of common stock were issued
to an investor group consisting of Robert M. Long (360,000 shares), an
officer, director and shareholder of the Company prior to the sale of
the corporate entity, Robert Platek (450,000 shares), a beneficial
shareholder of the Company prior to the sale, and Spencer Levy (90,000
shares). Messrs. Long, Platek and Levy paid an aggregate of $50,000 for
control of the Company, on a pro-rata basis.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2 Debtor's Second Plan of Reorganization with Modifications Through N/A
December 2, 1999, Order of Judge R. Thomas Stinnett dated December 9,
1999 and Order Approving Disclosure Statement and Confirming Second
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code
(3)
3(i) Articles of Incorporation, as amended (1) N/A
3(ii) Amended and Restated Bylaws (1) N/A
11 Statement re computation of per share earnings (2) N/A
27 Financial Data Schedule
</TABLE>
----------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed with the Commission on January 13, 1989, file No.
33-26541.
(2) See Part I - Financial Statements.
(3) Incorporated by reference to the Exhibits previously filed with the
Corporation's Current Report on Form 8-K dated May 23, 2000.
(b) The following reports on Form 8-K were filed during the last quarter of
the period covered by this report:
1. Form 8-K dated September 11, 1998, reporting the Confirmation of the
First Amended Plan of Reorganization, under Item 3. Bankruptcy and
Reorganization and Item 7. Exhibits.
23
<PAGE> 24
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOXSO CORPORATION
Dated: August 10, 2000 By: /s/ ROBERT LONG
--------------------------------------
Robert Long, President
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President and Director
/s/ ROBERT LONG (Principal Executive Officer) August 10, 2000
--------------------------------
Robert Long
Secretary, Treasurer and Director
(Principal Financial and Accounting
/s/ JAMES PLATEK Officer) August 10, 2000
--------------------------------
James Platek
/s/ SPENCER LEVY Director August 10, 2000
--------------------------------
Spencer Levy
</TABLE>
24
<PAGE> 25
NOXSO CORPORATION
FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Report Of Independent Accountant F-1
Consolidated Balance Sheets - June 30, 1999 and 1998 F-3
Consolidated Statements Of Operations - Fiscal Years Ended June 30, 1999 F-4
and 1998
Consolidated Statements Of Changes In Stockholders' Equity - Fiscal Years Ended F-5
June 30, 1999 and 1998
Consolidated Statements Of Cash Flows- Fiscal Years Ended June 30, 1999 F-6
and 1998
Notes To Consolidated Financial Statements - June 30, 1999 and 1998 F-7
Unaudited Consolidated Financial Statements for the three months ended September 30, 1998 F-16
Unaudited Consolidated Financial Statements for the six months ended December 31, 1998 F-20
Unaudited Consolidated Financial Statements for the nine months ended March 31, 1999 F-24
</TABLE>
25
<PAGE> 26
[LETTERHEAD DANIEL BAIER, CPA, P.C.]
To the Board of Directors of NOXSO Corporation
I have audited the accompanying consolidated balance sheets of NOXSO Corporation
as of June 30, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for our opinion.
Generally accepted accounting principles recommend, but do not require, that
companies adopt the method of accounting for stock-based compensation plans that
attributes costs equal to the fair value of a stock-based compensation
arrangement over the periods in which service is rendered. Companies not
electing to adopt this method of accounting are required, among other things, to
provide additional disclosure, which in effect restates a company's results as
if the new method of accounting had been adopted. As more fully explained in
Note 11 to the financial statements, the Company has been unable to adopt the
recognition provisions of Statement of Financial Accounting Standard No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation," and has not complied
with the related disclosure requirements.
In my opinion, except for the effects of not adopting SFAS No. 123 as discussed
in the preceding paragraph, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NOXSO
Corporation and subsidiary as of June 30, 1999 and 1998 and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As described in Note 3 to the consolidated financial statements, in 1997 a
bankruptcy proceeding was commenced against the Company. On December 2, 1999,
the Bankruptcy Court issued an order (the "Order") confirming the Company's
second amended plan of reorganization under Chapter 11 of the Bankruptcy Code.
Pursuant to the terms of the Order, the Company was authorized to transfer the
corporate entity and to separately transfer it's assets. The proceeds from these
transfers are to be used for the distributions made pursuant to the Second
Amended Plan for reorganization, which will be in full and final satisfaction,
settlement, release and discharge as against the Company, of any and all Claims
and Interests of any nature whatsoever that arose before December 2, 1999. In
connection with such distributions, Equity Interests based upon ownership of
Existing Securities or rights to acquire Existing Securities, including
F-1
<PAGE> 27
without limitation vested and non-vested warrants, options, preemption rights or
other rights, will be cancelled on the Consummation Date, and the Equity
Interests will receive nothing on account of those interests. Following the
Confirmation Date, the Company, through the corporate entity, will continue to
exist as a reorganized entity. Continuation of any business of the reorganized
entity following the Consummation Date is dependent on the Company's ability to
achieve successful future operations.
In addition to the bankruptcy matter described above, as discussed in Note 4 to
the consolidated financial statements, the Company has never generated revenue
from operations and does not anticipate that it will generate significant
operating revenue in the foreseeable future. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The accompanying consolidated
financial statements include certain adjustments to reflect the ultimate
realization of recorded asset amounts in connection with the Order pursuant to
the matter described in the preceding paragraph but do not include any
adjustments relating to the impact, if any, on the recoverability and
classification of recorded net asset amounts or the amounts and classification
of liabilities that might also be necessary should the Company, as a reorganized
entity, be unable to continue as a going concern.
/s/ DANIEL BAIER
Daniel Baier, CPA, P.C.
