<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------
FOR QUARTER ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 001-15567
PROBEX CORP.
(Exact name of registrant as specified in charter)
COLORADO 33-0294243
- --------------------------------------------------------------------------------
(State or other Jurisdiction (IRS Employer Identification No.)
of Incorporation)
1467 LEMAY, SUITE 111, CARROLLTON, TEXAS 75225
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 466-1555
--------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check 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 NO X
----- -----
As of February 29, 2000, there were 21,025,477 shares of common stock, no par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
----- -----
<PAGE> 2
PROBEX CORP.
DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of December 31, 1999 and
September 30, 1999...................................................................1
Consolidated Statements of Operations (unaudited) for the three months
ended December 31, 1999 and 1998 and the period from April 1, 1988
(Inception) to December 31,1999......................................................2
Consolidated Statements of Stockholders' Equity (unaudited) for the period
from April 1, 1988 (Inception) to December 31, 1999..................................3
Consolidated Statements of Cash Flows (unaudited) for the three months
ended December 31, 1999 and 1998 and the period from April 1, 1988
(Inception) to December 31,1999.....................................................14
Notes to Consolidated Financial Statements (unaudited)..............................15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..........................................................................34
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................................37
Item 2. Changes in Securities and Use of Proceeds...........................................37
Item 3. Defaults Upon Senior Securities.....................................................38
Item 4. Submission of Matters to a Vote of Security Holders.................................38
Item 5. Other Information...................................................................39
Item 6. Exhibits and Reports on Form 8-K....................................................39
SIGNATURES........................................................................................40
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in banks $ 4,230,096 2,658,055
Employee receivable 27,339 8,708
Subscription receivable 350,000 --
Prepaid expense 6,125 13,687
----------- -----------
Total Current Assets 4,613,560 2,680,450
----------- -----------
PROPERTY AND EQUIPMENT
Lab and research equipment 1,008,004 892,850
Leasehold Improvements 69,769 66,489
Other 177,849 157,346
----------- -----------
1,255,622 1,116,685
Accumulated depreciation and amortization (379,057) (324,301)
----------- -----------
Total Property and Equipment 876,565 792,384
----------- -----------
INTANGIBLE ASSETS - PATENTS 19,155 15,150
RESTRICTED CASH 372,922 190,142
OTHER ASSETS 2,938 2,937
----------- -----------
Total Assets $ 5,885,140 $ 3,681,063
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
1
<PAGE> 4
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 58,481 287,764
Promissory note 750,000 750,000
Accrued expenses 482,447 261,733
--------------- ---------------
Total Current Liabilities 1,290,928 1,301,345
--------------- ---------------
LONG-TERM LIABILITIES
Obligations under capital leases 17,742 20,361
--------------- ---------------
Total Long-Term Liabilities 17,742 20,361
--------------- ---------------
Total Liabilities 1,308,670 1,321,706
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A 10% Cumulative Convertible Preferred Stock,
no par value, authorized 10,000,000 shares, subscribed
but not issued 535,000 at Dec. 31, 1999 and 190,000
at Sep. 30, 1999 4,659,570 1,608,227
--------------- ---------------
Common Stock, no par value, authorized 50,000,000
shares, issued and outstanding - 21,025,477 at
Dec. 31, 1999 and 18,932,029 at Sep. 30, 1999 8,661,410 7,329,260
Common Stock, subscribed but not issued -
None at Dec. 31, 1999 and 2,011,388 at Sep. 30, 1999
-- 1,316,600
Deferred Stock Expense (4,167) (5,209)
Deficit Accumulated During Development Stage (8,740,343) (7,889,521)
--------------- ---------------
Total Stockholders' Equity 4,576,470 2,359,357
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 5,885,140 $ 3,681,063
=============== ===============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
2
<PAGE> 5
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
(INCEPTION) TO
THREE MONTHS ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1999
--------------- --------------- ----------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ 86,729
COST OF REVENUE -- -- 173,493
--------------- --------------- ---------------
GROSS LOSS -- -- (86,764)
OPERATING EXPENSES
Salaries and wages 172,768 48,445 1,190,806
Research and development 313,955 349,867 2,976,049
Stock compensation expense 1,042 13,542 454,945
Stock services expense 550 -- 410,977
Consulting fees 16,221 -- 152,905
Legal fees 10,180 5,930 329,216
Directors fees -- -- 591
Accounting fees 12,692 1,145 158,418
Insurance 43,112 12,979 265,979
Payroll taxes 13,692 3,449 86,637
Travel and entertainment 45,612 24,064 385,781
Telephone 15,604 10,964 174,186
Vehicle expenses -- -- 6,009
Office supplies 22,007 4,427 150,241
Rent 20,193 9,513 138,970
Depreciation 12,151 7,632 76,466
Marketing services 28,034 -- 86,511
Stock transfer fees 2,338 537 17,806
Utilities 2,478 4,645 41,168
Miscellaneous 45,531 8,925 347,095
--------------- --------------- ---------------
Loss from Operations 778,160 506,064 7,537,520
--------------- --------------- ---------------
OTHER INCOME AND EXPENSE
Stock financing expense -- -- (720,321)
Loss on sale of land -- -- (47,109)
Loss on sale of property and equipment -- -- (158,797)
Interest expense (28,694) (20,333) (226,577)
Miscellaneous income 38,818 5,348 49,893
--------------- --------------- ---------------
Total Other Income and (Expense) 10,124 (14,985) (1,102,911)
--------------- --------------- ---------------
NET LOSS $ (768,036) $ (521,049) $ (8,640,431)
=============== =============== ===============
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.04) $ (0.03)
=============== ===============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
3
<PAGE> 6
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------- Deferred
Shares/Units Shares/Units Stock
Issued Subscribed Amount Expense
-------------- ------------- --------------- --------
<S> <C> <C> <C> <C>
Net loss for the period April 1, 1988 (Inception)
to September 30, 1988 -- $ --
Shares/Units issued:
Units issued August 1988 - $.000133 per share 27,500,000 3,667
Shares issued September 1988 - $.001 per share 10,000,000 10,000
Shares/Units subscribed but not paid or issued:
Units subscribed August 1988 - $.000133 per share 7,500,000 1,000
Shares subscribed September 1988 - $.001 per share 2,000,000 2,000
Net loss for the year ended September 30, 1989
Shares/Units Issued:
Issued June 1989 - subscribed at Sept 30, 1988 9,500,000 (9,500,000)
Units Issued June 1989 - $.01 per share - public offering 30,000,000 300,000
Stock offering costs from public offering (58,440)
Net loss for the year ended September 30, 1990
Shares Issued / Sold:
Issued for acquisition of subsidiary - December 1989 308,000,000
Sold for divestiture of subsidiary - September 1990 (308,000,000)
Activity for the year ended September 30, 1991
Net loss for the year ended September 30, 1992
Net income for the year ended September 30, 1993
<CAPTION>
Deficit
Accumulated
During Total
Development Stockholders'
Stage Equity
---------------- ---------------
<S> <C> <C>
Net loss for the period April 1, 1988 (Inception)
to September 30, 1988 $ (14) $ (14)
Shares/Units issued:
Units issued August 1988 - $.000133 per share 3,667
Shares issued September 1988 - $.001 per share 10,000
Shares/Units subscribed but not paid or issued:
Units subscribed August 1988 - $.000133 per share 1,000
Shares subscribed September 1988 - $.001 per share 2,000
Net loss for the year ended September 30, 1989 (5,707) (5,707)
Shares/Units Issued:
Issued June 1989 - subscribed at Sept 30, 1988 --
Units Issued June 1989 - $.01 per share - public offering 300,000
Stock offering costs from public offering (58,440)
Net loss for the year ended September 30, 1990 (253,512) (253,512)
Shares Issued / Sold:
Issued for acquisition of subsidiary - December 1989 --
Sold for divestiture of subsidiary - September 1990 --
Activity for the year ended September 30, 1991 --
Net loss for the year ended September 30, 1992 (848) (848)
Net income for the year ended September 30, 1993 889 889
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE> 7
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Shares/Units Issued / Split:
Shares issued August 1993 - $.00003 per share for cash 308,000,000 8,000
Shares/Units - reverse stock split - 200 for 1 - Sept 1993 (383,075,000)
Net loss for the year ended September 30, 1994
Shares/Units Issued / Split:
Shares/Units - reverse stock split - 3.20834 for 1 - Jan 1994 (1,323,352)
Shares issued for technology license March 1994 9,950,000
Units issued in private placement - $0.92 per unit
Issued March 1994 642,500 591,100
Issued April 1994 45,000 41,400
Issued May 1994 322,391 296,600
Issued July 1994 22,500 20,700
Issued August 1994 97,500 89,700
Stock offering costs for private placement (134,413)
Shares Issued:
Issued for directors fees - July 1995 - $0.033 per shares 300,000 9,900
- no cash and basis is average book value
Issued for financial advisory services - Sept.1995 - $0.033 per share
-no cash and basis is average book value 46,995 1,551
Stock offering costs from private placement in 1994 (5,635)
Stock offering costs from Convertible Notes private placement -1995 (22,000)
Net loss for the year ended September 30, 1995
Shares Issued:
Issued for employee services - Oct.'95/Apr.'96 - $0.013 per share
- - no cash and basis is average book value 556,627 7,236
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
Shares/Units Issued / Split:
Shares issued August 1993 - $.00003 per share for cash 8,000
Shares/Units - reverse stock split - 200 for 1 - Sept 1993 --
Net loss for the year ended September 30, 1994 (401,897) (401,897)
Shares/Units Issued / Split:
Shares/Units - reverse stock split - 3.20834 for 1 - Jan 1994 --
Shares issued for technology license March 1994 --
Units issued in private placement - $0.92 per unit
Issued March 1994 591,100
Issued April 1994 41,400
Issued May 1994 296,600
Issued July 1994 20,700
Issued August 1994 89,700
Stock offering costs for private placement (134,413)
Shares Issued:
Issued for directors fees - July 1995 - $0.033 per shares 9,900
- no cash and basis is average book value
Issued for financial advisory services - Sept.1995 - $0.033 per share
-no cash and basis is average book value 1,551
Stock offering costs from private placement in 1994 (5,635)
Stock offering costs from Convertible Notes private placement -1995 (22,000)
Net loss for the year ended September 30, 1995 (413,655) (413,655)
Shares Issued:
Issued for employee services - Oct.'95/Apr.'96 - $0.013 per share
- - no cash and basis is average book value 7,236
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
5
<PAGE> 8
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Issued for financial advisory fees - Oct.'95/May-Aug'96 - $0.013 per share
-no cash and basis is average book value 72,333 940
Issued for consulting services - Nov.1995 - $0.013 per share
-no cash and basis is average book value 5,000 65
Issued for compensation to officers - Feb. 1996 - $0.013 per share
- no cash and basis is average book value 500,000 6,500
Issued for extension of payable terms - Apr.1996 - $0.013 per share
-no cash and basis is average book value 50,000 650
Issued by Transfer Agent in Error - Mar. / Apr. 1996 70,667
Issued for conversion of 12% Aug. 1995 Notes - May 1996 494,670 371,000
Subscribed for conversion of 12% Aug. 1995 Notes - Mar. 1996 7,067 5,300
Issued for independent. contractor services - Mar./Apr-Aug'96 - $0.013 per 39,090 508
Share -no cash and basis is average book value
Stock offering costs from Convertible Notes private placement -1995 (26,690)
Net loss for the year ended September 30, 1996
Shares Issued:
Issued for employee services - Dec.1996 - $0.013 per share
- no cash and basis is average book value 125,000 1,625
Issued for directors services - Dec. 1996 - $0.013 per share
-no cash and basis is average book value 579,720 7,536
Issued for consulting services - Oct. '96/Dec. '96 - $0.013 per share
-no cash and basis is average book value 66,947 870
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
Issued for financial advisory fees - Oct.'95/May-Aug'96 - $0.013 per share
-no cash and basis is average book value 940
Issued for consulting services - Nov.1995 - $0.013 per share
-no cash and basis is average book value 65
Issued for compensation to officers - Feb. 1996 - $0.013 per share
- no cash and basis is average book value 6,500
Issued for extension of payable terms - Apr.1996 - $0.013 per share
-no cash and basis is average book value 650
Issued by Transfer Agent in Error - Mar. / Apr. 1996 --
Issued for conversion of 12% Aug. 1995 Notes - May 1996 371,000
Subscribed for conversion of 12% Aug. 1995 Notes - Mar. 1996 5,300
Issued for independent. contractor services - Mar./Apr-Aug'96 - $0.013 per 508
Share -no cash and basis is average book value
Stock offering costs from Convertible Notes private placement -1995 (26,690)
Net loss for the year ended September 30, 1996 (931,610) (931,610)
Shares Issued:
Issued for employee services - Dec.1996 - $0.013 per share
- no cash and basis is average book value 1,625
Issued for directors services - Dec. 1996 - $0.013 per share
-no cash and basis is average book value 7,536
Issued for consulting services - Oct. '96/Dec. '96 - $0.013 per share
-no cash and basis is average book value 870
See accompanying notes to unaudited interim consolidated financial statements.
