FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 2003
Commission File Number 000-17454
NOXSO CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-1118334
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1065 South 500 West, Bountiful, Utah 84010
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(Address of principal executive offices, including zip code)
(801) 296-6976
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(Registrant's telephone number, including area code)
Check whether the issuer (1) 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.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of February 19, 2004
---------------------------- -----------------------------------
Common Stock, $.01 par value 17,437,150 shares
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
NOXSO CORPORATION, AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Balance Sheet
(Unaudited)
December 31, 2003
- ------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 934
Deposits and prepaid expenses 1,660
-----------------
Current Assets 2,594
-----------------
Property Plant & Equipment
Land 2,570,000
Equipment 245,000
-----------------
Total Property Plant & Equipment 2,815,000
-----------------
License rights 120,000
Deposits and other assets 394,093
-----------------
Total Assets $ 3,331,687
=================
Liabilities And Stockholder's Equity
Current Liabilities
Accounts payable $ 43,972
Accrued interest due related parties and others 179,198
Related party payables 370,748
Notes payable to related parties and others 2,410,000
-----------------
Current Liabilities 3,003,918
-----------------
Commitments and contingencies
Stockholders' Equity
Common Stock, $.01 Par Value, 20,000,000 Shares
Authorized, 7,877,150 Shares Outstanding 78,872
Paid In Capital 861,595
Accumulated Deficit (612,698)
-----------------
Total Stockholders' Equity 327,769
-----------------
Total Liabilities and Shareholders' Equity $ 3,331,687
=================
See accompanying notes to condensed consolidated unaudited financial statements
2
NOXSO CORPORATION, AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Operations
(Unaudited)
Nine Months Ended Three Months Ended Cumulative
September 30, December 31, from Inception
to December 31,
2003 2002 2003 2002 2003
- ---------------------------------------------------------------------------------------------------------------------------
Revenue $ - $ - $ - $ - $ -
------------ ------------- ------------- ------------- -------------
General and administrative expenses 297,313 39,868 57,667 9,689 552,110
------------ ------------- ------------- ------------- -------------
Net Loss From Operations (297,313) (39,868) (57,667) (9,689) (552,110)
------------ ------------- ------------- ------------- -------------
Other expense - Interest (179,275) - (68,733) - (179,275)
Other Income - 41,000 - - 118,689
------------ ------------- ------------- ------------- -------------
Net Other Income (Expense) (179,275) 41,000 (68,733) - (60,586)
------------ ------------- ------------- ------------- -------------
Net Income / (Loss) $ (476,588) $ 1,132 $ (126,400) $ (9,689) $ (612,696)
============ ============= ============= ============= =============
Income / (Loss) Per Common Share -
basic and diluted $ (0.07) $ 0.00 $ (0.02) $ (0.01) $ (0.29)
============ ============= ============= ============= =============
Average Shares Outstanding 6,609,749 1,121,500 7,887,150 1,135,000 2,136,608
============ ============= ============= ============= =============
See accompanying notes to condensed consolidated unaudited financial statements
3
NOXSO CORPORATION, AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months
Ended Cumulative from
December 31, Inception to
------------------------ December 31,
2003 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income (Loss) $ (476,588) $ 1,132 $ (612,698)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Common Stock Issued For Services - 6,250 6,250
Other Income- Termination of Merger Agreement (41,000) (41,000)
Decrease (Increase) in Other Current Assets
Other current assets (160) 68,576 (160)
Funds held in escrow - - 98,152
Preference payments receivable - - 20,258
Increase (Decrease) in Liabilities
Amounts due related parties 260,852 299,991
Accounts Payable (32,759) (66,862) (32,759)
Accrued Liabilities 179,363 - 149,942
------------- ----------- -------------
Cash Flows From Operating Activities: $ (69,292) $ (31,904) $ (112,024)
------------- ----------- -------------
Cash Flows From Investing Activities:
Production site development costs $ (30,000) $ - $ (30,000)
------------- ----------- -------------
$ (30,000) $ - $ (30,000)
------------- ----------- -------------
Cash Flows From Financing Activities:
Note payable $ 100,000 $ - $ 100,000
Advances from prospective merger participant 41,000 41,000
Change in amounts due shareholders (9,628)
------------- ----------- -------------
Net cash provided by financing activities $ 100,000 $ 31,372 $ 141,000
------------- ----------- -------------
Net Change in Cash $ 708 $ (532) $ (1,024)
Cash at Beginning of Period 226 1,560 1,958
------------- ----------- -------------
Cash at End of Period $ 934 $ 1,028 $ 934
============= =========== =============
Non-Cash investing and financing:
Purchase of plant, property and equipment for
debt and equity $ 2,785,000 $ - $ 2,785,000
Purchase of license rights and deposits for debt,
equity and deemed distributions $ 514,093 $ - $ 514,093
Deposit paid by related party $ 1,500 $ - $ 1,500
Cash paid for interest and taxes $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated unaudited financial statements
4
NOXSO CORPORATION, AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been
prepared without audit. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows as of the dates and
for the periods presented herein have been made. Certain prior year amounts have
been reclassified to conform to the current period presentation. These
reclassifications had no impact on total assets, liabilities or net loss.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to the Securities and Exchange Commission's rules and regulations. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's March 31, 2003 Annual Report on Form 10-KSB. The results of operations
for the three and nine months ended December 31,2003, are not necessarily
indicative of the operating results that may be expected for the year ending
March 31, 2004. The Company's significant accounting policies are set forth in
Note 1 to the Company's consolidated financial statements in its March 31, 2003
Annual Report on Form 10-KSB.
