Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-12258
CHEMFIX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-0845259
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3500 North Causeway Boulevard, Suite 720, Metairie, Louisiana 70002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 831-3600
Indicate by checkmark 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 require-
ments for the past 90 days.
Yes X No
Indicated the number of shares outstanding of each of the issuer's classes of
common stock, as of May 31, 1997.
Common Stock, $0.01 par value 8,784,969
Class Number of Shares
Outstanding<PAGE>
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
I N D E X
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3 - 4
May 31, 1997 and August 31, 1996
Consolidated Statements of Operations - 5
Three Months Ended May 31, 1997 and
May 31, 1996 and Nine Months Ended
May 31, 1997 and May 31, 1996
Consolidated Statements of Cash Flows - 6 - 7
Nine Months Ended May 31, 1997
and May 31, 1996
Notes to Consolidated Financial Statements 8 - 17
Item 2. Management's Discussion and Analysis 18 - 23
of Financial Condition and Results
of Operations
Part II. Other Information
Item 3. Defaults by the Company on its
Senior Securities 24
Item 4. Submission of Matters to Vote of
Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION> (Unaudited) (Unaudited)
May 31, August 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,660 $ 36,726
Restricted cash 34,900 34,900
Accounts receivable:
Trade receivables 143,796 228,142
Other receivables 1,300 1,800
Construction in Progress 65,866 -
Total receivables, less allowance
for uncollectible amounts of $74,598
at May 31, 1997 and $6,555 at
August 31, 1996 210,962 229,942
Prepaid expenses 19,423 82,265
Deferred contract costs - 4,136
TOTAL CURRENT ASSETS 268,945 387,969
PROPERTY, PLANT AND EQUIPMENT:
Transportation equipment 42,449 42,449
Machinery and equipment 1,192,196 1,192,197
Fixed processing facilities 1,954,735 1,954,735
3,189,380 3,189,381
Less accumulated depreciation and
amortization (3,176,186) (2,956,302)
13,194 233,079
OTHER ASSETS:
Excess of cost over fair value of
net assets acquired 146,733 152,819
Deposits and other 25,164 25,704
Deferred contract costs - 4,136
171,897 182,659
$ 454,036 $ 803,707
<FN>>
(See Notes to Consolidated Financial Statements)
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION> (Unaudited) (Unaudited)
May 31, August 31,
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 489,009 $ 479,796
Other accrued liabilities 387,427 328,462
Excess billings over costs 22,682 21,898
Current maturities of long-term debt 865,773 1,051,773
Current obligations under capital leases 650,000 3,190
Net liabilities of disposed segment - 86,517
TOTAL CURRENT LIABILITIES 2,414,891 1,971,636
LIABILITIES SUBJECT TO COMPROMISE - 6,218,650
LONG-TERM DEBT, less current maturities 97,108 44,626
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS):
Common stock, authorized, 16,000,000 shares
of $.01 par value; issued 8,790,895 shares
and outstanding 8,784,969 shares at
May 31, 1997 87,909 -
Convertible Preferred stock, authorized
650,000 shares of $1 stated value, issued
and outstanding 639,108 at May 31, 1997 639,108 -
Common stock, authorized, 16,000,000 shares
of $.01 par value; issued 8,936,357 shares
and outstanding 8,800,473 shares at
August 31, 1996 - 89,364
Additional contributed capital 13,692,655 13,635,265
Accumulated deficit (16,477,457) (21,143,856)
SUBTOTAL (2,057,785) (7,419,227)
LESS: Treasury stock at cost, 5,926 and 135,884
shares, respectively (178) (11,978)
(2,057,963) (7,431,205)
$ 454,036 $ 803,707
<FN>
(See Notes to Consolidated Financial Statements)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Whole Dollar Value Except Per Share Amount)
(Unaudited)
<CAPTION> Three Months Ended Nine Months Ended
May 31, May 31, May 31, May. 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Processing service fees $ - $ 628,478 $ 413,106 $ 1,299,816
Construction revenues 387,862 148,246 831,877 535,355
387,862 776,724 1,244,983 1,835,171
OPERATING EXPENSES:
Processing service costs 33,742 471,862 610,675 1,250,959
Construction costs 287,263 154,856 580,917 516,184
S, G & A: Processing 9,211 85,610 56,420 267,016
Construction 94,854 42,782 268,628 131,834
Corporate 73,612 79,011 256,953 241,407
498,682 834,121 1,773,593 2,407,400
OPERATING INCOME (LOSS) (110,820) (57,397) (528,610) (572,229)
OTHER INCOME (EXPENSE)
Interest income 201 218 426 676
Interest expense (2,705) (72,421) (88,975) (403,765)
Other, net 1,570 (4,788) (28,067) (7,089)
(934) (76,991) (116,616) (410,178)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (111,754) (134,388) (645,226) (982,407)
INCOME TAX BENEFIT -0- -0- -0- -0-
NET LOSS FROM
CONTINUING OPERATIONS (111,754) (134,388) (645,226) (982,407)
Extraordinary Items 263,987 -0- 5,311,528 -0-
NET INCOME (LOSS) 152,233 (134,388) 4,666,302 (982,407)
PREFERRED DIVIDENDS -0- -0- -0- (10,357)
NET INCOME (LOSS) AVAILABLE
TO COMMON STOCKHOLDERS $ 152,233 $ (134,388) $4,666,302 $ (972,050)
NET INCOME (LOSS) PER COMMON SHARE:
Continuing $ (.01) $ (.02) $ (.08) $ (.11)
Extraordinary Items .03 -- .64 --
NET INCOME (LOSS) PER COMMON SHARE
(Primary and fully
diluted) $ .02 $ (.02) $ .56 $ (.11)
<FN>
(See Notes to Consolidated Financial Statements)<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,666,302 $ (982,407)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization of
property and equipment 219,885 311,370
Gain on debt relinquishment (5,311,528) -0-
Adjustment on treasury stock 11,978 -0-
Provision for bad debts 74,598 1,871
Loss (gain) on sale of trade receivables 31,567 7,450
Amortization of deferred contract costs 8,272 20,447
Amortization of goodwill 6,086 6,085
Amortization of patent rights 540 540
Other (80) (294)
Changes in operating assets and liabilities
net of effect of acquisitions:
Accounts receivable, trade (564,998) (339,030)
Other receivables (65,366) 11,926
Prepaid expenses 62,842 34,709
Deposits and other -0- 1,294
Accounts payable, trade 176,036 131,413
Other accrued liabilities 62,029 372,163
Excess billings over costs 783 18,143
Net assets/liabilities of disposed segment -0- -0-
NET CASH (USED IN) OPERATING ACTIVITIES (621,054) (404,320)
INVESTING ACTIVITIES:
Purchases of property and equipment -0- -0-
NET CASH USED IN INVESTING ACTIVITIES -0- -0-
</TABLE>
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<TABLE>
(Continued)<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
Nine Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from sale of trade receivables 543,178 242,998
Additions to long-term debt 50,000 -0-
Payment on long-term debt (2,000) (17,720)
Principal payments on capital lease obligations (3,190) (6,291)
Purchase of treasury stock -0- -0-
NET CASH PROVIDED BY
FINANCING ACTIVITIES 587,988 218,987
NET INCREASE (DECREASE) IN CASH (33,066) (185,333)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 36,726 213,655
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,660 $ 28,322
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 5,987 $ 5,314
Income taxes paid $ 836 $ -0-
See Note B and Item 2B, Selling, General and Administrative for additional disclosure.
