UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2003
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23634
KFX INC.
(Exact name of Registrant as specified in its charter)
| Delaware |
84-1079971 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer Identification number) |
3300 EAST FIRST AVENUE, SUITE 290, DENVER, COLORADO USA 80206
(Address of principal executive offices)
(303) 293-2992
(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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
On May 7, 2003 there were 46,933,012 shares of the Registrant’s common stock, $.001 parvalue, outstanding.
KFX INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
| PAGE NO. | ||
| PART I. FINANCIAL INFORMATION |
||
| ITEM 1. FINANCIAL STATEMENTS: |
||
| Consolidated Balance Sheets – March 31, 2003 (Unaudited) and December 31, 2002 |
3 | |
| Consolidated Statements of Operations – Three Months Ended March 31, 2003 and 2002 (Unaudited) |
4 | |
| Consolidated Statements of Cash Flows—Three Months Ended March 31, 2003 and 2002 (Unaudited) |
5 | |
| 7 | ||
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
19 | |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
24 | |
| ITEM 4. CONTROLS AND PROCEDURES |
25 | |
| PART II. OTHER INFORMATION |
||
| ITEM 1. LEGAL PROCEEDINGS |
25 | |
| ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K |
25 | |
| 26 | ||
| 27 | ||
| 28 |
KFX INC.
| MARCH 31, 2003 |
DECEMBER 31, 2002 |
|||||||
| (Unaudited) |
||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ |
20,415,674 |
|
$ |
3,341,909 |
| ||
| Trade accounts receivable |
|
672,065 |
|
|
352,258 |
| ||
| Unbilled revenue |
|
888,361 |
|
|
623,075 |
| ||
| Other receivables |
|
32,115 |
|
|
23,358 |
| ||
| Prepaid expenses |
|
84,609 |
|
|
118,541 |
| ||
| Deferred job costs |
|
527,441 |
|
|
493,608 |
| ||
| Total current assets |
|
22,620,265 |
|
|
4,952,749 |
| ||
| Property, plant and equipment, net of accumulated depreciation |
|
291,075 |
|
|
279,752 |
| ||
| Patents, net of accumulated amortization |
|
1,426,862 |
|
|
1,448,532 |
| ||
| Investment in K-Fuel, LLC |
|
348,443 |
|
|
355,068 |
| ||
| Goodwill, net of accumulated amortization |
|
4,735,361 |
|
|
4,583,361 |
| ||
| Intangibles, net of accumulated amortization |
|
3,199,935 |
|
|
3,337,567 |
| ||
| Debt issue costs, net of accumulated amortization |
|
55,815 |
|
|
66,237 |
| ||
| Prepaid royalty |
|
520,337 |
|
|
521,494 |
| ||
| Other assets |
|
255,898 |
|
|
237,112 |
| ||
| TOTAL ASSETS |
$ |
33,453,991 |
|
$ |
15,781,872 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ |
2,404,140 |
|
$ |
2,108,571 |
| ||
| Accrued expenses |
|
2,029,871 |
|
|
797,194 |
| ||
| Interest payable |
|
162,282 |
|
|
150,284 |
| ||
| Deferred revenue |
|
2,764,274 |
|
|
2,733,133 |
| ||
| Deferred income |
|
73,565 |
|
|
98,629 |
| ||
| Short-term notes payable to directors |
|
450,000 |
|
|
450,000 |
| ||
| Liability for common stock warrants |
|
2,302,700 |
|
|
— |
| ||
| Current maturity of convertible long-term debt |
|
844,666 |
|
|
844,666 |
| ||
| Current maturities of long-term debt |
|
415,000 |
|
|
325,000 |
| ||
| Total current liabilities |
|
11,446,498 |
|
|
7,507,477 |
| ||
| Deferred revenue, less current portion |
|
174,135 |
|
|
242,359 |
| ||
| Convertible long-term debt, less current maturities |
|
637,983 |
|
|
451,716 |
| ||
| Long-term debt, less current maturities |
|
— |
|