Rochester, New York
February 4, 2000
F-2
<PAGE> 28
NOXSO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
<S> <C> <C>
ASSETS
Cash $ 23,738 $ 421,340
Prepaid Expenses 83,114 83,114
------------ ------------
Current Assets 106,852 504,454
------------ ------------
Equipment 339,931 339,931
Furniture and Fixtures 108,832 108,832
Leasehold Improvements 16,646 16,646
Accumulated Depreciation (465,409) (465,409)
------------ ------------
Property, Net -- --
------------ ------------
$ 106,852 $ 504,454
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Pre-Petition Liabilities $ 3,603,078 $ 3,603,078
Liabilities Not Subject To Compromise 225,861
------------ ------------
Liabilities 3,603,078 3,828,939
------------ ------------
Common Stock, $.01 Par Value, 20,000,000
Shares Authorized, 15,383,468 Shares Issued 151,836 151,836
Paid In Capital 16,907,285 16,907,285
Treasury Stock (25,000) (25,000)
Retained Deficit (20,530,347) (20,358,606)
------------ ------------
Total Stockholders' Equity (Deficit) (3,496,226) (3,324,485)
------------ ------------
$ 106,852 $ 504,454
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 29
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Reimbursement of Project Costs $ 29,970
Interest Income $ 951 13,269
Loss on Sale of Plant (382,821)
SO2 Revenue 1,817,420
------------ ------------
951 1,477,837
------------ ------------
Labor and Fringe Benefits 132,621 805,463
Travel 2,030 70,654
Supplies and Equipment 4,633 46,331
Depreciation and Amortization 40,104
SO2 Processing Costs 1,609,682
Loss on Impairment of Asset 1,228 --
Legal 1,071 673,924
Rent 9,548 163,023
Utilities 4,206 23,093
Postage 509 375
Insurance 615 105,129
Outside Services 2,503 92,465
Transfer Agent 1,550 8,132
Corporate Expenses 12,175 304,695
------------ ------------
172,692 3,943,070
------------ ------------
NET LOSS $ (171,741) $ (2,465,232)
============ ============
LOSS PER COMMON SHARE $ (0.01) $ (0.17)
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 15,383,468 14,792,023
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 30
NOXSO CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
Number of
Per Common Common
Share Consideration Shares Stock
<S> <C> <C> <C> <C>
Balance - July 1, 1997 11,264,740 $110,649
---------- --------
Issue Common Stock - Conversion of Debt $0.1341 $130,363 973,203 9,732
Issue Common Stock - Conversion of Debt $0.1341 $153,257 1,142,857 11,429
Issue Common Stock - Conversion of Debt $0.1341 $171,671 1,280,171 12,802
Issue Common Stock - Conversion of Debt $0.1341 $ 13,410 100,000 1,000
Issue Common Stock - Conversion of Debt $0.1341 $ 31,299 233,400 2,334
Issue Common Stock - Debtor-In-Possession $0.2500 $ 25,000 100,000 1,000
("DIP") Financing
Issue Common Stock - DIP Financing $0.2970 $ 4,950 16,666 167
Issue Common Stock - DIP Financing $0.2970 $ 12,375 41,666 417
Issue Common Stock - DIP Financing $0.2190 $ 7,300 33,333 333
Issue Common Stock - DIP Financing $0.3910 $ 3,258 8,333 83
Issue Common Stock - DIP Financing $0.1880 $ 1,567 8,333 83
Issue Common Stock - DIP Financing $0.2190 $ 2,372 10,833 108
Issue Common Stock - DIP Financing $0.1880 $ 627 3,333 33
Issue Common Stock - DIP Financing $0.3750 $ 37,500 100,000 1,000
Issue Common Stock - DIP Financing $0.0601 $ 4,000 66,600 666
1998 - Net loss
---------- --------
Balance - June 30, 1998 15,383,468 151,836
---------- --------
1999 - Net Loss
---------- --------
Balance - June 30, 1999 15,383,468 $151,836
========== ========
<CAPTION>
Paid In Treasury Retained
Capital Stock Deficit Total
<S> <C> <C> <C> <C>
Balance - July 1, 1997 $16,349,532 $(25,000) $(17,893,374) $(1,458,193)
----------- -------- ------------ -----------
Issue Common Stock - Conversion of Debt 120,631 130,363
Issue Common Stock - Conversion of Debt 141,829 153,257
Issue Common Stock - Conversion of Debt 158,869 171,671
Issue Common Stock - Conversion of Debt 12,410 13,410
Issue Common Stock - Conversion of Debt 28,965 31,299
Issue Common Stock - Debtor-In-Possession 24,000 25,000
("DIP") Financing
Issue Common Stock - DIP Financing 4,783 4,950
Issue Common Stock - DIP Financing 11,958 12,375
Issue Common Stock - DIP Financing 6,967 7,300
Issue Common Stock - DIP Financing 3,175 3,258
Issue Common Stock - DIP Financing 1,483 1,567
Issue Common Stock - DIP Financing 2,264 2,372
Issue Common Stock - DIP Financing 593 627
Issue Common Stock - DIP Financing 36,500 37,500
Issue Common Stock - DIP Financing 3,334 4,000
1998 - Net loss (2,465,232) (2,465,232)
----------- -------- ------------ -----------
Balance - June 30, 1998 16,907,293 (25,000) (20,358,606) (3,324,485)
----------- -------- ------------ -----------
1999 - Net Loss (171,741) (171,741)
----------- -------- ------------ -----------
Balance - June 30, 1999 $16,907,293 $(25,000) $(20,530,347) $(3,496,226)
=========== ======== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (171,741) $ (2,465,232)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 40,104
Gain from early extinguishment of debt (43,639)
Loss on Impairment of Property and Equipment 382,821
Accounts Receivable 65,760
Prepaid and Other Current Assets 16,196
Minority Interest (23,700)
Liabilities Subject To Compromise (885,303)
Liabilities Not Subject To Compromise (225,861) (5,975,702)
------------ ------------
Net Cash Used In Operating Activities (397,602) (8,888,695)
------------ ------------
Cash Flows From Investing Activities:
Proceeds From Sale of Certificate of Deposit 1,000,000
Proceeds From Sale of Property And Equipment 11,000,000
------------ ------------
-- 12,000,000
------------ ------------
Cash Flows From Financing Activities:
Proceeds From Issuance Of Common Stock 4,000
Conversion Of Loan To Common Stock 500,000
Payment of Loans (3,241,436)
------------ ------------
-- (2,737,436)
------------ ------------
Net Increase / (Decrease) in Cash (397,602) 373,869
Cash at Beginning of Period 421,340 47,470
------------ ------------
Cash at End of Period $ 23,738 $ 421,340
============ ============
Cash Payments For Interest $ -- $ 97,483
============ ============
Cash Payments For Taxes $ -- $ --
============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 32
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 1 - NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION:
NOXSO Corporation was incorporated in the Commonwealth of Virginia on
August 28, 1979, to engage in developing, testing and marketing a process
capable of removing certain emissions from the flue gas generated by the
burning of coal. Until September 1998, the Company had been in the
development stage and had not commenced commercial operation.
