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 the Quarter ended Commission File No. 0-22185
May 31, 1998
EXPROFUELS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2727901
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E., SUITE 250 78232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 490-9400
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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 15, 1998:
Common Stock $0.01 par value 4,310,453
(Class of Stock) (Number of Shares)
Total number of pages is 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
Assets May 31, 1998 Aug 31, 1997
- ------ ------------ ------------
Current Assets
Cash and equivalents ............................. $ 1,745 $ 31,647
Accounts receivable, net ......................... 75,946 141,754
Inventories ...................................... 232,627 400,517
Prepaid expenses and other ....................... 21,548 34,159
--------- ---------
Total Current Assets ...................... 331,866 608,077
Property and Equipment
Transportation and other equipment ............... 135,308 133,883
Equipment under capital leases ................... 67,356 93,326
Fuel stations .................................... 255,976 280,889
Less accumulated depreciation and amortization ... (291,240) (270,436)
--------- ---------
Net property and equipment ................ 167,400 237,662
Other Assets
Investment in and advances to CNG International .. -0- -0-
Other assets ..................................... 30,908 45,099
--------- ---------
30,908 45,099
--------- ---------
Total Assets ....................... $ 530,174 $ 890,838
========= =========
See notes to financial statements.
3
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
Liabilities and Stockholders' Equity May 31, 1998 August 31, 1997
- ------------------------------------ ------------ ---------------
Current Liabilities
Accounts payable and accrued expenses $ 459,592 $ 495,468
Current portion of long-term debt-others 715 8,945
Current portion of long-term debt-affiliates 845,916 561,225
Current portion of capital lease obligations 10,350 21,062
------------- -------------
Total Current Liabilities 1,316,573 1,086,700
Long-term Liabilities
Long-term debt-others 300,000 507,946
Long-term capital lease obligations -0- 8,656
------------- ------------
Total Long-term Liabilities 300,000 516,602
Stockholders' Equity
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued and outstanding
4,310,453 shares 43,105 40,000
Additional paid-in capital 3,793,485 3,486,136
Accumulated deficit (4,922,989) (4,238,600)
------------- ------------
Total Stockholders' Equity (1,086,399) (712,464)
------------- ------------
Total Liabilities and Stockholders' Equity $ 530,174 $ 890,838
============= ============
See notes to financial statements.
4
EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
May 31, 1998 May 31, 1997
------------ ------------
Revenues:
Conversion sales ............... $ 272,268 $ 139,673
Fuel station construction sales -0- 32,000
Alternative fuel sales ......... 37,731 70,785
--------- ---------
309,999 242,458
Costs and Expenses:
Cost of sales .................. 193,526 215,557
Shop general and administrative 75,068 107,412
Depreciation and amortization .. 24,083 21,833
General and administrative .... 125,699 170,484
--------- ---------
Total Costs and Expenses 418,376 515,286
--------- ---------
Loss from operations ............... (108,377) (272,828)
Other Income (Expense):
Sublease rental income ......... -0- -0-
Interest income ................ 202 263
Interest expense ............... (53,277) (18,764)
Gain on sale of equipment ...... 18,880 -0-
--------- ---------
(34,195) (18,501)
--------- ---------
Net loss ........................... $(142,572) $(291,329)
========= =========
Amounts Per Common Share:
Basic loss per common share ........ $ (0.04) $ (0.07)
========= =========
See notes to financial statements.
5
EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
May 31, 1998 May 31, 1997
-------------- ------------
Revenues:
Conversion sales ............... $ 692,733 $ 405,181
Fuel station construction sales 175,511 128,854
Alternative fuel sales ......... 171,441 255,809
----------- -----------
1,039,685 789,844
Costs and Expenses:
Cost of sales .................. 913,993 646,985
Shop general and administrative 279,150 326,191
Depreciation and amortization .. 72,240 65,500
General and administrative .... 401,717 458,768
----------- -----------
Total Costs and Expenses 1,667,100 1,497,444
----------- -----------
Loss from operations ............... (627,415) (707,600)
Other Income (Expense):
Sublease rental income ......... -0- 13,500
Interest income ................ 800 634
Interest expense ............... (76,654) (32,647)
Gain on sale of equipment ...... 18,880 -0-
----------- -----------
(56,974) (18,513)
----------- -----------
Net loss ........................... $ (684,389) $ (726,113)
=========== ===========
Amounts Per Common Share:
Basic loss per common share ........ $ (0.17) $ (0.18)
=========== ===========
See notes to financial statements.
