<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Qtr. Ended: September 30, 1998 File No.: 2-20954-NY
KBF POLLUTION MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2687588
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
KBF PLAZA, 1 JASPER STREET PATERSON NEW JERSEY 07522
(Address of principal executive offices)
(973) 942-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No
Indicate the number of shares outstanding of each of the registrant's classes of
stock as of November 13, 1998:
Common stock, $.00001 par value - 59,230,019 shares outstanding.
Transitional Small Business Disclosure Format:
Yes X ; No .
--- ---
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Balance Sheets -
September 30, 1998 and December 31, 1997 3-4
Statement of Income -
Nine Months Ended September 30, 1998 and 1997 5
Three Months Ended September 30, 1998 and 1997 6
Statement of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 7-8
Notes to Financial Statements 9-13
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS 14-18
PART II - OTHER INFORMATION 19
SIGNATURES 19
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
9/30/98 12/31/97
------- --------
UNAUDITED AUDITED
--------- -------
<S> <C> <C>
CURRENT ASSETS:
- ---------------
Cash $ 87,954 $ 224,643
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $27,870 & $26,782) 265,835 241,041
Marketable Securities - Restricted (Note 5) 137,447 0
Other Receivables 87,900 49,572
Inventories 22,473 11,670
Prepaid Expendable Supplies 14,246 14,246
Other Prepaid Expenses 14,309 193,780
---------- ----------
Total Current Assets 657,664 762,452
FIXED ASSETS:
- -------------
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,841,061 & $1,670,954) 1,770,501 832,851
Leased Property under Capital Leases
(Amortization of $396,004 & $378,869) 140,902 108,030
Non Expendable Stock, Parts & Drums 139,367 139,368
---------- ----------
Total Fixed Assets, Net 2,050,770 1,080,249
OTHER ASSETS:
- -------------
Security Deposits 8,002 7,662
Other Receivables (Note 6) 344,212 0
Patent (Net of Accumulated Amortization
of $12,061 & $11,164) 13,189 9,165
Capitalized Permit Costs 87,279 89,179
---------- ----------
Total Other Assets 452,682 106,006
---------- ----------
TOTAL ASSETS $3,161,116 $1,948,707
========== ==========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
9/30/98 12/31/97
------- --------
UNAUDITED AUDITED
--------- -------
<S> <C> <C>
CURRENT LIABILITIES:
- --------------------
Accounts Payable - Trade $ 422,231 $ 454,657
Accrued Expenses 48,163 52,354
Taxes Withheld & Accrued 5,289 11,873
Deposit Payable 40,000 0
Current Portion of Long - Term
Debt 0 60,000
Current Portion of Capital Lease
Obligations 63,361 51,832
----------- -----------
Total Current Liabilities 579,044 630,716
LONG-TERM LIABILITIES:
- ----------------------
Long - Term Lease Obligations 183,721 189,977
----------- -----------
Total Long - Term Liabilities 183,721 189,977
STOCKHOLDERS' EQUITY (DEFICIT) :
- --------------------------------
Com. Stock par value .00001 per sh.