At the end of the first quarter ended September 30, 1998, the Company
ceased operations, closed and vacated its offices, and was no longer able
to effect transactions crucial to a successful implementation of its plan
for reorganization under a pending bankruptcy proceeding. In light of the
Company's amended plan of reorganization which ultimately resulted in
liquidation of the Company (see Note 3), the Company has discontinued the
application of accounting and reporting applicable to development stage
enterprises.
In 1995, the Company formed a new subsidiary called Projex, Inc ("Projex").
The Company held 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. Subsequently, the Company acquired the remaining
portion of the stock of Projex. The financial statements include accounts
of NOXSO Corporation and Projex. All intercompany transactions have been
eliminated in consolidation. NOXSO Corporation and/or NOXSO Corporation
together with its subsidiary are hereafter referred to as (the "Company").
Creditors of the Company filed an involuntary petition of bankruptcy
against the Company, and as more fully described in Note 3, the Company had
been operating as a debtor-in-possession in the bankruptcy proceeding.
However, the Company was unable to effect its initial plan of
reorganization and on December 2, 1999, the Bankruptcy Court issued an
order (the "Order") confirming the Company's second amended plan of
reorganization authorizing the Company to separately transfer its assets
and corporate entity and to apply the proceeds toward the distributions
pursuant to the liquidation stipulated in the second amended plan of
reorganization. In connection with such distributions, Equity Interests
based upon ownership of Existing Securities or rights to acquire Existing
Securities, including without limitation vested and non-vested warrants,
options, preemption rights or other rights, will be cancelled on the
Consummation Date, and the Equity Interests will receive nothing on account
of those interests.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
F-7
<PAGE> 33
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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.
Cash Equivalents -
The Company considers certificates of deposit, money market funds and all
other highly liquid debt instruments, with a maturity of three months or
less when purchased, to be cash equivalents.
Property and Equipment -
Property and equipment are stated at cost. The Company provided for
depreciation using various methods over the estimated useful lives of 10
years for plant, 3 to 5 years for machinery and equipment, 5 to 7 years for
office furniture and fixtures, and the lease term or useful life, whichever
is shorter, for leasehold improvements.
In light of the Order (Notes 3), the Company has made the judgement that,
following the sale of the Tennessee Facility (Note 5) the ultimate recovery
of all remaining Property and Equipment in future operations was impaired
at June 30, 1998; accordingly, these remaining assets were fully reserved
through the recognition of depreciation expense of $29,570 in fiscal year
1998.
Patents -
Patent costs are expensed as incurred.
Income Taxes -
Under the Financial Accounting Standards Board ("FASB") Statement No. 109,
"Accounting for Income Taxes" (SFAS No. 109), deferred tax assets or
liabilities are computed based on the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate. Deferred income taxes or credits are based on the
changes in the asset or liability from period to period. There were no
material temporary differences at June 30, 1998.
At June 30, 1999, the Company had tax loss carryforwards of approximately
$17,250,000, which expire between 1998 and 2013. The deferred tax assets
related to these net operating losses were entirely offset by a valuation
allowance at June 30, 1999.
F-8
<PAGE> 34
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
Loss per Common Share -
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". This statement, adopted in fiscal year 1998, requires presentation
of Basic and Fully Diluted Earnings Per Share. Basic net loss per share is
computed using the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed using the
weighted average number of common shares and potentially dilutive common
shares outstanding during the period. Potentially dilutive common shares
consist of outstanding warrants and options.
NOTE 3 - BANKRUPTCY AND PLAN OF REORGANIZATION:
On February 6, 1997, Olin Corporation ("Olin"), FRU-CON Construction
Company and Industrial Rubber & Safety Products, Inc. filed an involuntary
petition in bankruptcy against the Company in the United States Bankruptcy
Court in the Eastern District of Tennessee. On June 4, 1997, the Company
consented to the jurisdiction of the Court and was adjudicated bankrupt.
The Company converted the bankruptcy to a proceeding under Chapter 11 of
the Bankruptcy Code. During fiscal year 1998, the Company operated as a
debtor-in-possession in the proceeding.
Pursuant to the provisions of the Bankruptcy Code, the Company had the
right to file a plan of reorganization. An order approving the interim
debtor-in-possession financing was entered in August of 1997. The Company
subsequently applied to the Bankruptcy Court for approval of additional
debtor-in-possession financing in an amount of up to $600,000. On August
18, 1997, the Bankruptcy Court entered a final order authorizing the
Company to obtain such financing from a group of lenders (the "DIP
Lenders"). Pursuant to such arrangement, the Company was authorized to
grant and had granted to the DIP Lenders a first priority lien in certain
of the Company's patents and laboratory equipment and was authorized to
issue 300,000 shares of its Common Stock in the aggregate to the DIP
Lenders.