(2) Land Purchase
On May 14, 2003, the Company and SWAA Tepeaca Holdings, LC ("SWAA")
closed on a Purchase and Sale Agreement whereby the Company purchased
approximately twenty-one acres of real property made up of several individual
parcels that are collectively located at one site in the immediate vicinity of
the city of Tepeaca, State of Puebla, Country of Mexico (the "Property"). This
Property is anticipated to be used as a site to establish the Company's proposed
production facility. In consideration for the Property, the Company issued to
SWAA (i) an initial promissory note in the principal amount of $10,000 US, as an
earnest money deposit, which promissory note bears interest at the rate of ten
percent per annum, and is due and payable in a single balloon payment on the one
year anniversary of the note; (ii) a promissory note in the principal amount of
$1,640,000 US, which promissory note bears interest at the rate of ten percent
per annum, is secured by the Property and is due and payable in a single balloon
payment on the earlier of (a) on demand or (b) on the one year anniversary of
the note, and (iii) 5,167,150 shares of the Company's restricted common stock.
Management believes that the fair market value of the Property is
$2,800,000, which approximates the value of the purchase price paid by the
Company for the Property. The Company has recorded this transaction, however, in
accordance with current promulgated accounting pronouncements that require that
such transactions be recorded at the historical cost of SWAA since SWAA is
partially controlled by individuals or entities that have what could be
interpreted to be a significant interest in or control of the Company.
(3) Equipment and License Purchases
On May 30, 2003, the Company acquired (i) from SouthWest Management
Company its existing rights to purchase from the manufacturers a mobile block
processing plant and related know how in consideration for 400,000 shares of the
Company's restricted common stock, a promissory note in the principal amount of
$250,000 and the assumption of obligations of approximately $440,000 relating to
the completion of the plant and (ii) from Santa Rosa Corporation, an affiliate
of SouthWest Management Company, a mobile surface bonding plant and related
know-how in consideration for 335,000 shares of the Company's restricted common
stock, a promissory note in the principal amount of $120,000 and the assumption
of obligations in the approximate principal amount of $25,000 relating to the
plant. On this date the Company also acquired the rights of SouthWest Management
Company under a license agreement granting the right to utilize the Haener Block
production system in Mexico and part of the United States in consideration for
400,000 shares of the Company's restricted common stock, the assumption of
obligations under the initial license agreement and the assumption of
obligations in the approximate principal amount of $140,000.
Management believes that the fair market value of the equipment
purchased is $245,000, and the fair market value of the license acquired is
$250,000, which values approximate the purchase prices paid by the Company for
5
the assets. The Company has recorded these transactions, however, in accordance
with current promulgated accounting pronouncements, which require that such
transactions be recorded at the historical cost of the sellers since they are
partially controlled by individuals or entities that have what could be
interpreted to be a significant interest or control of the Company.
(4) Purchase of Subsidiaries
On May 14, 2003, the Company acquired all of the issued and outstanding
securities of Advanced Construction & Manufacturing Technologies De Mexico SA De
CV or ACMT De Mexico ("ACMT"). ACMT, a fully qualified and existing Mexican
domiciled corporation, is a wholly owned subsidiary of the Company. As
consideration for the ACMT purchase, the Company issued to the owners of ACMT
(i) promissory notes in the aggregate principal amount of $150,000 US, which
promissory notes bear interest at the rate of ten percent per annum, and are due
and payable on the earlier of (a) the one year anniversary of the note or (b) on
demand, and (ii) 350,000 shares of the Company's restricted common stock. ACMT
was acquired because it was fully and immediately qualified to hold the land
purchased by the Company (See Note 2). Additionally, ACMT could be expeditiously
utilized to be the company under which all-operational activities could be
conducted.
On May 14, 2003, the Company also acquired all of the issued and
outstanding securities of International Construction Concepts, Inc. ("ICC"), a
Nevada corporation. ICC has relationships that may be utilized in connection
with the Company's proposed acquisition of construction systems used to produce
and supply components of dry-stacked masonry systems. As consideration for the
ICC purchase, the Company issued to the owners of ICC 100,000 share of the
Company's restricted common stock.
