<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
--------- --------
COMMISSION FILE NUMBER 0-18049
NEROX ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1317131
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
846 WEST FOOTHILL BLVD., SUITE Y
UPLAND, CALIFORNIA 91786-3770
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (909) 981-3217
Indicate by check or mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of September 30, 1996, the registrant had 2,051,872 shares outstanding
of its Common Stock $.02 par value.
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Index
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited) at September 30, 1996 and
December 31, 1995 ................................................. 3
Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 1996 and 1995 .......................... 4
Consolidated Statements of Operations (unaudited) for the nine
months ended September 30, 1996 and 1995 .......................... 5
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1996 and 1995 .......................... 6
Notes to Consolidated Financial Statements (unaudited) .............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
Results of Operations ............................................... 8
PART II. OTHER INFORMATION .......................................... 9
</TABLE>
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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ASSETS
------
<S> <C> <C>
Current Assets:
Cash $ 176,921 $ 66,488
Receivables 35,921 5,268
Other 201,627 44,381
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Total current assets 414,469 116,137
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Property and Equipment, at cost:
Coal mine and related equipment 1,955,567 1,730,094
Proved oil and gas properties,
using successful efforts accounting 6,068,665 6,072,936
Less accumulated depletion and an impairment
allowance of $1,172,510 (1,891,735) (1,814,623)
------------- ------------
6,132,497 5,988,407
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$ 6,546,966 $ 6,104,544
============= ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Notes payable $ 1,101,100 $ 1,402,333
Accounts payable 307,665 200,718
Dividends payable 11,212 7,494
------------ ------------
Total current liabilities 1,419,977 1,610,545
------------ ------------
Minority interest -- 206,028
------------ ------------
Stockholders' Equity:
Preferred stock 495,000 495,000
Common stock 41,037 28,000
Additional paid-in capital 9,723,254 8,630,597
Receivable - subsidiary stock issuance -- (525,690)
Accumulated deficit (5,132,302) (4,339,936)
------------ ------------
Net stockholders' equity 5,126,989 4,287,971
------------ ------------
$ 6,546,966 $ 6,104,544
============ ============
</TABLE>
See accompanying notes.
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
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<S> <C> <C>
Revenues:
Oil and gas sales $ 34,625 $ 44,096
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Cost and expenses:
Oil and gas production 18,027 35,957
General and administrative 225,893 128,208
Depletion 25,704 18,630
Depreciation 536 --
Interest 62,532 26,524
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332,692 209,319
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Loss before minority interest and
provision for income taxes (298,067) (165,223)
Minority interest 30,551 --
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Loss before provision for income
taxes (267,516) (165,223)
Provision for income taxes -- --
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Net loss ($ 267,516) ($ 165,223)
============= ============
Net loss per share ($ .18) ($ .12)
============= ============
Weighted average number of common shares 1,591,331 1,400,000
============= ============
</TABLE>
See accompanying notes.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
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<S> <C> <C>
Revenues:
Oil and gas sales $ 112,181 $ 127,453
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Cost and expenses:
Oil and gas production 43,316 93,642
General and administrative 519,440 210,042
Depletion 77,112 46,358
Depreciation 536 --
Interest 174,308 30,165
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814,712 380,207
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Loss before minority interest and
provision for income taxes (702,531) (252,754)
Minority interest 72,683 --
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Loss before provision for income
taxes (629,848) (252,754)
Provision for income taxes 800 --
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Net loss ($ 630,648) ($ 252,754)
============= ============
Net loss per share ($ .44) ($ .18)
============= ============
Weighted average number of common shares 1,521,912 1,375,289
============= ============
</TABLE>
See accompanying notes.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 630,648) ($ 252,754)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Minority interest (72,683) --
Depletion 77,112 46,358
Amortization of loan discount 27,081 --
Depreciation 536 --
Increase in receivables (30,653) (23,304)
Increase in other assets (157,246) (180,849)
Increase (decrease) in accounts payable 106,948 (13,045)
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Net cash used by operating activities (679,553) (423,594)
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Cash flows from investing activities:
Coal mine renovations and acquisition (221,738) (321,991)
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Net cash used by investing activities (221,738) (321,991)
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Cash flows from financing activities:
Proceeds from notes payable 498,087 716,498
Sales of common stock 546,219 52,621
Payment of dividends (32,582) --
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Net cash provided by financing activities 1,011,724 769,119
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Net increase in cash 110,433 23,534
Cash, beginning of period 66,488 50,486
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Cash, end of period $ 176,921 $ 74,020
============= ============
Supplemental disclosures of cash flows activities
- -------------------------------------------------
Cash paid for:
Interest $ -- $ --
Income taxes -- --
Noncash investing and financing activities:
Dividends in arrears $ 11,212 $ --
============= ============
Acquisition of property through issuance of
common stock $ -- $ 1,400,000
============= ============
Debt to equity conversion $ 826,390 $ 141,520
============= ============
Acquisition of minority interest $ 133,345 $ --
============= ============
</TABLE>
See accompanying notes.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of certain accounting policies
- -----------------------------------------
The accompanying unaudited consolidated financial statements of Nerox Energy
Corporation and Subsidiary (the "Company") have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
1996 are not necessarily indicative of the results for the year ending
December 31, 1996. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1995.
