<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-18049
NEROX ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 91-1317131
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
18400 Von Karman Avenue, Suite 600
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (714) 955-9136
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 such filing requirements for the past 90 days. YES [_] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 9,897,627 shares of the
Registrants Common Stock issued and outstanding as of May 14, 1998.
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NEROX ENERGY CORPORATION AND SUBSIDIARY
INDEX
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<CAPTION>
Page
PART I. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheet (unaudited) at March 31, 1998 2
Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 7
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
(Unaudited)
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<CAPTION>
March 31,
1998
------------
<S> <C>
ASSETS
Current Assets:
Cash $ 8,531
------------
Property and Equipment, at cost:
Alaska coal mine and related equipment 2,110,460
------------
Proved oil and gas properties, using successful efforts methods accounting 1,748,367
Less accumulated depletion (640,136)
Less impairment allowance (1,055,422)
------------
52,809
------------
$ 2,171,800
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to:
Shareholders $ 230,000
Placer Dome 158,463
------------
388,463
Accounts payable 500,905
Accrued expenses 83,974
Settlement of shareholder contingency 314,970
------------
Total current liabilities 1,288,312
------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, 10% cumulative, non-voting, convertible, no par value;
shares authorized 200,000, issued and outstanding 49,282 344,974
Common stock, par value $.004167; shares authorized 12,000,000, issued and
outstanding 9,897,627 (net of 563,319 treasury shares) 41,243
Additional paid-in capital 12,725,886
Accumulated deficit (12,228,615)
------------
Net stockholders' equity 883,488
------------
$ 2,171,800
============
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See accompanying notes to the financial statements.
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
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<CAPTION>
Three months ended March 31,
-----------------------------
1998 1997
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Revenues:
Oil and gas sales $ 14,989 $ 26,278
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Cost and expenses:
Oil and gas costs 12,454 8,136
Coal mine costs 17,039 43,004
General and administrative 480,318 73,100
Interest 10,458 41,691
Depletion 8,118 15,000
----------- -----------
528,387 180,931
----------- -----------
Net loss $ (513,398) $ (154,653)
=========== ===========
Basic and diluted net loss per common share $ (0.06) $ (0.04)
=========== ===========
Basic and diluted weighted average number
of common shares outstanding 8,866,516 4,017,760
=========== ===========
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See accompanying notes to the financial statements.
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
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<CAPTION>
Three months ended March 31,
----------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(513,398) $(154,653)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depletion 8,118 15,000
Write off computer equipment - 6,431
Issuance of common stock for services 400,000 -
Increase (decrease) in liabilities:
Accounts payable 18,353 (7,849)
Accrued expenses 10,458 (2,628)
----------- ------------
Net cash used by operating activities (76,469) (143,699)
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable 85,000 139,391
Payments made on notes payable - (50,000)
Payment of dividends - (10,500)
----------- ------------
Net cash provided by financing activities 85,000 78,891
----------- ------------
Net increase (decrease) in cash 8,531 (64,808)
Cash, beginning of period - 64,808
----------- ------------
Cash, end of period $ 8,531 $ -
=========== ============
Supplemental disclosure of cash flow activities:
Cash paid for interest $ - $ 2,400
=========== ============
Non-cash investing and financing transactions:
Dividends in arrears $ 39,650 $ 10,787
=========== ============
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NEROX ENERGY CORPORATION AND SUBSIDIARY
March 31, 1998
Note A - Basis of presentation
- ------------------------------
The accompanying unaudited consolidated financial statements of Nerox Energy
Corporation and Subsidiary (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they 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 three months ended March 31, 1998 are not necessarily indicative of the
results for any future period. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended December 31, 1997.
The unaudited consolidated financial statements include the accounts of Nerox
Energy Corporation and its wholly-owned subsidiary, Nerox Power Systems, Inc.
(NPSI). All significant intercompany balances and transactions have been
eliminated.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Going concern
-------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company has experienced significant
losses and, as of March 31, 1998, had a working capital deficiency of
approximately $1,280,000. Additional capital infusion is necessary to begin
mining operations. As of April 30, 1998 the mine is not yet operational.
These factors raise substantial doubt about the Company's ability to continue
as a going concern.