<FN>
(See Notes to Consolidated Financial Statements)<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
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<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - RESTRICTED CASH
At May 31, 1997 and August 31, 1996, the Company has cash which is restricted
by the terms of certain contracts or regulatory agencies.
NOTE B - NOTES PAYABLE AND LONG-TERM DEBT
On April 1, 1994, the Company entered into an agreement whereby it sells
subsidiaries' accounts receivable to a factor. The factor's fees include collection
and administration services which vary from 1.5% to 9% of gross receivables depending
on the timing of collections. In the first nine months of fiscal 1997, the Company
received $543,178 from sales of receivables to the factor. "Trade Receivables" are
shown in the Consolidated Balance Sheets net of the $38,423 liability due the factor
at May 31, 1997. In the first nine months of fiscal 1996 the Company received
$243,000 from sales of receivables to the factor and had a liability due the factor
of $76,000.
Details of notes payable and long-term debt at May 31, 1997 and at August 31,
1996 are as follows:
<CAPTION> May 31, August 31,
1997 1996
<S> <C> <C>
Description
Notes payable to VenVirotek Class 2 tax
liability claims; interest at 7%; quarterly
payments of $3,318 beginning Dec. 18,
1995; maturing on Sept. 18, 2001. 64,569 321,044
Notes payable to VenVirotek Class 3
claims; unsecured creditors owed $1,000
and less; quarterly payments of $10,000;
no interest; maturing June 18, 1996. 25,458 25,458
Note payable to VenVirotek Class 6 claim
payable over one year. 755 755
Notes payable to VenVirotek Class 7
claims; unsecured creditors owed more
than $1,000; interest rate 8%; monthly
payments of $8,955 beginning Sept. 18,
1995 and maturing Aug. 18, 2000. 441,647 450,207
Notes payable to VenVirotek Class 9
municipality claim; $1,500 month Sept.
18, 1995 to Jan. 18, 1996, then $500 to
Sept. 18, 1996; no interest. 7,000 7,000
Note payable to VenVirotek Class 10
municipality claim; gross amount due
$197,233; imputed interest rate 7%;
monthly payments $4,109 beginning Sept.
18, 1995 maturing Aug. 18, 1999. 168,485 168,485
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
May 31, August 31,
1997 1996
<S> <C> <C>
Description
Notes payable to Chemfix Technologies, Inc.
Class 2 tax claims; interest at 7%;
quarterly payments of $2,157 beginning
May 21, 1997, maturing Feb. 13, 2003 41,140 -
Note payable to Chemfix Technologies, Inc.
Class 4 claim; interest at 10.25%;
monthly payments of $214 beginning
Nov. 18, 1996, maturing Oct. 18, 2001. 9,872 -
Note payable to Ally Capital Corporation;
interest at 12% and principal due on earlier
of December 15, 1997 or borrower receiving
a minimum of $2,000,000 of external financing. 20,000 -
Note payable to Ally Capital Corporation;
pledged 845,000 shares of Chemfix common stock;
upon payment of the note, Ally will return
422,500 shares of common stock, no interest due. 50,000 -
Note payable to APT over a period no shorter
than 3 years plus interest. 133,956 123,450
962,882 1,096,399
Less principal payments due within one year. (865,774) (1,051,773)
$ 97,108 $ 44,626
Long-term debt outstanding at May 31, 1997 matures as follows:
Year Ending
1997 $ 865,774
1998 68,865
1999 6,828
2000 7,319
2001 7,842
Thereafter 6,254
$ 962,882
The Company's largest subsidiary, VenVirotek, filed Chapter 11 Plan of
Reorganization on October 26, 1994, Case No. 94-13614. On May 15, 1995, its Plan was
confirmed by the United States Bankruptcy Court for the Eastern District of
Louisiana. According to VenVirotek's Chapter 11 Plan of Reorganization, generally,
most of VenVirotek's bankruptcy payments were to begin on September 18, 1995. The
first payment was made; however, due to the Company's financial condition and the
fact that there are still some disputed claims with creditors that are significant
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - NOTES PAYABLE AND LONG-TERM DEBT (Continued)
<C>
in amount, subsequent payments have not been made. Consequently, all of the
VenVirotek related bankruptcy debt totaling $707,914 is classified as short-term
debt. At present, the Company is in arrears on its principal notes payments in
connection with VenVirotek's bankruptcy debt in the amount of $249,901 and in arrears
on its interest obligations by $93,805. Management cannot determine what action the
creditors may take, if any, in connection with the past due bankruptcy payments. In
addition, management cannot speculate as to whether or not the outcomes will be
favorable in connection with the disputed claims with creditors, however, they have
been accrued for in the Consolidated Balance Sheets.
