<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------- -------------
Commission File No. 02-99110
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 Draper Parkway
Draper, Utah 84020
----------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 553-8785
------------------------------------------------------------------
(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:
September 30, 2000: Common Stock - 38,008,071 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in
Item 6 of this Report.
Transitional Small Business Issuer Format Yes / / No /X/
<PAGE>
LIQUITEK ENTERPRISES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Condensed Consolidated Balance Sheet as of September 30, 2000 4
Condensed Consolidated Statements of Operations for the Three-month and
Nine-month periods ended September 30, 2000 and 1999. 5
Condensed Consolidated Statements of Cash Flows for the Nine-month periods
ended September 30, 2000 and 1999. 6
Notes to Condensed Consolidated Financial Statements for the Three-month
and Nine-month periods ended September 30, 2000 and 1999. 8
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Management of Liquitek Enterprises Inc. ("we," "us," "Company") prepared the
condensed consolidated financial statements together with related notes that are
filed with this Form 10-QSB Quarterly Report. In the opinion of management,
these financial statements fairly present the financial condition of the
Company, but should be read in conjunction with the financial statements for the
year ended December 31, 1999 previously filed with the Securities and Exchange
Commission.
3
<PAGE>
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash $ 650,411
Accounts receivable 153,697
Inventory, net 111,934
Prepaid expenses and other assets 255,253
------------
Total Current Assets 1,171,295
Property and equipment, net 2,667,538
Acquired completed technology, net of accumulated amortization 10,673,314
Goodwill, net of accumulated amortization 10,289,210
Patents and other intangibles, net of accumulated amortization 891,162
Advances to company being acquired 500,000
Advances to related parties 24,666
------------
TOTAL ASSETS $ 26,217,185
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 319,639
Deferred income taxes, current portion 280,000
------------
Total current liabilities 599,639
Deferred income taxes 3,800,000
Stockholders' Equity
Common stock, par value $.001/ share, 100,000,000
shares authorized, 38,008,071 outstanding 38,008
Additional paid-in capital 31,190,679
Subscriptions, stock options and deferred compensation 630,336
Accumulated deficit (10,041,477)
------------
Total stockholders' equity 21,817,546
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,217,185
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sales $ 393,914 $ -- $ 524,525 $ --
Cost of Sales 303,568 -- 403,697 --
----------- ----------- ----------- -----------
Gross profit 90,346 -- 120,828 --
Operating Expenses
Selling and distribution expenses 151,043 -- 194,801 --
General and administrative expenses 888,107 124,788 3,197,926 467,705
Research and development expenses 139,977 225,280 1,375,528 622,943
----------- ----------- ----------- -----------
1,179,127 350,068 4,768,255 1,090,648
Loss before interest and income tax benefit (1,088,781) (350,068) (4,647,427) (1,090,648)
Interest income, net 18,852 3,795 97,756 13,895
Income tax benefit
Current -- -- -- --
Deferred 389,000 128,000 1,673,000 400,000
Less valuation allowance (389,000) (128,000) (1,673,000) (400,000)
----------- ----------- ----------- -----------
Net (loss) $(1,069,930) $ (346,273) $(4,549,671) $(1,076,753)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.03) $ (0.02) $ (0.15) $ (0.05)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
<PAGE>
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (4,549,671) $ (1,076,753)
Adjustments to reconcile net (loss) to net cash used
by operating activities:
Depreciation and amortization 1,407,097 16,274
Acquired in-process research and development 970,000 --
Stock options 108,336 25,725
Changes in operating assets and liabilities:
Accounts receivable (99,042) --
Inventories (53,098) --
Prepaid expenses and other assets (14,626) (1,324)
Accounts payable and accrued expenses (147,575) 19,109
------------ ------------
Net cash (used) by operating activities (2,378,578) (1,016,969)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from companies acquired 70,867 --
Acquisition of Subsidiary Company (50,000) --
Advances to companies being acquired (1,249,316) --
Acquisition of property and equipment (855,417) (22,357)
Capitalized patent costs and Other Technologies (995,563) (31,392)
------------ ------------
Net cash (used) by investing activities (3,079,430) (53,749)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to related parties (24,666) (331,000)
Proceeds from issuance of common stock 6,727,999 1,540,000
Repayment of debt assumed in acquisition (961,481) --
------------ ------------
Net cash provided by financing activities 5,741,852 1,209,000
------------ ------------
NET INCREASE IN CASH 283,845 138,282
CASH AT BEGINNING OF PERIOD 366,566 28,900
------------ ------------
CASH AT END OF PERIOD $ 650,411 $ 167,182
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
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LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash activity:
Conversion of advances from related parties to common stock $ -- $ 169,000
============ ============
Acquisition of Thermoflow Corporation, Liquitek Corporation,
and Interfluid Recycling, Inc.
