U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________.
Commission File No. 0-23226
ROCHEM ENVIRONMENTAL, INC.
(Exact name of Registrant as specified in charter)
Utah 76-0422968
(State of (IRS Employer
Incorporation) Identification Number)
610 N. Milby St.
Houston, Texas 77003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 224-7626
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[ ]
As of August 9, 1996, the registrant had 18,834,751 shares of Common
Stock, par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format.(Check one):
Yes[ ] No[X]
<PAGE>
ROCHEM ENVIRONMENTAL, INC.
FORM 10-QSB REPORT INDEX
10-QSB Part and Item No.
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheet as of
June 30, 1996. . . . . . . . . . . . . . . . . . . . . 3
Consolidated statement of operations for the nine
months ended June 30, 1996 and 1995. . . . . . . . . 4
Consolidated statement of operations for the three
months ended June 30, 1996 and 1995. . . . . . . . . . 5
Consolidated statement of cash flows for the nine
months ended June 30, 1996 and 1995. . . . . . . . . . 6
Notes to consolidated financial statements. . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 9
Part II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders. . . . .11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 11
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
as of June 30, 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 23,211
Restricted cash ......................................... 11,249
Trade accounts receivable ............................... 96,789
Prepaid expenses ........................................ 65,121
------------
Total current assets ............................... 196,370
Inventory .................................................... 197,876
Property and equipment, net .................................. 1,260,352
Intangible assets, net ....................................... 4,619,750
Other assets ................................................. 27,286
------------
Total assets ....................................... $ 6,301,634
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 189,017
Accrued expenses ........................................ 78,103
Notes payable ........................................... 0
Payable to related parties .............................. 28,991
Notes payable to related parties ........................ 75,000
------------
Total current liabilities .......................... 371,111
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 18,834,751 issued and
outstanding ........................................ 18,835
Preferred stock, no par value, 10,000,000 shares
authorized, none outstanding ....................... 0
Additional paid-in capital .............................. 10,246,430
Accumulated deficit ..................................... (4,334,742)
------------
Total stockholders' equity ......................... 5,930,523
------------
Total liabilities and stockholders' equity ......... $ 6,301,634
============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine months ended June 30,
-----------------------------
1996 1995
------------ ------------
Revenues:
Service ................................. $ 731,827 $ 1,021,600
Product sales ........................... 195,735 152,534
------------ ------------
Total revenues ..................... 927,562 1,174,134
Cost of sales:
Service ................................. 547,065 873,255
Equipment costs ......................... 199,026 86,799
------------ ------------
Total cost of sales ................ 746,091 960,054
------------ ------------
Gross profit ................................. 181,471 214,080
Selling, general and administrative
expenses:
Depreciation and amortization expense ... 384,360 576,211
Other expenses .......................... 593,201 796,950
------------ ------------
Total selling, general and
administrative expenses ............ 977,561 1,373,161
Interest expense (income), net ............... 23,838 6,345
------------ ------------
Net loss ................................ (819,928) (1,165,426)
------------ ------------
Net loss applicable to common stock ..... ($ 819,928) ($ 1,165,426)
============ ============
Net loss per share ...................... ($ 0.05) ($ 0.08)
============ ============
Weighted average shares outstanding .......... 18,084,751 14,634,751
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months ended June 30,
-----------------------------
1996 1995
------------ ------------
Revenues:
Service ................................. $ 185,159 $ 225,929
Product sales ........................... 195,735 --
------------ ------------
Total revenues ..................... 380,894 225,929
Cost of sales:
Service ................................. 190,576 253,349
Equipment costs ......................... 199,026 --
------------ ------------
Total cost of sales ................ 389,602 253,349
------------ ------------
Gross profit ................................. (8,708) (27,420)
Selling, general and administrative
expenses:
Depreciation and amortization expense ... 128,120 192,331
Other expenses .......................... 166,809 205,126
------------ ------------
Total selling, general and
administrative expenses ............ 294,929 397,457
Interest expense (income), net ............... 4,772 5,682
------------ ------------
Net loss ................................ (308,409) (430,559)
------------ ------------
Net loss applicable to common stock ..... ($ 308,409) ($ 430,559)
============ ============
Net loss per share ...................... ($ 0.02) ($ 0.03)
============ ============
Weighted average shares outstanding .......... 18,834,751 14,634,751