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EXPROFUELS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
May 31, 1998 May 31, 1997
------------ ------------
Operating Activities:
Net Loss ....................................... $(684,389) $(726,113)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization . 72,240 65,500
Changes in operating assets and liabilities:
Receivables ............................... 65,808 53,615
Inventory ................................. 167,890 (191,400)
Prepaid expenses and other ................ 12,611 1,745
Accounts payable and accrued expenses ..... (54,756) 47,671
--------- ---------
Net cash (used) in operating activities ........ (420,596) (748,982)
Investing Activities:
Purchases of property and equipment ....... (32,902) (39,240)
Proceeds from sale of equipment ........... 59,045 -0-
Investments in and advances to venture .... -0- (31,798)
Other assets .............................. 4,951 (1,102)
--------- ---------
Net cash provided (used) in investing activities 31,094 (72,140)
Financing Activities:
Advances from affiliates .................. 395,144 338,303
Proceeds from long-term debt obligations .. -0- 500,000
Payments on long-term obligations ......... (35,544) (24,477)
--------- ---------
Net cash provided by financing activities ...... 359,600 813,826
--------- ---------
Increase (Decrease) in cash and equivalents .... (29,902) (7,296)
Cash and equivalents at beginning of period .... 31,647 20,871
--------- ---------
Cash and equivalents at end of period .......... $ 1,745 $ 13,575
========= =========
See notes to financial statements.
7
EXPROFUELS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED MAY 31, 1998 AND MAY 31 1997
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements of ExproFuels, Inc.
(the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accounting
policies followed by the Company are set forth in Note A to the
audited financial statements contained in the Company's annual
report filed on Form 10-KSB.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. For further information, refer to the audited
financial statements and footnotes thereto included in the
Registrant Company's annual report on Form 10-KSB for the year
ended August 31, 1997 and its Registration Statement on Form 10-SB,
as amended, filed on August 27, 1997 for the three years ended
August 31, 1996, which are incorporated herein by reference.
2. Common Stock and Basic Loss Per Share
As of May 31, 1998, the Company had outstanding options to purchase
300,000 shares of common stock at a price of 110% of the share's
appraised fair market value, which was $0.13 per share on the date
of grant and which expire through September 2006.
Basic loss per share is computed based on the weighted average
number of common shares outstanding during the periods presented as
follows:
Three Months Nine Months
------------ -----------
May 31, 1998 ......................... 4,003,374 4,001,125
May 31, 1997 ......................... 4,000,000 4,000,000
3. Long Term Debt
At the beginning of the current quarter, the Company had an
outstanding balance of $500,000 under the terms of its four
separate unsecured convertible debentures, all with identical
terms, except for their due dates. Each debenture required
quarterly interest payments computed at 6%, and was convertible at
the payee's option into common stock of the Company at the rate of
$1 of debt to 1 share of common stock.
Effective May 31, 1998, the Company elected to convert $200,000 of
its outstanding debentures and $100,000 of short term notes, all
payable to an affiliated company, together with accrued interest of
$10,453, into 310,453 shares of its common stock at the stated
conversion rate of $1 of debt per share as provided for under the
terms of the underlying obligations. Subsequent to the end of the
third quarter, as of July 1, 1998, the Company had not made
quarterly interest payments due totaling $4,488 and was technically
in default under the terms of its two remaining debenture
agreements with a total outstanding principal balance of $300,000.
As of the date of this report, the Company had made arrangements
for the payment of all accrued interest due on its debt and was in
process of obtaining waivers on the default from its debenture
holders.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended August 31, 1997, included
in the Company's Form 10-KSB.
