<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 June 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)
12226 South 1000 East, Suite 9
Draper, Utah 84020
--------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 553-8785
(Former name, changed since last report)
VITRISEAL INC.
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:
June 30, 2000: Common Stock - 37,808,071 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
--- ---
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LIQUITEK ENTERPRISES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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Page
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 4
Condensed Consolidated Balance Sheet as of June 30, 2000 4
Condensed Consolidated Statements of Operations for the Three-month and
Six-month periods ended June 30, 2000 and 1999. 5
Condensed Consolidated Statements of Cash Flows for the Three-month periods ended
June 30, 2000 and 1999. 6
Notes to June 30, 2000 and 1999 Condensed Consolidated Financial
Statements. 7
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations 15
PART II. OTHER INFORMATION 16
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
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</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Management of Liquitek Enterprises Inc. ("we," "us," "Company") prepared
the unaudited condensed consolidated financial statements together with the
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
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LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
(FORMERLY VITRISEAL, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
CASH $ 2,611,415
ACCOUNTS RECEIVABLE 140,705
INVENTORY, NET 49,468
PREPAID EXPENSES AND OTHER ASSETS 217,892
-------------
TOTAL CURRENT ASSETS 3,019,480
PROPERTY AND EQUIPMENT, NET 2,333,467
OTHER NONCURRENT ASSETS, NET OF ACCUMULATED AMORTIZATION:
ACQUIRED COMPLETED TECHNOLOGY 10,789,329
GOODWILL 10,304,298
PATENTS AND OTHER INTANGIBLES 597,728
-------------
TOTAL ASSETS $ 27,044,302
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 487,406
DEFERRED INCOME TAXES, CURRENT PORTION 198,000
-------------
TOTAL CURRENT LIABILITIES 685,406
DEFERRED INCOME TAXES 3,766,000
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.001/ SHARE, 100,000,000 SHARES AUTHORIZED,
37,808,071 SHARES ISSUED AND OUTSTANDING 37,808
ADDITIONAL PAID-IN CAPITAL 30,935,885
SUBSCRIPTIONS, STOCK OPTIONS AND DEFERRED COMPENSATION 590,750
ACCUMULATED DEFICIT (8,971,547)
-------------
TOTAL STOCKHOLDERS' EQUITY 22,592,896
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,044,302
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
4
<PAGE>
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
(FORMERLY VITRISEAL, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30, SIX MONTHS ENDED SIX MONTHS ENDED
2000 1999 JUNE 30, 2000 JUNE 30, 1999
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
SALES $ 130,610 $ - $ 130,610 $ -
COST OF SALES 100,128 - 100,128 -
------------ ------------- ----------- -----------
GROSS PROFIT 30,482 - 30,482 -
OPERATING EXPENSES
SELLING AND DISTRIBUTION EXPENSES 43,758 - 43,758 -
GENERAL AND ADMINISTRATIVE EXPENSES 1,041,958 238,694 2,310,072 342,917
RESEARCH AND DEVELOPMENT EXPENSES:
ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT 970,000 - 970,000 -
OTHER 129,416 224,233 265,551 397,662
------------ ---------- ---------- ---------
2,185,132 462,927 3,589,381 740,579
LOSS BEFORE INTEREST AND INCOME TAX BENEFIT (2,154,650) (462,927) (3,558,899) (740,579)
INTEREST INCOME, NET 52,292 6,695 78,904 10,100
INCOME TAX BENEFIT
CURRENT - - - -
DEFERRED 778,000 168,000 1,288,000 272,000
LESS VALUATION ALLOWANCE (778,000) (168,000) (1,288,000) (272,000)
------------ ---------- ---------- ------------
NET (LOSS) $ (2,102,358) $(456,232) $(3,479,995) $ (730,479)
============ =========== =========== ============
BASIC AND DILUTED LOSS PER SHARE $ (0.07) $ (0.02) $ (0.14) $ (0.04)
============ =========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
LIQUITEK ENTERPRISES, INC. AND SUBSIDIARIES
(FORMERLY VITRISEAL, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) $ (2,102,358) $ (456,232)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO NET CASH USED
BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 102,439 6,943
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT 970,000
STOCK OPTIONS 365,750 12,863
CHANGES IN CURRENT ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (100,837) -
INVENTORY, PREPAID EXPENSES, AND OTHER (15,537) -
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (271,463) 93,152
------------ ----------
NET CASH (USED) BY OPERATING ACTIVITIES (1,052,006) (343,274)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FROM COMPANIES ACQUIRED 55,063 -
ACQUISITION OF PROPERTY AND EQUIPMENT (477,393) (16,145)