</TABLE>
6
<PAGE> 9
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Issued for consulting services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 14,171 3,543
Units issued from conversion of warrants/new offer - $0.25 per share
Issued Jan-Mar 1997 470,000 117,500
Issued for employee services - Jan.1997 - $0.25 per share
- no cash and basis is recent stock offerings 200,000 50,000
Issued for employee services - Jan.1997 - $0.25 per share
- no cash and basis is recent stock offerings - vested over 2 yrs 400,000 100,000
Issued for loan extension - Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 6,813 1,703
Issued for loan extension - Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 500,000 107,660
Issued for stock that was subscribed - Apr 1997 - from Mar 1996
- no cash as the cash was received previously 7,067 (7,067)
Subscribed from conversion of warrant/new stock offer - Apr. 1997 190,000 47,500
Issued from conversion of warrants/new offer - $0.25 per share
Issued Apr-Jun 1997 632,067 159,018
Issued for loan extension - 12% Notes Payable - $0.25 per share
Issued Apr-Jun 1997 197,564 49,391
Issued for consulting services - Apr.-Jun. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 553,000 138,250
Issued for conversion of 12% Jun.'96 Notes-May 1997-$0.25 per share 724,702 180,175
- no cash and basis is recent stock offerings
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
Issued for consulting services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 3,543
Units issued from conversion of warrants/new offer - $0.25 per share
Issued Jan-Mar 1997 117,500
Issued for employee services - Jan.1997 - $0.25 per share
- no cash and basis is recent stock offerings 50,000
Issued for employee services - Jan.1997 - $0.25 per share
- no cash and basis is recent stock offerings - vested over 2 yrs (64,583) 35,417
Issued for loan extension - Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 1,703
Issued for loan extension - Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 107,660
Issued for stock that was subscribed - Apr 1997 - from Mar 1996
- no cash as the cash was received previously --
Subscribed from conversion of warrant/new stock offer - Apr. 1997 47,500
Issued from conversion of warrants/new offer - $0.25 per share
Issued Apr-Jun 1997 159,018
Issued for loan extension - 12% Notes Payable - $0.25 per share
Issued Apr-Jun 1997 49,391
Issued for consulting services - Apr.-Jun. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 138,250
Issued for conversion of 12% Jun.'96 Notes-May 1997-$0.25 per share 180,175
- no cash and basis is recent stock offerings
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
7
<PAGE> 10
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Issued for employee services - May 1997 - $0.25 per share
- no cash and basis is recent stock offerings 52,183 13,046
Issued for conversion of 10% Mar.'96 Note-May 1997-$0.11 per share 304,545 33,499
Issued May 1997 - basis is agreed upon price
Issued for stock offering - $0.11 per share
Issued May 1997 - basis is agreed upon price 1,219,996 130,000
Issued for conversion-deferred compensation for three officers
- $0.11 per unit - no cash and basis is recent stock offerings 1,908,631 201,668
Stock offering costs -- (5,251)
Issued for stock that was subscribed - Jul 1997 - from Jun 1997
- no cash as the cash was received previously 190,000 (190,000)
Issued for consulting services - Jul. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 52,500 13,125
Issued from conversion of warrants/new offer - $0.25 per share
- Issued Jul-Sep 1997 1,193,000 298,250
Cancelled that were issued by Transfer Agent in Error - Mar. / Apr. 1996 (70,667) --
Issued for conversion of 12% Jul / Aug.'96 Note-Sep 1997-$0.20 per
Share issued Sep 1997 - basis is agreed upon price 538,300 107,660
Issued for conversion of 12% Notes Payable-Apr 1996 - $0.25 per
Share issued Sep 1997 - basis is recent stock offerings 185,865 46,466
Cancelled for liquidation - Probex Technologies, L.P. - issued Mar 1994 (9,860,000) --
Issued for liquidation of Probex Technologies, L.P. - to partners of L.P. 7,610,692 --
Subscribed from conversion of warrant/new stock offer Sep 1997-$0.25
Per share -- 1,682,218 398,554
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
Issued for employee services - May 1997 - $0.25 per share
- no cash and basis is recent stock offerings 13,046
Issued for conversion of 10% Mar.'96 Note-May 1997-$0.11 per share 33,499
Issued May 1997 - basis is agreed upon price
Issued for stock offering - $0.11 per share
Issued May 1997 - basis is agreed upon price -- 130,000
Issued for conversion-deferred compensation for three officers
- $0.11 per unit - no cash and basis is recent stock offerings 201,668
Stock offering costs -- (5,251)
Issued for stock that was subscribed - Jul 1997 - from Jun 1997
- no cash as the cash was received previously
Issued for consulting services - Jul. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 13,125
Issued from conversion of warrants/new offer - $0.25 per share
- Issued Jul-Sep 1997 -- 298,250
Cancelled that were issued by Transfer Agent in Error - Mar. / Apr. 1996 --
Issued for conversion of 12% Jul / Aug.'96 Note-Sep 1997-$0.20 per
Share issued Sep 1997 - basis is agreed upon price 107,660
Issued for conversion of 12% Notes Payable-Apr 1996 - $0.25 per
Share issued Sep 1997 - basis is recent stock offerings -- 46,466
Cancelled for liquidation - Probex Technologies, L.P. - issued Mar 1994 --
Issued for liquidation of Probex Technologies, L.P. - to partners of L.P. --
Subscribed from conversion of warrant/new stock offer Sep 1997-$0.25
Per share 398,554
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
8
<PAGE> 11
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Subscribed from conversion of 12% Jun'96 Notes - Sep. 1997 100,625 25,156
- no cash and basis is recent stock offerings
Subscribed from conversion of 12% Notes Payable-Apr 1996 -$0.25 per share
- no cash and basis is recent stock offerings 56,009 14,002
Subscribed from conversion of loan from officer - Sep 1997 -$0.25 per share
- no cash and basis is recent stock offerings 53,389 13,347
Subscribed from conversion of 10% Note - Mar 1996 -$0.25 per share
Issued Sep 1997 - no cash and basis is recent stock offerings 23,104 5,777
Net loss for the twelve months ended September 30, 1997 --
---------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 21,619,017 $ 1,915,344 $ 3,780,709
========== =========== ===========
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
Subscribed from conversion of 12% Jun'96 Notes - Sep. 1997 25,156
- no cash and basis is recent stock offerings
Subscribed from conversion of 12% Notes Payable-Apr 1996 -$0.25 per share
- no cash and basis is recent stock offerings 14,002
Subscribed from conversion of loan from officer - Sep 1997 -$0.25 per share
- no cash and basis is recent stock offerings 13,347
Subscribed from conversion of 10% Note - Mar 1996 -$0.25 per share
Issued Sep 1997 - no cash and basis is recent stock offerings 5,776
Net loss for the twelve months ended September 30, 1997 (1,293,542) (1,293,542)
------------ ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $(3,299,896) $ 416,230
============ =========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
9
<PAGE> 12
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED 21,619,017 1,915,344 $ 3,780,709
Issued for stock that was subscribed - Sep'97, issued Oct 1997
- no cash as the cash was received previously 1,915,344 (1,915,344)
Issued for stock that was subscribed - Sep'97, issued Oct 1997
- no cash as the cash was received previously 12,001 --
Issued for consulting services - Jul. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 410,130 102,533
Issued for employee services - Dec. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 151,667 37,917
Issued from private stock sale - $0.25 per share - Issued Jul-Sep'97 327,786 81,947
Subscribed from private stock sale - Dec'97-$0.25 per share -- 179,952 44,988
---------- -------
SUB-TOTAL - BALANCE AT DECEMBER 31, 1997 24,435,945 179,952
========== =======
REVERSE 2 FOR 1 STOCK SPLIT - DECEMBER 1997 /2 /2
--------- ------- ---------
BALANCE AT DECEMBER 31, 1997 12,218,042 89,976 4,048,094
Issued for correction of error - Jan.1998 - post-split
- no cash as the cash was received previously 89,976 (89,976)
Issued from private stock sale - $0.50 per share - Issued Jan-Mar'98 300,746 154,988
Subscribed from private stock sale - Mar'98-$0.50 per share -- 93,000 46,500
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------- ------------- ---------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED $ (64,583) $(3,299,896) $ 416,230
Issued for stock that was subscribed - Sep'97, issued Oct 1997
- no cash as the cash was received previously
Issued for stock that was subscribed - Sep'97, issued Oct 1997
- no cash as the cash was received previously
Issued for consulting services - Jul. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 102,533
Issued for employee services - Dec. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 37,917
Issued from private stock sale - $0.25 per share - Issued Jul-Sep'97 81,947
Subscribed from private stock sale - Dec'97-$0.25 per share 44,988
SUB-TOTAL - BALANCE AT DECEMBER 31, 1997
REVERSE 2 FOR 1 STOCK SPLIT - DECEMBER 1997
BALANCE AT DECEMBER 31, 1997 (64,583) (3,299,896) 683,614
Issued for correction of error - Jan.1998 - post-split
- no cash as the cash was received previously
Issued from private stock sale - $0.50 per share - Issued Jan-Mar'98 -- 154,988
Subscribed from private stock sale - Mar'98-$0.50 per share 46,500
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
10
<PAGE> 13
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------ -------------
<S> <C> <C> <C>
Issued for stock that was subscribed - Mar 1998, issued Apr 1998
- no cash as the cash was received previously 93,000 (93,000)
Issued from private stock sale - $0.50 per share - Issued Apr-May '98 620,251 310,126
Issued for conversion of 12% Notes Pay-Apr'96 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 208,976 104,488
Issued for correction of error - Mar'98 - shares issued at $0.65 instead of $0.50
- no cash as the cash was received previously 9,230
Issued for consulting services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 161,895 68,448
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 162,975 81,488
Issued for employee services - Jun.1998 - $0.50 per share
- no cash and basis is recent stock offerings - vested over 3 yrs 25,002 12,501
Issued from private stock sale - $0.50 per share - Issued Aug 1998 22,000 11,000
Issued for exercise of employee options - Aug'98 - $0.50 per share 52,200 26,100
Issued for loan incentive - Aug. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 50,000 25,000
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 245,411 122,706
Issued for term of anti-dilutive agreement -Sep'98 - $0.80 per share
- no cash and basis is estimated market value 670,709 536,567
Amortization of Deferred Stock Expense --
Net loss for the twelve months ended September 30, 1998 --
---------- ------- ------------
BALANCE AT SEPTEMBER 30, 1998 14,930,413 -- $ 5,548,004
========== ======= ============
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
--------- ------------- ---------------
<S> <C> <C> <C>
Issued for stock that was subscribed - Mar 1998, issued Apr 1998
- no cash as the cash was received previously
Issued from private stock sale - $0.50 per share - Issued Apr-May '98 -- 310,126
Issued for conversion of 12% Notes Pay-Apr'96 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 104,488
Issued for correction of error - Mar'98 - shares issued at $0.65 instead of $0.50
- no cash as the cash was received previously
Issued for consulting services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 68,448
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 81,488
Issued for employee services - Jun.1998 - $0.50 per share
- no cash and basis is recent stock offerings - vested over 3 yrs (10,417) 2,083
Issued from private stock sale - $0.50 per share - Issued Aug 1998 -- 11,000
Issued for exercise of employee options - Aug'98 - $0.50 per share 26,100
Issued for loan incentive - Aug. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 25,000
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 122,706
Issued for term of anti-dilutive agreement -Sep'98 - $0.80 per share
- no cash and basis is estimated market value 536,567
Amortization of Deferred Stock Expense 51,042 51,042
Net loss for the twelve months ended September 30, 1998 (2,157,474) (2,157,474)
-------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1998 $(23,958) $ (5,457,371) 66,674
======== ============ ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
11
<PAGE> 14
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
<S> <C> <C> <C>
Issued from private stock sale - Oct-Dec 1998 - $0.50 per share 259,800 129,900
Issued from private stock sale - Jan.- Apr. 1999 - $0.50 per share 2,728,331 -- 1,364,166
Amortization of Deferred Stock Expense --
Issued for employee services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 63,100 31,550
Issued for consulting services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 30,000 65,000
Issued for employee services - Jul - Sep. 1999 - $0.50 per share 334,500 117,250
Issued from private sale - Sep 1999 - $.425 per share 585,885 249,000
Issued from exercise of warrants - Aug. 1999 - $0.75 per share 1,420,800 1,065,600
Private sale to Directors & Officers - Aug. 1999 - $0.425 per share 590,588 251,000
Common Stock offering costs (175,609)
Issued from private stock sale - Sep. 1999 - $10.00 per share
Preferred Stock offering costs
Preferred Stock dividend accrual
Net loss for the twelve months ended Sep 30, 1999
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1999 18,932,029 2,011,388 $8,645,860