|
90,000 |
| ||
| Total liabilities |
|
12,258,616 |
|
|
8,291,552 |
| ||
| Commitments and Contingencies (Note 10) |
||||||||
| Minority interest |
|
5,814,565 |
|
|
5,755,387 |
| ||
| Stockholders’ equity |
||||||||
| Preferred stock, $.001 par value, 20,000,000 shares authorized; none issued |
|
— |
|
|
— |
| ||
| Common stock, $.001 par value, 80,000,000 shares authorized; and 40,713,012
and |
|
40,713 |
|
|
38,968 |
| ||
| Notes receivable and other |
|
— |
|
|
(95,089 |
) | ||
| Additional paid-in capital |
|
127,246,305 |
|
|
111,510,337 |
| ||
| Accumulated deficit |
|
(111,906,208 |
) |
|
(109,719,283 |
) | ||
| Total stockholders’ equity |
|
15,380,810 |
|
|
1,734,933 |
| ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
33,453,991 |
|
$ |
15,781,872 |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
3
KFX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| UNAUDITED THREE MONTHS ENDED MARCH 31, |
||||||||
| 2003 |
2002 |
|||||||
| OPERATING REVENUES |
||||||||
| Pegasus software licenses and services |
$ |
1,649,857 |
|
$ |
1,250,961 |
| ||
| K-Fuel license fee |
|
4,632 |
|
|
— |
| ||
| Total operating revenues |
|
1,654,489 |
|
|
1,250,961 |
| ||
| OPERATING COSTS & EXPENSES |
||||||||
| Cost of Pegasus software licenses and services, excluding depreciation and amortization |
|
981,900 |
|
|
767,126 |
| ||
| Marketing, general and administrative expenses |
|
1,676,571 |
|
|
1,366,245 |
| ||
| Engineering and design fees |
|
507,612 |
|
|
— |
| ||
| Pegasus software research and development |
|
92,459 |
|
|
136,551 |
| ||
| K-Fuel demonstration plant and laboratory |
|
64,582 |
|
|
62,915 |
| ||
| K-Fuel royalty |
|
1,158 |
|
|
— |
| ||
| Depreciation and amortization |
|
221,261 |
|
|
325,226 |
| ||
| Total operating costs and expenses |
|
3,545,543 |
|
|
2,658,063 |
| ||
| OPERATING LOSS |
|
(1,891,054 |
) |
|
(1,407,102 |
) | ||
| Other income |
|
12,687 |
|
|
16,084 |
| ||
| Interest expense |
|
(307,987 |
) |
|
(2,229,852 |
) | ||
| Equity in loss of unconsolidated affiliates |
|
(571 |
) |
|
(8 |
) | ||
| NET LOSS |
|
(2,186,925 |
) |
|
(3,620,878 |
) | ||
| Accretion of redeemable common stock |
|
— |
|
|
(113,315 |
) | ||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS |
$ |
(2,186,925 |
) |
$ |
(3,734,193 |
) | ||
| NET LOSS PER COMMON SHARE (BASIC AND DILUTED) |
$ |
(0.05 |
) |
$ |
(0.12 |
) | ||
| Weighted-average common shares outstanding |
|
40,526,000 |
|
|
30,140,000 |
| ||
The accompanying notes are an integral part
of these consolidated financial statements.
4
KFX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| UNAUDITED THREE MONTHS ENDED MARCH 31, |
||||||||
| 2003 |
2002 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net loss |
$ |
(2,186,925 |
) |
$ |
(3,620,878 |
) | ||
| Adjustments to reconcile net loss to cash used in operating activities |
||||||||
| Depreciation and amortization |
|
221,261 |
|
|
325,226 |
| ||
| Equity in loss of unconsolidated affiliates |
|
571 |
|
|
8 |
| ||
| Amortization of debt discount |
|
186,247 |
|
|
1,445,915 |
| ||
| Accretion of maturity premiums |
|
— |
|
|
234,965 |
| ||
| Common stock and warrants issued for services |
|
184,889 |
|
|
75,204 |
| ||
| Stock appreciation rights |
|
2,363 |
|
|
— |
| ||
| Minority interest preferred dividends |
|
59,178 |
|
|
51,779 |
| ||
| Changes in operating assets and liabilities, net of business acquired: |
||||||||