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<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 September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-18049
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 8,421,516 shares of the
Registrants Common Stock issued and outstanding as of February 27, 1998.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
INDEX
Page
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet (unaudited) at September 30, 1997 2
Consolidated Statements of Operations (unaudited) for
the three months ended September 30, 1997 and 1996 3
Consolidated Statements of Operations (unaudited) for
the nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) for
the nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION 8
</TABLE>
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,166
------------
PROPERTY AND EQUIPMENT, AT COST:
Alaska coal mine and related equipment 2,110,460
------------
Proved oil and gas properties, using successful
efforts accounting 1,748,367
Less accumulated depletion (617,018)
Less impairment allowance (1,055,422)
------------
75,927
------------
TOTAL PROPERTY AND EQUIPMENT 2,186,387
------------
$ 2,196,553
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to:
Shareholders $ 147,347
Placer Dome 154,233
------------
301,580
Accounts payable 376,424
Accrued expenses 62,851
Settlement of shareholder contingency 429,610
------------
TOTAL CURRENT LIABILITIES 1,170,465
------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, 10% cumulative, non-voting,
convertible, no par value;
shares authorized 200,000, issued and outstanding 70,709 495,000
COMMON STOCK, par value $.004167; shares authorized
12,000,000, issued and outstanding 6,456,958 (net of 563,319
treasury shares) 26,907
ADDITIONAL PAID-IN CAPITAL 11,925,386
ACCUMULATED DEFICIT (11,421,205)
------------
NET STOCKHOLDERS' EQUITY 1,026,088
------------
$ 2,196,553
============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 16,124 $ 34,625
Gain on disposition of oil and gas properties 85,000 -
---------- ----------
101,124 34,625
---------- ----------
COST AND EXPENSES:
Oil and gas costs 18,623 18,027
Coal mine costs 54,560 1,530
General and administrative 313,217 224,363
Interest 41,385 62,532
Depletion 15,000 25,704
Depreciation - 536
---------- ----------
442,785 332,692
---------- ----------
LOSS BEFORE MINORITY INTEREST (341,661) (298,067)
MINORITY INTEREST - 30,551
---------- ----------
NET LOSS $ (341,661) $ (267,516)
========== ==========
NET LOSS PER COMMON SHARE $ (0.06) $ (0.17)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,761,664 1,628,857
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 72,358 $ 112,181
Gain on disposition of oil and gas properties 85,000 -
---------- ----------
157,358 112,181
---------- ----------
COST AND EXPENSES:
Oil and gas costs 48,602 43,316
Coal mine costs 129,999 1,530
General and administrative 458,637 518,710
Interest 125,892 174,308
Depletion 45,000 77,112
Depreciation - 536
---------- ----------
808,130 815,512
---------- ----------
LOSS BEFORE MINORITY INTEREST (650,772) (703,331)
MINORITY INTEREST - 72,683
---------- ----------
NET LOSS $ (650,772) $ (630,648)
========== ==========
NET LOSS PER COMMON SHARE $ (0.15) $ (0.45)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 4,605,449 1,477,124
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (650,772) $ (630,648)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on disposition of oil and gas properties (85,000) -
Minority interest - (72,683)
Depletion 45,000 77,112
Amortization of loan discount - 27,081
Depreciation - 536
Write off computer equipment 6,431 -
Issuance of common stock for services 246,875 -
(Increase) decrease in assets:
Receivables - (30,653)
Other assets - (157,246)
Increase (decrease) in liabilities:
Accounts payable 190,607 106,948
Accrued expenses 40,576 -
---------- ----------
Net cash used by operating activities (206,283) (679,553)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of oil and gas properties 85,000 -
Coal mine renovations and acquisitions - (221,738)
---------- ----------
Net cash provided (used) by investing activities 85,000 (221,738)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 209,391 498,087
Payments made on notes payable (132,250) -
Sales of common stock - 546,219
Payment of dividends (10,500) (32,582)
---------- ----------
Net cash provided by financing activities 66,641 1,011,724
---------- ----------
Net increase (decrease) in cash (54,642) 110,433
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,808 66,488
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,166 $ 176,921
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest $ 5,013 $ -
========== ==========
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Dividends in arrears $ 35,537 $ 11,212
========== ==========
Debt to equity conversion $1,027,517 $ 826,390
========== ==========
Acquisition of minority interest $ - $ 133,345
========== ==========
Acquisition of treasury shares $ 2,347 $ -
========== ==========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
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 nine months ended September 30, 1997 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, 1996.
