<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Qtr. Ended: June 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 June 30, 1998:
Common stock, $.00001 par value - 56,388,565 shares outstanding.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS (Unaudited)
Balance Sheets -
June 30, 1998 and December 31, 1997 3-4
Statement of Income -
Six Months Ended June 30, 1998 and 1997 5
Three Months Ended June 30, 1998 and 1997 6
Statement of Cash Flows -
Six Months Ended June 30, 1998 and 1997 7-8
Notes to Financial Statements 9-10
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS 11-12
PART II - OTHER INFORMATION 13
SIGNATURES 13
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
6/30/98 12/31/97
UNAUDITED AUDITED
--------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 116,444 $ 224,643
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $42,561 & $26,782) 383,062 241,041
Marketable Securities - Restricted (Note 4) 388,759 0
Other Receivables 74,600 49,572
Inventories 12,721 11,670
Prepaid Expendable Supplies 14,246 14,246
Other Prepaid Expenses 39,490 193,780
---------- ----------
Total Current Assets 1,056,822 762,452
FIXED ASSETS:
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,766,023 & $1,670,954) 1,798,474 832,851
Leased Property under Capital Leases
(Amortization of $388,628 & $378,869) 98,278 108,030
Non Expendable Stock, Parts & Drums 139,367 139,368
---------- ----------
Total Fixed Assets, Net 2,036,119 1,080,249
OTHER ASSETS:
Security Deposits 8,002 7,662
Other Receivables 289,814 0
Patent (Net of Accumulated Amortization
of $11,762 & $11,164) 8,567 9,165
Capitalized Permit Costs 89,179 89,179
---------- ----------
Total Other Assets 395,562 106,006
---------- ----------
TOTAL ASSETS $3,488,503 $1,948,707
========== ==========
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
6/30/98 12/31/97
UNAUDITED AUDITED
--------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable - Trade $ 719,561 $ 454,657
Accrued Expenses 87,884 52,354
Taxes Withheld & Accrued 4,440 11,873
Current Portion of Long - Term
Debt 60,000 60,000
Current Portion of Capital Lease
Obligations 63,361 51,832
----------- -----------
Total Current Liabilities 935,246 630,716
LONG-TERM LIABILITIES:
Long - Term Lease Obligations 202,519 189,977
----------- -----------
Total Long - Term Liabilities 202,519 189,977
STOCKHOLDERS' EQUITY (DEFICIT) :
Com. Stock par value .00001 per sh.
Authorized - 500,000,000 shares
Issued & Outstanding
June 30, 1998 - 56,388,565 564
Dec. 31, 1997 - 49,112,690 491
Capital in Excess of Par Value 5,377,959 4,871,362
Unrealized Gain (Loss) on Available-for-Sale Securities (71,262) 0
Retained Earnings (Deficit) (2,956,523) (3,743,839)
----------- -----------
Total Stockholders' Equity (Deficit) 2,350,738 1,128,014
----------- -----------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY (DEFICIT) $ 3,488,503 $ 1,948,707
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
6/30/98 6/30/97
------- -------
<S> <C> <C>
REVENUES $ 1,944,771 $ 930,345
LESS: Cost of Operations 647,142 669,544
----------- -----------
Gross Profit 1,297,629 260,801
LESS: General & Admin. Expenses 501,074 413,027
Advertising 242 0
----------- -----------
Operating Income (Loss) 796,313 (152,226)
OTHER INCOME (EXPENSES):
Interest Income 7,226 500
Interest Expense (14,173) (16,012)
Income Tax Provision (1,494) (1,674)
----------- -----------
NET INCOME (LOSS) $ 787,872 $ (169,412)
=========== ===========
Number of Shares Outstanding 56,388,565 43,643,565
Earnings Per Share from Operations $ .0141 $ (.0035)
=========== ===========
Earnings Per Share - Net Income (Loss) $ .0140 $ (.0039)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
6/30/98 6/30/97
------- -------
<S> <C> <C>
REVENUES $ 863,972 $ 507,074
LESS: Cost of Operations 346,025 321,845
----------- -----------
Gross Profit 517,947 185,229
LESS: General & Admin. Expenses 230,758 169,291
----------- -----------
Operating Income (Loss) 287,189 15,938
OTHER INCOME (EXPENSES):
Interest Income 6,917 500
Interest Expense (5,815) (7,690)
Income Tax Provision (461) (600)
----------- -----------
NET INCOME (LOSS) $ 287,830 $ 8,148
=========== ===========
Number of Shares Outstanding 56,388,565 43,643,565
Earnings Per Share from Operations $ .0051 $ .0004
=========== ===========
Earnings Per Share - Net Income (Loss) $ .0051 $ .0002
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
6/30/98 6/30/97
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 1,786,971 $ 990,314
Cash Paid to Suppliers & Employees (1,355,043) (987,915)
Interest & Dividends Received 7,226 500
Interest Paid (14,370) (16,012)
Income Taxes Paid (2,493) (699)
----------- ---------
Net Cash Provided (Used) by
Operating Activities 422,291 (13,812)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Purchases of Equipment (1,060,698) 0
----------- ---------
Net Cash Provided (Used) in Investing
Activities (1,060,698) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Stock &
Warrants 506,670 48,297
Proceeds from Long-Term Debt 50,000 0
Repayment of Long-Term Debt &
Capital Lease Obligations (26,462) (25,345)
----------- ---------
Net Cash Provided (Used) by Financing
Activities 530,208 22,952
----------- ---------
NET INCREASE (DECREASE) IN CASH (108,199) 9,140
CASH at Beginning of Period 224,643 19,174
----------- ---------
CASH at End of Period $ 116,444 $ 28,314
=========== =========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10 - Q
JUNE 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
6/30/98 6/30/97
------- -------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 787,872 $(169,412)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 104,828 118,119
Amortization 598 598
Accounts Payable Paid in Stock 0 4,893
Bad Debts (11,003) (5,997)
(Increase) Decrease :
Trade Accounts Receivable (131,018) 59,969
Other Receivables (774,866) 39,937
Inventories (1,051) 2,724
Prepaid Expenses & Deposits 153,930 11,643
Increase (Decrease) in:
Accounts Payable 264,904 12,894
Withholding Taxes Payable (7,433) (1,381)
Accrued Expenses 35,530 (87,799)
---------- ---------
$ 422,291 $ (13,812)
========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common Stock and Options issued for the
payment of accounts payable. $ 0 $ 4,893
========== =========
Common Stock received for the
payment of other receivables. $ 500,000 $ 0
========== =========
Revaluation of Common Stock received. $ (71,262) $ 0
========== =========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 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 Article 10 of Regulation
S-X. 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 six months ended June 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 annual report on
Form 10-K for the year ended December 31, 1997.