<C>
On May 21, 1997, VenVirotek received a redetermination letter from a taxing
authority related to a disputed tax claim involving the VenVirotek bankruptcy. The
letter concludes that a major portion of a tax claim be deleted from a previously
conducted sales tax audit, thus resulting in the Class 2 tax liability claims being
reduced by $263,916.
<C>
In connection with the purchase of Atlantic Petroleum Technologies, Inc.'s
(APT) assets on July 7, 1995, the Company entered into a reimbursement agreement with
APT in satisfaction of an IRS settlement up to, but not exceeding, $134,700, provided
that such amount shall be reduced by any payments made to APT for obligations it owed
prior to the closing date. To date, $13,250 of such payments were made, of which
$12,506 represents payments of interest and $744 represents reduction of principal,
thereby reducing the reimbursement agreement to $133,956. The agreement further
states that the repayment schedule cannot be shorter than equal monthly payments of
principal plus interest over three years. Management anticipates a definitive
agreement to be settled in the remaining nine months of fiscal 1997. Accordingly,
the short-term and long-term portion of this debt is based on this information using
an estimated rate of interest.
NOTE C - INCOME TAXES
<C>
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 - "Accounting for Income Taxes"
issued in February 1992. This standard requires, among other things, recognition of
future tax benefits, measured by enacted tax rates, attributable to deductible
temporary differences between financial statement and income tax bases of assets and
liabilities, and net operating loss, tax credit and alternative minimum tax
carryforwards to the extent that realization of such benefits is more likely than not
to occur.
<C>
Management feels that since the Company has been operating under working
capital deficits and net losses, that the deferred tax assets are not "more likely
than not" to be realized in the foreseeable future. Therefore, a valuation allowance
for such assets has been provided with the deferred tax asset/liability being fully
reserved. As a result, there has been no effect to the financial statements for
fiscal 1997 or 1996. When the Company returns to profitability and the timing of
revenues becomes more predictable, the Company at that time may re-evaluate the
allowance.
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - INCOME TAXES, Continued
The provision for federal income taxes consist of the following:
<CAPTION> Three Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
Current $ --- $ ---
Deferred --- ---
$ --- $ ---
A reconciliation between the amount of reported income taxes and the amount
computed by multiplying the income (loss) before income taxes by the statutory
federal rates for the nine months ended May 31 is as follows:
<CAPTION>
Nine Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
Income taxes (benefit) at statutory federal
rate of 34% $ 1,586,543 $ (288,326)
Increases (reductions) in taxes resulting
from:
Change in valuation allowance (1,824,540) 258,796
Non-deductible expenses 18,112 27,178
Other items, net 219,885 2,352
INCOME TAX (BENEFIT) EXPENSE $ - $ -
Deferred income taxes consist of future tax benefits attributable to:
<CAPTION>
May 31, May 31,
1997 1996
<S> <C> <C>
Assets (Liabilities)
Federal net operating loss carryforwards $ 2,003,000 $ 3,600,000
State net operating loss carryforwards 179,000 163,000
Tax credit carryforwards 189,000 193,000
Alternative minimum tax carryforwards 53,000 53,000
Capital loss carryforwards 200,000 200,000
Non-deductible reserves 216,000 172,000
Depreciation 246,000 318,000
Total 3,086,000 4,699,000
Less valuation allowance (3,086,000) (4,699,000)
Net Deferred Tax Assets $ - $ -
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - INCOME TAXES, Continued
<C>
As of May 31, 1997, the Company has, for tax purposes, a net operating loss
carryforward of approximately $5.9 million expiring between 2000 and 2012 and
approximately $189,000 of tax credit carryforwards expiring between 1997 and 2002.
Additionally, the Company has a $53,000 alternative minimum tax credit available to
offset future income taxes subject to certain limitations. Due to the Chemfix
Technologies, Inc. Chapter 11 Plan of Reorganization confirmation, the total asset
and valuation allowance decreased by the amount of debt relief at applicable tax
rates. This footnote is an estimate based on information currently available.
NOTE D - LEGAL PROCEEDINGS
<C>
The Company filed a Chapter 11 Bankruptcy Plan of Reorganization for its
VenVirotek subsidiary on October 26, 1994. The filing was made in the United States
Bankruptcy Court for the Eastern District of Louisiana, Case No. 94-13614. On May
15, 1995, VenVirotek's Plan was confirmed, thereby emerging it from bankruptcy. In
accordance with its debt restructuring plan, the first payments were due and paid on
September 18, 1995. Due to the Company's financial condition, it has been unable to
pay any subsequent payments. Management cannot determine what action, if any, the
creditors may take as the result of the default. In addition, there still remains
some disputed claims as a result of VenViortek's bankruptcy plan, the greatest of
which had totaled $273,000 in a sales tax assessment that the Company had appealed.
On May 21, 1997, VenVirotek received a redetermination letter from a taxing authority
related to a disputed tax claim involved in the VenVirotek bankruptcy. The letter
concludes that a major portion of the tax claim be deleted from a previously
conducted sales tax audit, thus resulting in the Class 2 tax liability claims being
reduced by $263,916. The remaining assessment of approximately $10,000 has been
accrued in the financial statements. The relinquishment of this $263,916 of debt has
been recorded as an "Extraordinary Item" in the Consolidated Statements of Operations
for the quarter ended May 31, 1997.