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended June 30,
------------------------
1996 1995
--------- -----------
Cash flows from operating activities:
Net loss ........................................... $(819,928) $(1,165,426)
Adjustments to reconcile net loss to net
cash used in operating activites:
Depreciation and amortization ............ 514,427 693,344
Loss on sale of equipment ................ 4,026 0
Changes in assets and liabilities:
Trade accounts receivable ................ (187,769) 89,196
Inventory ................................ 6,387 76,879
Prepaid expenses ......................... (13,353) 2,410
Other assets ............................. (1,707) 36,427
Accounts payable ......................... 20,992 109,553
Accrued expenses ......................... 2,027 72,927
Deferred revenues ........................ 0 (75,000)
Payable to related party ................. 13,067 62,808
--------- -----------
Net cash used in operating activities .............. (461,831) (96,882)
--------- -----------
Cash flows from investing activities:
Capital expenditures ..................... 0 (125,760)
Proceeds from sale of equipment .......... 195,000 0
--------- -----------
Net cash provided by investing activities .......... 195,000 (125,760)
--------- -----------
Cash flows from financing activities:
Decrease in restricted cash .............. 24,078 0
Proceeds from sale of common stock ....... 50,000 0
Proceeds from notes payable to rel. party 75,000 100,000
Proceeds from notes payable .............. 0 50,000
Proceeds from factored receivables ....... 112,045 103,534
Payments on loans ........................ (50,000) 0
--------- -----------
Net cash provided by financing activities .......... 211,123 253,534
Net increase (decrease) in cash and cash equivalents (55,708) 30,892
Cash and cash equivalents beginning of period ...... 78,919 52,248
--------- -----------
Cash and cash equivalents end of period ............ $ 23,211 $ 83,140
========= ===========
Supplemental disclosure of cash flow information:
Interest paid ................................. $ 24,193 0
Income tax paid ............................... 0 0
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
1. General:
The accompanying consolidated financial statements are unaudited, but,
in the opinion of management, include all adjustments necessary for a
fair presentation of consolidated financial position and results of
operations for the periods presented. Please refer to the audited
financial statements for the year ended September 30, 1995 for details
of accounting policies and accounts.
2. Significant Customers and Related Party:
The Company had sales constituting approximately 75% of revenue from
two customers during the nine months ended June 30, 1996. In May 1996,
the Company was awarded a four-year extension of a contract to treat
waste water produced during catalyst changes at the Chevron Refinery in
Pascagoula, MS.
3. Legal Proceedings:
A subsidiary of the Company, Separations Technology Systems, Inc. is
currently in litigation over a claim to transaction fees totaling
$540,000 made by a prior consultant, Scott Thompson, President of
Harris-Forbes, Inc. The claim stems from an agreement for financial
consulting services that was initiated in October, 1992 and duly
terminated in June, 1993 by then President, Kenneth Miller. The
transactions referenced by Harris-Forbes in the claim were conducted
after the date of termination. The transactions were also completed
by Rochem Environmental, Inc. which had no agreement with
Harris-Forbes.
The Company has filed a Petition for Declaratory Judgement with the
District Court of Harris County, Texas. This petition was recently
filed and no discovery has been conducted to date. The Company intends
to vigorously defend its interest in this matter.
4. Financing Activities:
In January, 1996, the Company entered into an agreement with Rochem AG
whereby Rochem AG converted the principal amount of its January, 1995,
$50,000 loan into 500,000 shares of Company Common Stock, purchased an
additional 500,000 shares of Company Common Stock for $50,000, and
agreed to provide the Company a $100,000 credit facility to meet
working capital needs during the 1996 fiscal year. In contemplation
of this credit facility, Rochem AG advanced $25,000 in December, 1995,
$50,000 in February, 1996, and $25,000 in July 1996. On January 31,
1996, the $50,000 loan from Citizens Bank was paid in full and the
Rochem AG letter of credit was released. Additionally, in January,
1996, Lefco agreed to convert its January, 1995, $50,000 loan into
500,000 shares of Company Common Stock and provided a $50,000 credit
facility to be utilized by the Company to meet working capital needs
during the 1996 fiscal year. Furthermore, in January, 1996, the Company
agreed with Rochem Separation Systems ("RSS") to convert approximately
$100,000 of accounts payable due to RSS into 1,000,000 shares of
Company Common Stock. In addition, the Company obtained the rights to
buy equipment and modules directly from Rochem AG at a preferred price
and the right to become the exclusive agent for RSS for applications
utilizing the leachate and desalination systems in the State of
Arkansas. In January, 1996, the Company agreed with GH Venture Group
to terminate its consultant service agreement and in connection
therewith convert the outstanding payable into 500,000 shares of the
Company Common Stock and the payment of $5,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Rochem Environmental, Inc. provides equipment and services to treat waste water
for the petroleum, petrochemical, remediation and related industries. The
Company has offices in Houston, TX and Baton Rouge, LA.