The Company has accounted for these transactions as purchase
transactions. However, in accordance with current promulgated accounting
pronouncements, which require definitive historical conditions and activities in
order to be considered business acquisitions, which include the commencement of
operations and the conducting of significant business. Neither entity met those
criteria. Therefore, under the accounting pronouncements and requirements are
not considered business acquisitions. Since the purchase price exceeded the net
assets, and since both entities were partially controlled by individuals or
entities that have potentially significant control or interest in the Company,
the excess of the purchase prices over historical cost of the assets acquired
was required to be accounted for in accordance with Staff Accounting Bulletin
Topic 5(g) as a preferential distribution. Company's management holds the
position that the reduced amounts recorded do not properly reflect the true
value to the Company, but recognize the need to comply with all promulgated
pronouncements.
(5) Subsequent Events
On December 15, 2003, the Company executed a Stock Purchase Agreement
(the "SPA") with Cheong Tat Corporation ("CTC"). Under the terms of the SPA, the
Company is to receive from CTC an assignment of the full right, title and
interest to a Certificate of Deposit issued by Barclays Bank PLC - Isle of Man,
UK, in the principal amount of a $50,000,000 in consideration for the issuance
of 6,000,000 shares of the Company's common stock and two convertible notes in
the principal amounts of $27,500,000 and $15,000,000. The Company also agreed to
fill the current vacancy on the Company's board with a nominee of CTC and to
call a shareholder meeting and seek to obtain shareholder approval to
restructure the Company's existing capitalization by increasing the authorized
shares of its common stock from 20,000,000 shares to 80,000,000 shares; and,
concurrently, to authorize 20,000,000 shares of Preferred Stock. It will be
proposed at the shareholder meeting that 2,750,000 of the preferred shares be
designated at Series A Preferred Stock (the "Preferred "A" Stock") and 1,500,000
of the preferred shares be designated as Series B Preferred Stock (the
"Preferred "B" Stock"), as described below. After the approval of the
shareholders, the Company will have the right to convert the $27,500,000
convertible note issued under the SPA into 2,750,000 shares of Preferred "A"
Stock, and, likewise, the right to convert the $15,000,000 convertible note
issued under the SPA into 1,500,000 shares of Preferred "B" Stock.
It is anticipated that the Preferred "A" Stock will be entitled to a 3%
dividend, a liquidation preference, be convertible into common stock by the
holder at a ratio of 1-to-5 preferred-to-common, and vote on all stockholder
matters with each preferred share being entitled to one vote. It is anticipated
that the Preferred "B" Stock will be entitled to dividends at the rate of 1.35
times the rate of the dividends on common stock, when, as and if common stock
dividends are declared by the Board of Directors, a liquidation preference, be
convertible into common stock at a ratio of 1-to-5 preferred-to-common; but,
such shares are not entitled to vote, except where required by law or in certain
other limited circumstances. In addition, the Company expects to have the right,
in its sole discretion, to redeem any or all of the Preferred "B" Stock, at any
time, at $10 per share plus any declared and accrued but unpaid dividends.
6
The requirements to hold an initial closing under the SPA have been
satisfied, with the exception of a bank-to-bank or other suitable verification
that the $50,000,000 Certificate of Deposit has been transferred to the Company.
The accomplishment of this final matter has required the cooperation of CTC,
Barclays Bank PLC - Isle of Man and a principal US correspondent bank of
Barclays. CTC reports that a procedure acceptable to both banks has been
developed and submitted to the legal departments of both banks for approval.
That verification is pending.
On December 18, 2003, the Company and SWAA Tepeaca Holdings, LC
("SWAA") concluded negotiations whereby, in January 2004 the Company issued
1,550,000 shares of its restricted Common Stock as payment in full for the
$384,373 that the Company owed SWAA for funds expended, cash advances and
accrued interest on the SWAA promissory note through December 31, 2003. The
immediate effect on the financial statements is the reduction of current
liabilities by that amount and an increase stockholder's equity by the same
amount.
On December 22, 2003, the Company negotiated the acquisition of an
undivided interest in 1,600,000 tons of "in-situ" perlite from the Foundation
for Advanced Research ("FAR") in exchange for 1,600,000 shares of its restricted
Common Stock. The Company completed and executed an Asset Purchase Agreement as
of January 21, 2004. Perlite is a mineral with insulating and smoothing
qualities that the Company believes can be profitably utilized to benefit and
enhance the value of its products. It is estimated that the processed market
value of perlite, depending on which stage of the refining process the product
is utilized, ranges in value from a low of approximately from $15.00 per ton for
agricultural purposes to potentially in excess of $110.00 per ton when used as
commercial products and industrial additives.