<C>
Chemfix Technologies, Inc. filed Chapter 11 Plan of Reorganization for itself
on August 11, 1995. The filing was made in the United States Bankruptcy Court for
the Eastern District of Louisiana, Case No. 95-12954. On September 10, 1996, the
Company's Plan of Reorganization was confirmed by the Court, thereby emerging it from
bankruptcy. Generally, the Chapter 11 Plan of Reorganization involves the
recapitalization of the Company, including the redistribution of ownership, whereby
original shareholders will be diluted 90%, with present creditors, management, and
new investors becoming significant equity holders. Unsecured creditors had a choice
of the following three options: 1) receiving one share of common stock for every
$3.00 of debt; 2) receiving one share of convertible preferred stock for every $4.00
of debt; or, 3) reducing their claim to 40% of the total debt, limited to $800
payable in five quarterly installments. The convertible preferred stock has a 4%
dividend payable quarterly in kind and is convertible into common, share for share,
at a rate of 20% per year. In effect, the Plan converts $6.2 million of debt into
$650,000 of Long-term Obligation Under Capital Leases, with the balance being
restructured into equity. The Company recorded approximately $4.8 million of
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - LEGAL PROCEEDINGS (Continued)
<C>
"Extraordinary Items" reported in the Consolidated Statements of Operations for the
quarter ended November 30, 1996, as a result of the relinquishment of debt in
connection with the bankruptcy confirmation. Since the new stock of the corporation
is in the process of being issued, the $4.8 million in extraordinary items is
estimated. Detailed information regarding the Company's Chapter 11 Plan of
Reorganization and Disclosure Statement is available by contacting the United States
Bankruptcy Court for the Eastern District of Louisiana.
<C>
On September 16, 1996, the Company filed Chapter 7 Plans of Dissolution in the
United States Bankruptcy Court for two of its wholly-owned subsidiaries, CeTech
Resources, Inc. (CeTech) and BTC Environmental Incorporated (BTCE). Previously, the
Company had sold virtually all the assets of CeTech and BTCE in fiscal 1994. These
filings relieved the Company of approximately $212,000 in debt in the first quarter
of fiscal 1997. This $212,000 relinquishment of debt is included in "Extraordinary
Items" in the Consolidated Results of Operations.
<C>
On December 2, 1996, the San Joaquin Valley Unified Air Pollution Control
District filed an Order for Abatement and Permit to Operate Revocation against the
Company's subsidiary, VenVirotek. On December 11, 1996, a hearing was held giving
all parties and the public the opportunity to give testimony or make comment. In
summary, the Hearing Board concluded that: 1) no new material could be received by
the facility; 2) all existing waste at the site be properly treated and removed from
the site within 120 days; 3) The Registrant will appear before the Hearing Board
every 30 days to report its progress toward achieving compliance; and, 4) the Company
will comply with all district permit conditions and all applicable laws, rules, and
regulations. Management has appeared before the Board every 30 days since January
8, 1997 to report on its progress and attempted to negotiate an alternative to the
Abatement Order. As of this date, the Air Board has rejected all of VenVirotek's
requests to modify the Order. On May 14, 1997, the San Joaquin Valley Unified Air
Pollution Control District issued a Notice of Violation to VenVirotek for failure to
comply with the Order of Abatement Condition #3 and #6. These conditions involved
removal of all waste from the site and comply with all district permit conditions.
In addition to the Air Board's order, on February 13, 1997, VenVirotek received a
Notice and Order from the Kern County Environmental Health Services Department
requiring among other things the removal of the treated stockpile by April 21, 1997.
<C>
Although VenVirotek has continued to work with the various regulatory agencies
to comply with their order, due to financial constraints, the Company will not be
able to meet the established deadlines. Furthermore, cash shortages have required
the layoff of all site personnel pending future arrangements with the regulatory
agencies.
<C>
Although VenVirotek's operations are inactive at this time, it is continuing
to work with the regulators and its secured lender, Ally Capital, to reach an
arrangement whereby it can continue as a viable corporation.
(Continued)<PAGE>
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CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - CONTINUING OPERATIONS
<C>
The Company filed Chapter 11 in the United States Bankruptcy Court for the
Eastern District of Louisiana, Case No. 95-12954-JAB on August 11, 1995. The
Company's Plan submitted to the Bankruptcy Court involved the recapitalization of the
Company through the bankruptcy process which includes redistributing the ownership
of the corporation whereby present shareholders are diluted approximately 90% and the
present creditors, management and new investors become significant equity holders.
On September 10, 1996, the Plan was approved converting $4.8 million of pre-
bankruptcy debt into equity. Even though the Company has seen improvements in
business activity during the first nine months of fiscal 1997, management believes
the Registrant's short-term ability to continue as a going concern will require a
continued increase in construction projects and an improvement in gross margins on
revenues associated with those new construction projects. It is also management's
opinion that the Company's longer-term viability is dependent upon continuing to
increase construction revenues, improving gross margins, the obtainment of credit
from vendors, and the ability to raise external financing.
NOTE F - DISCONTINUED OPERATIONS
<C>
On September 16, 1996, the Company filed Chapter 7 Plans of Dissolution in the
United States Bankruptcy Court for two of its wholly owned subsidiaries, CeTech
Resources, Inc. (CeTech) and BTC Environmental Incorporated (BTCE). The Company
previously sold virtually all the assets of CeTech and BTCE in fiscal 1994. These
filings relieved the Company of approximately $212,000 in debt. This $212,000 of
relinquishment of debt is included in "Extraordinary Items" in the Consolidated
Statements of Operations.
NOTE G - COMMON STOCK AND CONVERTIBLE PREFERRED STOCK
<C>
In accordance with the Registrant's Plan of Reorganization, existing
shareholders will receive one share of common stock for every ten shares held. In
addition, creditors will receive one share of common stock for $3.00 of debt, or one
share of convertible preferred stock for $4.00 of debt. See Note J - "Plan of
Reorganization" for further discussion. Since the Registrant's Plan of
Reorganization was confirmed on September 10, 1996 and because the new common and
convertible preferred stock are currently in the process of being issued, the
financial statements presented herewith at May 31, 1997 are reported as though the
new issuance has been completed. Consequently, common stock, convertible preferred
stock, additional contributed capital, extraordinary items, and accumulated deficit
are estimated based on a future market value of the common stock at the time of
issuance of $.01 per share. Should the price be different, the above accounts could
be adjusted in the remaining three months of fiscal 1997. Primary and fully diluted
earnings per share calculations were also determined using the new stock structure.
