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 March 31, 1997
[_] 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 May 2, 1997, the registrant had 19,084751 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
March 31, 1997. . . . . . . . . . . . . . . . . . . . . 3
Consolidated statement of operations for the three
months ended March 31, 1997 and 1996 . . . . . . . . . 4
Consolidated statement of operations for the six
months ended March 31, 1997 and 1996. . . . . . . . . . 5
Consolidated statement of cash flows for the six
months ended March 31, 1997 and 1996. . . . . . . . . . 6
Notes to consolidated financial statements . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
Part II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . . . . .10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders . .12
Item 5. Other Information . . . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . .14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................... $ 35,566
Restricted cash .............................. 18,162
Trade accounts receivable .................... 106,475
Prepaid expenses ............................. 11,127
------------
Total current assets ......................... 171,330
Inventory ....................................................... 197,576
Property and equipment, net ..................................... 1,116,499
Intangible assets, net .......................................... 4,336,748
Other assets .................................................... 31,986
------------
Total assets ............................. $ 5,854,139
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 205,254
Accrued expenses ............................. 65,314
Payable to related parties ................... 32,597
Notes payable to related parties ............. 200,000
------------
Total current liabilities ................. 503,165
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 19,084,751 issued and
outstanding ............................. 19,085
Preferred stock, no par value, 10,000,000 shares
authorized, none outstanding ................. 0
Additional paid-in capital ..................... 10,283,930
Accumulated deficit ............................ (4,952,041)
------------
Total stockholders' equity ................. 5,350,974
------------
Total liabilities and stockholders' equity . $ 5,854,139
============
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
---------------------------
1997 1996
------------ ------------
Revenues:
Service .......................................... $ 263,542 $ 330,479
Product sales .................................... 93,157 0
------------ ------------
Total revenues ........................... 356,699 330,479
Cost of sales:
Service .......................................... 146,251 195,911
Product sales .................................... 41,954 0
------------ ------------
Total cost of sales ................ 188,205 195,911
------------ ------------
Gross profit ..................................... 168,494 134,568
Selling, general and administrative expenses:
Depreciation and amortization expense ............ 120,653 128,120
Other expenses ........................... 219,165 246,284
------------ ------------
Total selling, general and
administrative expenses ................ 339,818 374,404
Interest expense, net ............................ 11,176 11,509
------------ ------------
Net loss .................................. (182,500) (251,345)
------------ ------------
Net loss applicable to common stock . ($ 182,500) ($ 251,345)
============ ============
Net loss per share ........................... ($ 0.01) ($ 0.01)
============ ============
Weighted average shares outstanding ...... 18,959,751 18,834,751
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six months ended March 31,
--------------------------
1997 1996
------------ ------------
Revenues:
Service ................................ $ 505,804 $ 537,038
Product sales .......................... 93,157 9,630
------------ ------------
Total revenues ......................... 598,961 546,668
Cost of sales:
Service ................................ 302,128 356,490
Product sales .......................... 41,954 0
------------ ------------
Total cost of sales .............. 344,082 356,490
------------ ------------
Gross profit ......................... 254,879 190,178
Selling, general and administrative expenses:
Depreciation and amortization expense .. 241,306 256,240
Other expenses ......................... 379,437 426,393
------------ ------------
Total selling, general and
administrative expenses .............. 620,743 682,633
Interest expense, net .............. 14,407 19,065
------------ ------------
Net loss ................................ (380,271) (511,520)
------------ ------------
Net loss applicable to common stock ...... $ (380,271) $ (511,520)
============ ============
Net loss per share ...................... $ (0.02) $ (0.03)
============ ============
Weighted average shares outstanding .... 18,959,751 17,334,751
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended
March 31,
---------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss ............................................. ($380,271) ($511,520)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 316,357 342,950
Compensation element of stock warrants ......... 18,750
Basis of Equipment Sold ........................ 954
Changes in assets and liabilities:
Trade accounts receivable ...................... (99,334) (2,318)
Inventory ...................................... 0 6,387
Prepaid expenses ............................... 33,382 36,951
Other assets ................................... (430) (1,707)
Accounts payable ............................... (7,521) 5,932
Accrued expenses ............................... (506) (51,538)
Deferred revenues .............................. 0 48,750
Payable to related party ................ 2,575 (136,514)
--------- ---------
Net cash (used in) provided by operating activities .. (116,044) (262,627)
--------- ---------
Cash flows from investing activities:
Capital expenditures ........................... (54,905) 0
--------- ---------
Net cash used in investing activities ................ (54,905) 0
--------- ---------
Cash flows from financing activities:
Decrease in restricted cash ................ 5,186 23,595
Payables converted to common stock ......... 0 150,000
Proceeds from sale of common stock ......... 250 50,000
Proceeds from notes payable to rel. party .. 50,000 75,000
Payments on loans .......................... 0 (50,000)
--------- ---------
Net cash provided by financing activities ......... 55,436 248,595
Net increase (decrease) in cash and cash equivalents ... (115,513) (14,032)
Cash and cash equivalents beginning of period .......... 151,079 78,919
--------- ---------
Cash and cash equivalents end of period ................ $ 35,566 $ 64,887
========= =========
Supplemental disclosure of cash flow information:
Interest paid .............................. $ 6,706 $ 19,294
Income tax paid ............................ 0 0
The accompanying notes are an integral part of the
consolidated financial statements.
6
<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, 1996, for details of accounting policies and accounts.
2. SIGNIFICANT CUSTOMERS AND RELATED PARTY:
The Company had sales constituting approximately 95% of revenue from
three customers during the six months ended March 31, 1997.
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 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.