========== ========= ==========
<CAPTION>
Preferred Stock
------------------------
Shares/Units
Subscribed Amount
------------ ------
<S> <C> <C>
Issued from private stock sale - Oct-Dec 1998 - $0.50 per share
Issued from private stock sale - Jan.- Apr. 1999 - $0.50 per share
Amortization of Deferred Stock Expense
Issued for employee services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales
Issued for consulting services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales
Issued for employee services - Jul - Sep. 1999 - $0.50 per share
Issued from private sale - Sep 1999 - $.425 per share
Issued from exercise of warrants - Aug. 1999 - $0.75 per share
Private sale to Directors & Officers - Aug. 1999 - $0.425 per share
Common Stock offering costs
Issued from private stock sale - Sep. 1999 - $10.00 per share 190,000 1,900,000
Preferred Stock offering costs (291,773)
Preferred Stock dividend accrual
Net loss for the twelve months ended Sep 30, 1999
------- ----------
BALANCE AT SEPTEMBER 30, 1999 190,000 $1,608,227
======= ==========
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
--------- ------------- ---------------
<S> <C> <C> <C>
Issued from private stock sale - Oct-Dec 1998 - $0.50 per share -- 129,900
Issued from private stock sale - Jan.- Apr. 1999 - $0.50 per share 1,364,166
Amortization of Deferred Stock Expense 18,749 18,749
Issued for employee services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 31,550
Issued for consulting services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 65,000
Issued for employee services - Jul - Sep. 1999 - $0.50 per share 117,250
Issued from private sale - Sep 1999 - $.425 per share 249,000
Issued from exercise of warrants - Aug. 1999 - $0.75 per share 1,065,600
Private sale to Directors & Officers - Aug. 1999 - $0.425 per share 251,000
Common Stock offering costs (175,609)
Issued from private stock sale - Sep. 1999 - $10.00 per share 1,900,000
Preferred Stock offering costs (291,773)
Preferred Stock dividend accrual (17,123) (17,123)
Net loss for the twelve months ended Sep 30, 1999 (2,415,027) (2,415,027)
---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1999 $ (5,209) (7,889,521) $2,359,358
========== ========== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
12
<PAGE> 15
PROBEX CORP
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
----------------- ------------- -------------
Issued for stock that was subscribed - Aug 1999, issued Oct-Dec 1999
- no cash as the cash was received previously 1,420,800 (1,420,800)
Issued for stock that was subscribed - Aug 1999, issued Oct 1999
- no cash as the cash was received previously 590,589 (590,588)
Issued from exercise of warrants - Dec 1999 at $0.75 per share 20,000 15,000
Issued for consulting services - Dec 1999 - $0.01 per share 55,000 550
Issued for correction of error - Jan-Apr 1999 shares issued at
$0.50 instead of $0.425
- no cash as the cash was received previously 7,059
Amortization of Deferred Stock Expense --
Issued from private stock sale - Oct-Dec 1999 - $10.00 per share
Preferred Stock offering costs - Oct-Dec 1999
Preferred Stock dividend accrual - Dec 1999
Net loss for the three months ended Dec 31, 1999 --
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 21,025,477 -- $8,661,410
========== ========== ==========
<CAPTION>
Preferred Stock
-----------------------------
Shares/Units
Subscribed Amount
------------ -----------
<S> <C> <C>
Issued for stock that was subscribed - Aug 1999, issued Oct-Dec 1999
- no cash as the cash was received previously
Issued for stock that was subscribed - Aug 1999, issued Oct 1999
- no cash as the cash was received previously
Issued from exercise of warrants - Dec 1999 at $0.75 per share
Issued for consulting services - Dec 1999 - $0.01 per share
Issued for correction of error - Jan-Apr 1999 shares issued at
$0.50 instead of $0.425
- no cash as the cash was received previously
Amortization of Deferred Stock Expense
Issued from private stock sale - Oct-Dec 1999 - $10.00 per share 345,000 3,450,000
Preferred Stock offering costs - Oct-Dec 1999 (398,657)
Preferred Stock dividend accrual - Dec 1999
Net loss for the three months ended Dec 31, 1999
------- -----------
BALANCE AT DECEMBER 31, 1999 535,000 $ 4,659,570
======= ===========
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
--------- ------------- ---------------
<S> <C> <C> <C>
Issued for stock that was subscribed - Aug 1999, issued Oct-Dec 1999
- no cash as the cash was received previously
Issued for stock that was subscribed - Aug 1999, issued Oct 1999
- no cash as the cash was received previously
Issued from exercise of warrants - Dec 1999 at $0.75 per share 15,000
Issued for consulting services - Dec 1999 - $0.01 per share
Issued for correction of error - Jan-Apr 1999 shares issued at
$0.50 instead of $0.425
- no cash as the cash was received previously
Amortization of Deferred Stock Expense 1,042 1,042
Issued from private stock sale - Oct-Dec 1999 - $10.00 per share 3,450,000
Preferred Stock offering costs - Oct-Dec 1999 (398,657)
Preferred Stock dividend accrual - Dec 1999 (82,789) (82,789)
Net loss for the three months ended Dec 31, 1999 (768,034) (768,034)
----------- ---------- -----------
BALANCE AT DECEMBER 31, 1999 $ (4,167) (8,740,343) $ 4,576,470
=========== ========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
13
<PAGE> 16
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
THREE MONTHS ENDED DECEMBER 31, (INCEPTION) TO
DECEMBER 31,
CASH USED BY OPERATING ACTIVITIES 1999 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Loss $ (768,036) $ (521,049) $ (8,640,434)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation expense 12,151 7,632 82,650
Depreciation expense charged to research and development 42,604 19,188 336,224
Non-cash items in research and development expense -- 175,399 196,497
Loss on sale of equipment -- -- 155,378
Loss on sale of land -- -- 47,109
Interest expense - not paid 27,778 18,838 169,179
Stock compensation expense 1,042 13,541 441,209
Stock services expense 550 -- 424,713
Stock financing expense -- -- 720,321
Loss on disposition of vehicle -- -- 3,419
Decrease (increase) in employee receivable (18,631) 3,373 (27,339)
Decrease (increase) in subscription receivable (350,000) -- (350,000)
Decrease (increase) in prepaid expense 7,562 -- (6,125)
Increase (decrease) in payroll taxes withheld 17,186 (4,827) 19,166
Increase in other assets (1) -- (2,939)
Increase in other current liabilities (1,848) (500) 1
Increase in accounts payable and accrued expenses (136,629) 15,899 619,288
--------------- --------------- ---------------
Net Cash Used By Operating Activities (1,166,272) (272,506) (5,811,683)
--------------- --------------- ---------------
CASH USED BY INVESTING ACTIVITIES
Purchase of property and equipment (138,937) (182,601) (1,520,759)
Cost of patent registration (4,005) -- (19,155)
Purchase of land -- -- (178,111)
Purchase of equipment -- -- (200,201)
Proceeds from sale of equipment -- 45,000
Proceeds from sale of land -- -- 115,232
--------------- --------------- ---------------
Net Cash Used By Investing Activities (142,942) (182,601) (1,757,994)
--------------- --------------- ---------------
Cash Provided By Financing Activities
Increase in capital lease obligation (2,308) -- 27,754
Proceeds from preferred stock subscribed - not issued 3,450,000 -- 5,350,000
Restricted cash from preferred stock subscribed - not issued (182,780) -- (372,922)
Issuance of common stock 15,000 125,000 5,861,092
Proceeds from common stock subscribed - not issued -- 4,900 398,555
Proceeds from long-term note - purchase of land -- -- 140,000
Repayment of long-term note - purchase of land -- -- (125,872)
Proceeds from issuance of notes payable - 12% -- -- 250,000
Repayment of notes payable - 12% -- -- (189,532)
Proceeds from issuance of convertible notes - 12% -- -- 692,500
Proceeds from issuance of convertible notes - 10% -- -- 85,000
Proceeds from loan from officer -- -- 25,000
Repayment of loan from officer -- -- (13,346)
Proceeds from issuance of promissory note - 15% -- 450,000 750,000
Preferred stock offering costs (398,657) -- (690,430)
Common stock offering costs -- -- (406,253)
Proceeds from installment note payable -- -- 19,829
Repayment of installment note payable -- -- (1,602)
--------------- --------------- ---------------
Net Cash Provided By Financing Activities 2,881,255 579,900 11,799,773
--------------- --------------- ---------------
NET INCREASE IN CASH 1,572,041 124,793 4,230,096
CASH, BEGINNING OF PERIOD 2,658,055 12,590 --
--------------- --------------- ---------------
CASH, END OF PERIOD $ 4,230,096 $ 137,383 $ 4,230,096
=============== =============== ===============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
14
<PAGE> 17
PROBEX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE A NATURE OF BUSINESS
- --------------------------------------------------------------------------------
The Company owns proprietary technology whose primary application is for the
purification, recycling, and upgrading of used lubricating oils. The Company has
generated no significant revenue to date and was in the development stage
through December 31, 1999.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CONSOLIDATION - The accompanying consolidated financial statements include the
accounts of PROBEX CORPORATION, (the "Company"), formerly Conquest Ventures,
Inc., and its wholly owned subsidiaries - Quadrex Corporation and Apollo Oil
Company. Significant inter-company transactions and balances have been
eliminated in consolidation.
PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS - Fixed assets greater than
$1,000 are recorded at cost and depreciated over their estimated useful lives,
which range from three to five years, using the straight-line method. Equipment
leased under capital leases is amortized over the life of the respective lease.
INTANGIBLE ASSETS - Patents are being amortized on a straight-line basis over 17
years. No patent amortization has been recorded by the Company as of the date of
these Consolidated Financial Statements.
RESTRICTED CASH - At December 31, 1999, the Company had $372,922 of restricted
cash, classified as a non-current asset. This amount represents 10% of the
cumulative convertible preferred stock offering proceeds (plus accrued interest)
held in a separate interest bearing escrow account and were not available to the
Company until certain incorporation documents were amended to reflect
stockholder approval of certain amendments. These amendments were approved on
December 30, 1999 and the cash transferred to the Company in January 2000.
OFFERING COSTS - The offering costs incurred by the Company in connection with
private placement offerings have been offset against the proceeds.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to expense
when incurred.
DIVIDENDS - Dividends payable in accrued expenses have been offset against the
deficit accumulated during development stage.
COMPENSATED ABSENCES - Employees are entitled to certain paid holidays, vacation
and sick time. Because it is impractical to accrue reasonable estimated
liability, the Company records an expense when employees are paid.
15
<PAGE> 18
ACCOUNTING ESTIMATES - When preparing financial statements in conformity with
generally accepted accounting principles, management must make estimates based
on future events which affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities as of the date of the
financial statements, and revenues and expenses during the reporting period.
Actual results could differ from these estimates.
ACCUMULATED OTHER COMPREHENSIVE INCOME - As of the date of these Consolidated
Financial Statements, the Company has no components of other comprehensive
income as defined by Statement of Financial Accounting Standards No. 130.
NET LOSS PER COMMON SHARE - The Company has a complex capital structure that
requires a dual presentation of basic and diluted earnings per share ("EPS") on
the face of the income statement. The net loss per common share ("basic") is
computed by dividing the net loss for the period by the weighted average number
of shares outstanding during the period. The net loss per common share-assuming
dilution ("diluted") reflects the potential dilution that could occur if
securities (warrants and convertible debt for the Company) were exercised or
converted into common stock.
The following table summarizes the numerator and denominator elements of the
basic EPS computations.
FOR THE THREE MONTH PERIOD ENDING DECEMBER 31
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
LOSS (NUMERATOR) $ 768,036 $ 521,049
SHARES (DENOMINATOR) 20,461,600 14,975,056
LOSS PER SHARE $ 0.04 $ 0.03
</TABLE>
The Company's outstanding warrants, options and convertible preferred stock were
anti-dilutive for the three-month periods ending December 31, 1999 and 1998.
NOTE C STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
On September 30, 1993, the stockholders approved a 200-for-1 reverse stock split
and restatement of the number of shares authorized to 75,000,000. On January 17,
1994 the stockholders approved another reverse stock split that reduced the
number of shares of outstanding common stock to 601,648.
In January 1994, the Company commenced a private placement of up to 1,850,000
units at $.92 per unit, each unit consisting of one share of common stock, a
one-half "A" warrant and a one-half "B" warrant. The "A" warrants were
exercisable until November 15, 1996 to purchase one share of common stock at
$1.50 per share. The "B" warrants were exercisable until February 15, 1996 to
purchase one share of common stock at $3.00 per share. None of the Class A or
Class B warrants related to this offering were ever exercised.
From March to September 30, 1994, the Company sold 1,129,891 units in a private
placement and received net cash proceeds of $978,786.