The Company's consolidated revenues grew by 69% from $225,929 for the three
months ended June 30, 1995 to $380,894 for the three months ended June 30,
1996. A significant portion of this increase resulted from a product sale in
the amount of $195,735 to a landfill leachate facility.
For the nine months ended June 30, 1995 and 1996, the revenues were down from
$1,174,134 to $927,562, respectively. The lower revenue was mainly due to
delays in service activities and on-site testing. The revenue generated by
service activity continues to be driven by a narrow customer base, which is
evidenced by 75% of the nine months ended June 30, 1996 revenue being
provided by only two customers. Additionally, the Company was awarded a
four-year extension in May 1996 to provide service work for a major oil
refinery.
Gross profit as a percent of revenues increased from 18% to 20% for the nine
months ended June 30, 1995 and 1996, respectively. The gross profit for the
three months ended June 30, 1996 was affected by delays and changes in the
scheduled service activity from the two significant customers. The gross
profit was also affected by the non cash equipment basis of $199,026 for the
leachate system which produced the $195,735 in product sales revenue. The
system the Company sold had previously been used as a test system for
application development and new customer evaluations. The testing activity
with this system had generated revenues which were included in the
consolidated revenues for the fiscal year ended September 30, 1995.
The Company continues to pursue additional opportunities with the existing
customer base to more effectively utilize resources and to improve operating
margins. During the three months ended June 30, 1996 a substantial amount of
sales resources were focused on the Texas Gulf Coast area. These efforts are
now producing requests for testing and evaluations from new customers. By
continuing this focus, management believes these efforts will broaden the
customer base through equipment sales and additional service activity.
Selling, general and administrative (SG&A) expenses decreased by 29% for the
nine months ended June 30, 1995 and 1996, from $1,373,161 to $977,561, of which
approximately $576,211 and $384,360, respectively, were non cash expenses
associated with amortization and depreciation. The decrease in SG&A is the
result of the Company's overall SG&A reduction plan.
Interest expense increased from $6,345 to $23,838 for the nine months ended June
30, 1995 and 1996, respectively. This increase is due primarily to the interest
expense associated with the factoring arrangement with Citizen's Bank and loans
with Lefco, Rochem AG and Citizens Bank.
The net loss for the nine months ended June 30, 1996 was $819,928 compared to
$1,165,426 for the same period in 1995. The net loss per share was $0.05 and
$0.08 for the nine months ended June 30, 1996 and 1995, respectively.
On June 30, 1996 the Company had a total of 10 employees, 6 of whom were
involved in field operating activities and testing, 2 were devoted full time
to sales activities and 2 were involved in the general administration and
financial areas.
Liquidity and Capital Resources
As of June 30, 1996, the Company had a working capital deficit of $174,741. Net
cash used for operating activities during the nine months ended June 30, 1996
was $461,831 compared with $96,882 for the nine months ended June 30, 1995.
Net cash provided by investing activities was $195,000 during the nine months
ended June 30, 1996 as compared to $125,760 which was used in investing
activities during the same period of 1995. Net cash from financing
activities provided $211,123 during the nine months ended June 30, 1996
compared with $253,354 for the same period in 1995.
For the three months ended June 30, 1996, the Company produced a positive cash
flow of approximately $62,092 after subtracting the non cash equipment basis of
$199,026 for the leachate system and the total depreciation and amortization
expense of $171,475 of which $43,355 is reflected in the total cost of sales
from the net loss of $308,409.