CAPITALIZED PATENT COSTS (3,473) (22,836)
------------ ----------
NET CASH (USED) BY INVESTING ACTIVITIES (425,803) (38,981)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
REPAYMENT OF DEBT ASSUMED IN ACQUISITION (996,949) -
------------ ----------
NET CASH (USED) BY FINANCING ACTIVITIES (996,949) -
------------ ----------
NET (DECREASE) IN CASH (2,474,758) (382,255)
CASH AT BEGINNING OF PERIOD 5,086,173 980,119
------------ ----------
CASH AT END OF PERIOD $ 2,611,415 $ 597,864
============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NON-CASH ACTIVITIES:
ACQUISITION OF THERMOFLOW CORPORATION AND LIQUITEK, INC.:
PROPERTY, PLANT AND EQUIPMENT 1,754,542 -
COMPLETED TECHNOLOGY 10,828,000 -
OTHER INTANGIBLES 436,000 -
NOTES PAYABLE AND OTHER DEBT (1,662,949) -
DEFERRED INCOME TAXES (3,964,000) -
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT 970,000 -
OTHER, NET (283,675) -
GOODWILL 10,347,000 -
------------ ----------
ISSUANCE OF COMMON STOCK AND WARRANTS $ 18,424,918 $ -
============ ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
6
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LIQUITEK ENTERPRISES INC. AND SUBSIDIARIES
Notes to the June 30, 2000 and 1999 Unaudited Condensed Consolidated Financial
Statements
1. ACQUISITION/NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION
Acquisition/Nature of Business
------------------------------
On May 26, 2000, Liquitek Enterprises, Inc. (the "Company") completed the
acquisitions of Thermoflow Corporation and Liquitek Corporation. In
conjunction with the acquisitions, the Company issued 9,661,500 shares of
common stock for all the shares of Thermoflow Corporation and 5,000,000
shares for the 50% of the shares of Liquitek Corporation not owned by
Thermoflow Corporation. In addition, the Company issued 398,500 common stock
purchase warrants in replacement of outstanding Thermoflow Corporation
warrants. Thereupon, Thermoflow Corporation and Liquitek Corporation became
wholly owned subsidiaries of VitriSeal, Inc. These transactions are sometimes
collectively referred to herein as "the Merger." See Note 3.
On July 31, 2000, VitriSeal, Inc. changed its name to Liquitek Enterprises,
Inc. because of the recent expansion through acquisitions. The Company's
stock symbol changed from "VTSL" to "LQTK" in conjunction with the name
change. The name change was implemented to reflect the Company's ownership of
a suite of complementary technologies the Company can utilize to solve a
variety of liquid separation and purification problems, including industrial
wastewater, drinking water, ultra pure water, and desalination solutions. The
Company also changed the name of Dancor, Inc. (a wholly-owned subsidiary) 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 (Note 8), is not currently the
subject of any active patents.
Liquitek Corporation has licensed a proprietary oily wastewater treatment system
to Hawaii's largest recycling company. Liquitek has also developed a proprietary
system for recycling carwash wastewater. Liquitek has tested a system in
Hiroshima, Japan and has recently completed its second-generation model for
further testing in Japan. 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 to 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.
7
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The Company has recently entered into a letter of intent with Distech
Limited, a New Zealand corporation with offices in Auckland, New Zealand and
its U.S. subsidiary located in Redwood City, California ("Distech"), for the
acquisition of all of the shares of stock of Distech. 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 due diligence to evaluate the Distech
technology. Distech has developed unique, state-of-the-art water distillation
equipment called the "V-Still." The V-Still incorporates vacuum mechanical
vapor recompression technology, combining 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
telecommunications 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.
Reorganization
-----------------
In March of 1999, our predecessor entity (Dancor, Inc.) completed a reverse
acquisition with a publicly traded company; this transaction is hereinafter
referred to as the "Reorganization."
Basis of Presentation
-----------------
The Company prepared its condensed consolidated financial statements for the
three-month and six-month periods ended June 30, 2000 and 1999 without audit
by our independent auditors. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations,
and cash flows of the Company as of June 30, 2000 and for the three-month and
six-month periods ended June 30, 2000 and 1999 have been made. Such
adjustments consist only of normal recurring adjustments, except for the
write-off of in-process research and development acquired from Liquitek
Corporation. (see Note 3.)