16
<PAGE> 19
In March 1994, the Company issued 9,950,000 shares of common stock to Probex
Technologies, L.P., a Texas limited partnership ("Limited Partnership") a
majority of which is owned by certain officers and directors of the Company, in
exchange for an exclusive license to use, in Canada and the United States for
defined applications, a technology antecedent to that on which the planned
operations of the Company are based. No value was attributed to the
license/technology acquisition because of the license/technologies
indeterminable value. On June 30, 1996, this technology and license was
transferred to a former director of the Company, subject to the Company's
retention of all rights in used lubricating oil processing applications.
Simultaneously, certain officers of the Company purchased 90,000 shares of the
common stock from the Limited Partnership. After this transaction, the Limited
Partnership owned 9,860,000 shares of the Company's common stock.
On June 30, 1995, the Company purchased 28% ownership in the assets and
liabilities of the Limited Partnership. The Limited Partnership intends to
utilize its best efforts to liquidate the Limited Partnership. As the initial
step in this process, the Limited Partnership's stock certificate representing
9,860,000 common shares of the Company was cancelled in September 1997.
8,860,000 common shares were distributed to the partners of the partnership (of
which the majority are either officers or directors of the Company) with
1,000,000 common shares being retained by the Limited Partnership to secure
approximately $180,000 of outstanding liabilities on the Limited Partnership's
books. In December 1997, 151,560 common shares were utilized to extend loan
terms and convert certain loans and 424,220 common shares were surrendered as a
result of the Company's reverse stock split (see discussion later). In September
1998, 100,000 common shares were utilized to pay certain liabilities. As of
September 30, 1999, the Limited Partnership owned 324,220 common shares and had
approximately $70,000 of outstanding liabilities.
From October to November 1999, the Limited Partnership sold 55,912 shares of
Common Stock at prices ranging from $0.95 to $1.70 per share resulting in
$64,336 of gross proceeds. The proceeds were utilized to liquidate all of the
outstanding liabilities of the Limited Partnership and the remainder is being
held in reserve for distribution to the Limited Partnership partners. As of the
date of these Consolidated Financial Statements, the Limited Partnership owns
268,308 common shares and has no obligations. The Limited Partnership is in the
process of being closed down and the remaining shares of common stock will be
distributed to the partners.
In July 1995, the Company issued 300,000 shares of common stock as fees for two
of its outside directors.
In August 1995, the Company commenced a private placement offering of up to 350
units at $1,000 per unit, each unit consisting of $1,000 in principal amount of
12% Convertible Notes and 1,000 Class C warrants for the purpose of funding the
pilot phase of its initial production facility. The Notes bore interest at 12%
per annum commencing on the date of issuance and matured 180 days thereafter.
Each $1.00 of indebtedness evidenced by the Notes was convertible, at the option
of the holder thereof, into one share of common stock of the Company at any time
prior to the maturity thereof. Each Class C warrant entitled the holder thereof
to purchase one share of Common Stock at $1.50 per share and unless called for
redemption, was exercisable at any time within 910 days after issuance, or
through February 1998. In March 1996, the Company offered a restructuring of the
terms of this offering, which is discussed below. In October 1995, the Company
completed the 350-unit 1995 private placement offering plus a 5-unit
over-subscription. With the completion of the offering, the Company realized net
cash proceeds of $327,000 after paying a financial advisory fee of $28,000.
17
<PAGE> 20
In September 1995, the Company issued 46,995 shares of common stock to a
consultant for financial advisory services. Additionally, this consultant
received one-half of an "A" warrant exercisable until November 15, 1996, to
purchase one share of common stock at $1.50 per share and one-half of a "B"
warrant exercisable until February 15, 1996 to purchase one share of common
stock at $3.00 per share. Accordingly, the Company issued this consultant 23,498
"A" warrants and 23,497 "B" warrants. None of the Class A or Class B warrants
related to this offering were ever exercised.
In October 1995, the Company issued 550,000 shares of common stock to two
employees, subject to a repurchase right by the Company at $.01 per share if the
employees were to leave the Company before three years.
In October 1995, the Company issued 28,000 shares of common stock to a
consultant for financial advisory services.
In November 1995, the Company issued 5,000 shares of common stock to a
consultant for services performed.
In February 1996, the Company issued 500,000 shares of common stock to three
officers as compensation in the form of stock in lieu of cash payments. The
compensation was for performance recognition bonuses.
In March 1996, the Company offered a restructuring of the terms of the August
1995 private placement offering in that if the note holders would convert their
12% loan into Common Stock of the Company, the conversion rate would be reduced
from $1.00 per share to $0.75 per share. Additionally, the Company offered a
Class G warrant, exercisable through March 1998 to purchase one share of Common
Stock at $0.75 per share for each dollar of principal and accrued interest that
was converted into Common Stock. The previous warrant exercisable at $1.50 per
share was unaffected by this offer. By June 30, 1996, all of the investors had
agreed to the proposal and returned notifications to the Company. However, the
issuance of Common Stock for one investor (5 units) had not occurred as of
September 30, 1996, and the Company recorded the transaction as Common Stock
Subscribed in the Stockholder Equity section of the Financial Statements. The
Transfer Agent subsequently issued these shares to the investor in April 1997.
The Company then offered all warrant and debt holders the opportunity to convert
their holdings at $0.25 per share as noted below. Therefore, 35,000 of the
355,000 Class C warrants at $1.50 per share were converted in June 1997 at $0.25
per share and another 25,000 were converted at $0.25 per share in September
1997. 7,067 of the 501,737 Class G warrants at $0.75 per share were converted in
June 1997 at $0.25 per share and another 35,334 were converted at $0.25 per
share in September 1997. Additionally, 230,000 of the Class C warrants were
retired in June 1997 and replaced with identical Class L warrants that expired
in April 1999. Additionally, 325,067 of the Class G warrants were retired in
June 1997 and replaced with identical Class M warrants, which expired in March
1999.
In March and April of 1996, the Company's Transfer Agent issued 70,667 shares of
common stock as the result of an investors conversion of 12% Convertible Notes.
However, management believed that the Transfer Agent issued these shares in
error as the same number of shares had been issued in May 1996. The Company
communicated their position and evidence to support their conclusion to the
Transfer Agent; whereupon, the shares were cancelled in July 1997.
18
<PAGE> 21
In March 1996, the Company issued 11,950 shares of common stock to an
independent contractor for programming services performed.
In April 1996, the Company issued 50,000 shares of common stock to a vendor for
an extension of terms of payment. Subsequently, the vendor forgave the payable.
In April 1996, the Company issued 6,627 shares to an employee as compensation in
the form of stock in lieu of cash payments. The compensation was for performance
recognition bonuses.
In April 1996, the Company issued 107,500 Class H warrants to an officer of the
Company as recognition for services rendered to the Company. The warrants are
exercisable at $0.50 per share for five years or through April 2001. The Company
has no redemption rights and none of the warrants had been exercised as of
December 31, 1999.
In April 1996, the Company issued 7,500 Class H warrants to a third party for a
short term $7,500 loan. The warrants are exercisable at $0.50 per share for five
years or through April 2001. The Company has no redemption rights and none of
the warrants had been exercised as of December 31, 1999.
In April 1996, the Company issued 210,000 Class H warrants to a consultant for
financial advisory services. The warrants are exercisable at $0.50 per share for
five years or through April 2001. The Company has no redemption rights and none
of the warrants had been exercised as of December 31, 1999.
In May 1996, the Company issued 9,333 shares of common stock to the placement
agent as compensation for its services.
In May 1996, the Company issued 14,000 shares of common stock to an independent
contractor for graphics professional services.
In June 1996, the Company awarded a stock grant of 75,000 shares of Common Stock
to an employee which vests over a three-year period, subject to continued
employment with the Company. In addition, due to cash flow difficulties
encountered by the Company in early 1997, this same employee was not paid for
certain work. The employee agreed to keep working without pay in exchange for
immediate vesting of the employee's grant of Common Stock. The employee has
since left the Company and was paid for all hours worked. The Company issued
75,000 shares of common stock to this individual in December 1996.
In October and December 1996, the Company issued a total of 66,947 shares of
Common Stock to five consultants as compensation for services performed.
In December 1996, the Company issued a total of 579,720 shares of Common Stock
as fees for four of its directors.
In December 1996, the Company issued 50,000 shares of Common Stock to an
employee as compensation in lieu of cash payments.
In January 1997, the Company issued a total of 14,171 shares of Common Stock to
four consultants as compensation for services performed.
19
<PAGE> 22
From January through March 1997, the Company sold 470,000 shares of Common Stock
at $0.25 per share, resulting in $117,500 of cash proceeds.
In January 1997, the Company issued 600,000 shares to an employee for services
rendered. 200,000 of these shares vested immediately and were released to the
employee. The remaining 400,000 shares are being held by the Company and will
vest to the employee over a two-year period. The Company recorded these 400,000
shares of stock issued as Deferred Stock Expense as a reduction in the
Stockholder's Equity section of the Consolidated Balance Sheet. As of September
30, 1999, all shares had vested and the company recorded compensation expense at
$0.25 per share with a corresponding reduction of the Deferred Stock Expense on
the Balance Sheet.
In February 1997, the Company issued warrants to an officer of the Company to
purchase 150,000 shares of the Company's common Stock at $0.10 per share. The
warrants expire in April 2001 and none of the warrants had been exercised as of
December 31, 1999.
In February 1997, the Company issued 506,813 shares of Common Stock to three
investors holding loans with the Company. 6,813 of the shares were for an
extension of the maturity date of a note payable with one of the investors. The
remaining 500,000 shares were calculated to equalize for the difference in
conversion prices between each investor's $1.50 per share offering and the
Company's $0.25 per share offering and for the Company's inability to effect
timely repayment of the principal and interest on the note payable due - See
Indebtedness Footnote.
In early 1997, the Company had short-term working capital requirements and
offered all warrant holders the opportunity to exercise any or all of their
warrants into common stock at a conversion price of $0.25 per share. From
January to September 1997, the Company issued 2,295,067 shares of Common Stock
at $0.25 per share under this program resulting in approximately $574,000 of
cash proceeds. The Company has also received future commitments of approximately
$300,000. Additionally, the Company offered all debt holders the opportunity to
convert any or all of their debt into common stock at a conversion price of
$0.25 per share. As a result, the Company retired approximately $500,000 in
outstanding debt.
From April through June 1997, the Company issued 197,564 shares for an extension
of the terms of the $150,000 Note Payable issued in April 1996 - See
Indebtedness Footnote.
From April through June 1997, the Company issued 553,000 shares of Common Stock
to seven consultants as compensation for services rendered at $0.25 per share.
In May 1997, the Company issued 724,702 shares of Common Stock at $0.25 per
share for the conversion of $162,500 of the 12% Notes Payable issued in June
1996 - see Indebtedness Footnote.
In May 1997, the Company issued 52,183 shares of Common Stock at $0.25 per share
to two employees as compensation for services rendered.
In May 1997, the Company issued 304,545 shares of Common Stock at $0.11 per
share for the conversion of the $30,000 10% Convertible Note from March 1996.
In May 1997, the Company sold approximately 1,220,000 shares of Common Stock at
$0.11 cents per share resulting in approximately $130,000 of cash proceeds.
20
<PAGE> 23
In May 1997, the Company issued 1,908,631 shares of Common Stock at $0.11 per
share to three officers for deferred and unpaid compensation - See Commitments
and Contingencies Footnote.
In July 1997, the Company issued 52,500 shares of Common Stock at $0.25 per
share to four consultants as compensation for services rendered.
From July to September 1997, the Company sold 1,193,000 shares of Common Stock
at $0.25 per share resulting in approximately $298,000 of cash proceeds.
In September 1997, the Company issued 538,300 shares of Common Stock to two
investors (269,150 each) for the conversion of 12% Convertible Notes and accrued
interest - see Indebtedness Footnote.
In September 1997, the Company issued 185,865 shares of Common Stock to
investors for the conversion of the $150,000 12% Notes Payable and accrued
interest - see Indebtedness Footnote.
As of September 30, 1997, 1,915,344 shares of Common Stock were subscribed but
not issued by the Company's Transfer Agent. The Transfer Agent issued these
shares in October 1997.
From October to December 1997, the Company sold 327,786 shares of Common Stock
at $0.25 per share resulting in approximately $82,000 of cash proceeds.
From October to December 1997, the Company issued 410,130 shares of Common Stock
at $0.25 per share to three consultants as compensation for services rendered.
From October to December 1997, the Company issued 151,667 shares of Common Stock
at $0.25 per share to two employees as compensation for services rendered.
In December 1997, the Company's Board of Director's approved the restructuring
of the equity shares (or any equity equivalents) of the Company in the form of a
reverse split of the current ("old") shares of the Company, such that one new
share was issued for every two old shares (or any equity equivalents)
outstanding.
In January 1998, the Company issued 179,952 shares of Common Stock to an
investor at $0.25 per share, which were subscribed but not issued by the
Company's Transfer Agent as of December 31, 1997. The Company determined that an
incorrect number of shares were issued on a pre-split basis and should have only
been 89,976 shares of Common Stock at $0.50 per share on a post-split basis. The
Transfer Agent retired the 179,952 share certificate and issued a new
certificate in the amount of 89,976 shares.