Management is currently seeking additional financing and a joint venture
partner to develop the coal mine. The methods employed by the Company to
raise capital and begin mining operations include the following:
Year to Date
Amount
------------
Loans from shareholders, net $ 85,000
Conversion of notes payable to common stock -
Issuance of common stock for services 400,000
---------
$ 485,000
=========
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NEROX ENERGY CORPORATION AND SUBSIDIARY
Note A - Basis of presentation (continued)
- ------------------------------------------
Going concern (continued)
-------------------------
There can be no assurance that the Company will be successful in its efforts
to obtain additional financing and begin mining operations.
Note B - Notes payable
- ----------------------
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<CAPTION>
March 31,
1998
---------
<S> <C>
Shareholders:
Unsecured note, payable on demand at 10% interest. 35,000
Unsecured notes payable at 12% interest. These notes are in default. 145,000
Unsecured note payable at 15% interest due January 7, 1999. 50,000
Placer Dome:
Unsecured note payable at 10% imputed interest. This note is in default. 158,463
---------
$ 388,463
=========
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
The Company has experienced significant losses and, as of March 31, 1998,
had a working capital deficiency of approximately $1,280,000. Additional
capital infusion is necessary to begin mining operations. Management is seeking
additional financing and a joint venture partner to develop the coal mine.
Management's plan is to raise additional capital through existing shareholders
and, whenever possible, issue common stock for services and convert debt to
common stock. In the first quarter of 1998, the Company issued 3,200,000 shares
of common stock for services. There can be no assurance that the Company will
be successful in its efforts to obtain additional financing and begin mining
operations.
Results of Operations
Total revenues from oil and gas sales for the first quarter of 1998 were
$14,989, a decrease of 43% from $26,278 for the first quarter of 1997. The
decrease was due to fewer producing wells as wells have been shut in since the
first quarter of 1997.
Oil and gas production costs increased 53% from $8,136 in 1997 to $12,454
in 1998 due to well rework costs. Mining costs of $17,039 in 1998 reflect costs
to get the Jonesville coal mine ready for operation. General and administrative
expenses increased to $480,318 in 1998 from $73,100 in 1997 due to the issuance
of 3,200,000 shares of common stock for services in 1998. Of the total general
and administrative expenses $16,882 can be attributed to Nerox Power Systems,
Inc. ("NPSI") for coal mine activities, a decrease from $35,401 in 1997.
Interest costs decreased 75% from $41,691 in 1997 to $10,458 in 1998 due to debt
conversions in late 1997. Depletion decreased from $15,000 in 1997 to $8,118 in
1998 due to a decrease in equivalent barrels produced plus a decrease in the oil
and gas property cost from the write off of the Alaska wells in the third
quarter of 1997.
The Company's largest oil and gas holdings have been shut in and its coal
mine is not yet operational. The Company must raise capital to develop its coal
mine and remain viable.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company has certain contingent liabilities resulting from litigation
and claims incident to the ordinary course of business. Management believes
that the probable resolution of such contingencies will not materially affect
the financial position or results of operations of the Company.
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
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ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
On January 21, 1998 the Company filed an 8-K reporting the
engagement of Hurley & Company as its new independent accountant.
On March 6, 1998 the Company filed an 8-K, approved by the Board of
Directors on September 12, 1996 and effective as of that date, amending the
Articles of Incorporation for an increase in the number of voting common stock
authorized to 6,000,000 having $.0083 par value.
On March 6, 1998 the Company filed an 8-K, approved by the Board of
Directors on March 13, 1997 and effective as of that date, amending the Articles
of Incorporation for an increase in the number of voting common stock authorized
to 12,000,000 having $.004167 par value.
On March 6, 1998 the Company filed an 8-K, approved by the Board of
Directors on October 31, 1997 and effective as of that date, noting the
resignation of Nicholas E. Ross as Chairman of the Board and the appointment of
Jack Utter as new Chairman of the Board.
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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 14, 1998 NEROX ENERGY CORPORATION
By:
---------------------------------
Jack Utter, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Dated: May 14, 1998 By:
---------------------------------
Jack Utter, President and Chief
Executive Officer
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,531
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,531
<PP&E> 2,163,269
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,171,800
<CURRENT-LIABILITIES> 1,288,312
<BONDS> 0
0
344,974
<COMMON> 41,243
<OTHER-SE> 497,271
<TOTAL-LIABILITY-AND-EQUITY> 2,171,800
<SALES> 14,989
<TOTAL-REVENUES> 14,989
<CGS> 29,493
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 488,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,458
<INCOME-PRETAX> (513,398)
<INCOME-TAX> 0
<INCOME-CONTINUING> (513,398)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (513,398)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