Authorized - 500,000,000 shares
Issued & Outstanding
September 30, 1998 - 58,501,160 585
Dec. 31, 1997 - 49,112,690 491
Capital in Excess of Par Value 5,675,938 4,871,362
Unrealized Gain (Loss) on Available-for-Sale Securities (322,574) 0
Retained Earnings (Deficit) (2,955,598) (3,743,839)
----------- -----------
Total Stockholders' Equity (Deficit) 2,398,351 1,128,014
----------- -----------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY (DEFICIT) $ 3,161,116 $ 1,948,707
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/98 9/30/97
------- -------
<S> <C> <C>
REVENUES $ 2,568,115 $ 1,443,271
- --------
LESS: Cost of Operations 992,345 992,172
- ---- ----------- -----------
Gross Profit 1,575,770 451,099
LESS: General & Admin. Expenses 712,244 491,736
- ----
Selling Expenses 74,397 89,444
----------- -----------
Operating Income (Loss) 789,129 (130,081)
OTHER INCOME (EXPENSES):
- ------------------------
Interest Income 24,032 750
Interest Expense (20,139) (23,949)
Income Tax Provision (4,787) (2,404)
----------- -----------
NET INCOME (LOSS) 788,235 (155,684)
- -----------------
OTHER COMPREHENSIVE INCOME (LOSS)
- ---------------------------------
Unrealized Holding Losses (322,574) 0
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 465,661 $ (155,684)
- --------------------------- =========== ===========
Number of Shares Outstanding 58,501,160 43,743,565
Earnings Per Share from Operations $ .0135 $ (.0030)
=========== ===========
Earnings Per Share - Net Income (Loss) $ .0135 $ (.0036)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
9/30/98 9/30/97
------- -------
<S> <C> <C>
REVENUES $ 623,345 $ 508,581
- --------
LESS: Cost of Operations 339,291 318,280
- ---- ----------- -----------
Gross Profit 284,054 190,301
LESS: General & Admin. Expenses 260,076 144,592
- -----
Selling Expenses 30,600 23,559
----------- -----------
Operating Income (Loss) (6,622) 22,150
OTHER INCOME (EXPENSES):
- ------------------------
Interest Income 16,806 250
Interest Expense (5,966) (7,937)
Income Tax Provision (3,293) (730)
----------- -----------
NET INCOME (LOSS) 925 13,733
- -----------------
OTHER COMPREHENSIVE INCOME (LOSS)
- ---------------------------------
Unrealized Holding Losses (250,812) 0
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ ( 249,887) $ 13,733
- --------------------------- ============ ===========
Number of Shares Outstanding 58,501,160 43,743,565
Earnings Per Share from Operations $ (.0001) $ .0005
=========== ===========
Earnings Per Share - Net Income (Loss) $ .0001 $ .0003
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/98 9/30/97
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash Received from Customers $ 1,338,870 $ 1,488,803
Cash Paid to Suppliers & Employees (806,286) (1,521,646)
Interest & Dividends Received 1,420 750
Interest Paid (20,207) (7,587)
Income Taxes Paid (4,672) (604)
----------- -----------
Net Cash Provided (Used) by
Operating Activities 509,125 (40,284)
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Purchases of Equipment (1,107,757) (758)
----------- -----------
Net Cash Provided (Used) in Investing
Activities (1,107,757) (758)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Stock &
Warrants 506,670 93,298
Payment of Underwriting Costs 0 (5,000)
Repayment of Long-Term Debt &
Capital Lease Obligations (44,727) (38,858)
----------- -----------
Net Cash Provided (Used) by Financing
Activities 461,943 49,440
----------- -----------
NET INCREASE (DECREASE) IN CASH (136,689) 8,398
CASH at Beginning of Period 224,643 19,174
----------- -----------
CASH at End of Period $ 87,954 $ 27,572
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/98 9/30/97
------- -------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
- -------------------------------
NET INCOME (LOSS) $ 788,235 $(155,684)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 187,242 177,180
Amortization 897 897
Consulting & Professional Fees Paid in Stock 0 15,330
Bad Debts 1,088 (4,554)
(Increase) Decrease :
Trade Accounts Receivable (25,882) 45,532
Other Receivables (842,561) (14,388)
Inventories (10,803) 2,339
Prepaid Expenses & Deposits 176,110 8,785
Increase (Decrease) in:
Accounts Payable 155,574 (12,908)
Withholding Taxes Payable (6,584) 431
Deposit Payable 40,000 0
Accrued Expenses 45,809 (103,244)
--------- ---------
$ 509,125 $ (40,284)
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------
Common Stock and Options issued for the
payment of accounts payable and accrued expenses. $ 238,000 $ 15,330
========= =========
Common Stock issued for the payment
of notes payable. $ 60,000 $ 0
========= =========
Common Stock received for the
payment of other receivables. $ 500,000 $ 0
========= =========
Revaluation of Common Stock received. $(322,574) $ 0
========= =========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -BASIS OF PRESENTATION
- -----------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions and item 310(b) of Regulations S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. For
further information, refer to the financial statements and footnotes thereto
included in the Company's 1997 annual report filed on form 10-K and Form 10-SB.