As of January 5, 2004, the Company concluded an agreement for
consulting and advisory services related to public market strategy and
shareholder relations. In January 2004, the Company issued 400,000 shares of
restricted Common Stock under the terms of the agreement. During the period of
discussions and negotiations, principally held during the month of December
2003, information garnered and the services provided were without cost to the
Company. Under the agreement, the shares were issued as both a retainer for
services yet to be performed during this calendar year, and as compensation for
services performed thru the issue date. Currently, approximately 20% of the
shares have been earned during 2004.
The Company expects to enter into additional agreements relating to its
acquisition of construction systems used to produce and supply components of
dry-stacked masonry systems as well as other complimentary construction
elements. However, no definitive arrangements have been executed and there can
be no assurance that any definitive arrangements will be completed or that the
Company will have sufficient funding to execute its business plan or that its
business plan will be successful.
The Company has experienced net losses since inception and has had no
significant revenues during recent years. Except as described above, during the
past two fiscal years the Company has had no business operations. In light of
these circumstances, the ability of the Company to continue as a going concern
is significantly in doubt. The attached financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
7
Item 2. Management's Discussion and Analysis or Plan of Operation
The following plan of operation provides information which management
believes is relevant to an assessment and understanding of our condensed
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements
included in our Form 10-KSB for the year ended March 31, 2003, and notes
thereto.
Plan of Operation
At December 31, 2003, the Company had limited business operations, and
limited assets and capital resources. As a result, the Company's activities
during the three and nine months ended December 31, 2003 focused on locating
funding to execute its business plan. To date the Company has not raised
sufficient funding to execute its business plan.
The Company's business plan is to enter into the constructions systems
and products business. In furtherance of this objective, the Company has
acquired various construction related products and systems. The Company intends
to develop direct associations with businesses that are in the construction
business, familiar with the construction methods required to use the Company's
products, have projects available where the Company's products meet the
necessary requirements, and sell products directly to such businesses. It is
anticipated that initially the products would be used in the residential market.
Preliminary meetings, discussions and negotiations have indicated that this plan
for distribution of the products will allow the Company to enter targeted
markets with minimum of costs and expense related to marketing.
In furtherance of the Company's business objectives, the Company has
sought opportunities to enter into arrangements for the acquisition of proven
construction components, products and systems that can be combined and utilized
to produce and supply components of dry-stacked masonry wall systems for
residential, commercial and industrial buildings, as well as other complimentary
construction elements. Additionally, the Company sought the acquisition of real
property that had the potential to be used as a site to establish a production
facility to produce such components and products to be available for
construction projects. In connection therewith, the Company has entered into the
following transactions.
On May 14, 2003, the Company and SWAA Tepeaca Holdings, LC ("SWAA")
closed on a Purchase and Sale Agreement whereby the Company purchased
approximately twenty-one acres of real property made up of several individual
parcels that are collectively located at one site in the immediate vicinity of
the city of Tepeaca, State of Puebla, Country of Mexico (the "Property"). This
Property is anticipated to be used as a site to establish the Company's proposed
production facility as described above. In consideration for the Property, the
Company issued to SWAA (i) an initial promissory note in the principal amount of
$10,000 US, as an earnest money deposit, which promissory note bears interest at
the rate of ten percent per annum, and is due and payable in a single balloon
payment on the one year anniversary of the note; (ii) a promissory note in the
principal amount of $1,640,000 US, which promissory note bears interest at the
rate of ten percent per annum, is secured by the Property and is due and payable
in a single balloon payment on the earlier of (a) on demand or (b) on the one
year anniversary of the note, and (iii) 5,167,150 shares of the Company's
restricted common stock.
The Company recognizes the requirements to locate its potential
production site in an area where the raw materials necessary for cost effective
operations were readily available, and where finished products would have ready
access to the transport and distribution system. The Company believes that it
has addressed this issue with respect to its anticipated operations in the
Puebla, Mexico by acquiring the Property. The Property is anticipated to be used
as a site to establish a production facility.
On May 14, 2003, the Company acquired all of the issued and outstanding
securities of Advanced Construction & Manufacturing Technologies De Mexico SA De
CV or ACMT De Mexico ("ACMT"). ACMT, as a wholly owned subsidiary of the
Company, and recognized as being integral in the successful accomplishment of
the Company's business plan, holds title to the Property. Also, under the
current business plan, ACMT will be used by the Company as the entity to operate
its production facility in Puebla, Mexico, as described above. As consideration
for the ACMT purchase, the Company issued to the owners of ACMT (i) promissory
notes in the aggregate principal amount of $150,000 US, which promissory notes
bear interest at the rate of ten percent per annum, and are due and payable on
the earlier of (a) the one year anniversary of the note or (b) on demand, and
(ii) 350,000 shares of the Company's restricted common stock.