The DIP Lenders loaned $600,000 to the Company pursuant to the financing
agreement, and received 300,000 shares of Common Stock. The loans from the
DIP Lenders bore interest at the rate of 20% per annum. Interest for a
one-year period (a portion of which will be refunded to the extent not
earned) and a 5% origination fee have been paid from proceeds.
The Company's plan of reorganization was based on two principal elements.
These two elements were the sale of its Tennessee Facility (see Note 5) as
well as the location of a site and the obtaining of funding (including
reinstatement of DOE funding) to construct a commercial-size demonstration
of the NOXSO Process.
In September of 1997, the Company executed an asset purchase agreement for
the Tennessee Facility between the Company (the seller) and Republic
Financial Corporation (the purchaser). However, the Company was unable to
effect the commercial demonstration of
F-9
<PAGE> 35
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
the NOXSO process. Accordingly, the Company filed a second amended plan of
reorganization that would result in liquidation of the Company's assets.
On December 2, 1999, the Bankruptcy Court issued an Order confirming the
Company's second amended plan of reorganization under Chapter 11 of the
Bankruptcy Code. Pursuant to the terms of the Order, the Company was
authorized to separately transfer the corporate entity and it's assets. The
proceeds from these transfers are to be used for the distributions to be
made pursuant to the Second Amended Plan, which will be in full and final
satisfaction, settlement, release and discharge as against the Company, of
any and all Claims and Interests of any nature whatsoever that arose before
December 2, 1999.
The Company's second amended plan of reorganization provided for conveyance
of the corporate entity to a group including Mr. Robert Long, the Secretary
of the Company. Simultaneously, the Company's sale of assets to FLS MILJO
a/s free and clear of liens was approved.
In connection with such distributions, Equity Interests based upon
ownership of Existing Securities or rights to acquire Existing Securities,
including without limitation vested and non-vested warrants, options,
preemption rights or other rights, will be cancelled on the Consummation
Date, and the Equity Interests will receive nothing on account of those
interests.
Following the Confirmation Date, the Company, as a corporate entity, will
continue to exist as a reorganized entity.
NOTE 4 - BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared
assuming that the Company would continue as a going concern. However, the
Company has never generated revenue from operations and does not anticipate
that it will generate significant operating revenue in the foreseeable
future. Furthermore, as described in Note 3, at the end of calendar year
1999, the Company liquidated its assets pursuant to an Order of the
Bankruptcy Court.
These matters, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Continuation of any business by the
Company is dependent on the Company's ability to identify and exploit a
business opportunity, develop a business plan, obtain financing, and
achieve successful future operations. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be ultimately unable to continue as a going concern.
F-10
<PAGE> 36
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 5 - SALE OF TENNESSEE FACILITY:
In September 1997, the Company executed an asset purchase agreement for the
Tennessee Facility between the Company (the seller) and Republic Financial
Corporation (the purchaser) for the sale of the Tennessee Facility.
Republic, a merchant banking firm that specializes in the acquisition and
financing of assets, purchased the Facility at a price of $11 million. Of
this amount, $8.1 million was disbursed to secured creditors, .8 million
was disbursed for professional fees, and the balance was retained by the
Company to pay other liabilities.
NOTE 6 - PREPETITION LIABILITIES SUBJECT TO COMPROMISE:
Prepetition liabilities subject to compromise at June 30, 1999 and 1998
included accounts payable of $3.6 million.
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 that 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. In June 1997, $40,000 of the securities
was converted into 154,811 shares of common stock. In fiscal year 1998, the
remaining amounts owed were converted into common stock of the Company (see
Note 3).
Because of Chapter 11 proceedings, there has been no accrual of interest on
the above notes since June 4, 1997.
NOTE 7 - FUTURE MINIMUM LEASE PAYMENTS:
There are no future minimum lease payments (see Note 3). The Company
vacated its premises in August of 1998.
NOTE 8 - NOTES PAYABLE:
On August 18, 1997, the Bankruptcy Court entered a final order authorizing
the Company to obtain debtor-in-possession financing in an amount of up to
$600,000 from a group of lenders (the "DIP Lenders"). Pursuant to such
arrangement, the Company was authorized to
F-11
<PAGE> 37
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
grant and has granted to the DIP Lenders a first priority lien in certain
of the Company's patents and laboratory equipment and was authorized to
issue 300,000 shares of its Common Stock in the aggregate to the DIP
Lenders. The DIP Lenders loaned $600,000 to the Company pursuant to the
financing arrangement, and the Company issued 300,000 shares of Common
Stock to the DIP Lenders. The loans from the DIP Lenders bear interest at
the rate of 20% per annum. Interest for a one-year period (one-half of
which will be refunded to the extent not earned) and a 5% origination fee
have been paid from proceeds.
The loans from both the Interim Lenders and the DIP Lenders were repaid in
January 1998. The weighted average interest rate for total notes payable as
of June 30, 1998 was 13%.
NOTE 9 - CAPITAL STRUCTURE, COMMON STOCK, OPTIONS AND WARRANTS:
The 1990 Stock Option Plan -
On April 18, 1990 the Board of Directors of the Company adopted, and in
March 1991 the Company's stockholders approved, the 1990 Stock Option Plan
(the "1990 Plan"). The 1990 Plan as amended authorizes the granting of
either "incentive stock options," as defined in Section 422 of the Internal
Revenue Code or "non-qualified stock options," to acquire 1,000,000 shares
of the Company's common stock. Incentive stock options may be granted only
to employees. Nonqualified stock options may be granted to employees,
non-employee directors and consultants. The exercise price shall be such
price as is determined by the Stock Option Committee or the Board of
Directors. In addition, incentive stock options granted pursuant to the
1990 Plan as amended must have an exercise price equal to fair market value
of the Company's common stock at the time the option is granted, except
that the price shall be at least 110% of the fair market value when the
option is granted to an employee who owns more than ten percent of the
combined voting power of all classes of the Company's voting stock at the
date of grant. The aggregate fair market value of the stock with respect to
which incentive stock options are exercisable for the first time by any
individual during any calendar year shall not exceed $100,000. The Stock
Option Committee will determine the term of the options but no option may
be exercised after ten years from the date of grant. No incentive stock
option granted to an employee who owns more than ten percent of the
combined voting power of all the outstanding classes of stock in the
Company may be exercised after five years from the date of the grant.