NOTE 2 - INVENTORIES
- --------------------
Inventories are comprised of the following major categories:
<TABLE>
<CAPTION>
9/30/98 12/31/97
------- --------
<S> <C> <C>
Shipping Supplies $ 2,897 $ 4,985
Reagents 19,576 6,685
------- -------
$22,473 $11,670
======= =======
</TABLE>
NOTE 3 - LICENSE AGREEMENT
- --------------------------
In March 1998, the Company signed an exclusive worldwide License Agreement with
Solucorp Industries, Ltd., for the utilization of the Company's patent allowed
technology. The terms of the agreement call for an initial license fee of
$500,000, plus an additional license fee of $.005 per processed gallon. The
agreement also requires royalty payments of 50% of gross per gallon receipts,
not to be less than $3 million at the end of the first two years from the
signing of the contract, and $2 million by the end of each year thereafter. The
initial agreement is for a five-year term, with automatic five-year continuous
renewal. On September 30, 1998, the Company formally terminated this contract
and brought suit against Solucorp industries, Ltd. for breach of contract and
fraud damages (see Note 7 - Legal Proceedings).
-9-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 - REVENUE RECOGNITION
- ----------------------------
The foregoing License Agreement transfers rights, for a specified period of
time, for the use of the Company's patent and related processes, similar to a
franchise agreement. Accordingly, the Company is recognizing income from this
agreement as required by FAS-45 (Accounting for Franchise Fee Revenue). Under
FAS-45, the initial fee is recognized upon the consummation of the transaction,
when substantially all material services or conditions have been met. The
transaction has met the above criteria as the initial license fee represents
payment for the right to use and sell the Company's technology, which had been
transferred; therefore the Company has recognized the initial fee of $500,000 in
the current period. The related revenue is reported on the Statement of Income
in the revenue from normal operations. While the contract has been terminated,
the $500,000 continues to be recognized as revenue as the fee is non-refundable,
(see Note 5), and the criteria for recognition discussed above have been met.
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED)
- -------------------------------------------
In conjunction with the license agreement discussed in Note 3 & 4, and further
to an unenforceable modification to the license agreement, the Company received
190,550 shares of restricted (under Section 144) common shares of Solucorp
Industries, Ltd. as payment against the $500,000 due for the initial license
fee. The issuance of the restricted shares did not constitute satisfaction of
the license agreement terms and conditions and was moreover precipitated through
what the Company believes to be the fraudulent representations of Solucorp
Industries, Ltd. and Joseph Kemprowski. The shares, however, do retain some
minimal market value, which value is being recognized herein. The Company is
currently pursuing full payment of the license fee in its pending litigation
against Solucorp Industries, Ltd. (See Note 7). The Company has presented these
securities herein as available-for-sale securities, adjusted to market value.
Since trading of these shares has been suspended, market value has been
determined to be the closest gray market price per share at September 30, 1998,
less a 25% lack of marketability discount. Because the Section 144 restriction
expires on May 21, 1999, within twelve months of the balance sheet date, and the
shares can, under certain circumstances, be sold even though restricted, the
securities are presented as current assets. Based upon the foregoing and in
conjunction with FAS
-10-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED) (CONTINUED)
- -------------------------------------------------------
115 & 130, these securities are presented at a fair market value of $137,447and
the unrealized loss is presented as other comprehensive income (loss).
NOTE 6 - OTHER RECEIVABLES
- --------------------------
In conjunction with the license agreement discussed in Note 3, 4, & 5, the
Company accrued minimum royalties of $750,000 which are receivable on December
31, 1999. This receivable and the related revenue has been presented in the
financial statements at present value along with the related interest earned to
date. The Company has considered all the information available at this time
concerning Solucorp Industries, Ltd. and has presented the receivable and the
related revenue net of an allowance for doubtful accounts as detailed below:
Minimum Royalty $ 750,000
Discount to Present Value (107,753)
---------
Present Value of Minimum Royalty 642,247
Interest Earned through 9/30/98 23,089
---------
Total Other Receivable & Revenue
Before Allowance 665,336
Allowance for Doubtful Accounts (321,124)
---------
Total Other Receivable Presented
And Revenue Reflected Herein $ 344,212
=========
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
The Company filed suit against Solucorp Industries, Ltd. (Solucorp) on October
7, 1998 for the Company's contract and fraud damages arising out of its
now-terminated License Agreement with Solucorp. The Company is represented by
the national law firm of Greenberg Traurig in this matter. Solucorp has yet to
file an answer to the Company's complaint.