In March 1998, the Company sold 269,976 shares of Common Stock at $0.50 per
share resulting in approximately $135,000 of cash proceeds.
In March 1998, the Company sold 40,770 shares of Common Stock at $0.65 per share
resulting in $26,500 of cash proceeds. Subsequently, the Company determined that
the sales price should have been at $0.50 per share instead of $0.65 per share,
or an additional 12,230 shares. The Transfer Agent issued these shares in April
1998.
21
<PAGE> 24
As of March 31, 1998, 93,000 shares of Common Stock representing $46,500 of cash
proceeds at $0.50 per share were subscribed but not issued by the Company's
Transfer Agent. The Transfer Agent issued these shares in April 1998.
From April to June 1998, the Company sold 620,251 shares of Common Stock at
$0.50 per share resulting in approximately $310,126 of cash proceeds.
In June 1998, the Company issued 208,976 shares of Common Stock at $0.50 per
share for the conversion of the remaining $100,000 plus accrued interest of 12%
Notes Payable issued in June 1996 - see Indebtedness Footnote.
From April to June 1998, the Company issued 161,895 shares of Common Stock at
$0.50 per share to six consultants as compensation for services rendered.
From April to June 1998, the Company issued 187,977 shares of Common Stock at
$0.50 per share to five employees as special performance bonuses. However,
25,000 of these shares were held by the Company to be distributed in accordance
with a vesting period as further discussed in the Commitments and Contingencies
Footnote. The Company has recorded these 25,000 shares of stock issued as
Deferred Stock Expense as a reduction in the Stockholder's Equity section of the
Consolidated Balance Sheet. As of December 31, 1999, the employee had vested in
16,500 of the 25,000 shares and this was recorded by the Company as Stock
Compensation Expense at $0.50 per share with a corresponding reduction of the
Deferred Stock Expense in Stockholders' equity.
In July 1998, the Board of Directors granted 50,000 shares to an employee and
100,000 shares to two directors as compensation for services as related to the
third party funding agreement discussed further in Commitments and
Contingencies.
In August 1998, the Company issued 240,111 shares of Common Stock at $0.50 per
share to three officers for deferred and unpaid compensation. Additionally, the
Company issued 5,300 shares of Common Stock at $0.50 per share to an employee
for unpaid compensation - See Commitments and Contingencies Footnote.
In December 1998, the Company initiated a private placement offering of up to
$250,000 at $0.70 per share. As a result of a subsequent private placement
offering (see discussion below), the terms of this offering were retroactively
revised in January 1999 to provide the investors for each $0.50 invested, one
share of common stock and one warrant exercisable at $0.75 per share. This
private placement offering was terminated in January 1999 with a total of
$129,900 gross proceeds received by the Company and 259,800 shares of Common
Stock issued.
In February 1999, the Company initiated a private placement offering to existing
and new investors of up to $700,000 at $0.50 per share. Under the terms of this
offering, for each $0.50 invested, the investor receives one share of common
stock and one Class Q warrant exercisable at $0.75 per share. The offering was
over subscribed and the Company agreed to accept the additional subscriptions.
This private placement offering was terminated in April 1999 with a total of
$1,364,166 gross proceeds received by the Company and 2,988,131 shares of Common
Stock issued.
In March 1999, the Company issued 30,000 shares of Common Stock at $0.50 per
share to two consultants (of which one is a director of the Company) as
compensation for services rendered.
22
<PAGE> 25
In March 1999, the Company issued 63,100 shares of Common Stock at $0.50 per
share to five employees as compensation for services rendered.
Effective July 1999, the Company exercised its right to call the 2,988,131
outstanding Class Q warrants issued in the private placement offering discussed
above. Pursuant to the call, warrant holders had a period of thirty days in
which to exercise their warrants. The warrant call was terminated in August 1999
with a total of $1,080,600 gross proceeds received by the Company ($1,065,600 as
of the date of these Consolidated Financial Statements and $15,000 subsequently)
and 1,420,800 shares of Common Stock was issued.
As a result of the above private placement offerings, the Company paid $252,960
of placement fees that have been recorded as offering costs and offset against
the Common Stock proceeds in the Consolidated Financial Statements.
In June 1999, the Company initiated an exclusive offering to directors and
officers of the Company of up to $500,000 at $0.425 per share ($0.50 adjusted
for non-payment of agent commission - there is no broker for the offering).
Under the terms of this offering, for each $0.425 invested, the investor
received one share of common stock, one warrant exercisable for two years at
$1.00 per share and one 0.10 warrant for each $4.25 invested that is exercisable
for five years at $0.55 per share. This offering was completed in July 1999
resulting in $500,000 gross proceeds received by the Company and 1,176,471
shares of Common Stock issued. Additionally, 1,176,471 of $1.00 warrants and
117,647 of $0.55 warrants were issued as a result of the offering.
On July 21, 1999, the Board of Directors approved a series of Preferred Stock,
which currently consists of up to 1,000,000 shares of Preferred Stock (such
amount may from time to time be increased or decreased by the Board of
Directors), designated as Series A Preferred Stock (the "Series A Preferred
Stock"). The Series A Preferred Stock, with respect to rights on liquidation,
winding up and dissolution, ranks senior to all classes and series of Common
Stock and may rank senior to other classes of Preferred Stock. The Series A
Preferred Stock has a liquidation preference of $10.00 per share plus accrued
and unpaid dividends, that is prior to the liquidation preference of the Common
Stock. The Series A Preferred Stock is entitled to receive semi-annual dividends
at the rate of $1.00 per annum payable either in cash or shares of Common Stock,
at the option of the Company. The holders of Series A Preferred Stock are not
entitled to vote, except for certain limited matters and to the extent required
by law. Each share of Series A Preferred Stock is convertible at any time into
5.33333 shares of Common Stock and shall be automatically converted, without
further action on the part of the Company or the holder thereof, into 5.33333
fully paid and nonassessable shares of Common Stock on the date following any
thirty-day trading period in which the average daily closing price exceeds
$5.625 per share. The Company will not issue any fractional shares of Common
Stock.
The offering was terminated in December 1999 with a total of $5,350,000 of gross
proceeds and 535,000 shares of Preferred Stock were subscribed and not issued.
Additionally, $372,922 of the above gross proceeds is being held in a separate
interest bearing account and not available for use by the Company until certain
incorporation documents were approved by the Company's stockholder's - These
amendments were approved on December 30, 1999 and the cash was transferred to
the Company in January 2000.
23
<PAGE> 26
As a result of the above Preferred Stock private placement offering, the Company
has paid or accrued $690,430 of expenses as of December 31, 1999 ($602,600 of
placement fees and $87,830 of legal fees) and these have been recorded as
offering costs and offset against the Preferred Stock proceeds in the
Consolidated Financial Statements.
NOTE D INCOME TAX
- --------------------------------------------------------------------------------
All tax returns have been filed through September 30, 1998. The tax return for
the year ended September 30, 1999 is under extension and will be filed by June
15, 2000. The net operating loss carryforward is approximately $4,500,000 which
expires by 2013. No deferred tax asset has been recognized since management
believes that it is not likely to be realized.
NOTE E COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
At certain times during the year the Company's demand deposits held in banks
exceeded the federally insured limit of $100,000 per account.
In November 1995, the Company received a promissory note of approximately
$11,000 from an employee for advances made in 1995 to the employee for medical
expenses incurred because of an automobile accident. The employee was expected
to pay the note back to the Company in March 1996 from insurance proceeds.
However, the insurance settlement was delayed and during 1996 the Company made
additional advances to the employee and set up a payroll deduction plan for
repayments. Additionally, the employee has on occasion generated certain
business for the Company and the Board of Directors has formally agreed to apply
twenty (20) percent of the earned revenues generated by the employee toward
repayment of the loan. In November 1996, the insurance proceeds were received
but were less than expected to pay off the loan. The note is secured by common
stock owned by the employee in the Company and payments against the note are
being deducted from each paycheck to the employee. In December 1999, two other
employees were advanced a combined total of $16,000 for travel advance to be
applied against future expense reports. Additionally, in December 1999, an
officer of the company was advanced $5,000 secured by a promissory note and
common stock of the Company.
At December 31, 1999, the Company has accrued $10,000 representing deferred
compensation for the period July 1, 1998 to August 31, 1998 for the three
officers discussed previously in Stockholders Equity. Effective September 1,
1998, the three officers are now being paid the full amount of their
compensation.
In February 1998, the Company moved to a new office space and signed a
three-year lease agreement. Monthly lease payments of $2,938 are due from June
1998 through May 2001.
On June 30, 1998, the Company and a third party entered an agreement whereby the
third party will loan up to $1,500,000 for working capital purposes. Subject to
certain conditions, the Company may draw $150,000 under the agreement every
thirty (30) days. Interest accrues at 15% annually and all amounts drawn under
the loan agreement mature on June 30, 2000. At September 30, 1999, $750,000 had
been drawn by the Company under this agreement and is included as a current
liability in the Consolidated Balance Sheet - see Indebtedness Footnote.
However, earlier repayment could be required pursuant to the loan agreement. In
exchange for
24
<PAGE> 27
the loan, the Company has granted a ten-year warrant to purchase shares of
common stock of the Company at $0.01 per share equal to 10% of the number of
shares of common stock outstanding on a fully diluted basis, subject to certain
adjustments. At December 31, 1999, the fully diluted number of shares that would
be utilized to determine how many warrants would be available to the third party
is 30,515,864.
On June 30, 1998, the Company adopted a Restricted Stock and Stock Option Plan
for certain employees to purchase common stock of the Company at $0.50 per
share. As of June 30, 1998, options to purchase 152,200 shares of common stock
of the Company were granted to five employees (of which 100,000 were to an
officer of the Company). As of September 30, 1998, 52,200 of these options were
exercised and the remaining 100,000 options were terminated effective June 30,
1999. In July 1998, options to purchase 150,000 shares of common stock of the
Company were granted to two officers of the Company. In August 1998, options to
purchase 50,000 shares of common stock of the Company were granted to each
director of the Company. None of these director options had been exercised and
were terminated effective June 30, 1999.
Effective June 30, 1999, the Company approved a plan to issue 2,750,000 stock
options for employees of the Company. The terms of the options are an exercise
price of $0.50 per share and are generally exercisable after the Company meets
five equally weighted goals over a maximum ten-year vesting period. As of
December 31, 1999, all except 2,000 of these options had been granted but none
had been exercised. The Company has adopted APB 25 to account for this
stock-based compensation plan. In light of the plan being variable, the Company
has recognized no expense in these Consolidated Financial Statements.
In June 1999, the Company secured from The Port Authority of Columbiana County
in Wellsville, Ohio, a twelve-month option agreement in the amount of $1,350,000
to purchase a 22-acre site for its first domestic facility. The Company has paid
$5,000 for the option agreement. Additionally, the site and other surrounding
property will be improved by construction of an adjacent highway interchange
primarily using Federal Funds. The Federal Highway Administration has determined
that no transfers of title to such land to private industry may take place prior
to completion of the highway interchange that is projected to occur in 2001.
Should the Company exercise the option to purchase the land, then an interim
lease agreement will be in effect until the Seller certifies in writing that the
highway interchange is complete. Rental payments under the interim lease will be
$20,000 per month and payments in total shall be credited against the purchase
price.
The Company was committed to issue up to 125,000 shares of common stock to an
employee, subject to a vesting period and meeting certain prescribed goals as
determined by management. As of December 31, 1999, 27,475 of these shares had
been issued to the employee, but it is not expected that additional shares will
be issued pursuant to this agreement.
25
<PAGE> 28
The following table summarizes activity and warrants outstanding for the quarter
ending December 31, 1999.
<TABLE>
<CAPTION>
CLASS O/S 9-30-99 GRANTED LAPSED EXERCISED O/S 12-31-99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
F 91,750 91,750
H 162,506 162,506
K 75,000 75,000
N 453,864 453,864
P 208,481 208,481
Q 20,000 20,000 --
Qa 272,833 272,833
R 1,176,471 4 1,176,475
Ra 117,647 (2) 117,645
S 550,000 550,000
T 200,000 200,000
U 120,000 120,000
V 152,000 276,000 428,000
- --------------------------------------------------------------------------------
TOTAL 3,600,552 276,002 - 20,000 3,856,554
================================================================================
</TABLE>
The Company has committed to issue 25,000 shares of common stock to an employee,
subject to a three-year vesting period. As of June 30, 1998, all of the 25,000
shares were issued by the Transfer Agent and held by the Company. Of this
amount, 16,667 has been earned and issued to the employee. The remaining 8,333
are being held by the Company and will be distributed to the employee every six
months in accordance with the above vesting period. See further discussion in
Stockholders Equity.
In September 1999, the Company's current Chairman of The Board of Directors
additionally assumed the responsibilities of Chief Executive Officer and
President. In recognition of these new responsibilities, the Board of Directors
granted 250,000 warrants to purchase Common Stock of the Company at $1.00 per
share for a five-year period, subject to certain vesting requirements.