F-12
<PAGE> 38
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
Transactions in fiscal year 1999 and 1998 for stock options under the 1990
Plan, as amended, are as follows:
<TABLE>
<S> <C>
Options outstanding July 1, 1997 921,750
Granted 270,000
Exercised --
Canceled --
Options outstanding at June 30, 1998 and June 30, 1999 1,191,750
Option price range at June 30, 1998 $0.9375 - 12.25
Options exercisable at June 30, 1998 and June 30, 1999 1,151,750
</TABLE>
On March 17, 1996 and 1997, the President, Vice President and outside
Directors of the Board were granted options to purchase 25,000, 15,000 and
10,000 shares of the Company's common stock, respectively on an annual
basis. These grants would vest 50% immediately and 50% on the anniversary
date of the issuance. Additionally, the President was granted 250,000
options, which vest in stages on completion of certain specified targets.
None of these options are currently exercisable. The grants would be
effective on the third Friday of March, and the option price will be equal
to the quoted market price as listed on NASDAQ, for each grant.
Warrants -
The following warrants were outstanding and exercisable to purchase the
Company's stock at June 30, 1998:
<TABLE>
<CAPTION>
Aggregate Number
of Shares Subject Price
to Warrant Per Share Expiration Date
----------------- --------- ---------------
<S> <C> <C>
156,763 $4.28 April 12, 1999
10,000 $6.00 October 27, 2000
767,133 $1.50 December 31, 2001
</TABLE>
Treasury Stock was acquired in fiscal year 1993 in satisfaction of the then
outstanding Notes Receivable.
Private Placement Offerings:
The Company has conducted private placement offerings to accredited
investors. The shareholders that purchased the above shares under private
placements have been granted registration rights or piggyback registration
rights by the Company. Warrants and common stock issuable upon exercise by
certain holders have not been registered or qualified for sale under the
Securities Act of 1933, as amended or any state securities law. There were
no private placement offerings in fiscal year 1998 or 1999.
F-13
<PAGE> 39
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 10- CONTINGENCIES:
Refer to Note 3 for information with respect to the Company's Bankruptcy
Proceeding. The Company's sale of assets free and clear of liens was
approved by the Bankruptcy Court and entered in December 1999. All that
remains prior to entry of a final decree in the Company's Chapter 11
Bankruptcy Case is disposition and collection of various preference actions
brought by the Company in U.S. Bankruptcy Court. None of the preference
actions are believed to involve counterclaims or other exposure to the
Company.
NOTE 11 - DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
In October 1995, the FASB issued SFAS No. 123. "Accounting for Stock-Based
Compensation." SFAS No. 123 recommends, but does not require, that
companies change their method of accounting for stock-based compensation
plans to one that attributes compensation costs equal to the fair market
value of a stock-based compensation arrangement over the periods in which
service is rendered.
Companies not electing to change their method of accounting are required,
among other things, to provide additional disclosures, which in effect
restate a company's results for comparative periods as if the new method of
accounting had been adopted.
As a result of the Chapter 11 bankruptcy (see Note 3), the Company was
unable to engage a professional firm to complete the required SFAS No. 123
calculation.
NOTE 12 - OTHER MATTERS:
The Company is required to file certain periodic reports with the
Securities and Exchange Commission (the "SEC"). These include, but are not
limited to, quarterly and annual financial reports as prescribed by the
SEC. Reports subsequent to the filing of the third quarter report for
fiscal 1998 (as of March 31, 1998) have not been filed on a timely basis,
and the Company is not current in its reporting. The Company's ability to
make timely filings of the required reports has been impacted by the
Bankruptcy Proceeding. Following the Order of the Bankruptcy Court and the
transfer of the corporate entity, it is the Company's intention to
expeditiously file all required reports with the SEC to enable it to become
current with its statutory reporting obligations.
NOTE 13 - SUBSEQUENT EVENTS:
See Note 3 regarding the circumstances with regard to the Company's
bankruptcy proceeding. On December 2, 1999, the Bankruptcy Court issued an
Order confirming the
F-14
<PAGE> 40
NOXSO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
Company's second amended plan of reorganization under Chapter 11 of the
Bankruptcy Code. Pursuant to the terms of the Order, the Company was
authorized to separately transfer the corporate entity and it's assets. The
proceeds from these transfers are to be used for the distributions to be
made pursuant to the Second Amended Plan, which will be in full and final
satisfaction, settlement, release and discharge as against the Company, of
any and all Claims and Interests of any nature whatsoever that arose before
December 2, 1999. In connection with such distributions, Equity Interests
based upon ownership of Existing Securities or rights to acquire Existing
Securities, including without limitation vested and non-vested warrants,
options, preemption rights or other rights, will be cancelled on the
Consummation Date, and the Equity Interests will receive nothing on account
of those interests. Following the Confirmation Date, the Company, as a
corporate entity, will continue to exist as a reorganized entity.