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 September 30, 1997, had a working capital deficiency of
approximately $1,160,000. Additional capital infusion is necessary to begin
mining operations. As of Febuary 27, 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:
<TABLE>
<CAPTION>
Year to Date
Amount
------------
<S> <C>
Loans from shareholders, net $ 77,141
Conversion of notes payable and accrued interest to common stock 627,141
Conversion of accounts payable to common stock 400,376
Issuance of common stock for services 246,876
----------
$1,351,534
==========
</TABLE>
(continued)
<PAGE>
NEROX ENERGY CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
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
- ----------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
SHAREHOLDERS:
Unsecured notes payable at 10% - 12% interest 147,347
PLACER DOME:
Unsecured note payable, at 10% imputed interest 154,233
--------
$301,580
========
</TABLE>
All notes payable are in default.
<PAGE>
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 September 30,
1997, had a working capital deficiency of approximately $1,160,000. 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. As of September 30, 1997, the Company has converted $627,141
notes payable and accrued interest, and $400,376 accounts payable to common
stock at $1.00 per share. 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 nine months of 1997
were $72,358, a decrease of 36% from $112,181 for the first nine months of 1996.
The decrease was due to several wells being shut in since 1996. The Company
recorded a gain on disposition of its Alaska oil and gas properties of $85,000
in 1997.
Oil and gas production costs increased 12% from $43,316 in 1996 to $48,602
in 1997 due to well re-work expenses and maintenance costs as the wells'
production lives are ending. Mining costs of $129,999 reflect costs to get the
Jonesville coal mine ready for operation. In 1996 substantially all mining
costs were capitalized. General and administrative expenses decreased by 12% to
$458,637 in 1997 from $518,710 in 1996 due to a decrease in professional
services. Of the total general and administrative expenses $112,217 can be
attributed to Nerox Power Systems, Inc. ("NPSI") for coal mine activities, a
decrease from $282,180 in 1996. Interest costs decreased 28% from $174,308 in
1996 to $125,892 in 1997 due to ongoing conversions of debt to stock. Depletion
decreased from $77,112 in 1996 to $45,000 in 1997 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 at the end of 1996. The minority
interest in the loss of NPSI in 1996 occurred due to the sale of 19% of NPSI to
Hobbs Industries.
The Company's largest oil and gas holdings were shut in in 1996 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
<PAGE>
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 -- FINANCIAL DATA SCHEDULE
<PAGE>
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: March 12, 1998 NEROX ENERGY CORPORATION
By: /s/ Jack Utter
---------------------------------
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: March 12, 1998 By: /s/ Jack Utter
---------------------------------
Jack Utter, President and Chief
Executive Officer
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,166
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,186,387
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,196,553
<CURRENT-LIABILITIES> 1,170,465
<BONDS> 0
0
495,000
<COMMON> 26,907
<OTHER-SE> 504,181
<TOTAL-LIABILITY-AND-EQUITY> 2,196,553
<SALES> 72,358
<TOTAL-REVENUES> 157,358
<CGS> 178,601
<TOTAL-COSTS> 178,601
<OTHER-EXPENSES> 503,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,892
<INCOME-PRETAX> (650,772)
<INCOME-TAX> 0
<INCOME-CONTINUING> (650,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650,772)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
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