Property, plant and equipment 1,823,593 --
Completed technology 10,828,000 --
Other intangible assets 770,027 --
Notes payable and other debt (1,759,731) --
Deferred income taxes (4,080,000) --
Acquired in-process research and development 970,000 --
Other, net (284,976) --
Goodwill 10,463,000 --
------------ ------------
Issuance of common stock and warrants $ 18,729,913 $ --
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
7
<PAGE>
LIQUITEK ENTERPRISES INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements For the
Three-month and Nine-month Periods Ended September 30, 2000 and 1999.
1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION
NATURE OF BUSINESS
On July 1, 2000, we completed the acquisition of Interfluid Recycling,
Inc.("Interfluid"). In conjunction with that acquisition, we issued 200,000
shares of restricted common stock and paid $50,000 cash in exchange for all of
the outstanding shares of Interfluid Recycling, Inc. Thereupon, Interfluid
Recycling, Inc. became a wholly owned subsidiary of VitriSeal, Inc. In
connection with this tax-free transaction, the Company has executed an
employment agreement with a former Interfluid stockholder. Such agreement, which
is scheduled to expire in June 2003, provides for a minimum annual salary of
$120,000 plus certain benefits. During the period ending two years after
termination of his employment, such employee has agreed to comply with certain
non-compete covenants included in the employment agreement. (See Note 3.)
On July 31, 2000, we changed our name from VitriSeal, Inc. to Liquitek
Enterprises, Inc. because of our recent expansion through the second quarter
acquisitions of Thermoflow Corporation ("Thermoflow") and Liquitek
Corporation ("Liquitek"), plus the acquisition described above. Our stock
symbol changed from "VTSL" to "LQTK" in conjunction with the name change. The
name change was implemented to reflect our ownership of a suite of
complementary technologies we can use to solve a variety of liquid separation
and purification problems, including industrial wastewater, drinking water,
ultra pure water, and desalination solutions. We also changed the name of
Dancor, Inc., one of our wholly-owned subsidiaries, to VitriSeal, Inc. to
coincide with its VitriSeal-TM- coating process.
Thermoflow Corporation 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. Management believes that this
technology, which is licensed from a stockholder of the Company (see Note 8),
is not currently the subject of any active patents.
Interfluid Recycling, Inc. operates a closed-loop waste antifreeze collection
and recycled antifreeze distribution system in the San Diego, California area.
Subsequent to the acquisition we added to Interfluid's operations a transfer
station for the collection of waste antifreeze and long haul trucking for bulk
transportation of both waste and recycled antifreeze. This company 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. Liquitek has also developed a
8
<PAGE>
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 upon completion of its Japanese testing.
VitriSeal, Inc., i.e., the subsidiary of the Company, owns the rights for a
series of patented processes and proprietary know-how called VitriSeal-TM-.
The process is based on inorganic silicate chemistry that makes superior,
hard, bright, clear, corrosion-protective coatings on metal surfaces at a
fraction of the cost of other clear coatings.
We remain under a letter of intent with Distech Limited, a New Zealand
corporation with offices in Auckland, New Zealand and a U.S. subsidiary in
Redwood City, California ("Distech"), for the acquisition of all of the
shares of stock of Distech. Distech has developed unique, state-of-the-art
water distillation equipment called the "V-Still." The V-Still combines the
benefits of vacuum distillation for low-temperature evaporation and vapor
recompression 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. Distech believes that features such as automatic
clean-in-place, remote system management over telecommunication links,
minimal water pre-treatment, compact size and small foot print, and
competitive pricing portend a strong market position for Distech's V-Still
equipment. The terms of the letter of intent provide for the issuance of
16,200,000 shares of the Company's restricted common stock for all of the
shares of Distech, conditioned upon the satisfactory completion of a period
of due diligence to evaluate the Distech technology. During the quarter ended
September 30, 2000, we advanced Distech $500,000. The advance is due on
demand and is non-interest bearing.
