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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, 1997
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 10, 1997.
Common Stock $0.01 par value 4,000,000
(Class of Stock) (Number of Shares)
Total number of pages is 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS MAY 31, 1997 AUGUST 31, 1996
- ------ ------------ ---------------
CURRENT ASSETS
Cash and equivalents $ 13,575 $ 20,871
Accounts receivable, net 126,086 154,701
Inventories 335,367 143,967
Prepaid expenses and other 15,101 19,346
----------- -----------
Total Current Assets 490,129 338,885
PROPERTY AND EQUIPMENT
Transportation and other equipment 150,878 146,473
Equipment under capital leases 93,326 93,326
Fuel Stations 273,318 238,484
Less accumulated depreciation and amortization (266,388) (203,388)
----------- -----------
Net property and equipment 251,134 274,895
OTHER ASSETS
Investment in and advances to CNG International 599,224 592,426
Other assets 44,423 43,321
----------- -----------
643,647 635,747
----------- -----------
TOTAL ASSETS $ 1,384,910 $ 1,249,527
=========== ===========
See notes to financial statements.
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EXPROFUELS, INC.
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY MAY 31, 1997 AUGUST 31, 1996
- ------------------------------------ ------------ ---------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 303,855 $ 256,184
Current portion of long-term debt 10,832 13,744
Current portion of capital lease obligations 26,510 19,926
----------- -----------
Total Current Liabilities 341,197 289,854
LONG TERM LIABILITIES
Long-term debt due to affiliate 338,303 -0-
Long-term debt due others, net of current portion 510,951 21,684
Long-term capital lease obligations, net of current portion 12,393 29,810
----------- -----------
Total Long-term Liabilities 861,647 51,494
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued and outstanding
4,000,000 shares 40,000 40,000
Additional paid-in capital 3,486,136 3,486,136
Accumulated deficit (3,344,070) (2,617,957)
----------- -----------
Total Stockholders' Equity 182,066 908,179
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,384,910 $ 1,249,527
=========== ===========
See notes to financial statements.
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EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
------------ ------------
REVENUES:
Conversion sales $ 139,673 $ 103,087
Fuel station construction sales 32,000 23,678
Alternative fuel sales 70,785 72,231
----------- -----------
242,458 198,996
COSTS AND EXPENSES:
Cost of sales 215,557 135,131
Shop general and administrative 107,412 110,446
Depreciation and amortization 21,833 22,377
General and administrative 170,484 109,882
----------- -----------
Total costs and expenses 515,286 377,836
----------- -----------
Loss from operations (272,828) (178,840)
OTHER INCOME (EXPENSE):
Sublease rental income -0- 13,500
Interest income 263 233
Interest expense (18,764) (5,446)
----------- -----------
(18,501) 8,287
----------- -----------
Net loss $ (291,329) $ (170,553)
=========== ===========
AMOUNTS PER COMMON SHARE:
Net loss $ (0.07) $ (0.04)
=========== ===========
Weighted average number of
common shares outstanding 4,000,000 4,000,000
=========== ===========
See notes to financial statements.
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EXPROFUELS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
------------ ------------
REVENUES:
Conversion sales $ 405,181 $ 381,983
Fuel station construction sales 128,854 299,812
Alternative fuel sales 255,809 137,929
----------- -----------
789,844 819,724
COSTS AND EXPENSES:
Cost of sales 646,985 583,461
Shop general and administrative 326,191 336,338
Depreciation and amortization 65,500 67,131
General and administrative 458,768 265,190
----------- -----------
Total costs and expenses 1,497,444 1,252,120
----------- -----------
Loss from operations (707,600) (432,396)
OTHER INCOME (EXPENSE):
Sublease rental income 13,500 40,500
Interest income 634 737
Interest expense (32,647) (19,608)
----------- -----------
(18,513) 21,629
----------- -----------
Net loss $ (726,113) $ (410,767)
=========== ===========
AMOUNTS PER COMMON SHARE:
Net loss $ (0.18) $ (0.10)
=========== ===========
Weighted average number of
common shares outstanding 4,000,000 4,000,000
=========== ===========
See notes to financial statements.