NOTE H - OTHER TRANSACTIONS
<C>
According to VenVirotek's confirmed Chapter 11 Plan of Reorganization,
VenVirotek's largest creditor received a residual claim in the amount of $350,000
</TABLE> (Continued)<PAGE>
<PAGE>
<TABLE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE H - OTHER TRANSACTIONS (Continued)
<C>
because the collateral was not enough to satisfy its debt. The agreement states that
the Company is to satisfy this residual claim by providing the disposal of materials
at its Arvin Facility, at cost. The agreement further specifies that the creditor
shall pay the Company for its actual direct costs not including depreciation, debt
service expenses, overhead, and other administrative expenses. The liability is then
reduced by the difference between the market rate and the Company's actual costs.
There is no limitation on time as to when this claim must be satisfied. Because
management feels that there is a remote possibility of the creditor ever doing
business with the Registrant in order to satisfy their residual claim and because no
loss would be incurred if this claim were satisfied, this contingency is disclosed
and not accrued for in the Consolidated Balance Sheets.
<C>
The Registrant's confirmed Chapter 11 Plan of Reorganization on September 10,
1996 enabled the Registrant to restructure part of its $924,000 leases payable plus
$394,000 of accrued interest into $650,000 of leases payable at 10.25%, with
principal payments varying over the next five years until fully paid, and a $10,000
note payable at 10.25% also maturing in five years. For the forgiveness of debt, the
lessor will also receive 20% of the outstanding stock, approximately 1.7 million
shares, of the newly organized Company. This creditor holds as collateral the stock
of the VenVirotek subsidiary, the equipment at the VenVirotek facility, and a second
right on its receivables. In February 1997, Ally Capital placed VenVirotek in
default for non-payment of the leases payable. Consequently, Ally is pursuing
options to sell the equipment at VenVirotek's idled California processing facility.
<C>
During 1990, the Company entered into an agreement with a supplier of raw
materials used in its production process, whereby the Company would purchase
specified quantities of the raw materials, as needed in production, from this
supplier through fiscal year 2000 in exchange for Series C Preferred Stock up to $2
million. As of August 31, 1996, the Company had issued 18,000 of Series C Preferred
Stock out of 20,000 shares to be issued under the terms of the agreement. Beginning
in fiscal 1994, the supplier required cash-on-delivery terms with the Company and
would no longer exchange raw material for stock. Dividends declared and unpaid on
the redeemable preferred stock were $548,541 at August 31, 1996. In addition to the
dividends and redeemable preferred stock, the creditor was also owed approximately
$208,000 in trade debt for a total due this creditor of $2.6 million. At August 31,
1996, this $2.6 million was included in "Liabilities Subject to Compromise" in the
Consolidated Balance Sheets. In accordance with the Registrant's confirmed Plan of
Reorganization, this creditor subsequently elected to receive one share of
convertible preferred stock for $4.00 of debt. Each share of convertible preferred
stock is convertible into one share of common stock at a rate of 20% per year and
will be paid a dividend of 4% per year payable quarterly in kind beginning in October
1997.
(Continued)<PAGE>
</TABLE>
<PAGE>
<TABLE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE H - OTHER TRANSACTIONS (Continued)
<C>
On April 3, 1997, the Company entered into a $100,000 Guarantee and Loan
Agreement with Ally Capital (Ally) whereby Ally loaned the Company $50,000 for
working capital and pledged an additional $50,000 to the ACSTAR Insurance Company to
secure a $300,000 bonding line for the Company. The Company issued and pledged
1,690,000 shares to Ally Capital as security for the bond line guarantee. This stock
will be returned to the Company as soon as the Guarantee is retired.
<C>
Additionally, the Company issued and pledged 845,000 shares as collateral for
the $50,000 of working capital. When the loan is totally repaid, Ally will return
50% of these shares, or 422,500 shares to the Company, and retain the remaining
shares in their account. The 2,112,500 shares of stock pledged to Ally Capital for
the $100,000 Guarantee and Loan Agreement would be forfeited to Ally in the event of
default.
NOTE I - EXTRAORDINARY ITEMS
<C>
During the nine months of fiscal 1997, the Company recorded extraordinary
income totalling $5.3 million. This gain was comprised of three items. First,
because the Company filed Chapter 7 Plans of Dissolution for two of its subsidiaries;
CeTech Resources, Inc. and BTC Environmental Incorporated, $212,000 of debt was
relieved.
<C>
Secondly, the Registrant's Chapter 11 Plan of Reorganization confirmation on
September 10, 1996 thereby relinquished the Registrant of approximately $4.8 million
in debt. According to the Plan of Reorganization, unsecured creditors had the option
of receiving one share of common stock for $3.00 of debt, or one share of Preferred
Stock for every $4 of debt. Because the stock of the newly organized company is in
the process of being issued, this $4.8 million of debt relief is estimated.
<C>
Thirdly, the Registrant's subsidiary, VenVirotek, received a redetermination
letter from a tax authority deleting a claim for $263,915 related to a previously
conducted sales tax audit.
NOTE J - PLAN OF REORGANIZATION
<C>
On September 10, 1996, the Bankruptcy Court confirmed the Registrant's Plan
of Reorganization. The confirmed plan provided for the following:
<C>
Priority Tax Claims - Franchise and payroll taxes of $41,978 payable in equal
quarterly installments commencing on May 21, 1997 through February 13, 2003, with
interest at 7% annually.