F-15
<PAGE> 41
NOXSO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1998
(Unaudited)
<S> <C>
ASSETS
Cash $ 19,363
Prepaid Expenses 83,114
------------
Current Assets 102,477
------------
Equipment 339,931
Furniture and Fixtures 108,832
Leasehold Improvements 16,646
Accumulated Depreciation (465,409)
------------
Property, Net 0
------------
$ 102,477
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Pre-Petition Liabilities $ 3,603,078
Liabilities Not Subject To Compromise
------------
Liabilities 3,603,078
------------
Common Stock, $.01 Par Value, 20,000,000 Shares
Authorized, 15,383,468 Shares Issued 151,836
Paid In Capital 16,907,285
Treasury Stock (25,000)
Deficit Accumulated During The Development Stage (20,534,722)
------------
Total Stockholders' Equity (Deficit) (3,500,601)
------------
$ 102,477
============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-16
<PAGE> 42
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Labor and Fringe Benefits $ 132,621 $ 139,329
Depreciation and Amortization 334,796
SO2 Costs 458,767
Rent 9,548 38,405
Supplies and Equipment 4,633 6,044
Loss on Impairment of Asset 1,228 478,094
Other General and Administrative 28,648 65,121
------------ ------------
176,679 1,520,556
------------ ------------
Reimbursement of Project Costs 17,203
SO2 Processing Revenue 948,310
Interest Income 565 8,590
------------ ------------
565 974,103
------------ ------------
NET LOSS $ (176,114) $ (546,453)
============ ============
LOSS PER COMMON SHARE $ (0.01) $ (0.43)
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 15,383,468 12,683,094
============ ============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-17
<PAGE> 43
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (176,114) $ (546,452)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 334,796
Loss on Impairment of Property and Equipment 478,094
Issuance of Common Stock for Compensation & Other 29,167
Accounts Receivable (1,451)
Prepaid and Other Current Assets 252,803
Liabilities Subject To Compromise (500,000)
Liabilities Not Subject To Compromise (225,863) (50,769)
----------- -----------
Net Cash Used In Operating Activities (401,977) (3,812)
----------- -----------
Cash Flows From Investing Activities:
Acquisition Deposit for Property And Equipment (478,094)
Proceeds From Sale of Certificate of Deposit 1,000,000
----------- -----------
-- 521,906
----------- -----------
Cash Flows From Financing Activities:
Payment of Line of Credit (1,000,000)
Proceeds From Debtor In Possession Financing 554,166
----------- -----------
-- (445,834)
----------- -----------
Net Decrease in Cash (401,977) 72,260
Cash at Beginning of Period 421,340 47,470
----------- -----------
Cash at End of Period $ 19,363 $ 119,730
=========== ===========
Cash Payments For Interest $ -- $ --
=========== ===========
Cash Payments For Taxes $ -- $ --
=========== ===========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-18
<PAGE> 44
NOXSO CORPORATION
SEPTEMBER 30, 1998
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited, condensed, consolidated financial statements
for the three month periods ended September 30, 1998 have been prepared in
accordance with the SEC's instructions for unaudited financial statements
which are filed under the cover of a Form 10-QSB and, accordingly, do not
include all disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management
of NOXSO Corporation ("Company"), all adjustments, consisting of normal
recurring accruals considered necessary for a fair presentation, have been
included.
Interim unaudited financial results should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1998.
The results of operations for the three months ended September 30, 1998 are
not necessarily indicative of the operating results to be expected for the
full fiscal year ending on June 30, 1999.
2. CESSATION OF DEVELOPMENT STAGE
At the end of the first quarter ended September 30, 1998, the Company
ceased operations, closed and vacated its offices, and was no longer able
to effect transactions crucial to a successful implementation of its plan
for reorganization under a pending bankruptcy proceeding.
In light of the Company's amended plan of reorganization which ultimately
resulted in liquidation of the Company (see Note 3), the Company has
discontinued the application of accounting and reporting applicable to
development stage enterprises.
3. SUBSEQUENT EVENTS
Pursuant to the Company's filing of a second amended plan of
reorganization, on December 2, 1999, the Bankruptcy Court issued an Order
confirming the Company's second amended plan of reorganization under
Chapter 11 of the Bankruptcy Code. Under the terms of the Order, the
Company was authorized to separately transfer the corporate entity and its
assets. The proceeds from these transfers are to be used for the
distributions to be made pursuant to the Second Amended Plan, which will be
in full and final satisfaction, settlement, release and discharge as
against the Company, of any and all Claims and Interests of any nature
whatsoever that arose before December 2, 1999.
The Company's second amended plan of reorganization provided for conveyance
of the corporate entity to a group including Mr. Robert Long, the Secretary
of the Company. Simultaneously, the Company's sale of assets to FLS MILJO
a/s free and clear of liens was also approved.
In connection with such distributions, Equity Interests based upon
ownership of Existing Securities or rights to acquire Existing Securities,
including without limitation vested and non-vested warrants, options,
preemption rights or other rights, will be cancelled on the Consummation
Date, and the Equity Interests will receive nothing on account of those
interests.