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EXPROFUELS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
------------ ------------
OPERATING ACTIVITIES:
Net Loss $(726,113) $(410,767)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 65,500 67,131
Changes in operating assets and liabilities:
Receivables 53,615 (67,025)
Inventory (191,400) (51,843)
Prepaid expenses and other 1,745 5,588
Accounts payable and accrued expenses 47,671 (52,198)
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Net cash (used) in operating activities (748,982) (509,114)
INVESTING ACTIVITIES:
Purchases of property and equipment (39,240) (81,331)
Investments in and advances to CNG (31,798) (221,123)
Increase in other assets (1,102) 58,700
--------- ---------
Net cash (used) in investing activities (72,140) (243,754)
FINANCING ACTIVITIES:
Advances from The Exploration Company 338,303 769,437
Proceeds from long-term debt obligations 500,000 52,350
Payments on long-term obligations (24,477) (52,790)
--------- ---------
Net cash provided by financing activities 813,826 768,997
--------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (7,296) 16,129
Cash and equivalents at beginning of period 20,871 7,263
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 13,575 $ 23,392
========= =========
See notes to financial statements.
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EXPROFUELS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED MAY 31, 1997 AND MAY 31, 1996
(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-Q 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.
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
Registration Statement on Form 10-SB filed on February 28, 1997 for the
three years in the fiscal year ended August 31, 1996, which is
incorporated herein by reference.
2. ORGANIZATION AND OPERATIONS
The Company, formerly a division of The Exploration Company (TXCO), began
operating as a wholly-owned subsidiary of TXCO August 15, 1996, following
the issuance of 4,000,000 shares of its common stock. TXCO is registered
with the Securities and Exchange Commission (SEC) and its stock traded
publicly on the National Association of Securities Dealers (NASD)
exchange.
On August 30, 1996, 10% of the outstanding common stock of ExproFuels,
Inc. was paid by TXCO, as consideration for past services rendered, to its
Directors, thereby reducing TXCO's ownership in ExproFuels from 100% to
90%. On September 3, 1996, TXCO's Board of Directors declared a
distribution of ExproFuels' common stock directly to its shareholders as
of September 13, 1997. The declared distribution of stock effectively
reduced TXCO's ownership in the Company to 40%. Distribution of share
certificates is awaiting an amendment to the Registration Statement
registering ExproFuels common stock under the Securities Act of 1934.
The financial statements include the accounts of ExproFuels while operated
as a division of TXCO (inception through August 14, 1996) and as a
subsidiary of TXCO (period August 15, 1996 and subsequent). The Company
converts internal combustion engines that use gasoline for combustion to
propane or natural gas, supplies alternative fuels to customers and
constructs, sells, and owns and operates alternative fuels refueling
facilities. Customers are primarily located in Texas and Arizona. The
Company also has a substantial investment, through CNG International,
L.L.C, for alternative fuel operations being developed in The Republic of
Uzbekistan, a former Soviet Republic.
3. PROPERTIES
Property and Equipment: Transportation and other equipment, equipment
reported under capitalized leases and fuel stations are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from five to fifteen years. Major
renewals and betterments are capitalized while repairs are expensed as
incurred.
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4. INVENTORIES
Inventories, consisting principally of finished goods (parts), are valued
at the lower of cost or market using the first-in, first-out method of
accounting.
5. COMMON STOCK AND LOSS PER SHARE
The Company's 1996 Flexible Incentive Plan (the Plan) provides incentive
stock options for granting to its officers, directors and management,
under which options for the purchase of 400,000 shares of common stock
have been reserved.
As of May 31, 1997, the Company had outstanding options for the purchase
of 300,000 shares of common stock granted under the terms of the Plan, all
of which vest 50% in one year and 100% in two years. The options are
exercisable at 110% of appraised fair market value of the common stock,
which was $0.13 per share on the date of the grant and expire ten years
from the date of the grant, or upon termination of employment, if earlier.
In February, 1997 the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, effective for fiscal years ending
after December 31, 1997. Implementation of this Statement is not expected
to have a significant impact on the earnings per share calculation of the
Company.
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, 1997 4,000,000 4,000,000
May 31, 1996 4,000,000 4,000,000
Common stock equivalents are not considered in the computation of net loss
per common share as their effect is anti-dilutive.
6. LONG TERM DEBT
On September 18, 1996, the Company borrowed $200,000 through the sale of a
6% convertible debenture with interest due quarterly. Principal is payable
3 years from date of issue, unless conversion occurs earlier, as provided
under the terms of the agreement. The debenture is convertible into one
share of $.01 par value common stock for each $1 of debt outstanding,
subject to adjustment in certain circumstances.
During the second and third quarters of fiscal 1997, the Company borrowed
an additional $300,000 through the sale of three $100,000 convertible
debentures with terms similar to the September debenture.