<C>
Employee and Director's Claims - Employees and directors due $241,000 for
previous years salary reductions and director's fees will receive a total of two
(Continued)<PAGE>
</TABLE>
<PAGE>
<TABLE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE J - PLAN OF REORGANIZATION (Continued)
<C>
million shares of unregistered common stock. In addition, the Registrant can also
sell 1.6 million shares of unregistered common stock to eligible employees at $.03
per share. Employees may execute a promissory note with interest at 10% per annum
payable yearly to purchase the stock. The note may be prepaid at any time without
penalty but is due upon the earlier of either termination of employment, or ten
years. The stock will be held as collateral on the note.
<C>
Secured Leases Payable - The Company's $924,000 of secured leases payable plus
$394,000 of accrued interest was converted into $650,000 of leases payable, $10,000
of notes payable, and a 20% equity interest, or approximately 1.7 million shares of
common stock. This creditor maintains all its collateral, including the stock of the
VenVirotek subsidiary along with the Arvin facility equipment and a second right to
its receivables. The $650,000 leases payable commences on November 18, 1996 with
varying monthly principal payments at 10.25% interest annually, and matures on
October 18, 2001. The $10,000 note payable was to begin on November 18, 1996 payable
in equal month installments until October 18, 2001, with 10.25% interest per year.
In accordance with the Plan of Reorganization, this creditor could also receive
voting control of the Registrant if certain net cash flow goals are not met by
September 1, 1998. Should this happen, this creditor would secure voting control of
an additional 2.15 million shares of the outstanding common stock currently owned by
the Chief Executive Officer and a former Director.
<C>
Unsecured Claims - The holders of approximately $4.5 million of trade debt and
redeemable preferred stock had the option of receiving $800 in cash, one share of
common stock for $3.00 of debt, or one share of convertible preferred stock for $4.00
of debt. Only one creditor due approximately $2.6 million in redeemable preferred
stock totalling $1.8 million with the balance being trade debt and dividends payable,
chose the convertible preferred stock. As a result, this creditor will receive
$639,000 of convertible preferred stock of the newly organized company, and will be
paid a dividend of 4% per year payable quarterly in kind. Each share of convertible
preferred stock is convertible into common stock at a rate of 20% per year. The
remaining $1.9 million of claims chose to receive one share of common stock for every
$3.00 of debt.
<C>
Common Stock - Except for stock issued to the Company's 401(k) Plan, existing
stockholders holding approximately 8.7 million shares of stock will receive one share
of newly organized common stock for every ten shares held. Consequently, old
shareholders will own an estimated 10% of the Company. Stock issued in connection
with the 401(k) Plan will receive one share for every share hold. The 401(k) Plan
shares total 232,000 shares.
</TABLE>
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
A. Three Months Ended May 31, 1997 vs. Three Months Ended May 31, 1996
Revenues
Consolidated revenues decreased $386,000, or 50%, when comparing the
quarter ended May 31, 1997 to the quarter ended May 31, 1996. The
reduction in consolidated revenues is the direct result of the
VenVirotek facility being prohibited from processing any additional
material as directed by an Abatement Order issued early December 1996.
(See Note D.) The current quarter did not contain any processing fee
revenues whereas the prior period quarter had $628,000 of revenue
associated with processing fees.
Partially offsetting the loss of processing fee revenues was an
increase in construction revenues. Construction revenues increased by
$240,000, or 162%, as a result of the Company's construction subsidiary's
business increasing substantially over the prior period quarter.
Cost of Service
Total processing service costs decreased to $34,000 from $472,000
when comparing the quarter ended May 31, 1997 to the quarter ended May
31, 1996. Although the VenVirotek facility was not able to generate any
revenue in the third quarter of fiscal 1997, various costs were incurred
to continue to operate the facility subsequent to the Abatement Order,
but prior to the shut down. The majority of these costs were equipment
rental - $6,000, rent - $6,700, and property taxes - $18,000.
For the third quarter of fiscal 1997, construction costs increased
slightly to 74% of construction revenues compared to 71% of construction
revenues in the third quarter of fiscal year 1996. Management antici-
-pates that the fourth quarter cost of construction percentage should be
in a lower range because of the growing backlog of construction pro-
jects. The slight increase in construction cost is also attributable to
the duration of the projects undertaken during the current quarter.
Several of the larger projects were in progress at the end of the third
quarter. A majority of the initial cost, such as materials, outside
services, and some labor are usually expended at the beginning of the
project, thus yielding a lower gross margin than when the project is
actually completed.
Selling, General and Administrative
Total selling, general and administrative expense decreased to
$178,000 in the third quarter of fiscal year 1997 from $207,000 in the
third quarter of fiscal year 1996. This decrease is due to the reduc-
tion in labor and associated costs at the VenVirotek facility. Also,
the quarter ended May 31, 1996 had
(Continued)
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS, (Continued)
A. Three Months Ended May 31, 1997 vs. Three Months Ended May 31, 1996,
(Continued)
approximately $50,000 of administrative expenses that were reported as
construction costs. Reclassifying the $50,000 of administrative costs to
selling, general and administrative expenses to conform to the reporting
of the selling, general and administrative expenses of the quarter ended
May 31, 1997 would result in selling, general and administrative
expenses of $257,000 and $178,000, respectively. Consequently, selling,
general and administrative expenses were reduced by 31% for the compar-
ative periods.
Due to the elimination of processing revenues for the quarter, total
selling, general and administrative costs as a percentage of revenue
were 45% for the third quarter of fiscal 1997 as compared to 33% of
fiscal 1996. The Company expects this percentage to improve in the
fourth quarter when estimated construction revenues are anticipated to
be at a level to replace lost revenues associated with the VenVirotek
facility shut down.
Total interest expense decreased to $3,000 from $72,000 for the
three months ended May 31, 1997 in comparison to the same period last
year. The current period included a one-time adjustment totaling
$40,000 associated with a reversal of an interest accrual resulting from
the favorable outcome of a disputed sales tax audit. Exclusive of the
current period adjustment, ongoing interest expense had been reduced by
42% when comparing the periods ended May 31, 1997 and 1996,respectively.