In October 1999, the Company negotiated a final settlement of an outstanding
obligation for legal services. The original amount of the obligation was
$110,000 and the Company reached an agreement to pay $20,000 in full settlement
of the obligation and has recorded the resulting settlement of approximately
$90,000 as reduction of stock issuance costs.
26
<PAGE> 29
NOTE F INDEBTEDNESS
- --------------------------------------------------------------------------------
In October 1995, the Company offered and accepted $50,000 from an individual
investor. The terms of the investment were 50 units at $1,000 per unit, each
unit consisting of $1,000 in principal amount of 10% Convertible Notes and 1,000
Class D warrants. The Notes bear interest at 10% per annum commencing on their
date of issuance and maturing 270 days thereafter. Each $1.00 of indebtedness
evidenced by the Notes was convertible, at the option of the holder thereof,
into one share of common stock of the Company at any time prior to the maturity
thereof. Each Class D warrant entitled the holder thereof to purchase one share
of Common Stock at $1.50 per share and unless called for redemption, was
exercisable at any time within 910 days after issuance or through May 1998. The
investor, at its option, may redeem and exchange the investment for any new
security issued by the Company prior to repayment of the indebtedness. In August
1996, the investor exchanged this instrument for a new 12% Convertible Note
which bears interest at 12% per annum commencing on the date of issuance and
maturing on January 26, 1997. In January 1997, the Convertible Note and accrued
interest were due but the Company was unable to pay the investor. In exchange
for an extension of the Convertible Note, the Company agreed to issue 250,000
shares to the investor which was calculated to equalize for the difference in
conversion prices between the two offerings and for the Company's inability to
effect timely repayment of the principal and interest. The investor agreed to
extend the maturity date of the Convertible Note and in June 1997, the
outstanding principal and interest were converted into 269,150 shares at $0.25
per share - See Stockholders Equity Footnote. The Class D warrant was retired in
August 1997.
In October 1995, the Company purchased land in anticipation of the construction
of a plant facility for the processing and purification of used lubricating
oils. The purchase price was $165,000 for which the Company paid $25,000 cash
and exercised a $140,000 promissory note. The promissory note was for a 5-year
period and required monthly payments of $2,839 to be made by the Company. In
June 1996, the Company listed the above land for sale with a broker and a sale
was consummated in April 1997.
At September 30, 1996, the Company wrote down certain equipment to a net
realizable value of $55,000. Sale proceeds of $45,000 were realized along with a
$7,000 credit from a vendor. As a result, the Company recorded a loss of $3,000
from the sale of the equipment. The land and improvements were valued at
historical cost of $178,111 with an outstanding mortgage payable of $108,578.
The Company sold the property for $145,000, received cash proceeds of $22,424
and recorded a $47,109 loss.
27
<PAGE> 30
In March 1996, the Company offered and accepted $5,000 from an individual
investor. The terms of the investment were 5 units at $1,000 per unit, each unit
consisting of $1,000 in principal amount of 10% Convertible Notes and 1,000
Class J warrants. The Notes bore interest at 10% per annum commencing on their
date of issuance and matured 360 days thereafter. The indebtedness evidenced by
the Notes was convertible, at the option of the holder thereof, into shares of
common stock of the Company at a conversion rate of $0.75 of indebtedness per
share of Common Stock, at any time prior to the maturity thereof. Each Class J
warrant entitled the holder thereof to purchase one share of Common Stock at
$1.50 per share and unless called for redemption, was exercisable at any time
within two years after issuance or through March 1998. The investor, at its
option, may redeem and exchange the investment for any new security issued by
the Company prior to repayment of the indebtedness. In March 1997, the
Convertible Note and accrued interest came due but the Company was unable to pay
the investor. The Company was in the process of a new $0.25 per share offer for
current warrant and debt holders (see Stockholders' Equity Footnote). As a
result, the investor agreed to extend the maturity date of the Convertible Note
and in September 1997, the outstanding principal and accrued interest were
converted into 23,104 shares at $0.25 per share.
In March 1996, the Company offered and accepted $30,000 from an investor. The
terms of the investment were 30 units at $1,000 per unit, each unit consisting
of $1,000 in principal amount of 10% Convertible Notes and 1,000 Class E
warrants. The Notes bore interest at 10% per annum commencing on their date of
issuance and matured 360 days thereafter. The indebtedness evidenced by the
Notes was convertible, at the option of the holder thereof, into shares of
common stock of the Company at a conversion rate of $0.75 of indebtedness per
share of Common Stock, at any time prior to the maturity thereof. Each Class E
warrant entitled the holder thereof to purchase one share of Common Stock at
$3.00 per share and unless called for redemption, was exercisable at any time
within two years after issuance or through March 1998. The investor, at its
option, could redeem and exchange the investment for any new security issued by
the Company prior to repayment of the indebtedness. In March 1997, the
Convertible Note and accrued interest came due but the Company was unable to pay
the investor. The Company was in the process of a new $0.25 per share offer for
existing warrant and debt holders - see Stockholders' Equity Footnote. As a
result, the investor agreed to extend the maturity date of the Convertible Note
and in May 1997, the outstanding principal and accrued interest were converted
into 304,545 shares at $0.25 per share.
In April 1996, the Company completed an agreement with nine investors (of which
one was an officer of the Company) and received $150,000 of cash proceeds. The
agreement provided for the issuance of nine-month promissory notes at 12%
interest, secured by property, plant and equipment, inventories and
rights/title/interest of the proprietary process technology of the Company. The
notes were due and payable not later than the end of January 1997. Additionally,
each of the note holders/stockholders received 1.25 Class "F" warrants to
purchase common stock at $1.00 per share for each dollar of indebtedness for
five years through April 2001. In January 1997, these notes and accrued interest
came due but the Company was unable to retire this debt. In exchange for the
consideration discussed below, the noteholders/stockholders agreed to extend the
maturity date to May 31, 1997 or earlier if the Company consummated the planned
sale of equipment and land.
28
<PAGE> 31
In exchange for the extension of the maturity date, the Company issued 197,564
shares to the note holders/stockholders, representing 1.25 shares for each
dollar of principal and accrued interest outstanding as of January 1997.
Additionally, the Company committed to each note holder/stockholder, an
anti-dilutive provision which distributed additional shares to the note
holder/stockholder so as to keep their percent of holdings in the Company
constant from the date of their investment until that date that the earlier of
(1) the Company achieved $100,000 of monthly revenues for six consecutive months
or (2) the effective date of a firm commitment public offering which will raise
$3,000,000 for the Company occurs.
In May 1998, the Company offered to each of the noteholders/stockholders that
were party to the anti-dilutive agreement (see Stockholders' Equity Footnote) to
eliminate that provision. Each noteholder/stockholder was given the choice
either to receive common stock (on a pro-rata basis) of the Company based on a
value of $0.80 per share or five-year warrants to purchase common stock (on a
pro-rata basis) of the Company at $0.20 per share. Effective June 30, 1998, all
of the noteholders/stockholders accepted the offer and as a result of the
acceptance, the Company issued 670,709 shares of common stock and 208,449
warrants. Accordingly, the anti-dilution agreement was terminated.
In April 1997, as a result of cash proceeds received from the sale of equipment
and land, the Company partially repaid approximately $64,000 of the then
outstanding principal and interest leaving a balance due of approximately
$104,000. In September 1997, note holders/stockholders representing
approximately $60,000 of the remaining outstanding balance converted into shares
of common stock at $0.25 per share. The remaining note holders/stockholders
representing approximately $44,000 were paid in cash.
In June 1996, the Company offered and accepted $50,000 from an investor. The
terms of the investment were 50 units at $1,000 per unit, each unit consisting
of $1,000 in principal amount of 12% Convertible Notes and a security interest
in the property, plant and equipment, inventories and rights/title/interest of
the proprietary process technology of the Company. The Note bore interest at 12%
per annum commencing on the date of issuance and matured 180 days thereafter.
The indebtedness evidenced by the Notes was convertible, at the option of the
holder thereof, into shares of common stock of the Company at a conversion rate
of $0.75 of indebtedness per share of Common Stock, at any time prior to the
maturity thereof. The investor, at its option, could redeem and exchange the
investment for any new security issued by the Company prior to repayment of the
indebtedness. In January 1997, the Convertible Note and accrued interest came
due but the Company was unable to pay the investor. In exchange for extension of
the Convertible Note, the Company agreed to issue 250,000 shares to the investor
which was calculated to equalize for the difference in conversion prices between
the two offerings and to compensate for the Company's inability to effect timely
repayment of the principal and accrued interest. The investor agreed to extend
the maturity date of the Convertible Note and in July 1997, the outstanding
principal and interest were converted into 269,150 shares at $0.25 per share.
29
<PAGE> 32
In June 1996, the Company commenced a private placement offering of up to 20
units at $25,000 per unit ($500,000), each unit consisting of $25,000 in
principal amount of 12% unsecured Convertible Notes and 20,000 Class I warrants
for the purpose of working capital and the retirement of certain liabilities
related to equipment and development costs that had been previously incurred by
the Company. The Notes bore interest at 12% per annum (payable semiannually)
commencing on their date of issuance and matured 360 days thereafter. The
indebtedness evidenced by the Notes was convertible, at the option of the holder
thereof, into shares of common stock of the Company at a conversion rate of
$0.75 of indebtedness per share of Common Stock, at any time prior to the
maturity. Each Class I warrant entitled the holder thereof to purchase one share
of Common Stock at $2.50 per share and unless called for redemption, was
exercisable at any time within 910 days after issuance or through October 1998.
The offering period was extended to and terminated on October 31, 1996, at which
time 11.5 of the 20 available units had been sold for total proceeds of
$287,500. In 1997, the Company was in the process of a new $0.25 per share
offering and offered all warrant and debt holders the opportunity to convert
their warrant or debt at $0.25 per share. As a result, $187,500 of the $287,500
Convertible Notes plus accrued interest was converted into common stock at $0.25
per share. Additionally, these same investors who converted their Notes Payable
also exercised their warrant options to purchase shares of common stock at the
new $0.25 per share price.
In June 1998, the Company offered the remaining four investors holding $100,000
(plus accrued interest) of Convertible Notes ($287,500 issued less $187,500
converted) the option to convert the indebtedness and accrued interest into
common stock at $0.50 per share. As a result, all of the $100,000 of principal
and accrued interest for three of the investors was converted into 208,976
shares of common stock. The fourth investor chose to have the accrued interest
paid in cash by the Company. In July 1998, the Company offered and accepted
$100,000 from two investors. The terms of the investment were a 12% per annum
secured note due September 15, 1998. In exchange for the funds, the Company
granted 50,000 shares of common stock to the investors. In September 1998, the
note and accrued interest of $1,118 was paid back to the investors from the
proceeds of a working capital loan discussed below.
In September 1998, the Company was funded $300,000 under the third party working
capital agreement discussed previously in Commitments and Contingencies.
$101,118 of the funds were utilized to pay off the investors loan and accrued
interest discussed above, $27,367 to pay legal expenses associated with the
loan, $30,000 to pay a closing fee to the third party and the remaining funds
were utilized by the Company for working capital purposes. From October to
December 1998, the Company was funded an additional $450,000 under the agreement
and has recorded the $750,000 outstanding balance at December 31, 1999 as a
current liability (due June 2000) in the Consolidated Financial Statements.
Additionally, the Company has recorded $137,466 of accrued interest on the loan
as of December 31, 1999 in the Consolidated Financial Statements.
30
<PAGE> 33
NOTE G LEASES
- --------------------------------------------------------------------------------
Included in property and equipment in the accompanying Consolidated Financial
Statements are the following assets held under capital leases:
<TABLE>
<CAPTION>
Dec 31, Dec 31,
1999 1998
---------- ----------
<S> <C> <C>
Lab and research equipment $ 43,159 $ 11,898
Less accumulated amortization 6,769 3,569
Assets under capital leases, net $ 36,390 $ 8,329
</TABLE>
NOTE H LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company is in the development stage and has incurred an accumulated deficit
of approximately $8,740,000 since inception. The Company has been able to
structure short term liquidity financing through private placement offerings.
However, there can be no assurance that the Company may not experience liquidity
problems or obtain sufficient funding on a timely basis.
NOTE I SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
On February 1, 2000, the Company filed a Form 10-SB/A, pursuant to Section 12(b)
of the Securities Exchange Act of 1934, as amended, which was subsequently
declared effective by the Securities and Exchange Commission on February 2,
2000. Additionally, on February 3, 2000, the Company's common stock began
trading on the American Stock Exchange under the symbol "PRB".
NOTE J RECLASSIFICATION
- --------------------------------------------------------------------------------
Certain prior period items in these Consolidated Financial Statements have been
reclassified to conform with current presentation.