REORGANIZATION
In March of 1999, our predecessor entity, Dancor, Inc., completed a reverse
acquisition with a publicly traded company; such merger is hereinafter referred
to as the "Reorganization."
BASIS OF PRESENTATION
We prepared our condensed consolidated financial statements for the
three-month and nine-month periods ended September 30, 2000 and 1999 without
audit by our independent auditors. In the opinion of management, all
adjustments necessary to present fairly the Company's financial position as
of September 30, 2000, the results of operations for the three-month and
nine-month periods ended September 30, 2000 and 1999, and the cash flows for
the nine-month periods ended September 30, 2000 and 1999 have been made.
Except as described in Note 3, 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. The accompanying
9
<PAGE>
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in our Form 10-KSB annual
report for 1999 previously filed with the Securities and Exchange Commission.
The results of operations for the three-month and nine-month periods ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year.
2. CERTAIN 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 adverse 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 January 2000 inspections. In addition, Thermoflow Corporation has an
active Nevada hazardous material storage permit that expires on February 28,
2001.
Except as set forth below, the Company's significant accounting policies are as
described in the notes to the Company's December 31, 1999 financial statements
included in the related Form 10-KSB filed with the Securities and Exchange
Commission.
PRINCIPLES OF CONSOLIDATION
The accompanying September 30, 2000 financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The operations of the
subsidiaries acquired on May 26, 2000 and July 1, 2000 are included in the
accompanying statements of operations from such dates. All significant
inter-company transactions are eliminated in consolidation.
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 2-3 years, respectively, on a
straight-line basis.
10
<PAGE>
3. ACQUISITION OF INTERFLUID
The Company has accounted for the acquisition of Interfluid Recycling, Inc.
using the purchase method of accounting. The total purchase consideration of
approximately $305,000 was allocated as follows, based on the July 1, 2000
estimated fair value of the net assets acquired:
<TABLE>
<S> <C>
Non-compete covenant $ 25,000
Established customer base 309,027
Goodwill 116,000
Property and equipment 69,051
Other, net (1,301)
Debt assumed (96,782)
Deferred income taxes (116,000)
---------
Total $ 304,995
=========
</TABLE>
The above purchase price allocation is preliminary and is based only on
management's estimates; thus, it is subject to adjustment during the allocation
period.
The purchase price is based in part on the estimated fair value of the
Company's restricted common stock issued in the acquisition in conformity
with the valuation concepts used in the previous quarter for the Thermoflow
and Liquitek acquisitions. Such value has been estimated at approximately
$1.27 per share, considering blockage and restrictions on sales of such stock.
The table below reflects certain pro forma information as though the Interfluid,
Thermoflow and Liquitek acquisitions (all of which were recorded using the
purchase method of accounting) occurred at the beginning of each period
presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales 1,120,000 820,000
Loss from continuing operations/net loss (4,780,000) (2,825,000)
Loss per common share, basic and diluted (0.12) (0.08)
</TABLE>
Interfluid's sales approximated $325,000 and 255,000 for the nine month periods
ended September 30, 2000 and 1999, respectively. Interfluid's net income or loss
for such periods is not material to the accompanying financial statements.
4. STOCK OPTIONS AND WARRANTS
In May, 1999 and February, 2000, the Company granted non-statutory stock options
to purchase 1,225,000 post-Reorganization shares of our Common Stock to certain
employees, directors, and outside consultants at an exercise price
11
<PAGE>
of $1.75 per share. Such options, which expire on June 30, 2009, became
exercisable on the date of grant. In connection with the second quarter
acquisitions of Thermoflow and Liquitek, the Company granted non-statutory
options to purchase a total of 775,000 shares of its restricted common stock to
certain related parties. These latter options, which have an exercise price of
$2.00 per share and expire on March 31, 2010, vested on May 26, 2000. Management
has accounted for these options in accordance with the Company's previously
disclosed accounting policies. The Company has not adopted a stock option plan
beyond these specific options.