F-19
<PAGE> 45
NOXSO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998
(Unaudited)
<S> <C>
ASSETS
Cash $ 24,427
Prepaid Expenses 83,114
------------
Current Assets 107,541
------------
Equipment 339,931
Furniture and Fixtures 108,832
Leasehold Improvements 16,646
Accumulated Depreciation (465,409)
------------
Property Net --
------------
$ 107,541
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Pre-Petition Liabilities $ 3,603,078
Liabilities Not Subject To Compromise
------------
Liabilities 3,603,078
------------
Common Stock, $.01 Par Value, 20,000,000 Shares
Authorized, 15,383,468 Shares Issued 151,836
Paid In Capital 16,907,285
Treasury Stock (25,000)
Retained Deficit (20,529,658)
------------
Total Stockholders' Equity (Deficit) (3,495,537)
------------
$ 107,541
============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-20
<PAGE> 46
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended December Ended December Ended December Ended December
30, 1998 30, 1997 31, 1998 31, 1997
<S> <C> <C> <C> <C>
Labor and Fringe Benefits -- 159,719 132,623 299,048
Depreciation and Amortization 335,201 669,997
SO2 Costs -- 458,768
Rent -- 38,434 9,548 76,839
Supplies and Equipment -- 4,563 4,633 10,607
Loss on Impairment of Asset -- 1,228 478,094
Professional Fees 511,932 1,071 511,932
Other General and Administrative (4,945) 62,908 22,633 128,029
Income Tax Expense 23,207 23,207
------------ ------------ ------------ ------------
(4,945) 1,135,964 171,737 2,656,521
------------ ------------ ------------ ------------
Reimbursement of Project Costs 12,773 29,976
SO2 Processing Revenue 868,560 1,816,870
Gain on Sale of Plant 771,534 771,534
Interest Income 119 685 8,590
------------ ------------ ------------ ------------
119 1,652,867 685 2,626,970
------------ ------------ ------------ ------------
NET LOSS $ 5,064 $ 516,903 $ (171,052) $ (29,551)
============ ============ ============ ============
LOSS PER COMMON SHARE $ 0.00 $ 0.04 $ (0.01) $ (0.00)
============ ============ ============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 15,383,468 12,640,155 15,383,468 13,136,726
============ ============ ============ ============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-21
<PAGE> 47
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31,
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (171,052) $ (29,551)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 669,997
Gain on Sale of Assets (771,534)
Loss on Impairment of Property and Equipment 478,094
Issuance of Common Stock for Compensation & Other 29,057
Accounts Receivable 51,614
Prepaid and Other Current Assets (250,351)
Minority Interest 24,300
Liabilities Subject To Compromise (2,336,843)
Liabilities Not Subject To Compromise (225,861) (5,560,500)
------------ ------------
Net Cash Used In Operating Activities (396,913) (7,695,717)
------------ ------------
Cash Flows From Investing Activities:
Subsidiary Acquisition of Treasury Stock (60,083)
Acquisition Deposit for Property And Equipment
Proceeds From Sale of Certificate of Deposit 1,000,000
Proceeds From Sale of Property And Equipment 11,000,000
------------ ------------
-- 11,939,917
------------ ------------
Cash Flows From Financing Activities:
Payment of Line of Credit (1,000,000)
Payment of Loans (1,874,000)
Proceeds From Debtor In Possession Financing 656,666
Payment of Debtor In Possession Financing -90000
------------ ------------
-- (2,307,334)
------------ ------------
Net Decrease in Cash (396,913) 1,936,866
Cash at Beginning of Period 421,340 47,470
------------ ------------
Cash at End of Period $ 24,427 $ 1,984,336
============ ============
Cash Payments For Interest $ -- $ 900
============ ============
Cash Payments For Taxes $ -- $ --
============ ============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-22
<PAGE> 48
NOXSO CORPORATION
DECEMBER 31, 1998
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited, condensed, consolidated financial statements
for the three and six month periods ended December 31, 1998 have been
prepared in accordance with the SEC's instructions for unaudited financial
statements which are filed under the cover of a Form 10-QSB and,
accordingly, do not include all disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management of NOXSO Corporation ("Company"), all adjustments, consisting of
normal recurring accruals considered necessary for a fair presentation,
have been included.
Interim unaudited financial results should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1998.
The results of operations for the three months and six months ended
December 31, 1998 are not necessarily indicative of the operating results
to be expected for the full fiscal year ending on June 30, 1999.
2. CESSATION OF DEVELOPMENT STAGE
At the end of the first quarter ended September 30, 1998, the Company
ceased operations, closed and vacated its offices, and was no longer able
to effect transactions crucial to a successful implementation of its plan
for reorganization under a pending bankruptcy proceeding.
In light of the Company's amended plan of reorganization which ultimately
resulted in liquidation of the Company (see Note 3), the Company has
discontinued the application of accounting and reporting applicable to
development stage enterprises.
3. SUBSEQUENT EVENTS
Pursuant to the Company's filing of a second amended plan of
reorganization, on December 2, 1999, the Bankruptcy Court issued an Order
confirming the Company's second amended plan of reorganization under
Chapter 11 of the Bankruptcy Code. Under the terms of the Order, the
Company was authorized to separately transfer the corporate entity and its
assets. The proceeds from these transfers are to be used for the
distributions to be made pursuant to the Second Amended Plan, which will be
in full and final satisfaction, settlement, release and discharge as
against the Company, of any and all Claims and Interests of any nature
whatsoever that arose before December 2, 1999.
The Company's second amended plan of reorganization provided for conveyance
of the corporate entity to a group including Mr. Robert Long, the Secretary
of the Company. Simultaneously, the Company's sale of assets to FLS MILJO
a/s free and clear of liens was also approved.
In connection with such distributions, Equity Interests based upon
ownership of Existing Securities or rights to acquire Existing Securities,
including without limitation vested and non-vested warrants, options,
preemption rights or other rights, will be cancelled on the Consummation
Date, and the Equity Interests will receive nothing on account of those
interests.