-11-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - LEGAL PROCEEDINGS (CONTINUED)
- --------------------------------------
Solucorp holds itself out to be an environmental service organization devoted to
the development and marketing of innovative environmental technologies. KBF
Pollution Management, Inc. (KBF) was introduced to Solucorp and its consultant,
Joseph Kemprowski, by KBF's former investment banker, M.H. Meyerson & Co., Inc.
last December. KBF had no affiliation with Solucorp, or any of its affiliates,
preceding this introduction. This agreement remains the only affiliation the
Company had with Solucorp. At this time, Solucorp and Kemprowski claimed to have
executed contracts with the Chinese government for the remediation of
contaminated sites in mainland China from which revenues would be made.
Furthermore, Solucorp and Kemprowski made it clear that they had an extensive,
global sales and marketing infrastructure. Management performed due diligence on
the basis of publicly available information, Solucorp's filings and press
releases, Meyerson's analyst's reports on Solucorp, and numerous meetings with
Solucorp executives, which included significant technical discussions covering a
number of sites. In addition, there were discussions with Solucorp's Chinese
marketing affiliates. There were other limited documents that Solucorp and
Kemprowski disclosed. KBF was precluded from reviewing the executed Chinese
contracts due to what Solucorp and Kemprowski represented to be as
confidentiality agreements. Principals of M.H. Meyerson & Co., Inc., however,
represented that they reviewed the pertinent agreements and advised KBF that the
agreements had in fact been executed. After several months of negotiation, and
with the recommendation of Meyerson, KBF and Solucorp enetered into an exclusive
worldwide license for the marketing and sale of KBF's patented SST process.
The agreement called for a license fee of $500,000 due upon execution on March
20, 1998. The license fee was to be paid for with the issuance of 190,550 shares
of free-trading, unrestricted Solucorp stock due upon execution. Solucorp
represented that it had the ability to issue free-trading shares prior to
execution and the License Agreement contained representations and warranties to
that effect. Instead, in the end of May 1998, KBF received 190,550 shares of
restricted, unregistered stock - after having been given assurances that
Solucorp and Kemprowski would register, repurchase and assist with the
liquidation of the license fee stock at a rate of at least $100,000 per month.
The shares were issued after the Securities and Exchange Commission had
suspended Solucorp's stock. Despite countless requests and demands, Solucorp and
Kemprowski never attempted to register the license fee stock, and they
repurchased less than $50,000 worth of shares between March and September 1998.
-12-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - LEGAL PROCEEDINGS (CONTINUED)
- --------------------------------------
In addition, KBF was to receive $500,000 in cash as a mobilization fee to
gear up to provide Solucorp with sales and technical support. This fee was
never paid.
Solucorp's breach of these, and many other terms of the license agreement was at
considerable cost to KBF. In good faith reliance on the agreement, KBF expended
significant dollars in supporting Solucorp's efforts. According to the
agreement, KBF was never to expend any of its capital derived from sources other
than the two fees in providing Solucorp with support.
Further, management discovered that much of what had been represented to KBF by
Solucorp and Kemprowski with reference to Solucorp's executed agreements in
China, the extent of its sales and marketing capabilities and its ability to
register, repurchase and liquidate the shares was not true.
In August 1998, in a final attempt to turn the Solucorp relationship into a
profitable venture, management negotiated a modification that accounted
accurately for Solucorp's ability to pay the fees and to market the SST. The
modification would have stripped Solucorp of the license to the technology and
required the payment of additional compensation to remedy the damages KBF had
suffered by that time. A letter of intent was executed and the modification was
drafted but negotiations broke down in the following weeks. On September 23,
1998, KBF formally noticed Solucorp of Termination and KBF filed suit against
Solucorp and Kemprowski for breach of contract and fraud damages.
The Company plans to aggressively pursue its interest against Solucorp and
Kemprowski and is seeking damages commensurate with the Company's good faith
expenditures, contract damages and fraud damages.