2. Going concern
- ----------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company has
experienced significant losses; and its oil and gas production revenues
declined significantly in 1994 due to declining oil and gas prices. In 1995,
the Company purchased a coal mine, and while it has a contract to sell all
the coal it can produce in the near future, additional capital infusion is
necessary to actually begin mining operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management is currently seeking additional financing and the Company's
majority stockholder has accepted equity in settlement of demand notes with a
balance of $826,390 at December 31, 1995. In addition, management believes
that oil and gas production will increase due to increases in prices, while
production expenses will decline, thus generating positive cash flow from
that segment of operations.
3. Acquisition of minority interest
- -----------------------------------
In September 1996, the Company reached an agreement with the minority
shareholders to buy back the minority interest for $20,000 and royalties on coal
extracted and sold in the future. Total royalties will not exceed $105,000 for
each year and $1,000,000 in total.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS. Total revenues from oil and gas sales for the first
---------------------
nine months of 1996 were $112,181, a decrease of 12% from $127,453 for the
first nine months of 1995.
Oil and gas production costs have decreased when compared to revenues
produced due to significant well re-work, repairs and re-drilling in progress
in 1995, but completed by the first quarter of 1996. General and
administrative expenses increased mostly due to additional fees associated
with investor relations, promotional efforts and expenses for its subsidiary
("NPSI") which was reactivated in the third quarter of 1995. Interest costs
increased from $30,165 to $174,308 as the Company has increasingly had to
rely on borrowings to finance its operations. The minority interest in the
loss of subsidiary occurred due to the sale of 19% of NPSI to Hobbs
Industries ("Hobbs"). This minority interest was reacquired in September
1996. See note 3 to financial statements.
LIQUIDITY AND CAPITAL RESOURCES.
-------------------------------
At September 30, 1996, the Company had current liabilities totaling
$1,419,977 and current assets of $414,469 for a working capital deficit of
$1,005,508 due primarily to operating losses and short-term borrowings to
purchase and develop a coal mine. Management is seeking additional equity
financing for the short-term until coal production commences.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 10, 1995 NPSI entered into an agreement with Hobbs to purchase all
interest of Hobbs in a coal mine located near Sutton, Alaska and all mining
equipment, supplies and other property used or useful in connection with the
coal mine. In an effort to avoid the agreement Hobbs filed a lawsuit against
NPSI and others in December 1995 seeking to avoid the August 10, 1995 contract
and also seeks several million dollars in damages. In September 1996 NPSI
reached an agreement with Hobbs. For $20,000 and future royalties on coal
extracted and sold, the Company purchased Hobbs' 19% minority interest in NPSI.
Royalties paid will not exceed $105,000 in any year or $1,000,000 in total.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27. Included in this 10-Q filing
----------
Form 8-K. On September 26, 1996 the registrant filed a Form 8-K to report
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the resignation of its certifying accountants, Saddington.Cacciamatta. In
connection with the audits of the two fiscal years ended December 31, 1995 and
the subsequent interim period, there were no disagreements with
Saddington.Cacciamatta on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference to the subject matter of disagreement in connection with their
report.
The information set forth herein reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be singed on its behalf by the
undersigned thereunto duly authorized.
NEROX ENERGY CORPORATION
Date: November 13, 1996 By:/s/ NICHOLAS E. ROSS
--------------------------------------
Nicholas E. Ross
Chief Executive Officer, President and
Chairman of the Board
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEROX ENERGY
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 176,921
<SECURITIES> 0
<RECEIVABLES> 35,921
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 414,469
<PP&E> 1,955,567
<DEPRECIATION> 536
<TOTAL-ASSETS> 6,546,966
<CURRENT-LIABILITIES> 1,419,977
<BONDS> 0
0
495,000
<COMMON> 41,037
<OTHER-SE> 4,590,952
<TOTAL-LIABILITY-AND-EQUITY> 6,546,966
<SALES> 112,181
<TOTAL-REVENUES> 112,181
<CGS> 43,316
<TOTAL-COSTS> 639,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,308
<INCOME-PRETAX> (629,848)
<INCOME-TAX> 800
<INCOME-CONTINUING> (630,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (630,648)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> 0
</TABLE>