On March 1, 1997, the Company established a $500,000 unsecured line of
credit arrangement for working capital purposes through The Exploration
Company. Terms provide for interest at 8% per annum on outstanding
balances, with principal and accrued interest due on December 31, 1998,
subject to adjustment in certain circumstances. The Company had an
outstanding balance of $329,050 under this arrangement at May 31, 1997.
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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,
1996, included in the Company's Registration Statement on Form 10-SB filed on
February 28, 1997.
GENERAL
The Company was capitalized with the assets of the former ExproFuels division
of TXCO in August 1996, enabling it to conduct the alternative fuels conversion
business previously conducted as a division of TXCO since its inception in late
1992. The following analysis and the related financial statements included
elsewhere herein are presented as if ExproFuels were a separate company for all
periods presented, as discussed more fully in Note 2 to the Company's Financial
Statements.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At August 31, 1996, ExproFuels had cash on hand of $20,871, positive working
capital of $49,031 and equity of $908,179. However, it had a deficiency of
quick assets (cash and receivables) to current liabilities of $114,282, and its
positive cash position was primarily due to cumulative contributions of
operating capital from TXCO. Through its unsecured working capital line of
credit agreement with TXCO, the Company borrowed an additional $78,000 through
the third quarter of fiscal 1997, with cumulative advances of $329,050
outstanding on the line of credit for the nine months ended May 31, 1997. The
working capital line of credit is payable in full on December 31, 1998.
Through the nine months ended May 31, 1997 the Company raised an additional
$500,000 in working capital through the sale of 6% convertible debentures which
mature through fiscal year 2000. In total, the Company was successful in
raising $829,050 for the first three quarters of fiscal year 1997. During this
same period, this capital was used to fund its net loss of $726,113, and fund
capital investments totalling $39,000 for equipment and two new fuel stations.
Additionally, advances totalling $31,798 were made in support of the Company's
investment in CNG International, L.L.C. As a result, at May 31, 1997,
ExproFuels had cash on hand of $13,575, positive working capital of $148,932
and equity of $182,066, while its current ratio (current assets divided by
current liabilities) improved slightly from 1.17 to 1 at August 31, 1996 to
1.43 to 1 at May 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 anticipates returning to the same financiers of
its Convertible Debt for funding its additional debt or equity financing needs;
however, the Company has secured no commitment for such financing as of the
date hereof, nor has it obtained any committment from any of its lenders or
creditors to refinance its outstanding debt when it comes due.
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
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competitive pressures. If Management's efforts to raise additional capital are
not successful, the Company's financial condition and liquidity would be
materially adversely affected.
RESULTS OF OPERATIONS
ExproFuels total revenues for the nine months ended May 31, 1997 decreased by
3.6% to $789,844 compared to the corresponding period of the previous fiscal
year. Alternative fuel sales increased by over 74% to $255,809 for the same
period due to the addition of new fleet fueling contracts and three new
company-owned fuel stations placed in operation subsequent to May, 1996.
Average propane sales increased to over 36,000 gallons per month during the
current nine-month period compared to approximately 27,000 gallons per month in
the corresponding period of 1996. Gross profit margins declined from 29% in the
prior nine months to 18% for the current nine months. The reduced margins
reflect a changing sales mix, with a drop in high margin construction sales for
the nine-month period, combined with increases in conversion and alternative
fuel sales which historically are lower gross margin activities. Overall
general and administrative expenses increased by approximately 73% over the
corresponding previous nine months due primarily to corporate rent and wage
increases, the establishment of health insurance benefits plus increased legal
and administrative expenses associated with the transition of ExproFuels from a
division operation to a newly capitalized corporation during the current fiscal
period.
Subsequent to the end of the current quarter, the Company has continued in its
efforts to identify new opportunities to install additional fuel stations
domestically, to obtain additional conversion contracts in Texas and Arizona,
and in its international marketing and development efforts in furthering the
realization of its ongoing investment in Uzbekistan, as well as new
opportunities in the surrounding regions of Asia and Latin America. Management
is also considering various potential domestic and international acquisition
alternatives with the goal of reaching operational efficiencies enabling the
Company to reduce current per unit costs of purchasing, storage and
distribution of alternative fuels as well as conversion and fuel station
components. Besides the potential enhancement of existing net operating
margins, such acquisitions could enable ExproFuels to improve its competitive
stance in existing markets while facilitating expansion into new markets.
Management continues to pursue and is in current negotiation with adequate
sources of equity and debt financing for funding the acquisition of established
operating business units, assuming they will provide sustainable operating cash
flows to the Company within an acceptable timeframe.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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
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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 10, 1997
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule