U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 02-99110
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LIQUITEK ENTERPRISES, INC.
(Exact name of Small Business Issuer in its Charter)
NEVADA 91-1499978
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1350 East Draper Parkway
Draper, Utah 84020
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 553-8785
Not applicable.
(Former name, changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
As of April 15, 2001, the Company had 38,376,737 shares of Common Stock
outstanding.
Another 15,340,104 restricted shares of Common Stock of the registrant have
been issued subject to rescission in connection with an acquisition.
Transitional Small Business Issuer Format Yes No X
--- ---
LIQUITEK ENTERPRISES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Unaudited Condensed Consolidated Balance Sheet as of March 4
31, 2001 and Audited Condensed Consolidated Balance Sheet
As of December 31, 2000
Unaudited Condensed Consolidated Statements of Operations 5
for the Three-month Periods Ended March 31, 2001 and 2000.
Unaudited Condensed Consolidated Statements of Cash Flows 6
for the Three-month Periods Ended March 31, 2001 and 2000.
Notes to the Unaudited Condensed Consolidated Financial 7
Statements for the Three-month Periods Ended March 31, 2001
and 2000.
Item 2. Management's Discussion and 14
Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Management of Liquitek Enterprises Inc. ("we," "us," or "Company") prepared
the unaudited condensed consolidated financial statements together with related
notes that are filed with this Form 10-Q Quarterly Report. In the opinion of
management, these financial statements fairly present the consolidated
financial condition of the Company, but should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2000
previously filed with the Securities and Exchange Commission.
As the Company has passed the threshold level for market value of the Common
Stock held by non-affiliates for the past two years, with this report we are
switching from the SB report format to the SX report format.
3
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
MARCH 31, 2001 DECEMBER 31, 2000
(UNAUDITED) (AUDITED)
-------------- -----------------
ASSETS
CURRENT ASSETS
CASH $ 132,578 $ 23,864
ACCOUNTS RECEIVABLE 214,040 200,575
ADVANCES TO COMPANY BEING ACQUIRED 979,335 620,000
PREPAID EXPENSES AND OTHER CURRENT ASSETS 151,642 113,830
-------------- -----------------
TOTAL CURRENT ASSETS 1,477,595 958,269
PROPERTY AND EQUIPMENT, NET 3,152,969 3,153,130
DEPOSITS AND OTHER ASSETS 437,536 447,185
ACQUIRED COMPLETED TECHNOLOGY, NET 10,421,950 10,557,300
GOODWILL, NET 9,894,273 10,022,918
PATENTS AND OTHER INTANGIBLES, NET 800,837 848,097
-------------- -----------------
TOTAL ASSETS $ 26,185,160 $ 25,986,899
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 801,533 $ 587,915
DUE TO RELATED PARTIES 2,015,468 967,079
DEFERRED INCOME TAXES 3,768,590 3,827,213
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.001/ share,
100,000,000 shares authorized 38,376 38,126
03/31/2001: 38,376,737 outstanding
12/31/2001: 38,126,737 outstanding
ADDITIONAL PAID-IN CAPITAL 30,654,311 30,204,561
STOCK OPTIONS, WARRANTS AND DEFERRED
COMPENSATION 1,431,241 1,356,241
ACCUMULATED DEFICIT (12,524,359) (10,994,236)
-------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 19,599,569 20,604,692
-------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 26,185,160 $ 25,986,899
============== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
4
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------ ------------------
SALES $ 465,835 $ -
COST OF SALES 319,195 -
------------------ ------------------
GROSS PROFIT 146,640 -
OPERATING EXPENSES
SELLING AND DISTRIBUTION EXPENSES 149,675 -
GENERAL AND ADMINISTRATIVE EXPENSES 1,302,011 1,256,456
RESEARCH AND DEVELOPMENT EXPENSES 210,003 147,540
------------------ ------------------
1,661,689 1,403,996
------------------ ------------------
LOSS BEFORE INTEREST AND INCOME TAX BENEFIT (1,515,049) (1,403,996)
INTEREST INCOME/(EXPENSE) NET (15,074) 26,612
INCOME TAX BENEFIT - -
------------------ ------------------
NET (LOSS) $ (1,530,123) $ (1,377,384)
================== ==================
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.06)
================== ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) (1,530,123) (1,377,384)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO NET CASH USED
BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 384,944 5,814
STOCK OPTIONS 75,000 -
STOCK COMPENSATION EXPENSE 300,000 -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (13,465) -
INVENTORIES (11,033) -
PREPAID EXPENSES AND OTHER CURRENT ASSETS (26,779) 21,374
DEPOSITS AND OTHER ASSETS 9,649 (450)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 154,995 187,376
--------------- ---------------
NET CASH (USED) BY OPERATING ACTIVITIES (656,812) (1,163,270)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
ADVANCES TO COMPANIES BEING ACQUIRED (359,335) (749,316)
ACQUISITION OF PROPERTY AND EQUIPMENT (72,012) (82,206)
CAPITALIZED PATENT COSTS AND OTHER TECHNOLOGIES (1,516) (6,689)
--------------- ---------------
NET CASH (USED) BY INVESTING ACTIVITIES (432,863) (838,211)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
ADVANCES FROM (TO) RELATED PARTIES 1,048,389 (6,912)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 150,000 6,728,000
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,198,389 6,721,088
--------------- ---------------
NET INCREASE IN CASH 108,714 4,719,607
CASH AT BEGINNING OF PERIOD 23,864 366,566
--------------- ---------------
CASH AT END OF PERIOD 132,578 5,086,173
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
LIQUITEK ENTERPRISES INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
For the Three-month Periods Ended March 31, 2001 and 2000.
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
On February 12, 2001, we completed the acquisition of Distech Limited
("Distech"), a New Zealand corporation engaged in designing and manufacturing
equipment for treating water and other fluids. Distech has developed unique,
fail-safe, state-of-the-art, sub-atmospheric water distillation equipment.
The technology employs vacuum distillation for low temperature evaporation
and vapor compression for efficient recycling of heat energy. The result is a
cost-efficient system for producing high-purity water in commercial
quantities. Several of Distech's technical innovations are protected by
international patents. Management believes that features such as automatic
clean-in-place (to protect against the adversities of scaling), remote system
management over telecommunication links, minimal pre-treatment requirements,
compact size, small footprint and competitive pricing suggest a strong
commercial opportunity for this equipment.
In conjunction with that acquisition, we issued 15,340,104 shares of
restricted common stock of the Company plus 790,896 warrants and 69,000
options for the purchase of additional shares of restricted common stock in
exchange for 100% of the comparable equity securities of Distech. The former
holders of the Distech equity securities have a right of rescission on the
transaction until the Company achieves an equity infusion of $5,000,000 or
September 30, 2001, whichever occurs first. Because of this contingency,
neither the Distech-related issuances, the Distech financial position at
March 31, 2001 nor the Distech operating results for the three-months ended
March 31, 2001 is reflected in the March 31, 2001 financial statements
contained in this Form 10-Q report.
The Distech operations complement those of another wholly-owned subsidiary,
Liquitek Corporation. Together these businesses give us a suite of
technologies offering competitive solutions to problems in water bottling,
recycling, industrial wastewater, remediation, desalination and ultra-pure
water applications. These businesses are further complemented by the
operations of Thermoflow Corporation ("Thermoflow"), Interfluid Environmental
Services, Inc. ("Interfluid"), and VitriSeal, Inc. ("VitriSeal"), also
wholly-owned subsidiaries of the Company. Liquitek Corporation, Thermoflow
and Interfluid were all acquired through tax-free, stock-for-stock
reorganizations in 2000.
Thermoflow owns and operates a proprietary antifreeze recycling facility in
Las Vegas, Nevada. The Thermoflow technology allows recycling of antifreeze
to produce fully reformulated antifreeze indistinguishable from antifreeze
made from virgin materials. The Thermoflow technology and subsets thereof are
capable of economically treating/recycling many other contaminated liquids,
including wastewater. Liquitek Corporation shares the rights to use any or
all of the Thermoflow technology in meeting the needs of its clientele.
7
Interfluid Environmental Services, Inc. operates a closed-loop waste
antifreeze collection and recycled antifreeze distribution system in the San
Diego, California area. The waste collected in San Diego is deposited at an
unrelated transfer facility in the Los Angeles, California area. Such waste,
along with that brought to the transfer facility by other closed-loop
operators and waste antifreeze collectors, is then transported in
Interfluid's long-haul bulk transportation equipment to Las Vegas for
processing in the Thermoflow plant. Interfluid also provides long-haul bulk
transport services for others of Thermoflow's customers. Interfluid is an
integral part of the Thermoflow operation, but is a separate legal entity to
isolate higher risk operations.
Liquitek Corporation has licensed a proprietary oily wastewater treatment
system to Hawaii's largest recycling company. This client has recently been
awarded a reduced inspection schedule from environmental regulators because
of the effectiveness of their water treatment system. The system, or
derivatives thereof, may be readily replicated in other locations. Liquitek
has also developed a proprietary system for recycling carwash, laundry and
aqueous solvent wastewater. The Company has tested the system in Japan and is
presently negotiating sales with a Japanese distributor. Liquitek plans to
introduce a similar system in the United States. Finally, Liquitek is engaged
in engineering customized solutions based on its proprietary technologies for
potential customers with a variety of water treatment problems, e.g., a paper
recycling operation in Mexico.
VitriSeal owns the rights for a series of patented processes and proprietary
know-how called VitriSeal(TM). The process is based on inorganic silicate
chemistry. It produces superior, hard, bright, clear, corrosion-protective
coatings on metal surfaces at a fraction of the cost of other clear coatings.
The VitriSeal(TM) waterborne coating has little to no organic vapor emissions
and creates minimal waste during the normal process operation. Accordingly
there are no abnormal regulatory impacts or special governmental approval
requirements on the VitriSeal(TM) application process, either in our own
facility or in potential licensees' facilities. The VitriSeal(TM) coating
combines many of the attributes of other types of coatings, such as
anodizing, chrome plating and painting. It has corrosion and weathering
resistance comparable to organic paint coatings, and it does not delaminate,
or "creep back," from damage locations as chrome plating and painting do.
This unique combination of properties is expected to afford opportunities in
a wide variety of markets: vehicle wheels, fabricated aluminum products,
extruded aluminum products and sheet/coil aluminum products. Ongoing research
indicates potential for applying the coating to non-aluminum substrates as
well.
BASIS OF PRESENTATION
We prepared our condensed consolidated financial statements for the
three-month periods ended March 31, 2001 and 2000 without audit by our
independent auditors. In the opinion of management, all adjustments necessary
to present fairly the Company's consolidated financial position as of March
31, 2001, and the results of operations and cash flows for the three-month
periods ended March 31, 2001
8
and 2000 have been made. Such adjustments consist only of normal recurring
adjustments.
Certain note disclosures normally included in our annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP") have been condensed or omitted pursuant to instructions
for Form 10-Q. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in our Form 10-KSB annual report for 2000
previously filed with the Securities and Exchange Commission.
The results of operations for the three-month period ended March 31, 2001 are
not necessarily indicative of the results to be expected for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
GOVERNMENT REGULATION
Thermoflow Corporation's facility is subject to certain government
regulations regarding hazardous waste management, primarily related to the
recycling of ethylene glycol (spent antifreeze) and storage of other
hazardous materials used in the recycling process. Compliance with these
provisions has not had, nor does the Company expect such compliance to have,
any material effect upon the capital expenditures, operations, financial
condition or competitive position of the Company. Management believes that
its current practices and procedures comply with applicable requirements.
Thermoflow is subject to annual inspections by the Nevada Department of
Conservation and Natural Resources, a Division of Environmental Protection
(the "Department"), which evaluates compliance with applicable hazardous
waste management regulations. No violations were reported by the Department
during the 1999 and 2000 inspections, and a 2001 inspection has not yet been
performed. In addition, Thermoflow Corporation has an active Nevada hazardous
material storage permit, though the replacement certificate for the one that
expired on February 28, 2001 has not yet been received from the State.
Finally, Thermoflow was recently awarded an additional permit which allows it
to accept and process at its facility quantities of oily wastewater to render
them harmless for disposal to the sewer system, thus opening a new revenue
generation stream for this business.
Except as set forth below, the Company's significant accounting policies are
as described in the notes to the Company's December 31, 2000 consolidated
financial statements included in the related Form 10-KSB filed with the
Securities and Exchange Commission.
PRINCIPLES OF CONSOLIDATION
The accompanying March 31, 2001 financial statements include the accounts of
the Company and its wholly-owned subsidiaries, except for Distech Limited
which has not been consolidated because of the contingencies that remained in
place at March 31, 2001, as noted above. All significant inter-company
transactions and balances have been eliminated in consolidation. Because the
Thermoflow and Liquitek Corporation subsidiaries were acquired on May 26,
9
2000 and the Interfluid subsidiary was acquired on July 1, 2000, none of
their operations are included in the accompanying unaudited condensed
consolidated statement of operations for the three-month period ended
March 31, 2000.
INTANGIBLE ASSETS OTHER THAN PATENTS
Goodwill and acquired completed technology are amortized on a straight-line
basis over 20 years. Assembled workforce, acquired customer base and other
intangible assets are amortized over 10, 5 and 2 to 3 years, respectively,
on a straight-line basis.
INCOME TAXES
Using the liability method required by Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," the estimated tax
effects of temporary differences between financial and income tax reporting
are recorded in the period in which the events occur. Such differences
between the financial and tax bases of assets and liabilities result in
future tax deductions or taxable income.
Based on management's best estimate of taxable income in the foreseeable
future, it is more likely than not that some portion of deferred income tax
assets, due mostly to net operating loss carryforwards, may not be realized.
As such, management has provided 100% allowances against the deferred tax
asset and deferred tax benefit as of and for the periods ended March 31, 2001
and 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
For the three-month period ended March 31, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended.
Since the Company does not presently engage in activities covered by SFAS
133, there was no significant effect on the Company's March 31, 2001
financial statements.
RECLASSIFICATIONS
Certain amounts in the March 31, 2000 financial statements have been
reclassified to conform to their March 31, 2001 presentation.
3. RELATED PARTY TRANSACTIONS
In connection with the acquisition of Distech Limited (Note 1), the Company
advanced approximately $979,000 to Distech through March 31, 2001. These
advances are due on demand and are non-interest bearing. It is expected that
once the contingencies in the transaction are fulfilled and the acquisition
is recorded in the books of the Company, the inter-company receivable and
payable shown in the books of the Company and Distech will be eliminated in
consolidation.
4. STOCK TRANSACTIONS
On February 15, 2001, the Company reached agreements with Daniel L. Corbin
("Corbin") and Dennis A. Repp ("Repp")whereby each mutually agreed with the
Company to rescind their respective royalty agreements in exchange for
100,000 shares each of the Company's common stock. As a result of these
rescission agreements, the Company, Corbin and Repp were released from all
duties and obligations under the original royalty agreements. As the
Company's common stock had a closing price of $1.50 per share on that date,
the Company recognized stock compensation expense in the amount of $300,000
pertaining to these issuances.
10
On March 22, 2001, the Company completed the sale of 50,000 shares of its
restricted common stock at $3.00 per share under the terms of a private
placement undertaken during the first quarter of 2000 pursuant to Rule 506 of
Regulation D, based upon the offering being made only to "accredited
investors" as defined by Federal securities law.
5. GOING CONCERN/LIQUIDITY CONSIDERATIONS
As discussed in Note 1, the Company is engaged in three businesses:
development of a metal coating process known as "VitriSeal(TM)," recycling
antifreeze, and providing equipment for processing other contaminated fluids
to recycle them or render them harmless to the environment. The Company has
not generated significant revenues in the past. Management expects that the
Company will require significant additional capital to advance the
development of these operations to the point at which they may become
commercially viable. The acquisition of Distech (see Note 1) has required
expansion of our capital resources by a $5,000,000 equity infusion by
September 30, 2001. The Company is presently seeking equity investment
through a private placement offering.
At April 1, 2001, the private placement of a $5 million equity investment in
Liquitek Enterprises, Inc. was fully subscribed by Accelerated Technologies
Fund LLC ("ATF"), an entity organized by Culley W. Davis, the Chairman of the
Board of the Company. ATF's charter is to provide funding for emerging
companies. As of May 1, 2001, ATF had provided approximately $1.8 million to
the Company toward its $5 million commitment.
6. LOSS PER COMMON SHARE
Loss per common and common equivalent share is based on the weighted average
number of shares of common stock and potential common stock outstanding during
the period in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings per Share."
The weighted average numbers of common shares outstanding for the three-month
periods ended March 31, 2001 and 2000 were 38,229,515 and 22,195,435
respectively.
A total of 15,340,104 restricted shares of Common Stock of the Company have
been issued, subject to rescission, in connection with the exchange of shares
with common stockholders of Distech Limited in a tax-free, stock-for-stock
reorganization. Such issuance has not been reflected in the Company's March 31,
2001 financial statements because of contingencies in the acquisition
transaction.
7. SEGMENT INFORMATION
Prior to the acquisitions discussed in Note 1, the Company operated in only
one segment, metal coating, which was then and remains in the development
stage. As of approximately June 1, 2000, the Company had three reportable
segments (see the table below). Except as set forth herein, the segments'
11
significant accounting policies are the same as those described in the notes
to the Company's December 31, 2000 consolidated financial statements included
in the related Form 10-KSB filed with the Securities and Exchange Commission.
Interest expense is not allocated to individual operating segments when
determining segment profit or loss. The Company evaluates performance based
on profit or loss from operations before interest, income taxes and
non-recurring gains and losses.
The Company's reportable segments are strategic business units that offer
different products and services. Each segment is managed separately because
they use different technologies and/or market to distinct classes of
customers.
(Table in Thousands)
Metal Waste
Coating Water Antifreeze
Process Treatment Recycling Unallocated Totals
------- --------- ---------- ----------- ---------
Sales to external
customers $ - $ 61 $ 405 $ - $ 466
Segment loss 336 268 162 764 1,530
Segment assets 619 12,738 11,585 26,502 51,444
Unallocated segment assets in the foregoing table consist primarily of
investments in subsidiaries ($18,730), subsidiary payables to the Company
($6,456) and other assets ($1,316). The former two amounts were eliminated in
consolidation, along with $73 of inter-company receivables and inventory
holdings within a subsidiary. The net of the unallocated segment assets
($26,502 as shown in the table) and the eliminations ($18,730, $6,456 and $73
as described in this paragraph) is $1,243. When this amount is added to the
segment assets in the other segments in the table ($619, $12,738 and
$11,585), the total of $26,185 corresponds to the consolidated total assets
as presented in the balance sheet for March 31, 2001. (All amounts in this
paragraph are in thousands to correspond to the preceding table.)
8. MAJOR CUSTOMERS
For the three-month period ended March 31, 2001, one customer of the
antifreeze recycling segment individually accounted for at least 10% of
consolidated revenues. Further, one customer accounted for all of the
revenues of the waste water treatment segment.
9. SUBSEQUENT EVENTS
In accordance with the month-to-month nature of the consulting contract with
Hamlin Jennings, an independent contractor who provided technical consulting
services to VitriSeal over past four years, his services were terminated as
of April 30, 2001. The termination process and post-termination provisions of
his agreements with the Company are being followed. The Company has replaced
his consulting services with those of a scientist who will carry on the
Company's research and development program as an employee.
12
In conjunction with the termination of the Jennings contract, we have
relocated our laboratory operations to the Detroit area in a facility
adjacent to the pilot production plant established in 2000. The physical
consolidation of research and development and production operations is
expected to benefit the Company. The laboratory space in Evanston, Illinois
that we vacated in this relocation has been placed on the market. With such
space in that area being limited, we anticipate that we will be able to
eliminate most, if not all, of the cost of that facility prior to the
termination of our contract on the space.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Consolidated net revenues for the three-month period ended March 31, 2001,
were $465,835 compared to zero revenues for the comparable period in 2000.
Consolidated cost of sales was $319,195 for the three-month period ended
March 31, 2001 compared to zero for the comparable period in 2000. These data
yield a gross margin of 31.5% for the three-month period ended March 31, 2001
while this measure for the three month period ended March 31, 2000 is
undefined. The 2001 period includes operations from Thermoflow, Liquitek and
Interfluid while the 2000 period contains exclusively VitriSeal operations.
Consolidated operating expenses were $1,661,689 for the three months ended
March 31, 2001 versus $1,403,996 for the comparable period in 2000. The
increase is attributable to an amalgam of increases and decreases, the major
elements of which are (1) more aggressive development of the VitriSeal
product, (2) the consolidation of Thermoflow, Liquitek and Interfluid
operating expenses, (3) the write-off and amortization of intangibles
recorded in connection with the acquisitions of Thermoflow, Liquitek and
Interfluid, (4) the stock compensation associated with the royalty rescission
agreements negotiated with Daniel L. Corbin and Dennis A. Repp and (5) a
reduction in financial consulting service fees associated with the 2000
equity fund raising.
The Company experienced a consolidated net loss and corresponding loss per
share of $1,530,123 and $0.04, respectively, for the three months ended March
31, 2001, compared to a consolidated net loss and loss per share of
$1,377,384 and $0.06, respectively, for the comparable 2000 period.
CAPITAL RESOURCES AND LIQUIDITY
With the Distech acquisition described herein, and with the changes in
management personnel which occurred in late 2000, the primary thrust of our
operating plans for 2001 is to accomplish the transition from development
stage businesses to commercial operations with production, sales and revenue.
Each operating company has recently completed the development of long range
strategic plans and operating plans. Control mechanisms are being put in
place to monitor adherence to these plans. Additional acquisitions may occur,
but only under compelling circumstances that would enhance the performance of
the businesses already owned.
The 2001 Operating Plan for VitriSeal, Inc. contemplates revenue from
contract coating in our Detroit plant for a variety of forged, fabricated,
extruded and sheet aluminum products. Over the ensuing three years, we expect
to enlarge the volumes of these contract-coating services and license the use
of our technology in the plants of customers. The ongoing research and
development program will address definition of the characteristics of the
coating, applying the coating to different forms of aluminum and
experimenting with coatings for other metals.
The 2001 Operating Plan for Thermoflow Corporation calls for significant
growth in the utilization of the capacity of the Las Vegas plant. We also
14
plan to combine waste water treatment with waste antifreeze treatment in the
Las Vegas facility. We expect to be at 100% of practical capacity sometime in
2002. We also expect to start building a second plant in 2002 and additional
plants as we achieve capacity operations in each successive plant.
The Liquitek Corporation 2001 Operating Plan envisages revenues from the sale
and/or engineering of small-, intermediate- and large-scale fluid treatment
systems using the Company's technologies. Growth through the next three years
is expected to come from these same product lines with greater volumes
following a reputation for successful implementations through earlier years'
sales.
The Distech Limited 2001 Operating Plan provides for sales of the D-50 model
and derivatives thereof, models producing approximately 50 U.S. gallons of
treated water per hour, in remediation, water bottling, desalination,
closed-loop recycling and institutional markets. The research and development
program will support these sales objectives and will expand the product line
through development of larger scale equipment. Future years' sales will grow
as the product reputation spreads and will be augmented by products in the
D-1000 and D-3000 series, models that will produce 1,000 and 3,000 U.S.
gallons of treated water per hour, respectively.
The operating plans for 2001 project that all of our businesses will generate
revenue, some for the first time. There are clearly risks associated with
these assessments. We cannot know for certain at this point that the market
will accept our product offerings, particularly when several of the products
previously have not even been offered for sale. Nevertheless, management
believes that the efficacy and consumer economics of these products will
allow us to reach our goals.
All Distech sales, financing and other significant transactions will be
transacted in U.S. dollars. As such, the Company does not foresee any
significant risks arising out of fluctuations of foreign currency exchange
rates.
The Company expects to raise additional capital within the next twelve months
to fund further development of present and anticipated operations. The
acquisition of Distech has required expansion of our capital resources by a
$5,000,000 equity infusion by September 30, 2001. The Company is presently
seeking equity investment through a private placement offering.
At April 1, 2001, the private placement of a $5 million equity investment in
Liquitek Enterprises, Inc. was fully subscribed by Accelerated Technologies
Fund LLC ("ATF"), an entity organized by Culley W. Davis, the Chairman of the
Board of the Company. ATF's charter is to provide funding for emerging
companies. As of May 1, 2001, ATF had provided approximately $1.8 million to
the Company toward its $5 million commitment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not presently hold any investment instruments. The Company
has entered into certain credit relationships as disclosed herein. All of our
transactions are denominated in U.S. dollars.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On February 15, 2001, the Company issued 100,000 shares each to Daniel L.
Corbin and Dennis A. Repp as consideration for agreements to rescind the
royalty agreements previously existing between each of them and the Company.
These shares were recorded at a value of $1.50 per share, which was the
closing market price on the day the agreements were reached.
On March 22, 2001, the Company completed the sale of 50,000 shares of its
restricted common stock at $3.00 per share under the terms of a private
placement undertaken during the first quarter of 2000 pursuant to Rule 506 of
Regulation D, based upon the offering being made only to "accredited investors"
as defined by Federal securities law.
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) Exhibits.*
None.
(b) Reports on Form 8-K.
Forms 8-K and 8-K/A dated February 12, 2001 regarding the
acquisition of Distech Limited.
* A summary of any Exhibit is modified in its entirety by reference to
the actual Exhibit.
16
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.
LIQUITEK ENTERPRISES INC.
Date: 05/15/01 BY:/s/ LESTER W. B. MOORE
--------------------------------------------
Lester W. B. Moore, Chief Executive Officer
Date: 05/15/01 BY:/s/ JOHN W. NAGEL
--------------------------------------------
John W. Nagel, Chief Financial Officer
17