The warrants issued to former Thermoflow Corporation stockholders as part of the
second quarter acquisition of Thermoflow allow their owners to purchase 360,000
shares of the Company's restricted common stock at $1.00 per share and 38,500
shares of such stock at $2.50 per share. Such warrants expire in May, 2002.
5. INCOME TAXES
The Company files its income tax returns using the cash basis of accounting. For
the period April 16, 1992 (inception) through May 25, 2000, the Company was
considered a start-up entity for federal and state income tax purposes. As a
result, research/development and start-up expenses have historically been
capitalized for tax purposes while such costs are expensed as incurred for
financial reporting purposes. This item and the matters described in the
following paragraphs are the only significant temporary differences
between the business and tax accounting records at September 30, 2000.
Since the acquisition was a non-taxable transaction, the predecessor tax bases
of Interfluid's assets are carried forward for income tax purposes. Therefore,
the amortization/depreciation of the purchase consideration allocated to certain
assets acquired described in Note 3 is not deductible by the Company in its
future income tax returns. To account for such temporary differences, the
Company has recorded a deferred tax liability (representing additional goodwill)
of $116,000 as required by GAAP.
As disclosed in the Company's June 30, 2000 Form 10-QSB, the non-taxable
acquisition of Thermoflow and Liquitek resulted in significant temporary
differences of the type discussed in the preceding paragraph.
6. 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," recycling
antifreeze, and 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 generate operating cash flow. While
this need had been previously anticipated for early 2001, the acquisition of
Distech (see Note 1), should it come to pass, would require earlier expansion
of our capital resources. In anticipation of that acquisition, the Company is
presently seeking equity investment through a private placement offering.
12
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7. 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 (as retroactively
adjusted for the effect of the Reorganization) 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 quarters ended
September 30, 2000 and 1999 were 37,951,247 and 20,839,190 respectively, and for
the nine-month periods ended September 30, 2000 and 1999, 29,674,315 and
20,782,126 respectively.
8. TECHNOLOGY LICENSING AGREEMENT WITH STOCKHOLDER
In April 1999, Thermoflow Corporation entered into an Exclusive World-wide
Technology and Know-how Licensing Agreement (the "Licensing Agreement") with a
then Thermoflow stockholder, who is now a stockholder of the Company. Under the
terms of the Licensing Agreement, the technology described in Note 1 was
licensed to Thermoflow in exchange for an annual royalty equal to the greater of
$60,000 or 2% of net sales (as defined) through December 31, 2020. At that time,
absent earlier termination, all of the rights to and interest in such technology
will vest in Thermoflow Corporation.
At September 30, 2000, prepaid royalties to such stockholder were $150,000.
9. SEGMENT INFORMATION
Prior to the acquisitions discussed in Note 1, the Company operated in only one
segment - metal coating, which is in the development stage. As of approximately
June 1, 2000, the Company had three reportable segments; see the table below.
Except as set forth in the next sentence, the segments' significant accounting
policies are the same as those described in the notes to the Company's December
31, 1999 financial statements included in the related Form 10-KSB filed with the
Securities and Exchange Commission. Interest income and parent company overhead
are 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.
The following table, which sets forth certain information as of September 30,
2000 or for the nine months then ended, includes operations of the
revenue-producing segments only for the months of June through September 2000.
<TABLE>
<CAPTION>
(In thousands)
Metal Waste
Coating Water Antifreeze
Process Treatment Recycling Unallocated Total
------- --------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Sales to external
customers $ -- $ 26 $ 499 $ -- $ 525
Segment loss 1,095 1,354 241 1,957 4,647
Segment assets 580 12,937 11,309 24,655 49,481
</TABLE>
Unallocated segment assets consist primarily of investments in subsidiaries
(approximately $18.7 million), subsidiary payables to the Company (approximately
$4.7 million), and other assets (approximately $1.2 million). The former two
amounts were eliminated in consolidation.