A hearing on the Harris-Forbes, Inc.'s motion to compel arbitration was
postponed and has not been rescheduled. No trial date has yet been set by the
court. No discovery has been propounded. The Company's counsel is unable to
determine at the present time whether the Company will have any liability in
this matter. The Company believes it has meritorious defenses and will
vigorously defend its interests in this matter.
4. NOTES PAYABLE:
In February 1997, Fluid Separation Systems loaned the Company $50,000 to
meet working capital needs. The loan bears interest at 10% and matures in
February 1998.
5. SUBSEQUENT EVENT:
In May 1997, the Company entered into a loan agreement with Citizens
Bank for $120,000 to facilitate the construction of a reverse osmosis system for
service work. The loan is for 6 months and bears interest at 2% above prime.
7
<PAGE>
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 waters for
the petroleum, remediation and related industries. The Company operates offices
in Houston, TX and Baton Rouge, LA.
The Company's consolidated revenues of $356,699 for the three months ended March
31, 1997 were approximately 8% greater than the $330,479 for the three months
ended March 31, 1996. The increase in revenue combined with a reduction in cost
of sales resulted in a 25% increase in gross profit from $134,568 for the three
months ended March 31, 1996 to 168,494 for the three months ended March 31,
1997. Gross profit as a percent of revenue increased from 41% to 47% for the
three months ended March 31 in 1996 and 1997, respectively.
Selling, general and administrative (SG&A) expenses decreased from $374,404 to
$339,818 of which approximately $128,120 and $120,653, respectively, were non
cash expenses associated with amortization and depreciation.
Interest expense decreased from $11,509 for the three months ended March 31,
1996 to $11,176 for the three months ended March 31, 1997.
For the six month periods ended March 31, 1996 and 1997, the revenues increased
from $546,668 to $598,961, respectively. The net loss for these same periods was
also reduced from $511,520 to $380,271. The increase in revenue is due to an
increase in equipment leases and product sales.
As of March 31, 1997, the Company had a total of 9 employees, 5 of whom were
involved in field operating activities and testing, 2 devoted full time to sales
activities and 2 involved in the general administration and financial areas.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had a working capital deficit of $331,835. Net
cash used for operating activities during the six months ended March 31, 1997
was $116,044. Net cash from financing activities provided $55,436 primarily
through loan facilities with a related party. In February, 1997, Fluid
Separation Systems loaned the Company $50,000 to meet working capital needs.
In April 1997, the Company received a purchase order for the rental of a Rochem
reverse osmosis system with the sale of membrane totaling $268, 259. In May
1997, the Company entered into a loan agreement with Citizens Bank for $120,000
to facilitate the construction of a rental system. This system will be utilized
in conjunction with service contracts providing waste water treatment using
Rochem's reverse osmosis equipment.
8
<PAGE>
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 1997 fiscal year. Accordingly, the Company
does not anticipate a need for any additional financing during the balance of
the 1997 fiscal year and, therefore, has no specific plans or commitments with
respect thereto. In the event 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 these methods to raise
capital, there can be no assurance that any of these will be available to the
Company.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1996, Separation Technology Systems, Inc. ("STS"), a
wholly-owned subsidiary of the Company, filed a suit in the 61st
Judicial District of Harris County, TX, seeking a declaratory
judgment as to the construction of written agreements between STS
and Harris-Forbes, Inc. and the status and relationship of the
parties. Harris-Forbes, Inc. filed a counter-claim seeking the
recovery of $540,000 for financial consulting services alleged to
have been performed under one of the agreements plus interest,
attorney's fees, and a motion seeking to have the dispute sent to
arbitration. A hearing on the Harris-Forbes, Inc.'s motion to
compel arbitration was postponed and has not been rescheduled. No
trial date has yet been set by the court. No discovery has been
propounded. The Company's counsel is unable to determine at the
present time whether the Company will have any liability in this
matter. The Company believes it has meritorious defenses and will
vigorously defend its interests 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
The following matters were submitted to a vote of shareholders
during the Annual Meeting of Stockholders held on March 27, 1997.
On March 27, 1997, the holders of a majority of shares of Common
Stock of the Company approved the election of five directors for
the coming year.
FOR WITHHELD ABSTAIN
William E. Bracken 14,505,431 48,900 0
David A. LaMonica 14,513,431 40,900 0
Philip LeFevre 14,513,431 40,900 0
Erick J. Neuman 14,513,431 40,900 0
On March 27, 1997, the holders of a majority of shares of Common
Stock of the Company approved the ratification of Coopers & Lybrand as
independent auditors.
10
<PAGE>
FOR AGAINST ABSTAIN
--- ------- -------
14,554,331 0 0
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(7) - 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 September 30,
1993.
(3) Previously filed as an exhibit on Form 8-K dated November 5,
1993.
(4) Previously filed as an exhibit on Form 8-K dated November 19,
1993.
(5) Previously filed as an exhibit on Form 8-K dated January 13,
1994.
(6) Previously filed as an exhibit on Form 10-KSB for the fiscal
year ended September 30, 1995.
(7) Previously filed as an exhibit on Form 10-KSB for the period
ending December 31, 1995.
11
<PAGE>
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: May 15, 1997 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
Date: May 15, 1997 By:/s/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 35,566
<SECURITIES> 0
<RECEIVABLES> 106,475
<ALLOWANCES> 0
<INVENTORY> 197,576
<CURRENT-ASSETS> 171,330
<PP&E> 2,058,697
<DEPRECIATION> (941,043)
<TOTAL-ASSETS> 5,854,139
<CURRENT-LIABILITIES> 503,165
<BONDS> 0
0
0
<COMMON> 19,085
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,854,139
<SALES> 356,699
<TOTAL-REVENUES> 356,699
<CGS> 188,205
<TOTAL-COSTS> 188,205
<OTHER-EXPENSES> 219,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,176
<INCOME-PRETAX> (182,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