31
<PAGE> 34
NOTE K SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Dec 31,1999 Dec 31,1998
----------- -----------
<S> <C> <C>
Interest paid $ 916 $ 1,496
Income taxes paid $ -- $ --
NON CASH ACTIVITES:
Stock issued for services 550 $
Stock issued for compensation --
Stock issued for financing --
Accrued dividend payable 82,789 --
Accrued interest payable 27,778 --
Deferred stock amortization 1,042 13,542
Interest on 12% notes converted to stock --
Interest on 15% promissory note 18,838
Conversion of 12% notes to common stock --
Conversion of accrued payroll to stock --
Negotiated settlement on legal fees --
</TABLE>
32
<PAGE> 35
NOTE L MARKET PRICE OF COMPANY'S COMMON STOCK
- --------------------------------------------------------------------------------
In June 1996, the Company started quotation of its Common Stock on the NASDAQ
Electronic Bulletin Board under the symbol "PRB". However, there was no active
market for the Common Stock and the Company's listing was suspended. In January
1998, the Company's market maker made a re-application to the NASDAQ and the
re-listing was approved. Through December 31, 1999, the market is thin (few
buyers or sellers), and none of the shares of common stock issued to date have
been registered under the Securities Act or any of the securities laws or
regulations of any state or other jurisdiction.
As of December 31, 1999, shares of the Company's Common Stock traded inactively
on the NASD over-the-counter bulletin board under the symbol "PRBX". The range
of high and low bids for the Company's Common Stock for the last eight quarters
are:
<TABLE>
<CAPTION>
Bid Ask
--- ---
For the Quarter Ended: High Low High Low
- --------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
December 31, 1999 2.6875 1.71875 2.8125 1.8125
September 30, 1999 1.6875 1.40625 1.875 1.50
June 30, 1999 1.75 1.25 1.9375 1.375
March 31, 1999 1.75 .5625 2 .6875
December 31, 1998 .75 .25 1.3125 .75
September 30, 1998 2 .375 2.375 1
June 30, 1998 2.125 1.375 2.50 1.875
March 31, 1998 2.50 1 3 2
December 31, 1997 .125 .125 None None
</TABLE>
The high and low bid information was obtained from National Quotation Bureau,
Inc. Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
As of February 3, 2000 the Company's Common Stock was approved for listing and
commenced trading on the American Stock Exchange under the symbol "PRB" (see
Note I, Subsequent Events). At the same time, the Company's Common Stock ceased
trading on the NASD over-the-counter bulletin board.
33
<PAGE> 36
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
References in this document to "us", "we", "it" ,"our" or "the Company" refer to
Probex Corp.
GENERAL
Probex is a development stage energy technology company that has begun
commercialization of its proprietary re-refining technology (ProTerra(TM)). The
primary application of ProTerra is for the purification, recycling, and
upgrading of used lubricating oils. The Company has utilized the majority of its
resources since inception on research and development of ProTerra(TM).
Probex was formed as a Colorado corporation in 1988 under the name Conquest
Ventures, Inc. It engaged in an unrelated line of business that had been
discontinued by 1994, when the Company acquired certain technology rights from
Probex Technologies, L.P. In connection with the 1994 acquisition, the Company
changed its name to Probex Corp. and focused its subsequent activities on
research and development of the acquired technology which lead to the Company's
present line of business. The Company has developed a proprietary re-refining
process for used lubricating oils which the Company believes provides major
performance advantages over all known re-refining technologies. The Company's
technology has been validated through extensive pilot testing and results have
been validated by a number of independent and reputable testing laboratories as
well as by leading technical experts in the refining and base oil processing
industries. The Company has attracted and retained strong, experienced persons
in management functions with a depth of expertise in commercializing new
technologies, managing early stage companies, and in the waste oil and base oil
industries.
Our objective is to meet the market need for new outlets for a material portion
of the estimated 5.3 billion gallons of available waste oil worldwide, as well
as to supply premium base oils that will comply with the new motor oil standards
expected to be implemented in the United States in mid-2000 and thereafter
around the world.
The Company's principal business address is 1467 LeMay, Suite 111, Carrollton,
Texas 75007. Our Internet site can be accessed at www.probex.com. The Company's
fiscal year end is September 30. Currently, the Company has 24 employees, of
which 22 are full-time employees, located at the administrative offices in
Carrollton, Texas. Additionally, the Company has consulting agreements with two
entities providing services on a part-time basis.
The Company has not been subject to any bankruptcy, receivership or similar
proceeding.
STRATEGIC ALLIANCES
The company has a number of strategic relationships which we believe are of
material benefit and significance with respect to the implementation of our
corporate goals. Our principal strategic relationships are with the following
companies.
34
<PAGE> 37
HSB GROUP, INC. (HSB:NYSE)
The Company has attracted a strategic corporate sponsor in Hartford Steam Boiler
Inspection & Insurance Company, a wholly-owned subsidiary of HSB Group, Inc.
(HSB) and a world leader in petroleum and processing industry equipment
maintenance insurance. The Company has received a letter of intent from the
Hartford Steam Boiler Inspection & Insurance Company to issue a binding
quotation for Systems Performance Insurance (SPI) for the Company's core
proprietary technology. SPI is a custom form of "efficacy insurance" that
facilitates the financing of projects that present technological risk. It
protects the interests of lenders and financial institutions from default in
repayment of long-term debt. SPI transfers the technological risk of
under-performance or non-performance that results from deficiencies in design,
materials, technology or construction. In the event of such under-performance or
project failure, the Hartford Steam Boiler Inspection & Insurance Company will
make debt service payments in direct proportion to the shortfall, less a
deductible. HSB Group, Inc., the parent company of The Hartford Steam Boiler
Inspection and Insurance Company, is a global provider of specialty insurance
products, engineering services, and management consulting. The Hartford Steam
Boiler Inspection and Insurance Company was founded in 1866 to provide loss
prevention service and insurance to businesses, industries and institutions. A
separate wholly-owned subsidiary of HSB, HSB Engineering Finance Corp., has made
a substantial direct convertible loan to the Company. The parties recently have
agreed in principle to convert the amount of principal of this loan in its
entirety into direct common stock ownership in the Company. Completion of the
loan conversion is anticipated to occur in early 2000, subject to final
documentation.
ENVIRONMENTAL RESOURCES MANAGEMENT
Principals of Environmental Resources Management, Inc. ("ERM"), (a $280 million
revenue environmental consulting firm), have invested directly in the Company
and the Company has retained ERM to perform its permitting work for the initial
production plant in Wellsville, Ohio.
BECHTEL CORP.
On February 29, 2000, the Company announced execution of a Memorandum of
Understanding with Bechtel Corp. ("Bechtel") for entering into negotiations with
respect to a strategic alliance under which the Company will engage Bechtel for
the engineering, procurement, and construction of the Company's plants on a
worldwide basis. In addition, the Company has entered into an agreement to
license MP Refining Technology owned by Bechtel to enhance the Company's own
proprietary technology (ProTerra(TM)).
WELLSVILLE PROJECT
We are presently engaged in development of our first production facility,
located in Wellsville, Ohio, which will convert waste lubricating oils into
premium base oils, fuel oil and asphalt flux or modifier.
In June 1999, the Company entered into a $1,350,000 twelve-month purchase option
agreement for the first production site in Wellsville, Ohio and is currently
undertaking site planning and permitting. This 22-acre site is optimally located
on the Ohio River in the center of large supply and product markets, and
includes a barge dock, significant tankage, a rail spur, and rail and truck
loading and unloading racks. Phase I and Phase II environmental studies have
been or are being performed and the Wellsville, Ohio site is currently being
readied for development.
35
<PAGE> 38
Probex has completed all material research and development activities related to
ProTerra, and we expect to complete a Design and Critical Specifications Package
(DCSP) by mid-2000. The DCSP will summarize Probex's experience and knowledge
developed over the past five years, including pilot plant trials, process
simulations, and research and industry experience. Among the items included in
the DCSP will be a detailed description of the battery limits process, offsites
and utilities, process flow diagrams, piping and instrumentation diagrams, mass
balances, equipment design notes, information management and process control
systems, site description and layout, and company standards.
Probex is in negotiations with Bechtel, a global engineer/constructor firm, for
a turnkey engineering/procurement/construction (EPC) alliance and anticipates
obtaining agreement with Bechtel for its engineering work at some point in the
future. This EPC agreement will include contracts encompassing industry-standard
design, material, and workmanship warranties as well as appropriate and
necessary credit-support commitments.
We anticipate operating this initial plant facility under operations and
maintenance (O&M) contracts. The exact details and responsibilities of the O&M
contractor have yet to be determined. However, Probex envisions that the O&M
contractor would be responsible for the operation and maintenance for the entire
facility, including battery limit plant operations, material transfers, and
storage and maintenance (scheduled and unscheduled). Probex will secure
feedstock, market the products, and oversee facility operations and finances.
The Company is in negotiations with various debt and equity partners to provide
the financing for the initial facility and that financing will be used to fund
capital costs, working capital, construction period interest, and financing
expenses and fees. With regard to technical risk coverage for the senior project
lender, we intend to match any SPI Policy which may be issued by the Hartford
Steam Boiler Inspection & Insurance Company to cost, schedule, and performance
guarantees from the selected EPC firm, which is presently expected to be
Bechtel. Finally, Probex is in the process of securing the product off-take
letters of intent and contracts necessary to provide the revenue streams to
support projected debt service requirements.
With respect to project equity, HSB Engineering Finance Corp. has expressed an
interest in providing up to $10 million of project equity and/or investments
subordinated to senior debt, once senior debt financing is committed, if this
type of investment is required. The debt and equity capital requirements for the
initial plant are substantial, and there can be no assurances that Probex
ultimately will obtain the capital required to construct its plant as projected.
36
<PAGE> 39
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------------------------------------
During the three months ended December 31, 1999, we issued the following
securities listed below:
In October and November, the Company issued an aggregate of 1,420,800 shares of
common stock pursuant to the exercise of previously outstanding warrants at an
exercise price of $0.75 per share, and 590,588 shares pursuant to previously
received subscriptions to purchase common stock from certain employees at a
subscription price of $0.425 per share, all of which exercises and subscriptions
were received by the Company in the prior quarter.
In October, the Company issued 7,059 shares of common stock to an employee.
These shares were issued to equalize the price for shares previously purchased
by the employee in June 1999 to the price at which shares were issued by the
Company in a subsequent exempt offering to certain employees.
In November, the Company issued 20,000 shares of common stock pursuant to a
previously outstanding warrant at an exercise price of $0.75 per share. The
warrant initially was issued to a financial advisor for services provided to the
Company.
In December, the Company issued 55,000 shares of common stock pursuant to a
previously outstanding contractual obligation at an effective price of $0.01 per
share. The contractual obligation was entered into with a consultant for
consulting services provided to the Company.
On December 15, the Company completed the private placement of the 10%
Cumulative Convertible Preferred Stock Series A, par value of $0.01 and
liquidation preference of $10.00 per share ("Series A Preferred Stock"), of
which 535,000 shares were issued. The Series A Preferred Stock was sold at
$10.00 per share, resulting in gross proceeds of $5,350,000, of which $4,659,570
were net proceeds to the Company. The Company utilized APS Financial
Corporation, a registered NASD broker-dealer, as the agent for this placement,
who was paid a commission of six percent (6%) of the gross proceeds of the
offering. The Company also issued warrants to purchase 0.8 shares of common
stock for each Series A Preferred Stock placed in the offering to APS Financial
Corporation or its designees, which resulted in the Company issuing warrants to
purchase 428,000 shares of common stock . The exercise price of each warrant is
$1.875 per share (equivalent to the conversion price per share of common stock
of the Series A Preferred Stock), and such warrant may be exercised for a period
of five years from the completion of the private placement. Additionally, the
Company paid a three percent (3%) fee for unaccountable expenses in connection
with the Series A Preferred Stock offering and a two percent (2%) fee for due
diligence conducted by APS Financial Corporation.
37
<PAGE> 40
Each share of Series A Preferred Stock is convertible, at any time, into 5.33333
shares of common stock (equivalent to $1.875 per share of common stock) and
shall automatically be converted, without further action on the part of the
Company or the holder, into 5.33333 fully paid and non-assessable shares of
common stock on the date following any 30 day trading period in which the daily
average closing price of the common stock exceeds $5.625 per share.
With respect to each of the foregoing transactions, we relied on Section 4(2) of
the Securities Act of 1933 as a basis for an exemption from registration of the
securities issued, as none of the transactions involved any public offering.
During the last two fiscal years the Company did not pay dividends on its common
stock. The Company does not anticipate paying dividends on its common stock at
this time. Holders of the Series A Preferred Stock are entitled to dividends as
described above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
On December 30, the Company held a special meeting of shareholders. The
following matters were submitted to a vote of the shareholders:
It was proposed that the Company's articles of incorporation be amended to
increase the number of authorized shares of common stock from 37,500,000 to
50,000,000. The results of the voting on this matter were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------------- ------- -------
<S> <C> <C>
13,668,639 477,000 0
</TABLE>
The number of votes cast in favor of the adoption of the proposal to amend the
Company's articles of incorporation to increase the authorized number of shares
of common stock of the Company constituted a majority of the 20,925,477 votes
eligible to be cast on this matter.