Since the Company has been unable to pay its bankruptcy payments in the
third quarter of fiscal 1996 and 1997, most of this interest expense is
accrued but not paid.
Interest income was relatively stable for the quarters ended May
1997 and 1996, respectively, as the only interest income received is
based on the amount held in restricted cash.
"Other Income (Expense)" in the Consolidated Statement of Operations
totaling $2,000 and $5,000 for the periods ending May 1997 and 1996,
respectively, consist mainly of fees incurred in connection with the
sale of receivables to the factoring company.
Extraordinary Items
See discussion at Note I.
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
A. Nine Months Ended May 31, 1997 vs. Nine Months Ended May 31, 1996
Revenues
Consolidated revenues decreased by $587,000, or 32%, comparing the
nine months ended May 31, 1997 to the nine months ended May 31, 1996.
The reduction in consolidated revenues is the direct result of the
VenVirotek facility being prohibited from processing any additional
material as directed by an Abatement Order issued in early December 1996
(See Note D "Legal Proceedings".) There were no processing service fees
revenues reported for the second and third quarters of fiscal 1997.
Construction revenues showed significant improvement by increasing
to $832,000 from $535,000, a 55% increase, when comparing the nine
months ended May 31, 1997 to the nine months ended May 31, 1996. The
increase is related to the increased number of projects the construction
subsidiary was able to complete in their nine months period compared to
the same nine months period last year.
Cost of Service
Processing service costs as a percentage of processing revenues
increased 148% for the first three quarters of fiscal year 1997 as
compared to 96% for the same period of fiscal 1996. The main reason for
the high cost of service percentage in fiscal 1997 is due to the facil-
ity not generating any revenues in the second and third quarters of
fiscal 1997, but having incurred cost to continue to treat material and
maintain some operations at the site after the Abatement Order but prior
to shut down.
For the first nine months of fiscal 1997, the cost of service
percentage for construction costs was 70% of construction revenues as
compared to 69% of construction revenues for the first nine months of
fiscal 1996. Management anticipates that the cost of service percentage
to revenue should remain consistent and possibly decrease slightly
because of the growing backlog of construction projects available.
Selling, General and Administrative
Total selling, general and administrative expense decreased to
$582,000 during the first nine months of fiscal year 1997 from $640,000
in the first nine of fiscal 1996. This decrease is mainly due to the
reduction in labor and associated costs at the VenVirotek facility.
Selling, general and administrative cost related to the processing
activities was reduced to $56,000 from $267,000 when comparing the nine
months ended May 31, 1997 to May 31, 1996, respectively. During the
period ended May 31, 1997, administrative expenses associated with the
construction activities has been reclassified from operating
(Continued)
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS, (Continued)
A. Nine Months Ended May 31, 1997 vs. Nine Months Ended May 31, 1996,
(Continued)
Selling, General and Administrative (Continued)
costs to selling, general and administrative. Thus, a similar reclass-
ification for the period ended May 31, 1996 would have resulted in a
$9,000 or 3% decrease when comparing periods ended May 1997 and 1996.
Therefore, construction, selling, general and administrative expenses
as a percent of construction revenues dropped considerably to 32% from
52% for the nine months ended May 1997 and 1996, respectively.
Corporate selling, general and administrative expenses increased $16,000
or 6%, for the comparative periods. The increase is primarily related
to the redistribution of administrative expenses from processing to
corporate selling, general and administrative expense, when operations
ceased at the California facility. Also, the Company had approximately
$25,000 of non-reoccurring transfer agent costs associated with the new
issue of corporate stock in accordance with the Bankruptcy Confirmation.
Total interest expense decreased to $89,000 from $404,000, or 78%,
for the nine months ended May 31, 1997 compared to the nine months ended
May 31, 1996.The previous period included a one-time adjustment totaling
$207,000 for disputed charges due a vendor. Interest expense as a per-
centage of revenues also decreased to 7% for the nine months ended May
31, 1997 compared to 22% for the nine months ended May 31, 1996, again
due to the one-time adjustments. Also, contributing to the reduction of
interest expenses was the restructuring of the leases payable note
according to the Confirmed Bankruptcy Plan. Since the Company has been
unable to make payments on a majority of its bankruptcy claims, most of
the interest expense for both the nine months periods ended May 31, 1997
and May 31, 1996 is accrued, but not paid.
Interest income was $426 and $676 for the nine months ended May
1997 and 1996, relatively. It should remain stable through the end of
fiscal 1997. The only interest income received is based on the amount
held in restricted cash.
"Other Income (Expense)" in the Consolidated Statement of Operations
totaling $32,000 and $7,000 for the nine-month periods ending May 1997 and
1996, respectively, mainly consist of fees incurred in connection with
the sale of receivables to the factoring company.
Extraordinary Items
See discussion at Note I.
Preferred Dividends
In the second quarter of fiscal 1996, the Company reversed $56,000
of dividends that it had accrued on its preferred stock from August 12,
1995 to November 30, 1995. The reversal was necessary as the filing of
the Chemfix Technologies, Inc. Chapter 11 Plan of Reorganization tempor-
arily stops the accrual of dividends. None of the dividends had been
paid.
(Continued)
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS, (Continued)
B. Liquidity and Capital Commitments
At May 31, 1997, the Company was operating under a working capital
deficit of $2,146,000, compared to a $1,584,000 deficit at August 31,
1996. This deficit increase is primarily attributed to the $650,000
capital lease payable to Ally Capital Corporation (See Note H) that
became a current obligation upon VenVirotek's notice of default. Also
contributing to the deficit increase was the $157,000 net reduction in
accounts receivable caused by the California facility being shut down.
On April 1, 1994, the Company entered into an agreement to secure
accounts receivable financing with a factoring company on a subsidiary's
accounts receivable. On February 14, 1996, the Company entered into a
similar accounts receivable financing arrangement with the same factor-
ing company on another subsidiary's accounts receivable. The factor's
fees include collection and administrative services which vary depending
on the timing of collections. During the first nine months of fiscal
1997, the Company borrowed $543,000 from the factor to fund the expan-
sion in operations. At present, the Company's capital commitments are
minimal and being funded by normal operations.