Financial Condition and Capital Resources
During the nine months ended May 31, 1998, the Company's principal source of
working capital came in the form of advances under existing credit agreements
from its former parent, The Exploration Company, totaling $241,117, including a
final advance of $50,000 during the second quarter. Also during the same period
unsecured borrowings totaling $100,000 were obtained from an affiliated company.
Working capital totaling $59,045 was obtained through the sale of surplus
transportation, shop and fuel station equipment. Uses of available capital for
the nine month period included funding cash used in operating activities of
$420,596, capital investments totaling $32,902 for purchases of property and
equipment, in addition to payments on long term obligations of $35,544.
As a result of these activities, the Company ended the third quarter of fiscal
1998 with negative working capital of $984,707 and a current ratio of .25 to 1.
This compares to a negative working capital of $478,623 and a current ratio of
.56 to 1 at August 31, 1997.
In order to meet the Company's obligations, ExproFuels must continue to seek
additional sources of operating capital through additional debt or equity
financing. Further, until such time as the Company attains profitable
operations, additional capital will be required to fund recurring cash losses
from operations. The Company has returned to the same financiers of its
Convertible Debt for funding of its additional debt or equity financing needs.
The Company has secured only limited commitment for such additional financing as
of the date hereof, and has obtained no firm commitments from its unaffiliated
lenders or creditors to refinance its outstanding debt when it comes due. In
addition, while the Company's former Parent provided additional working capital
funds through December 31, 1997, no additional funds will be available from this
source in the future. All of these factors raise substantial doubt as to the
Company's ability to continue as a going concern.
The Company's financial position poses certain risks, including the risk that
(i) cash flow from operations will be insufficient to maintain operations or;
(ii) it will be unable to obtain financing in the future for working capital,
debt service, capital expenditures and general corporate purposes; and (iii) the
Company will be more vulnerable to economic downturns and may be unable to
withstand competitive pressures. If Management's efforts to raise additional
capital are not successful, the Company's financial condition and liquidity and
its ongoing ability to maintain its operations as a going concern, will be
materially adversely affected.
Forward-looking statements in this 10-Q are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties. Among the factors that could cause actual results to differ
materially are environmental, tax or other regulatory developments, as well as
general market conditions, competition, pricing and ongoing availability of debt
or equity capital. Please refer to ExproFuels' Securities and Exchange
Commission filings, copies of which are available from the Company without
charge, for additional information.
9
Results of Operations
ExproFuels total revenues for the third quarter and the nine months ended May
31, 1998 increased by approximately 30% over the same periods of fiscal 1997.
This increase was primarily due to a 71% increase in conversion sales for the
nine month period reflecting new, higher value CNG and LNG conversion contracts
in Arizona and continued propane conversion demand in the Texas market. Also
contributing significantly was the increase in fuel station construction
revenues to $169,722 during the first quarter of 1998 from $19,454 in the first
quarter of 1997. This increase was due to five new fuel station construction
contracts in the San Antonio area subsequent to the same period of fiscal 1997.
This increase was partially offset by the lack of new fuel station construction
contracts during the current quarter. Also offsetting the increase somewhat was
the 33% decrease in alternative fuel sales for the nine months of fiscal 1998
primarily due to the expiration of two fleet fueling contracts with the City of
Plano and the Texas Department of Criminal Justice facility at Beeville, Texas,
as well as the unseasonably mild winter during the current year.
Current costs and expenses increased 11% during the current nine month period
compared to the same period of fiscal 1997, while decreasing by 19% for the
current quarter. Contributing most significantly for the nine month period was
the increase in costs of sales of $267,008 which increased in part due to higher
sales levels as well as to inventory adjustments during the period. Reductions
in general and administrative expenses reflect the results of ongoing,
company-wide cost cutting efforts, including reduced advertising, promotion and
outside consulting services expenses during the latest two quarters of fiscal
1998. Further contributing to these reductions are the ongoing monthly savings
from reduced operating and staffing levels in the Dallas and Tucson markets and
the elimination of associated office and shop overhead expenses. The reduction
in shop and overall general and administrative expense for the nine month period
was offset somewhat by the opening of a new company owned conversion facility in
Mesa, Arizona, during the second quarter. Located in the Phoenix metropolitan
area, the 7,400 square foot facility provides full service and warranty support
for existing customers and provides the company with additional growth capacity
as that local market develops.