-13-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES SET FORTH ELSEWHERE IN THIS REPORT.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Total revenues for the nine months ended September 30, 1998 increased to
$2,568,115 as compared to $1,443,271 for the same period in 1997, an increase
of 77%. The Company attributes the increase to a rise in sales volume, along
with the collection of the licensing fee and royalty income accrued in 1998
(see Footnotes 3, 4 & 6). Management anticipates this trend to continue due
to its recent move to New Jersey where there are increased business
opportunities.
In addition, the Company anticipates continuing revenue from licensing
agreements.
Despite the increase in sales volume, trade accounts receivable has remained
relatively constant. This is due primarily to the fact that the license
fee/royalty income mentioned above is presented as other receivables on the
balance sheet. Current trade accounts receivable are as follows:
0 -30 days $157,060
30-45 days 30,381
45-60 days 8,495
60-90 days 2,650
90-120 days 40,776
120 + days 39,343
--------
$278,705
Trade accounts receivable collected in cash subsequently through November 10,
1998 was $221,265.
Cost of sales for the nine months ended September 30, 1998 decreased to 39% of
revenues from 69% of revenues for the same period in 1997. This decrease is the
result of the increase in sales volume and collection of the royalty and
licensing fees as mentioned above. Along with the increase in revenue, the
Company also attributes this decrease to the continued efforts taken by
Management to reduce costs.
General and administrative expenses increased by 44% to $712,244 for the nine
months ended September 30, 1998 from $491,736 for 1997. This increase is due to
the continued operation of two facilities, legal fees to register as a reporting
company and litigation fees regarding Solucorp. In addition, there were costs
related to the closure of the New York facility under New York State Department
of Environmental Conservation regulations. These costs, along with certain costs
associated with the licensing revenue may continue to occur during 1998 and
affect this trend.
Selling expenses decreased by 17% to $74,397 for the nine months ended
September 30, 1998 as compared to $89,444 for the comparable period in 1997.
This decrease is due to the
-14-
<PAGE>
continued efforts taken by management to cut back costs.
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (continued)
The Company incurred a net profit of $788,235 for the first nine months of
1998, a 606% increase from the net loss of -$155,684 for the same period in
1997, due to the increase in sales and other revenue and reduced costs
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relocated its facility to Paterson, New Jersey in March 1998.
Management believes that this new location will result in additional business
opportunities and lower operating costs. Management believes that current
operations will provide adequate cash flow to meet current obligations.
The Company has working capital of $78,620 at September 30,1998 as compared to
$131,736 at December 31, 1997. In addition, the Company has a negative cash flow
of -$136,689 at September 30, 1998 as compared to the positive cash flow of
$205,469 at December 31, 1997. This is due to the increase in capital
expenditures incurred to relocate to its new facility in New Jersey, the
operation of the Long Island facility at a loss, costs associated with the New
York State closure, and the legal expenses mentioned above. Further, the Company
incurred additional expenditures as a result of good faith reliance on the
Solucorp agreement and contract damages also associated with this agreement.
With the exception of the legal fees related to the Solucorp suit, these costs
should conclude in the foreseeable future. As a result, the Company expects
positive cash flow in future periods. The Company is also exploring areas to
raise capital which include both debt and equity sources.
LONG ISLAND FACILITY
KBF has operated the Long Island, New York and New Jersey facility
simultaneously to date. The New York facility has been handling non-hazardous
storm water during the closure process, which is not affecting the closure
operation. The Long Island facility is in the process of transferring the Long
Island assets to a wholly owned subsidiary (KBF-LI, Inc.). KBF-LI, Inc. will
continue to operate the facility with the intention of selling it. The Company
is presently party to a letter of intent with anticipated sale immediately
following the closure of the facility. The letter of intent calls for a total
price of $100,000, of which $40,000 has been received and is presented as a
deposit payable on the balance sheet.
As of the date of this report, management is expecting to receive the closure
certificate from the New York State Department of Environmental Conservation
imminently. The New York State Department of Environmental Conservation informed
the Company during the first week in November that the facility is free of any
environmental contaminants.
Management believes that there will be no significant additional costs during
the closure. In
-15-
<PAGE>
addition, the Long Island operation is no longer subject to any lease
provisions or obligations. KBF's operation is facilitating the closure of the
facility, which is to the benefit of the landlord, therefore no rent is being
charged. There has been no lease provision between the parties
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (continued)
LONG ISLAND FACILITY (continued)
since December 1997. Further, management believes that the sale of the Long
Island facility will substantially mitigate any losses from the tangible and
intangible assets remaining at the Long Island facility.