Present management was installed in fiscal 1994 when the Company
recorded a $5.9 million loss and was operating under a $6.5 million
working capital deficit. Over the past two and a half years, management
has implemented several strategies to reduce debt and restore viability
to the Company. Even though the Company has made significant strides
in strengthening the balance sheet and improving results of operations,
there are still numerous obstacles to overcome. On December 11, 1996,
the Company was issued an Abatement Order by the local air pollution
control district at its west coast facility, thereby ceasing operations
until several notice of violations are cured. Management has appeared
before the Board every 30 days since January 8, 1997 to report on its
progress and attempted to negotiate an alternative to the Abatement
Order. As of this date, the Air Board has rejected all of VenVirotek's
requests to modify the Order. In addition to the Air Board's order, on
February 13, 1997 and Notice of Violation on May 14, 1997, VenVirotek
received a Notice and Order from the Kern County Environmental Health
Services Department requiring, among other things, the removal of the
treated stockpile by April 21, 1997. Although VenVirotek has continued
to work with the various regulatory agencies to comply with their order,
due to financial constraints, the Company will not be able to meet the
established deadlines. Furthermore, cash shortages have required the
layoff of all site personnel pending future arrangements with the
regulatory agencies. Although VenVirotek's operations are inactive at
this time, it is continuing to work with the regulators and its secured
lender, Ally Capital, to reach an arrangement whereby it can continue
as a viable corporation. (See ITEM 3-b. "DEFAULTS BY THE COMPANY ON ITS
SENIOR SECURITIES") Although the Company has had the funds to continue
operating while trying to reopen its west coast facility, due to a
general lack of resources, management cannot provide any assurances that
it will have the capability to continue operating before this problem is
solved.
(Continued)
<PAGE>
<TABLE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS, (Continued)
B. Liquidity and Capital Commitments (Continued)
<C>
In addition, since VenVirotek has only been able to make its first
bankruptcy payment on September 18, 1995, subsequent payments are delinquent.
Due to this delinquency, all of this debt, totalling $718,000 is recorded in
current liabilities. Management cannot determine what action the creditors
and/or the Court will take, if any, before this delinquency can be resolved.
The current liabilities of VenVirotek are accruing interest at approximately
$11,000 per month.
<C>
On April 3, 1997, the Company entered into a $100,000 Guarantee and Loan
Agreement with Ally Capital, whereby Ally loaned the Company $50,000 for working
capital and pledged an additional $50,000 to secure a bonding line for the
Company. With this infusion of working capital, a new bonding line, and growing
backlog of construction projects, it is anticipated that construction revenues
will be at a level to replace lost revenues associated with the California
facility shut down.
</TABLE>
<PAGE>
<TABLE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
Part II - Other Information
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
<CAPTION>
a. Nature of Principal Interest Total
Description Default In Arrears In Arrears In Arrears
<C> <C> <C> <C> <C>
Notes Payable Non-payment $ 249,901 $ 93,805 $ 343,706
<S>
Due to the financial condition of the Company, substantially all of the
Company's notes, mainly VenVirotek's bankruptcy payments, are in default due to
nonpayment. At present, principal and interest amounts in arrears on notes
payable are $249,901 and $93,805, respectively, totalling $343,706 in arrears.
The Company was in arrears in principal and interest on its leases payable,
however, due to the Registrant's Bankruptcy Confirmation on September 10, 1996,
this debt was restructured into long-term leases payable of $650,000 and $10,000
of notes payable, and 20% of the outstanding stock of the newly organized
Registrant. (See Note H, "Other Transactions".)
<CAPTION>
b. Nature of Principal Interest Total
Description Default In Arrears In Arrears In Arrears
<C> <C> <C> <C> <C>
Leases Payable Non-payment -0- $33,312 $33,312
Note Payable Non-payment $793 $ 489 $ 1,282
<S>
Due to the shut down of VenVirotek's facility in California resulting from the
Abatement Order (See Note D), VenVirotek was placed in default on its remaining
restructured debt. Prior to the facility being shut down, VenVirotek had made
one payment of interest on the entire indebtedness. (See Note H "Other
Transactions".)
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders during the
three months ended May 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. Reports on Form 8-K
On April 14, 1997, the Registrant filed a Form 8-K reporting the potential
change in control of the Registrant. The Registrant pledged 2,112,500 shares of
common stock to obtain $50,000 of working capital and an additional $50,000 to secure
a $300,000 bond line upon entering a $100,000 Guarantee and Loan Agreement with Ally
Capital Corporation. In the event of a default on the Guarantee and Loan Agreement,
Ally could cumulatively own 48.1% of the Registrant's voting stock.
</TABLE>
<PAGE>
CHEMFIX TECHNOLOGIES, INC. AND SUBSIDIARIES
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 duly authorized.
CHEMFIX TECHNOLOGIES, INC.
July 10, 1997
DATE
David L. Donaldson
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 38,560
<SECURITIES> 0
<RECEIVABLES> 285,560
<ALLOWANCES> 74,598
<INVENTORY> 0
<CURRENT-ASSETS> 268,945
<PP&E> 3,189,380
<DEPRECIATION> 3,176,186
<TOTAL-ASSETS> 454,036
<CURRENT-LIABILITIES> 2,414,891
<BONDS> 97,108
<COMMON> 87,909
0
639,108
<OTHER-SE> (2,784,980)
<TOTAL-LIABILITY-AND-EQUITY> 454,036
<SALES> 1,244,983
<TOTAL-REVENUES> 1,244,983
<CGS> 1,191,592
<TOTAL-COSTS> 1,773,593
<OTHER-EXPENSES> 27,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,975
<INCOME-PRETAX> (645,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> (645,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,311,528
<CHANGES> 0
<NET-INCOME> 4,666,302
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