Sublease rental income decreased to $0 for the current nine month period due to
the expiration of the Company's former Louisiana shop facility sublease.
Interest expense increased $44,007 over the previous fiscal periods due to the
higher level of debt outstanding for the nine month period of fiscal 1998.
Throughout fiscal 1998, the Company has continued in its efforts to identify new
opportunities to install additional fuel stations domestically, and to obtain
additional conversion contracts in Texas and Arizona. Management continues to
reevaluate operating activities in each of the Company's markets, with the
immediate goal of reducing ongoing operating losses. By strengthening its
affiliate shop relationships in selected markets, the Company intends to
maintain adequate service levels for its existing customer base, while reducing
operating overhead levels associated with company owned facilities. Accordingly,
the Company has completed the restructuring of its presence in the Dallas and
Tucson markets to affiliate shop status, insuring ongoing support for its
customer base, existing service contracts and warranty obligations.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any significant matters of litigation
incidental to its business, except for the following:
Disputes between ExproFuels and CNG International, AEI and ATI resulted
in the filing of two lawsuits in July, 1997, one by ExproFuels in
federal court in San Antonio, Texas, and the other by ATI and AEI in
state court in Memphis, Tennessee. In its lawsuit, ExproFuels claims
breach of contract and is seeking, among other things, (i) damages in
the amount of ExproFuels' investment in CNG International
(approximately $381,000), ExproFuels' unreimbursed expenses advanced to
CNG International (approximately $239,000) and ExproFuels' lost profits
or (ii) recision of ExproFuels' arrangement with CNG International and
a refund of all monies invested in or advanced to CNG International.
ATI and AEI, in their lawsuit, have sued ExproFuels for breach of
contract, tortious interference with contract, libel, slander,
defamation and unfair competition. ATI and AEI are seeking a
declaratory judgment that ExproFuels' interest in CNG International is
null and void as well as unspecified compensatory and exemplary
damages. During January 1998, both cases were consolidated into one
case, to be adjudicated in federal court in the Western District of
Tennessee. A non-jury trial date of March 22, 1999 has been set.
Currently, both parties are in the advanced stages of negotiating a
preliminary Settlement Agreement and Mutual Release Agreement resulting
from court-annexed non-binding mediation proceedings. Should mediation
efforts not be successful, ExproFuels intends to pursue its claims and
vigorously defend itself against ATI's and AEI's claims. The Company
and its counsel remain optimistic ExproFuels will prevail in the matter
and remain confident that any unfavorable outcome is extremely unlikely
as of the date of this writing.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At the end of the second quarter, the Company had accrued past due
interest of $6,049 on the outstanding balance of its convertible
debentures totaling $500,000. As of the January 1, 1998 due date, the
Company had not made its quarterly interest payment and was technically
in default under the terms of the debenture agreements. Prior to the
end of the second quarter, the Company paid all accrued interest due on
its debt and obtained waivers on the default from all debenture holders
Subsequent to the end of the third quarter, as of July 1, 1998, the
Company had not made quarterly interest payments due totaling $4,488
and was technically in default under the terms of its two remaining
debenture agreements, with an outstanding principal balance of
$300,000. As of the date of this report, the Company had made
arrangement for the payment of all accrued interest due on its debt and
was in process of obtaining waivers on the default from its debenture
holders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXPROFUELS, INC.
(Registrant)
/s/ Roberto R. Thomae
Roberto R. Thomae,
Chief Financial Officer
(Signing on behalf of the Registrant and as
chief accounting officer)
Date: July 16, 1998
12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------
27 FINANCIAL DATA SCHEDULE