<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 period ended June 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 June 30, 1996, the registrant had 1,548,472 shares outstanding of its
Common Stock $.02 par value.
<PAGE>
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 June 30, 1996 and
December 31, 1995.......................................................3
Consolidated Statements of Operations (unaudited) for the three
months ended June 30, 1996 and 1995.....................................4
Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 1996 and 1995.....................................5
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 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>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ 36,279 $ 66,488
Receivables 54,626 5,268
Other 51,962 44,381
------------ ------------
Total current assets 142,867 116,137
------------ ------------
Property and Equipment, at cost:
Coal mine and related equipment 1,827,826 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 (1,866,031) (1,814,623)
------------ ------------
6,030,460 5,988,407
------------ ------------
$ 6,173,327 $ 6,104,544
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable $ 1,648,401 $ 1,402,333
Accounts payable 202,334 200,718
Dividends payable 12,100 7,494
------------ ------------
Total current liabilities 1,862,835 1,610,545
------------ ------------
Commitments and contingencies - -
Minority interest 163,896 206,028
------------ ------------
Stockholders' Equity:
Preferred stock 495,000 495,000
Common stock 30,969 28,000
Additional paid-in capital 8,873,586 8,630,597
Receivable - subsidiary stock issuance (525,690) (525,690)
Accumulated deficit (4,727,269) (4,339,936)
------------ ------------
Net stockholders' equity 4,146,596 4,287,971
------------ ------------
$ 6,173,327 $ 6,104,544
============ ============
</TABLE>
See accompanying notes.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas sales $ 29,315 $ 42,455
----------- ----------
Cost and expenses:
Oil and gas production 8,868 24,107
General and administrative 145,943 41,837
Depletion 25,704 12,183
Interest 56,408 2,439
----------- ----------
236,923 80,566
----------- ----------
Loss before minority interest and
provision for income taxes (207,608) (38,111)
Minority interest 18,060 -
----------- ----------
Loss before provision for income
taxes (189,548) (38,111)
Provision for income taxes - -
----------- ----------
Net loss $ (189,548) $ (38,111)
Net loss per share $ (.12) $ (.03)
=========== ===========
Weighted average number of common shares 1,543,238 1,400,000
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1996 1995
------------ ----------
<S> <C> <C>
Revenues:
Oil and gas sales $ 77,556 $ 83,357
----------- ----------
Cost and expenses:
Oil and gas production 25,289 57,685
General and administrative 293,548 81,834
Depletion 51,408 27,728
Interest 111,776 3,641
----------- ----------
482,021 170,888
----------- ----------
Loss before minority interest and
provision for income taxes (404,465) (87,531)
Minority interest 42,132 -
----------- ----------
Loss before provision for income
taxes (362,333) (87,531)
Provision for income taxes 800 -
----------- ----------
Net loss $ (363,133) $ (87,531)
Net loss per share $ (.24) $ (.06)
=========== ==========
Weighted average number of common shares 1,487,025 1,362,723
=========== ==========
</TABLE>
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (363,133) $ (87,531)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Minority interest (42,132) -
Depletion 51,408 27,728
Amortization of loan discount 17,081 -
Increase in receivables (49,358) (3,275)
Increase in other assets (24,662) (72,600)
Increase (decrease) in accounts payable 1,616 36,509
---------- ----------
Net cash provided (used) by operating
activities (409,180) (99,169)
---------- ----------
Cash flows from investing activities:
Coal mine renovations and acquisition (93,461) (181,700)
---------- ----------
Net cash used by investing activities (93,461) (181,700)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 246,068 495,305
Sales of common stock 245,958 52,621
Payment of dividends (19,594) -
---------- ----------
Net cash provided by financing activities 472,432 547,926
----------- ----------
Net increase (decrease) in cash (30,209) (267,057)
Cash, beginning of period 66,488 50,486
----------- ----------
Cash, end of period $ 36,279 $ 317,543
=========== ==========
Supplemental disclosures of cash flows activities
- -------------------------------------------------
Cash paid for:
Interest $ - $ -
Income taxes - -
Noncash investing and financing activities:
Dividends in arrears $ 12,100 $ -
=========== ==========
Acquisition of property through issuance of
common stock $ - $1,400,000
=========== ==========
Debt to equity conversion $ - $ 141,520
=========== ==========
</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 six months ended June 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 agreed to accept 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.
<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
---------------------
six months of 1996 were $77,556, a decrease of 7% from $83,357 for the first
six 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 $3,641 to $111,776 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").
LIQUIDITY AND CAPITAL RESOURCES.
-------------------------------
At June 30, 1996, the Company had current liabilities totaling $1,862,835
and current assets of $142,867 for a working capital deficit of $1,719,968
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. In addition, the Company's
president has agreed to accept equity in settlement of demand notes with a
balance of $826,390 at December 31, 1995.
<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. To date, the court has made
several preliminary rulings, all of which are favorable to NPSI. It is
counsel's opinion that this lawsuit has no merit and there is virtually no
chance that plaintiffs will succeed in their efforts to invalidate the agreement
or recover damages. NPSI has taken a very aggressive posture in the lawsuit and
will continue to vigorously contest all allegations and efforts by plaintiffs to
obtain relief.
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
----------
8-K. On May 24, 1996 the Company filed an 8-K noting an amendment to the
---
Articles of Incorporation. The amendment reduced the number of classes of
preferred stock from two to one.
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: August 9, 1996 By: /s/ Nicholas E. Ross
-----------------------------------
Nicholas E. Ross
Chief Executive Officer, President
and Chairman of the Board
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 36,279
<SECURITIES> 0
<RECEIVABLES> 54,626
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 142,867
<PP&E> 1,827,826
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,173,327
<CURRENT-LIABILITIES> 1,862,835
<BONDS> 0
0
495,000
<COMMON> 30,969
<OTHER-SE> 3,620,627
<TOTAL-LIABILITY-AND-EQUITY> 6,173,327
<SALES> 77,556
<TOTAL-REVENUES> 77,556
<CGS> 25,289
<TOTAL-COSTS> 370,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,776
<INCOME-PRETAX> (362,333)
<INCOME-TAX> 800
<INCOME-CONTINUING> (363,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (363,133)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