NOTE 2 - INVENTORIES
Inventories are comprised of the following major categories:
<TABLE>
<CAPTION>
6/30/98 12/31/97
------- --------
<S> <C> <C>
Shipping Supplies $ 3,801 $ 4,985
Reagents 8,920 6,685
------- -------
$12,721 $11,670
======= =======
</TABLE>
NOTE 3 - LICENSE AGREEMENT
In March 1998, the Company signed an exclusive world-wide 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.
-9-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 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, 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.
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED)
In conjunction with the license agreement discussed in Note 3, 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 Company has presented these securities herein as
available-for-sale securities, adjusted to market value. Market value has
been determined to be the quoted market price per share at June 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.
NOTE 6 - OTHER RECEIVABLES
In conjunction with the license agreement discussed in Note 3, the Company
accrued minimum royalties of $333,333 which are receivable on December 31,
1999. The receivable has been presented at its present value, as a long term
receivable.
-10-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 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 - SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1997
Total revenues for the six months ended June 30, 1998 increased to $1,944,771
as compared to $930,345 for the same period in 1997, an increase of 109%. 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.
Cost of sales for the six months ended June 30, 1998 decreased to 33% of
revenues from 72% 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 21% to $501,074 for the six
months ended June 30, 1998 from $413,027 for 1997. This increase is due to
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.
The Company incurred a net profit of $787,872 for the first six months of
1998, a 565% increase from the net loss of -$169,412 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 $121,576 at June 30,1998 as compared to
$131,736 at December 31, 1997. In addition, the Company has a negative cash
flow of -$108,199 at June 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 and a
significant increase in accounts and other receivables.
-11-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30,1998 AS COMPARED TO THE
THREE MONTHS ENDED JUNE 30,1997
Total revenues for the three months ended June 30, 1998 increased to $863,972
as compared to $507,074 for the same period in 1997, an increase of 70%. The
Company attributes the increase to a rise in sales volume, along with royalty
income accrued in the second quarter of 1998.
Cost of sales for the three months ended June 30, 1998 decreased to 40% of
revenues from 63% 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 36% to $230,758 for the
three months ended June 30, 1998 from $169,291 for 1997. This increase is due
to the costs related to the closure of the New York facility under the New
York State Department of Environmental Conservation regulations. These costs
may continue to be incurred throughout 1998 and into 1999.
The Company incurred net income of $287,830 for the second quarter of 1998, a
3,432% increase from the net income $8,148 for the same period in 1997, due
to the increase in sales volume and other revenue and the decrease in costs
mentioned above.
-12-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 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 six months ended June 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: August 17, 1998 /s/ LARRY KREISLER
-----------------------------------
LARRY KREISLER - PRESIDENT
Dated: August 17, 1998 /s/ KATHI KREISLER
-----------------------------------
KATHI KREISLER SECRETARY /
TREASURER
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements dated June 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 143,944
<SECURITIES> 388,759
<RECEIVABLES> 500,223
<ALLOWANCES> (42,561)
<INVENTORY> 12,721
<CURRENT-ASSETS> 1,056,822
<PP&E> 4,190,770
<DEPRECIATION> (2,154,651)
<TOTAL-ASSETS> 3,488,503
<CURRENT-LIABILITIES> 935,246
<BONDS> 0
0
0
<COMMON> 564
<OTHER-SE> 5,306,697
<TOTAL-LIABILITY-AND-EQUITY> 3,488,503
<SALES> 1,944,771
<TOTAL-REVENUES> 1,944,771
<CGS> 647,142
<TOTAL-COSTS> 647,142
<OTHER-EXPENSES> 501,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,173
<INCOME-PRETAX> 789,366
<INCOME-TAX> 1,494
<INCOME-CONTINUING> 787,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 787,872
<EPS-PRIMARY> .014
<EPS-DILUTED> .014
</TABLE>