The former owners of ACMT (the "Owners") are independently engaged in
the development and construction of homes and other buildings in the immediate
vicinity of the Property. Under an oral commitment received from the Owners,
8
once the ACMT production facility is in operation the products produced at the
ACMT production site are expected to be the sole source of the block products
used by the Owners in connection with their construction projects in Puebla,
Mexico. Based on discussions with the Owners, the Company anticipates that the
number of blocks used in the Owners projects could approximate in excess of 4
million units. There can be no assurance, however, as to the number of block
that will be purchased by the Owners.
On May 14, 2003, the Company also acquired all of the issued and
outstanding securities of International Construction Concepts, Inc. ("ICC"), a
Nevada corporation. ICC has relationships that may be utilized in connection
with the Company's proposed acquisition of constructions systems used to produce
and supply components of dry-stacked masonry systems. As consideration for the
ICC purchase, the Company issued to the owners of ICC 100,000 shares of the
Company's restricted common stock.
On May 30, 2003, the Company acquired (i) from SouthWest Management
Company its existing rights to purchase from the manufacturers a mobile block
processing plant and related know how in consideration for 400,000 shares of the
Company's restricted common stock, promissory notes in the aggregate principal
amount of $250,000 and the assumption of obligations in the approximate
principal amount of $440,000 relating to the plant and (ii) from Santa Rosa
Corporation, an affiliate of SouthWest Management Company, a mobile surface
bonding plant and related know-how in consideration for 335,000 shares of the
Company's restricted common stock, promissory notes in the aggregate principal
amount of $120,000 and the assumption of obligations in the approximate
principal amount of $25,000 relating to the plant. On this date the Company also
acquired the rights of SouthWest Management Company under a license agreement
granting the right to utilize the Haener Block production system in Mexico and
part of the United States in consideration for 400,000 shares of the Company's
restricted common stock, the assumption of obligations under the initial license
agreement and the assumption of obligations in the approximate principal amount
of $140,000.
In May 2003, the Company also began paying SouthWest Management Company
and its independent contractors for site preparation, development, supervisory,
security along with public and governmental relations services in connection the
Company's efforts to utilize the Property as a site to produce and supply
components of dry-stacked masonry wall systems for residential construction
projects in Puebla, Mexico and in connection with other opportunities.
On December 15, 2003, the Company executed a Stock Purchase Agreement
(the "SPA") with Cheong Tat Corporation ("CTC"). Under the terms of the SPA, the
Company is to receive from CTC an assignment of the full right, title and
interest to a Certificate of Deposit issued by Barclays Bank PLC - Isle of Man,
UK, consideration in the principal amount of a $50,000,000 in consideration for
the issuance of 6,000,000 shares of the Company's common stock and two
convertible notes in the principal amounts of $27,500,000 and $15,000,000. The
Company also agreed to fill the current vacancy on the Company's board with a
nominee of CTC and to call a shareholder meeting and seek to obtain shareholder
approval to restructure the Company's existing capitalization by increasing the
authorized shares of its common stock from 20,000,000 shares to 80,000,000
shares; and, concurrently, to authorize 20,000,000 shares of Preferred Stock. It
will be proposed at the shareholder meeting that 2,750,000 of the preferred
shares be designated at Series A Preferred Stock (the "Preferred "A" Stock") and
1,500,000 of the preferred shares be designated as Series B Preferred Stock (the
"Preferred "B" Stock"), as described below. After the approval of the
shareholders, the Company will have the right to convert the $27,500,000
convertible note issued under the SPA into 2,750,000 shares of Preferred "A"
Stock, and, likewise, the right to convert the $15,000,000 convertible note
issued under the SPA into 1,500,000 shares of Preferred "B" Stock.
It is anticipated that the Preferred "A" Stock will be entitled to a 3%
dividend, a liquidation preference, be convertible into common stock by the
holder at a ratio of 1-to-5 preferred-to-common, and vote on all stockholder
matters with each preferred share being entitled to one vote. It is anticipated
that the Preferred "B" Stock will be entitled to dividends at the rate of 1.35
times the rate of the dividends on common stock, when, as and if common stock
dividends are declared by the Board of Directors, a liquidation preference, be
convertible into common stock at a ratio of 1-to-5 preferred-to-common; but,
such shares are not entitled to vote, except where required by law or in certain
other limited circumstances. In addition, the Company expects to have the right,
in its sole discretion, to redeem any or all of the Preferred "B" Stock, at any
time, at $10 per share plus any declared and accrued but unpaid dividends. .
The requirements to hold an initial closing under the SPA have been
satisfied, with the exception of a bank-to-bank or other suitable verification
that the $50,000,000 Certificate of Deposit has been transferred to the Company.
The accomplishment of this final matter has required the cooperation of CTC,
Barclays Bank PLC - Isle of Man and a principal US correspondent bank of
Barclays. CTC reports that a procedure acceptable to both banks has been
developed and submitted to the legal departments of both banks for approval.