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 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. See Note 2.
The acquisition of Thermoflow Corporation results in the recognition of
operating revenues by the Company. Accordingly, the Company will no longer
report as a "development stage company" as has heretofore been required by
GAAP.
8
<PAGE>
The results of operations for the three-month and six-month periods ended June
30, 2000 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 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 Corporation 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 materials 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 June 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 are included in the accompanying June
30, 2000, statement of operations from such date. All significant
intercompany 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 and other intangible assets are
amortized over 10 years and 2-3 years, respectively, on a straight-line basis.
Acquired in-process research and development was valued and recorded, but
immediately fully written off in accordance with GAAP treatment for expensing
as incurred all research and development expenditures.
9
<PAGE>
3. ACQUISITION OF THERMOFLOW AND LIQUITEK
The Company has accounted for the acquisitions described in Note 1 using the
purchase method of accounting. The total purchase consideration of
approximately $18,425,000 was allocated as follows, based on the May 26, 2000
estimated fair value of the net assets acquired:
<TABLE>
<CAPTION>
<S> <C>
Completed Technology $ 10,828,000
Goodwill 10,347,000
Other intangible assets 436,000
In-process research and
development (written off) 970,000
Property, plant and equipment 1,755,000
Other, net (284,000)
Debt assumed (1,663,000)
Deferred income taxes (3,964,000)
------------
Total $ 18,425,000
============
</TABLE>
The purchase price allocation set forth above is based in part on a
third-party valuation of the estimated fair value of the Company's restricted
common stock issued in the Merger. Such value has been estimated at
approximately $1.23 per share, considering blockage and restrictions on sales
of such stock.
The estimated fair value of in-process research and development has been
immediately expensed because the related technology is not expected to have
any alternative future uses.
The table below reflects certain pro forma information as though the Merger
occurred at the beginning of each period presented:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenue $ 525,000 $ 388,000
Loss from continuing operations/net loss 3,680,000 2,479,000
Loss per common share, basic and diluted (0.14) (0.07)
</TABLE>
10
<PAGE>
On August 9, 2000, the Company filed with the Securities and Exchange
Commission a form 8-K/A which reported certain unaudited pro forma financial
information relating to the Merger. As stated therein, such information
(including the purchase price allocation) was based on management's
preliminary estimates. The revised purchase price allocation set forth in
this note reflects an increase in goodwill of approximately $4.8 million, as
compared to the preliminary estimate of goodwill reported in the March 31,
2000 pro forma combined balance sheet included in the aforementioned Form
8-K/A. Such increase is principally attributable to (a) deferred income taxes
(see Note 5) and (b) finalization of the independent valuation of the
estimated fair value of net assets acquired.
As a result of the matters described in the preceeding paragraph, the
unaudited pro forma combined 1999 statement of operations before
extraordinary credit included in the aforementioned Form 8-K/A has been
revised as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Loss from operations $ 3,454,000
============
Loss before extraordinary
credit $ 3,560,000
============
Basic and diluted loss per
common share before
extraordinary credit $ 0.10
============
</TABLE>
Because of the finalization of the purchase price allocation, additional pro
forma depreciation and amortization expense is reflected, which increased the
pro forma combined loss before extraordinary credit by approximately $313,000
($0.01 per share).
4. STOCK OPTIONS AND WARRANTS
In connection with the Merger, the Company had previously authorized
non-statutory options to purchase a total of 775,000 shares of its restricted
common stock to certain related parties. When the Merger was consummated on
May 26, 2000, such options were granted. The options, which have an exercise
price of $2.00 per share and expire on March 31, 2010, vested on the grant
date. 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 and those granted
in 1999 and February of 2000.
The warrants issued to former Thermoflow Corporation stockholders in the
Merger (see Note 1) 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.
11
<PAGE>
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 26, 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. Except as described in the following paragraph,
this is the only significant temporary difference at June 30, 2000.
Since the Merger was a non-taxable transaction, the predecessor tax bases of
Thermoflow's and Liquitek'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 approximately $4.0 million as required
by GAAP.
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 may
become commercially viable. 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.
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
12
<PAGE>
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 June 30, 2000 and 1999 were 28,785,307 and 20,839,190 respectively, and
for the six-month periods ended June 30, 2000 and 1999, were 25,490,371 and
20,753,121 respectively.