In July, 1996, the Company exercised its option to utilize $25,000 of an
$100,000 credit facility provided by Rochem AG. The Company has $50,000
available under a credit facility provided by Lefco to meet working capital
needs during the 1996 fiscal year.
Management believes that working capital available pursuant to existing credit
facilities as well as cash flow from operations will be sufficient to fund
operations for the remainder of the 1996 fiscal year. Accordingly, the
Company does not anticipate a need for additional financing during the balance
of the 1996 fiscal year and therefore, has no specific plans or commitment with
respect thereto. In the event that additional funding is required, the Company
will consider alternatives to do so through a combination of efforts or methods
including joint ventures, equity investors, venture capital groups,
institutions, issuance of convertible or subordinated debt or a form of business
combinations. Should the need arise for the use of any of the methods to raise
capital, there can be no assurance that any of these will be available to the
Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A subsidiary of the Company, Separations Technology Systems, Inc. is
currently in litigation over a claim to transaction fees totaling
$540,000 made by a prior consultant, Scott Thompson, President of
Harris-Forbes, Inc. The claim stems from an agreement for financial
consulting services that was initiated in October, 1992 and duly
terminated in June, 1993 by the then President, Kenneth Miller. The
transactions referenced by Harris-Forbes in the claim were conducted
after the date of termination. The transactions were also completed by
Rochem Environmental, Inc. which had no agreement with Harris-Forbes.
The Company has filed a Petition for Declaratory Judgment with the
District Court of Harris County, Texas. This petition was recently
filed and no discovery has been conducted to date. The Company intends
to vigorously defend its interest in this matter.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated by reference thereto:
Exhibit
Number Identification of Exhibit
2.1(1) - Reorganization Agreement
3.1(2) - Amended and Restated Articles of Incorporation
3.2(5) - Bylaws
4.1(5) - Common Stock Specimen
4.2(4) - Certificate of Designation of Preferences, Rights and
Limitations of Series A Preferred Stock
4.3(4) - Certificate of Designation of Preferences, Rights and
Limitations of Series B Preferred Stock
10.1(2) - Distributor Agreement
10.2(4) - Asset Purchase Agreement
10.3(2) - Term Sheet
10.4(6) - Facilities Lease Agreement
10.5(6) - Termination Agreement Between Company and GH Venture Group
10.6(6) - Agreement Between Company and Lefco Environmental
Technology, Inc.
10.7(6) - Agreement Between Company and Rochem Separation Systems, Inc.
10.8(6) - Agreement Between Company and Rochem AG
10.9(6) - Employment Agreement With Erick Neuman
16.1(3) - Letter regarding change in certifying accountant
16.2(3) - Letter regarding change in certifying accountant
____________________
(1) Previously filed as an exhibit on Form 8-K dated July 20, 1993.
(2) Previously filed as an exhibit on Form 8-K dated Sept. 30, 1993.
(3) Previously filed as an exhibit on Form 8-K dated Nov. 5, 1993.
(4) Previously filed as an exhibit on Form 8-K dated Nov. 19, 1993.
(5) Previously filed as an exhibit on Form 8-K dated Jan. 13, 1994.
(6) Previously filed as an exhibit on Form 10-KSB for the fiscal year
ended September 30, 1995.
(7) No reports on form 8-K for the quarter ending June 30,1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROCHEM ENVIRONMENTAL, INC.
(Registrant)
Date: August 14, 1996 By: /s/ Erick J. Neuman
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
Date: August 14, 1996 By: /s/ William E. Bracken
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 34,460
<SECURITIES> 0
<RECEIVABLES> 96,789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 196,370
<PP&E> 2,206,111
<DEPRECIATION> 747,883
<TOTAL-ASSETS> 6,301,634
<CURRENT-LIABILITIES> 371,111
<BONDS> 0
0
0
<COMMON> 18,835
<OTHER-SE> 5,911,688
<TOTAL-LIABILITY-AND-EQUITY> 6,301,634
<SALES> 927,562
<TOTAL-REVENUES> 927,917
<CGS> 746,091
<TOTAL-COSTS> 746,091
<OTHER-EXPENSES> 977,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,193
<INCOME-PRETAX> (819,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (819,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (819,928)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