MAJOR CUSTOMERS
For the quarter ended September 30, 2000, two customers 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.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ACQUISITION OF INTERFLUID RECYCLING, INC.
As described more fully in Item 1 of this report, the Company completed the
acquisition of Interfluid Recycling, Inc. on July 1, 2000.
RESULTS OF OPERATIONS
Consolidated net revenues for the three-month and nine-month periods ended
September 30, 2000, were $393,914 and $524,525, respectively, compared to
zero revenues for the comparable periods in 1999. Consolidated cost of sales
was $303,568 for the three-month and $403,697 for the nine-month periods
ended September 30, 2000 compared to zero for the comparable periods in 1999.
These data yield gross margins of 23% and 23% for the three-month and
nine-month periods for the year 2000. The 2000 periods include operations
from Thermoflow, Liquitek and Interfluid while the 1999 periods contain
exclusively VitriSeal operations.
Consolidated operating expenses were $1,179,127 for the three months ended
September 30, 2000 versus $350,068 for the comparable period in 1999. Such
expenses were $4,768,255 for the nine months ended September 30, 2000 versus
$1,090,648 for the comparable period in 1999. These increases are
attributable to (1.) more aggressive development of the VitriSeal product,
(2.) the consolidation of Thermoflow, Liquitek and Interfluid operating
expenses, and (3.) the write-off and amortization of intangibles recorded in
connection with the acquisitions of Thermoflow, Liquitek and Interfluid. In
particular, $970,000 was associated with in-process research and development
for the carwash water recycling technology being developed by Liquitek. While
this was recorded as an acquired intangible asset in the second quarter,
2000, it was concurrently fully written off in accordance with generally
accepted accounting principles requiring write-off of acquired in-process
research and development expenses at purchase when the related technology is
not expected to have any alternative future uses.
The Company experienced a consolidated net loss and corresponding loss per
share of $1,069,930 and $0.03, respectively, for the three months ended
September 30, 2000, compared to a consolidated net loss and loss per share of
$346,273 and $0.02, respectively, for the comparable 1999 period. The Company
experienced a consolidated net loss and corresponding loss per share of
$4,549,670 and $0.15, respectively, for the nine months ended September 30,
2000, compared to a consolidated net loss and loss per share of $1,076,753
and $0.05, respectively, for the comparable 1999 period.
LIQUIDITY
The Company expects to raise additional capital within the next twelve months to
fund further development of present and anticipated operations.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On July 1, 2000, we completed the acquisition of Interfluid Recycling, Inc. In
conjunction therewith, we issued 200,000 shares of common stock and paid $50,000
cash for all of the outstanding shares of Interfluid Recycling, Inc.
None of the shares issued to Interfluid Recycling, Inc. stockholders were
registered under the Securities Act of 1933 at the time of their issuance. In
conjunction with a lock-up agreement, we have agreed to register all 200,000
of the shares issued to Interfluid Recycling, Inc. stockholders on Form S-3
on or before November 1, 2000 ("Registration Statement"). Such registration
statement has not yet been filed.
The lock-up agreement provides that the stockholders will be permitted to
sell no more than 25% of their Liquitek Shares in the six months following
the effective date of the Registration Statement (the "Registration Date"),
no more than 25% of their Liquitek Shares during the period beginning six
months after the Registration Date until 12 months after the Registration
Date, and no more than 25% of their Liquitek Shares during the period
beginning 18 months after the Registration Date until 24 months after the
Registration Date.
On September 19, 2000, the Company filed a Form 8-A to register all of the
common stock of the Company pursuant to Rule 12(g) of the Securities and
Exchange Act of 1934.
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.
The Company filed a Form 8-K/A on August 9, 2000, which amended the
Form 8-K filed on June 12, 2000, regarding the company's acquisition
of Thermoflow and Liquitek Corporations. The Form 8-K/A is
incorporated herein by this reference.
* A summary of any Exhibit is modified in its entirety by Reference to
the actual Exhibit.
15
<PAGE>
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: 11/20/00 BY: /s/ LESTER W. B. MOORE
--------------------------------
Chief Executive Officer
Date: 11/20/00 BY: /s/ JOHN W. NAGEL
--------------------------------
Chief Financial Officer
16