F-23
<PAGE> 49
NOXSO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999
(Unaudited)
<S> <C>
ASSETS
Cash $ 24,558
Prepaid Expenses 83,114
------------
Current Assets 107,672
------------
Equipment 339,931
Furniture and Fixtures 108,832
Leasehold Improvements 16,646
Accumulated Depreciation (465,409)
------------
Property, Net --
------------
$ 107,672
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Pre-Petition Liabilities $ 3,603,078
Liabilities Not Subject To Compromise
------------
Liabilities 3,603,078
------------
Common Stock, $.01 Par Value, 20,000,000 Shares Authorized,
15,383,468 Shares Issued 151,836
Paid In Capital 16,907,285
Treasury Stock (25,000)
Retained Deficit (20,529,526)
------------
Total Stockholders' Equity (Deficit) (3,495,405)
------------
$ 107,672
============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-24
<PAGE> 50
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Labor and Benefits -- 230,580 132,621 529,628
Depreciation and Amortization -- 43,790 -- 713,787
Professional Fees 177,211 1,071 689,143
SO2 Processing Costs 458,768
Supplies and Equipment -- 7,695 4,633 18,302
Loss on Impairment of Asset -- 1,228 478,094
Rent -- 35,203 9,548 112,042
Other General and Administrative -- 252,123 22,633 390,152
Income Tax Expense 23,207
------------ ------------ ------------ ------------
-- 746,602 171,735 3,413,123
------------ ------------ ------------ ------------
Reimbursement of Project Costs 29,976
SO2 Processing Revenue 1,816,870
Gain on Sale of Plant 771,534
Gain on Early Extinguishment of Debt 43,639 43,639
Interest Income 131 814 8,590
------------ ------------ ------------ ------------
131 43,639 815 2,670,609
------------ ------------ ------------ ------------
NET LOSS $ 131 $ (702,963) $ (170,921) $ (742,514)
============ ============ ============ ============
LOSS PER COMMON SHARE $ 0.00 $ (0.05) $ (0.01) $ (0.05)
============ ============ ============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 15,383,468 13,859,110 15,383,468 14,595,594
============ ============ ============ ============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements
F-25
<PAGE> 51
NOXSO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (170,921) $ (742,514)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 718,512
Gain on Sale of Assets (771,534)
Gain on Early Extinguishment of Debt (43,639)
Loss on Impairment of Property and Equipment 478,094
Issuance of Common Stock for Compensation & Other 29,057
Accounts Receivable 65,760
Prepaid and Other Current Assets (137,958)
Minority Interest 24,300
Liabilities Subject To Compromise (2,086,843)
Liabilities Not Subject To Compromise (225,861) (5,841,393)
------------ ------------
Net Cash Used In Operating Activities (396,782) (8,308,158)
------------ ------------
Cash Flows From Investing Activities:
Subsidiary Acquisition of Treasury Stock (60,083)
Acquisition Deposit for Property And Equipment
Proceeds From Sale of Certificate of Deposit 1,000,000
Proceeds From Sale of Property And Equipment 11,000,000
------------ ------------
-- 11,939,917
------------ ------------
Cash Flows From Financing Activities:
Payment of Line of Credit (1,000,000)
Proceeds From Issuance Of Common Stock 4,000
Payment of Loans (1,874,000)
Proceeds From Debtor In Possession Financing 656,666
Payment of Debtor In Possession Financing (697,000)
------------ ------------
-- (2,910,334)
------------ ------------
Net Decrease in Cash (396,782) 721,425
Cash at Beginning of Period 421,340 47,470
------------ ------------
Cash at End of Period $ 24,558 $ 768,895
============ ============
Cash Payments For Interest $ -- $ 106,039
============ ============
Cash Payments For Taxes $ -- $ --
============ ============
Issuance Of Common Stock In Exchange For Warrants -- $ 4,000
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-26
<PAGE> 52
NOXSO CORPORATION
MARCH 31, 1999
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited, condensed, consolidated financial
statements for the three and nine month periods ended March 31, 1999
have been prepared in accordance with the SEC's instructions for
unaudited financial statements which are filed under the cover of a
Form 10-QSB and, accordingly, do not include all disclosures required
by generally accepted accounting principles for complete financial
statements. In the opinion of management of NOXSO Corporation
("Company"), all adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation, have been included.
Interim unaudited financial results should be read in conjunction with
the audited financial statements included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998.
The results of operations for the three and nine months ended March 31,
1999 are not necessarily indicative of the operating results to be
expected for the full fiscal year ending on June 30, 1999.
2. CESSATION OF DEVELOPMENT STAGE
At the end of the quarter ended September 30, 1998, the Company ceased
operations, closed and vacated its offices, and was no longer able to
effect transactions crucial to a successful implementation of its plan
for reorganization under a pending bankruptcy proceeding.
In light of the Company's amended plan of reorganization which
ultimately resulted in liquidation of the Company (see Note 3), the
Company has discontinued the application of accounting and reporting
applicable to development stage enterprises.
3. SUBSEQUENT EVENTS
Pursuant to the Company's filing of a second amended plan of
reorganization, on December 2, 1999, the Bankruptcy Court issued an
Order confirming the Company's second amended plan of reorganization
under Chapter 11 of the Bankruptcy Code. Under the terms of the Order,
the Company was authorized to separately transfer the corporate entity
and its assets. The proceeds from these transfers are to be used for
the distributions to be made pursuant to the Second Amended Plan, which
will be in full and final satisfaction, settlement, release and
discharge as against the Company, of any and all Claims and Interests
of any nature whatsoever that arose before December 2, 1999.
The Company's second amended plan of reorganization provided for
conveyance of the corporate entity to a group including Mr. Robert
Long, the Secretary of the Company. Simultaneously, the Company's sale
of assets to FLS MILJO a/s free and clear of liens was also approved.
In connection with such distributions, Equity Interests based upon
ownership of Existing Securities or rights to acquire Existing
Securities, including without limitation vested and non-vested
warrants, options, preemption rights or other rights, will be cancelled
on the Consummation Date, and the Equity Interests will receive nothing
on account of those interests.
F-27
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2 Debtor's Second Plan of Reorganization with Modifications Through
December 2, 1999, Order of Judge R. Thomas Stinnett dated December 9,
1999 and Order Approving Disclosure Statement and Confirming Second
Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code
(3)
3(i) Articles of Incorporation, as amended (1)
3(ii) Amended and Restated Bylaws (1)
11 Statement re computation of per share earnings (2)
27 Financial Data Schedule
</TABLE>
----------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 filed with the Commission on January 13, 1989, file No.
33-26541.
(2) See Part I - Financial Statements.
(3) Incorporated by reference to the Exhibits previously filed with the
Corporation's Current Report on Form 8-K dated May 23, 2000.