That verification is pending.
9
On December 18, 2003, the Company and SWAA Tepeaca Holdings, LC
("SWAA") concluded negotiations whereby, in January 2004 the Company issued
1,550,000 shares of its restricted Common Stock as payment in full for the
$384,373 that the Company owed SWAA for funds expended, cash advances and
accrued interest on the SWAA promissory note through December 31, 2003. The
immediate effect on the financial statements is the reduction of current
liabilities by that amount and an increase stockholder's equity by the same
amount.
On December 22, 2003, the Company negotiated the acquisition of an
undivided interest in 1,600,000 tons of "in-situ" perlite from the Foundation
for Advanced Research ("FAR") in exchange for 1,600,000 shares of its restricted
Common Stock. The Company completed and executed an Asset Purchase Agreement as
of January 21, 2004. Perlite is a mineral with insulating and smoothing
qualities that the Company believes can be profitably utilized to benefit and
enhance the value of its products. It is estimated that the processed market
value of perlite, depending on which stage of the refining process the product
is utilized, ranges in value from a low of approximately from $15.00 per ton for
agricultural purposes to potentially in excess of $110.00 per ton when used as
commercial products and industrial additives. FAR carried the asset on its books
and records at the appraised fair market value of such "in-situ" Perlite of
$5.00 per ton.issuance of 6,000,000 shares of the Company's common stock and two
convertible notes in the principal amounts of $27,500,000 and $15,000,000. The
Company also agreed to fill the current vacancy on the Company's board with a
nominee of CTC and to call a shareholder meeting and seek to obtain shareholder
approval to restructure the Company's existing capitalization by increasing the
authorized shares of its common stock from 20,000,000 shares to 80,000,000
shares; and, concurrently, to authorize 20,000,000 shares of Preferred Stock. It
will be proposed at the shareholder meeting that 2,750,000 of the preferred
shares be designated at Series A Preferred Stock (the "Preferred "A" Stock") and
1,500,000 of the preferred shares be designated as Series B Preferred Stock (the
"Preferred "B" Stock"), as described below. After the approval of the
shareholders, the Company will have the right to convert the $27,500,000
convertible note issued under the SPA into 2,750,000 shares of Preferred "A"
Stock, and, likewise, the right to convert the $15,000,000 convertible note
issued under the SPA into 1,500,000 shares of Preferred "B" Stock.
It is anticipated that the Preferred "A" Stock will be entitled to a 3%
dividend, a liquidation preference, be convertible into common stock by the
holder at a ratio of 1-to-5 preferred-to-common, and vote on all stockholder
matters with each preferred share being entitled to one vote. It is anticipated
that the Preferred "B" Stock will be entitled to dividends at the rate of 1.35
times the rate of the dividends on common stock, when, as and if common stock
dividends are declared by the Board of Directors, a liquidation preference, be
convertible into common stock at a ratio of 1-to-5 preferred-to-common; but,
such shares are not entitled to vote, except where required by law or in certain
other limited circumstances. In addition, the Company expects to have the right,
in its sole discretion, to redeem any or all of the Preferred "B" Stock, at any
time, at $10 per share plus any declared and accrued but unpaid dividends. .
The requirements to hold an initial closing under the SPA have been
satisfied, with the exception of a bank-to-bank or other suitable verification
that the $50,000,000 Certificate of Deposit has been transferred to the Company.
The accomplishment of this final matter has required the cooperation of CTC,
Barclays Bank PLC - Isle of Man and a principal US correspondent bank of
Barclays. CTC reports that a procedure acceptable to both banks has been
developed and submitted to the legal departments of both banks for approval.
That verification is pending.
On December 18, 2003, the Company and SWAA Tepeaca Holdings, LC
("SWAA") concluded negotiations whereby, in January 2004 the Company issued
1,550,000 shares of its restricted Common Stock as payment in full for the
$384,373 that the Company owed SWAA for funds expended, cash advances and
accrued interest on the SWAA promissory note through December 31, 2003. The
immediate effect on the financial statements is the reduction of current
liabilities by that amount and an increase stockholder's equity by the same
amount.
On December 22, 2003, the Company negotiated the acquisition of an
undivided interest in 1,600,000 tons of "in-situ" perlite from the Foundation
for Advanced Research ("FAR") in exchange for 1,600,000 shares of its restricted
Common Stock. The Company completed and executed an Asset Purchase Agreement as
of January 21, 2004. Perlite is a mineral with insulating and smoothing
qualities that the Company believes can be profitably utilized to benefit and
enhance the value of its products. It is estimated that the processed market
value of perlite, depending on which stage of the refining process the product
is utilized, ranges in value from a low of approximately from $15.00 per ton for
agricultural purposes to potentially in excess of $110.00 per ton when used as
commercial products and industrial additives. FAR carried the asset on its books
and records at the appraised fair market value of such "in-situ" Perlite of
$5.00 per ton.
As of January 5, 2004, the Company concluded an agreement for
consulting and advisory services related to public market strategy and
shareholder relations. In January 2004, the Company issued 400,000 shares of
restricted Common Stock under the terms of the agreement. During the period of
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discussions and negotiations, principally held during the month of December
2003, information garnered and the services provided were without cost to the
Company. Under the agreement, the shares were issued as both a retainer for
services yet to be performed during this calendar year, and as compensation for
services performed thru the issue date. Currently, approximately 20% of the
shares have been earned during 2004.
The Company expects to enter into additional agreements relating to its
acquisition of construction systems used to produce and supply components of
dry-stacked masonry systems as well as other complimentary construction
elements. However, no definitive arrangements have been executed and there can
be no assurance that any definitive arrangements will be completed or that the
Company will have sufficient funding to execute its business plan or that its
business plan will be successful.
The Company has experienced net losses since inception and has had no
significant revenues during recent years. Except as described above, during the
past two fiscal years the Company has had no business operations. In light of
these circumstances, the ability of the Company to continue as a going concern
is significantly in doubt. The attached financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Results of Operations
During the past two fiscal years the Company has had no revenues. The
Company's operating costs and expenses were approximately $57,667 and $297,313
for the three and nine months ended December 31, 2003, compared with $9,689 and
$39,868 for the comparable periods of the prior year. The Company's operating
costs were comprised of general and administrative expenses relating primarily
to of start-up costs and expenses together with costs and expenses required to
initiate the Company's business plan including legal, accounting and other
business expenses. The Company also had interest expense in the amount of
$68,821 and $179,363 for the three and nine months ended December 31, 2003,
compared with no interest expense in 2002. The interest expense related to
interest accruing on the Company's debt obligations. In 2002 the Company also
had $41,000 in other income which related primarily from a one-time forfeiture
of a $41,000 deposit by a potential merger participant.
Liquidity
As of December 31, 2003, the Company's current assets totaled
approximately $2,594, its current liabilities totaled approximately $3,003,918
and it had a working capital (deficit) of ($3,001,324). The Company's current
liabilities include related party payables in the amount of $370,748, accounts
payable in the amount of $43,972 and accrued interest due to related parties and
others in the amount of $179,198. The Company also has $2,410,000 in demand
notes payable to related parties. During the nine months ended December 31, 2003
the Company used $69,292 in cash in operating activities. The Company's
financial position, lack of revenues and lack of adequate funding raise
substantial doubt about its ability to continue as a going concern.
During the three months ended December 31, 2003, the Company received
cash advances of $83,990, which was comprised mainly of a $60,740 cash advance
from SouthWest Management Company, $23,250 from Patronus Industries, LC. Mr.
Anderson, the Company's president and a director, is the sole manager of
Patronus Industries, LC.
If the transfer of the $50 million CD in the CTC transaction is
verified by banks as described above, then the Company expects that it will have
sufficient capital to (i) execute its business plan, (ii) pay off all of the
existing notes, accrued interest and other debt obligations of the Company,
(iii) complete the remaining development requirements of the Tepeaca production
site and (iv) initiate the production of its products. If the transfer of the CD
cannot be verified, then the Company does not have sufficient funding to meet
its short or long-term cash needs. The Company anticipates that it will need at
least $5,000,000 to execute its business plan and service its debts during the
next twelve months. The Company has been in discussions to secure the capital
required under its business plan. To date and other than the CTC transaction,
the Company has no commitments to secure the required capital. To the extent
possible, the Company may seek to raise additional funds through the sale of
equity securities or by borrowing money to fund its business plan. There can be
no assurance that the CTC transaction will close, that the Company will be able
to raise needed funds or that funding will be available on reasonable terms. If
the Company is unable to raise sufficient funding, it will be unable to execute
its business plan or continue its operations.
11
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial conditions, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
Critical Accounting Policies
The Company's Officers and Management believe that all of its financial
reports and the accounting policies and procedures used to record transactions
in its books and records, adhere to Generally Accepted Accounting Principles.
Currently, management believes that all of the transactions and accounting
policies and procedures being utilized fairly and accurately report the
Company's financial condition and results. Since the Company is in the
development stage, certain accounting policies that will be critical have not
yet been established. Policies that have been established and are considered
critical include accounting for property and equipment and related impairment
and for acquisitions of assets and licenses.
Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections." This Statement amends existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. This statement became effective on May
1, 2003 and did not have a material impact on the Company's operating results or
financial position.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The disclosure requirements of
FIN 45 were effective for financial statements of interim or annual periods
ending after December 15, 2002 and did not have a material impact on the
Company's consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
adoption of this consensus is not expected to have a material impact on the
Company's consolidated financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires the Company to consolidate a variable
interest entity if it is subjected to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns, or both. The Company does not believe it currently
has any interests in variable interest entities and, accordingly does not expect
the adoption of FIN 46 to have a material impact on the consolidated financial
statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures in its
balance sheet certain financial instruments with characteristics of both
liabilities and equity. It is effective for such financial instruments entered
into after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material effect on the financial statements.
Forward-Looking Statements
When used in this Form 10-QSB, in the Company's filings with the
Securities and Exchange Commission ("SEC"), in the Company's press releases or
other public or stockholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
12
specifically include, but are not limited to, project launch dates; dates upon
which revenues may be generated or received; the execution of agreements
relating to the dry stack masonry systems; plans to rely on strategic partners
to pursue commercialization of the Company's business plan; expectations
regarding the ability of the Company's products and systems to compete with the
products of competitors; acceptance of the Company's products and systems by the
marketplace as cost-effective; sufficiency and timing of available resources to
fund operations; plans regarding the raising of capital; the size of the market
for products and systems; plans regarding sales and marketing; strategic
business initiatives; intentions regarding dividends and the launch dates of the
Company's projects.
The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, are based on
certain assumptions and expectations which may or may not be valid or actually
occur, and which involve various risks and uncertainties, including but not
limited to risk of a lack of demand or low demand for the Company's products and
systems; the inability to enter into commercial arrangements relating to the
Company's products and systems; competitive products and pricing, delays in
introduction of products and systems due to manufacturing difficulties or other
factors; difficulties in product development, commercialization and technology,
changes in the regulation of planned or possible construction projects and other
risks set forth in Item 6 of the Company's Annual Report on Form 10-QSB. If and
when revenues commence, sales may not reach the levels anticipated. As a result,
the Company's actual results for future periods could differ materially from
those anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
Item 3. Controls and Procedures.
The Company has evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
December 31, 2003 pursuant to Exchange Act Rule 15d-15. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company required to be
included in the Company's periodic SEC filings. There have been no significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation.
13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
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.
(a) Exhibit Index
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
2.1 Debtor's Second Plan of Reorganization with Modifications
Through December 2, 1999, Order of Judge R. Thomas Stinnett
dated December 9, 1999 and Order Approving Disclosure
Statement and Confirming Second Amended Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code (Incorporation by
reference to the Company's Current Report on Form 8-K, dated
May 23, 2000).
2.2 Final Order Closing the Chapter 11 Case (Incorporated by
reference to Exhibit 2.2 of the Company's Annual Report on
Form 10-KSB, dated March 31, 2003).
3(i).1 Articles of Incorporation of the Company (Incorporated by
reference to the Company's Registration Statement on Form S-1
filed with the Commission on January 13, 1989, file No.
33-26541).
3(i).2 Articles of Amendment to the Articles of Incorporation
(Incorporated by reference to Exhibit 3(i).2 to the Company's
Annual Report on Form 10-QSB, dated March 31, 2003).
3(ii) Amended and Restated Bylaws of the Company (Incorporated by
reference to the Company's Registration Statement on Form S-1
filed with the Commission on January 13, 1989, file No.
33-26541).
10.1 Demand Promissory Note in the principal amount of $100,000
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated April 22, 2003).
10.2 Purchase and Sale Agreement by and between the Company and
SWAA Tepeaca Holdings, LC, effective May 1, 2003 (Incorporated
by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, dated May 14, 2003).
10.3 Securities Purchase Agreement by and between the Company and
the Owners of Advanced Construction & Manufacturing
Technologies De Mexico SA De CV, effective May 8, 2003
(Incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K, dated May 14, 2003).
10.4 Securities Purchase Agreement by and between the Company and
the Owners of International Construction Concepts, Inc.,
effective May 8, 2003 (Incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K, dated May
14, 2003).
14
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.5 Asset Purchase Agreement by and between the Company and Santa
Rosa Corporation, effective May 30, 2003 (Incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 8-QSB, dated June 30, 2003).
10.6 Asset Purchase Agreement by and between the Company and the
parties identified therein, effective May 30, 2003
(Incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 8-QSB, dated June 30, 2003).
10.6 Stock Purchase Agreement between the Company and Cheong Tat
Corporation (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated February 2, 2004).
10.7 Asset Purchase Agreement between the Company and the
Foundation for Advanced Research (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K,
dated February 2, 2004).
31.1 Certification by under Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification under Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Company during the
quarterly period ended December 31, 2003.
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 hereunto duly authorized.
NOXSO CORPORATION
(Registrant)
Date: February 19, 2004 By /s/ Richard J. Anderson
----------------------------------
Richard J. Anderson
President and Principal Financial
and Chief Accounting Officer
15