-16-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (continued)
YEAR 2000
THE COMPANY'S STATE OF READINESS
- --------------------------------
The Company's information technology systems are presently year 2000 compliant.
All internal programs were written by Company's management with the year 2000
issue incorporated into the initial writing of the programs. The programs have
been tested and management is satisfied that they are working properly.
Year 2000 compliance of the Company's non-information technology system has
been addressed and management feels that systems in place are year 2000
compliant.
Management has received verbal confirmation from many of the third parties that
provide services or products to the Company, and have been assured that they are
year 2000 compliant. The Company is presently developing questionnaires to be
answered by the third parties regarding their level of year 2000 compliance so
that management has written confirmation as to their status before the year is
complete.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
- ---------------------------------------------------
Management believes the estimated costs in connection with the third party
compliance will not be significant.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
- -------------------------------------------
Given the nature of the business, management does not believe there is any
significant risk and will not be any negative impact on their operations from
any source.
THE COMPANY'S CONTINGENT PLANS
- -------------------------------
Due to management's comfort with internal control over the information
technology and non-information technology, the Company does not have a
contingency plan. Regarding third parties, management believes any potential
problems or losses arising from the unknown should be minimal.
-17-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30,1998
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30,1997
Total revenues for the three months ended September 30, 1998 increased to
$623,345 as compared to $508,581 for the same period in 1997, an increase of
22%. The Company attributes the increase to a rise in sales volume, along with
royalty income accrued in the third quarter of 1998 of $37,917.
Cost of sales for the three months ended September 30, 1998 decreased to 54% of
revenues from 62% of revenues for the same period in 1997. This decrease is the
result of the increase in sales volume and the royalty income as mentioned
above.
General and administrative expenses increased by 80% to $260,076 for the three
months ended September 30, 1998 from $144,592 for 1997. This increase is due to
the continued operation of two facilities, legal fees to register as a reporting
company and litigation fees regarding Solucorp. In addition, there were costs
related to the closure of the New York facility under New York State Department
of Environmental Conservation regulations. These costs may continue to be
incurred throughout 1998 and into 1999.
Selling Expenses increased 30% to $30,600 in the third quarter of 1998 from
$23,559 for 1997. This increase is due primarily to the additional sales
force hired to assist in increasing sales volume.
The Company incurred net income of $925 for the third quarter of 1998, a 106%
decrease from the net income $13,733 for the same period in 1997, due to the
increase in costs as mentioned in the general & administrative expenses above.
-18-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
PART II - OTHER INFORMATION
Item VI - Exhibits and Reports on Form 8-K
Exhibits No. Description
------------- -----------
27 Financial Data Schedule
Reports on Form 8-K for the nine months ended
September 30,1998, there were no reports filed on
Form 8-K.
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.
KBF POLLUTION MANAGEMENT, INC.
Dated: November 13, 1998 LARRY KREISLER
--------------
LARRY KREISLER - PRESIDENT
Dated: November 13, 1998 KATHI KREISLER
--------------
KATHI KREISLER SECRETARY /
TREASURER
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unuadited financial statements dated September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 115,454
<SECURITIES> 137,447
<RECEIVABLES> 353,735
<ALLOWANCES> (27,870)
<INVENTORY> 14,246
<CURRENT-ASSETS> 657,664
<PP&E> 4,287,835
<DEPRECIATION> (2,237,065)
<TOTAL-ASSETS> 3,161,116
<CURRENT-LIABILITIES> 579,044
<BONDS> 0
0
0
<COMMON> 585
<OTHER-SE> 5,353,364
<TOTAL-LIABILITY-AND-EQUITY> 3,161,116
<SALES> 2,568,115
<TOTAL-REVENUES> 2,568,115
<CGS> 992,345
<TOTAL-COSTS> 992,345
<OTHER-EXPENSES> 786,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,139
<INCOME-PRETAX> 793,022
<INCOME-TAX> 4,787
<INCOME-CONTINUING> 788,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,235
<EPS-PRIMARY> .014
<EPS-DILUTED> .014
</TABLE>