8. TECHNOLOGY LICENSING AGREEMENT WITH STOCKHOLDER
In April 1999, Thermoflow Corporation entered into an Exclusive Worldwide
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 June 30, 2000, prepaid royalties to such stockholder were $150,000.
Note 9 - Segment Information
Prior to the acquisitions discussed in Note 1, the Company operated in only
one segment--metal coating, which is presently in the development stage. As of
approximately June 1, 2000, the Company had three reportable segments; see the
tables 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 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
nonrecurring 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 market to distinct classes of customers.
The information in the following tables includes operations of the
revenue-producing segments only for the month of June 2000. The losses for
the metal coating process for the months of April and May, 2000, approximated
$426,000.
13
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<TABLE>
<CAPTION>
(Tables in thousands)
Metal Waste
Coating Water Antifreeze
Process Treatment Recycling Unallocated
------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Sales to external customers $ - $ - $ 131 $ -
Segment loss $ 243 $ 140 $ 26 $ 1,267*
Segment assets $ 382 $ 13,232 $ 10,772 $ 2,658
</TABLE>
* This item includes $297,000 of stock option expense and $970,000 of
acquired in-process research and development expense written off. Such
research and development expense has been reflected as an unallocated amount
because this expense arose only in purchase accounting and is considered a
nonrecurring item.
MAJOR CUSTOMERS
For the quarter ended June 30, 2000, three customers of the antifreeze
recycling segment individually accounted for at least 10% of consolidated
revenues.
10. SUBSEQUENT EVENT
In July 2000, the Company acquired 100% of the outstanding common stock of
Interfluid Recycling, Inc., a California corporation ("Interfluid"), in
exchange for 200,000 shares of the Company's restricted common stock plus
$50,000 cash. 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.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Consolidated net revenues for both the three-month and six-month periods
ended June 30, 2000, were $130,610 compared to zero revenues for the
comparable periods in 1999. Consolidated cost of sales was $100,128 for both
the three-month and six-month periods ended June 30, 2000 compared to zero
for the comparable periods in 1999. These data yield a gross margin of 23%
for the year 2000 periods. The 2000 periods include operations from
Thermoflow subsequent to the May 26, 2000 closing while the 1999 periods
contain exclusively VitriSeal operations.
Consolidated operating expenses were $2,185,132 for the three months ended
June 30, 2000 versus $462,927 for the comparable period in 1999. Such
expenses were $3,589,381 for the six months ended June 30, 2000 versus
$740,579 for the comparable period in 1999. These increases are attributable
to (1.) more aggressive development of the ViriSeal product, (2.) the
consolidation of Thermoflow and Liquitek operating expenses, and (3.) the
write-off and amortization of intangibles recorded in connection with the
acquisitions of Thermoflow and Liquitek. In particular, approximately
$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 of 2000,
it was concurrently expensed in accordance with generally accepted accounting
principles requiring write-off of such research and development expenses as
incurred.
The Company experienced a consolidated net loss and corresponding loss per
share $1,805,357 and $0.06, respectively, for the three months ended June 30,
2000, compared to a consolidated net loss and loss per share of $456,232 and
$0.02, respectively, for the comparable 1999 period. The Company experienced
a consolidated net loss and corresponding loss per share $3,182,995 and
$0.12, respectively, for the six months ended June 30, 2000, compared to a
consolidated net loss and loss per share of $730,479 and $0.04, 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.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On May 26, 2000, we completed the acquisition of Thermoflow Corporation and
Liquitek Corporation. In conjunction with the acquisitions, we issued 9,661,500
shares of common stock for all the shares of Thermoflow Corporation and
5,000,000 shares for all the shares of Liquitek Corporation not owned by
Thermoflow Corporation. In addition, we issued 398,500 common stock purchase
warrants in replacement of outstanding Thermoflow Corporation warrants.
None of the shares issued to Thermoflow Corporation stockholders or Liquitek
Corporation 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 8,486,825 of the shares issued to Thermoflow Corporation
stockholders and 4,970,928 of the shares issued to Liquitek Corporation
stockholders on Form S-3 on or before September 25, 2000 ("Registration
Statement").
The lock-up agreement provides that the stockholder 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.
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.
Form 8-K dated May 26, 2000 regarding the acquisitions of
Thermoflow Corporation and Liquitek Corporation.
* A summary of any Exhibit is modified in its entirety by
reference to the actual Exhibit.
16
<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: 8/21/00 BY:/s/ JOHN W. NAGEL
--------------------------------
Principal Financial Officer and
Chief Accounting Officer
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