It was proposed that the Company amend and restate its articles of incorporation
and file articles of correction to eliminate confusion created by multiple
amendments and to correct prior mistakes in failing to properly number articles
and sections contained in the articles of incorporation. The results of the
voting on this matter were as follows:
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
14,128,639 17,000 0
</TABLE>
The number of votes cast in favor of the adoption of the proposal to amend and
restate the Company's articles of incorporation and file articles of correction
constituted a majority of the 20,925,477 votes eligible to be cast on this
matter.
No other matters were voted upon at the special meeting of the shareholders.
38
<PAGE> 41
ITEM 5. OTHER INFORMATION
- --------------------------------------------------------------------------------
On February 1, 2000, the Company filed a Form 10-SB/A, pursuant to Section 12(b)
of the Securities Exchange Act of 1934, as amended, which was subsequently
declared effective by the Securities and Exchange Commission on February 2,
2000. Additionally, on February 3, 2000, the Company's common stock began
trading on the American Stock Exchange under the symbol "PRB".
ITEM 6. EXHIBITS
- --------------------------------------------------------------------------------
a) EXHIBITS
4.3.14 Form of Class "V" Warrants, at $1.875 per share expiring
December 15, 2004
27.1 Financial Data Schedule
b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
39
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROBEX CORP.
(Registrant)
Date: March 17, 2000 By: /s/ Thomas G. Plaskett
---------------------------------
Thomas G. Plaskett, President and
Chief Executive Officer
Date: March 17, 2000 By: /s/ Bruce A. Hall
---------------------------------
Bruce A. Hall, Vice President and Chief
Financial Officer
Date: March 17, 2000 By: /s/ John N. Brobjorg
---------------------------------
John N. Brobjorg, Corporate Controller
and Chief Accounting Officer
40
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
4.3.14 Form of Class "V" Warrants, at $1.875 per share expiring
December 15, 2004
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.3.14
================================================================================
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF
SUCH ACT AND/OR REGULATIONS D PROMULGATED THEREUNDER; OR (B) ANY STATE
SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
SECURITIES MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION OR ITS REPRESENTATIVES THAT
SUCH SALE OR TRANSFER WOULD NOT VIOLATE APPLICABLE SECURITIES LAWS OR
REGULATIONS.
================================================================================
WARRANT NO. 1 TO PURCHASE _______
SHARES OF COMMON STOCK
(NO PAR VALUE)
CLASS "V" WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
PROBEX CORP.
(A COLORADO CORPORATION)
PURCHASE PRICE PER SHARE: $1.875
EXPIRATION DATE: 5:00 P.M., DALLAS, TEXAS TIME, ON DECEMBER 15, 2004
THIS CERTIFIES that, for value received,
is the registered owner and is entitled, subject to the terms and conditions of
this Warrant, until the Expiration Date, to purchase the number of shares set
forth above of the Common Stock, no par value (the "Common Stock"), of Probex
Corp. (the "Corporation") from the Corporation at the purchase price set forth
above. The number of shares of Common Stock which may be received upon the
exercise of the Warrants and the price to be paid for each share of Common Stock
are subject to adjustment from time to time as hereinafter set forth.
1. EXERCISE OF WARRANTS. Subject to the provisions hereof, this Warrant may be
exercised in whole or in part until the Expiration Date, by delivery of this
Warrant to the Corporation with the exercise form duly executed and payment of
the purchase price (in cash or by certified or bank cashier's check made payable
to the order of the Corporation) for each share purchased..
2. CORPORATION'S COVENANTS AS TO COMMON STOCK. Shares deliverable on the
exercise of this Warrant shall, at delivery, be fully paid and non-assessable,
free from taxes, liens, and charges with respect to their purchase. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants.
3. METHOD OF EXERCISE; FRACTIONAL SHARES. The purchase rights represented by
this Warrant are exercisable at the option of the registered owner in whole at
any time, or in part, from time to time, within the period above specified,
provided, however, that purchase rights are not exercisable with respect to a
<PAGE> 2
Class "V" Warrant No. 1
Page 2
fraction of a share of Common Stock. In lieu of issuing a fraction of a share
remaining after exercise of this Warrant as to all full shares covered hereby,
the Corporation shall either (1) pay therefor cash equal to the same fraction of
the then current Warrant purchase price per share or, at its option, (2) issue
scrip for the fraction, in registered or bearer form approved by the board of
directors of the Corporation, which shall entitle the holder to receive a
certificate for a full share of Common Stock on surrender of scrip aggregating a
full share. Scrip may become void after a reasonable period (but not less than
six months after the expiration date of this Warrant) determined by the board of
directors and specified in the scrip. In case of the exercise of this Warrant
for less than all the shares purchasable, the Corporation shall cancel the
Warrant and execute and deliver a new Warrant of like tenor and date for the
balance of the shares purchasable.
4. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares purchasable hereunder
and the purchase price per share are subject to adjustment from time to time as
specified in this Warrant.
5. REDEMPTION. The Corporation has no redemption rights pursuant to this
Warrant.
6. LIMITED RIGHTS OF OWNER. This Warrant does not entitle the owner to any
voting rights or other rights as a shareholder of the Corporation, or to any
other rights whatsoever except the rights herein expressed. No dividends are
payable or will accrue on this Warrant or the shares purchasable hereunder
until, and except to the extent that, this Warrant is exercised.
7. EXCHANGE FOR OTHER DENOMINATIONS. This Warrant is exchangeable, on its
surrender by the registered owner to the Corporation, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder in denominations designated by the registered owner
at the time of surrender.
8. TRANSFER. Except as otherwise above provided, this Warrant is transferable
only on the books of the Corporation by the registered owner in person or by
attorney, on surrender of this Warrant, properly endorsed. However, because this
Warrant has not been registered under the Securities Act of 1933, as amended,
and applicable state securities laws, this Warrant may not be sold or
transferred in the absence of an effective registration of it under such Act and
all other applicable securities laws or an opinion of counsel acceptable to the
Corporation or its representatives that such sale or transfer would not violate
applicable securities laws or regulations. Any Common Stock purchased upon
exercise of this Warrant shall also be subject to the same restrictions on
transfer and will contain the same transfer legend found on the face of this
Warrant.
9. RECOGNITION OF REGISTERED OWNER. Prior to due presentment for registration \
of transfer of this Warrant, the Corporation may treat the registered owner as
the person exclusively entitled to receive notices and otherwise to exercise
rights hereunder.
10. EFFECT OF STOCK SPLIT, ETC. If the Corporation, by stock dividend, split,
reverse split, reclassification or shares, or otherwise, changes as a whole the
outstanding Common Stock into a different number or class of shares, then:
(1) the number and class of shares so changed shall, for the purposes
of this Warrant, replace the shares outstanding immediately prior to the change;
and
(2) the Warrant purchase price in effect, and the number of shares
purchasable under this Warrant, immediately prior to the date upon which the
change becomes effective, shall be proportionately adjusted (the price to the
nearest cent). Irrespective of any adjustment or change in the Warrant purchase
price or the number of shares purchasable under this or any other Warrant of
like
<PAGE> 3
Class "V" Warrant No. 1
Page 3
tenor, the Warrants theretofore and thereafter issued may continue to express
the Warrant purchase price per share and the number of shares purchasable as
were expressed in the Warrants when initially issued.
11. EFFECT OF MERGER, ETC. If the Corporation consolidates with or merges into
another corporation, the registered owner shall thereafter be entitled on
exercise to purchase, with respect to each share of Common Stock purchasable
hereunder immediately before the consolidation or merger becomes effective, the
securities or other consideration to which a holder or one share or Common Stock
is entitled in the consolidation or merger to assure that all the provisions or
this Warrant shall thereafter be applicable, as nearly as reasonable may be, to
any securities or other consideration so deliverable on exercise of this
Warrant. The Corporation shall not consolidate or merge unless, prior to
consummation, the successor corporation (if other than the Corporation) assumes
the obligations of this section 11 by written instrument executed and mailed to
the registered owner at the address of the owner on the books of the
Corporation. A sale or lease of all or substantially all the assets of the
Corporation for a consideration (apart from the assumption of obligations)
consisting primarily or securities is a consolidation or merger for the
foregoing purposes.
12. NOTICE OF ADJUSTMENT. On the happening of an event requiring an adjustment
of the Warrant purchase price or shares purchasable hereunder, the Corporation
shall forthwith give written notice to the registered owner stating the adjusted
Warrant purchase price and the adjusted number and kind of securities or other
property purchasable hereunder resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which the
calculation is based. The board of directors of the Corporation, acting in good
faith, shall determine the calculation.
13. NOTICE AND EFFECT OF DISSOLUTION, ETC. In case a voluntary or involuntary
dissolution, liquidation, or winding up of the Corporation (other than in
connection with a consolidation or merger covered by Section 11 above) is at any
time proposed, the Corporation shall give at least 10 days' written notice to
the registered owner prior to the record date as of which holders of Common
Stock will be entitled to receive distributions as a result of the proposed
transaction. Such notice shall contain: (1) the date on which the transaction is
to take place; (2) the record date as of which holders of Common Stock will be
entitled to receive distributions as a result of the transaction; (3) a brief
description of the transaction; (4) a brief description of the distributions to
be made to holders of Common Stock as a result of the transaction; and (5)an
estimate of the fair value of the distributions. On the date of the transaction,
if it actually occurs, this Warrant and all rights hereunder shall terminate.
14. METHOD OF GIVING NOTICE; EXTENT REQUIRED. Notices shall be given by first
class mail, postage prepaid, addressed to the registered owner at the address of
the owner appearing in the records of the Corporation. No notice to warrant
holders is required except as specified in Sections 12 and 13.
15. ACCESS TO INFORMATION. The Company will provide an opportunity to any
registered owner of this Warrant to ask questions of management of the Company
and to obtain information to the extent the Company has the same in its
possession prior to any exercise of the owner's rights to purchase Common Stock
under this Warrant. Requests for information and any other questions concerning
the business and affairs of the Company should be directed to any officer of the
Company at its main offices.
<PAGE> 4
Class "V" Warrant No. 1
Page 4
Witness the seal of the Corporation and the signatures of its
authorized officers.
Date (Seal) PROBEX CORP.
----------------------
ATTEST:
- -------------------------------- -----------------------------------
Thomas G. Plaskett Bruce A. Hall
Chief Executive Officer & President Chief Financial Officer & Secretary
<PAGE> 5
Class "V" Warrant No. 1
Page 5
TRANSFER FORM
For value received, the undersigned hereby sells, assigns, and transfers to
Name
----------------------------------
Address
-------------------------------
this Warrant and irrevocable appoints ______________________ attorney (with full
power of substitution) to transfer this Warrant on the books of the Corporation.
Date:
- -----------------------------------------
------------------------------------------------
(Please sign exactly as name appears on Warrant)
Taxpayer ID No.
---------------------------------
In the presence of Signature guaranteed by
- ----------------------------- ------------------------------------------------
<PAGE> 6
Class "V" Warrant No. 1
Page 6
EXERCISE FORM
The undersigned hereby: (1) irrevocably subscribes for ________________
shares of your Common Stock pursuant to this Warrant, and encloses payment of
$____________________ therefor; (2) requests that a certificate for the shares
be issued in the name of the undersigned and delivered to the undersigned at the
address below; and (3) if such number of shares is not all of the shares
purchasable hereunder, that a new Warrant of like tenor for the balance of the
remaining shares purchasable hereunder be issued in the name of the undersigned
and delivered to the undersigned at the address below.
Date:
- ----------------------------
------------------------------------------------
(Please sign exactly as name appears on Warrant)
Address:
----------------------------------------
----------------------------------------
Taxpayer ID No.
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,230,096
<SECURITIES> 0
<RECEIVABLES> 377,339<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,613,560
<PP&E> 1,255,622
<DEPRECIATION> 379,057
<TOTAL-ASSETS> 5,885,140
<CURRENT-LIABILITIES> 1,290,928
<BONDS> 0
0
4,659,570<F2>
<COMMON> 8,661,410
<OTHER-SE> (8,744,510)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 5,885,140
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,694
<INCOME-PRETAX> (768,036)
<INCOME-TAX> 0
<INCOME-CONTINUING> (778,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (768,036)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
<FN>
<F1>INCLUDES $350,000 SUBSCRIPTION RECEIVABLE RELATED TO CUMULATIVE CONVERTIBLE
PREFERRED STOCK OFFERING.
<F2>AS OF 12-31-99, THERE ARE 535,000 SHARES OF CUMULATIVE CONVERTIBLE PREFERRED
STOCK, RECORDED AT $4,659,570, NET OF OFFERING COSTS.
<F3>INCLUDES ($4,167) OF DEFERRED STOCK EXPENSE AND ($8,740,343) OF DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE.
</FN>
</TABLE>
