U.S. SECURITIES AND EXCHYANGE 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 December 31, 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 January 30, 1997, the registrant had 19,084,751 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 December 31, 1996...................3
Consolidated statement of operations for the three months ended
December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . 4
Consolidated statement of cash flows for the three months ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements . . . . .. . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . .. . . . . . . . . . . 8
Part II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . .. . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . .. . . . . . 10
2
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Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .. 10
Signatures. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 12
3
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 88,198
Restricted cash ............................................ 13,156
Trade accounts receivable .................................. 6,941
Prepaid expenses ........................................... 27,818
------------
Total current assets .................................. 136,113
Inventory .................................................... 197,576
Property and equipment, net ................................ 1,127,173
Intangible assets, net ..................................... 4,431,081
Other assets ............................................... 31,736
------------
Total assets .......................................... $ 5,923,679
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 188,771
Accrued expenses ........................................... 32,543
Notes Payable .............................................. --
Payable to related parties ................................. 31,641
Notes payable to related parties ........................... 150,000
------------
Total current liabilities ................................ 402,955
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
Additional paid-in capital ................................. 10,271,430
Accumulated deficit ........................................ (4,769,541)
------------
Total stockholders' equity ................................. 5,520,724
------------
Total liabilities and stockholders' equity .............. $ 5,923,679
============
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months
ended December 31,
-----------------------------
1996 1995
------------ -------------
Revenues:
Service ...................................... $ 242,262 $ 206,559
Product sales ................................ -- 9,630
------------ ------------
Total revenues ............................. 242,262 216,189
Cost of sales:
Service ...................................... 155,877 160,578
Product sales ................................ -- --
------------ ------------
Total cost of sales ........................ 155,877 160,578
------------ ------------
Gross profit ................................... 86,385 55,611
Selling, general and administrative expenses:
Depreciation and amortization expense ........ 120,653 128,123
Other expenses ............................... 155,613 180,106
------------ ------------
Total selling, general and
administrative expenses ................... 276,266 308,229
Interest expense, net .......................... 7,889 7,556
------------ ------------
Net loss ..................................... (197,770) (260,174)
------------ ------------
Net loss applicable to common stock .......... ($ 197,770) ($ 260,174)
============ ============
Net loss per share ........................... ($ 0.01) ($ 0.02)
============ ============
Weighted average shares outstanding ............ 18,834,751 15,834,751
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
5
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ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended
December 31,
----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss ............................................. ($197,770) ($260,174)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ...................... 157,399 171,475
Compensation element of stock warrants ............. 6,250
Changes in assets and liabilities:
Trade accounts receivable ........................ 200 1,807
Inventory ........................................ 0 (615)
Prepaid expenses ................................. 16,690 15,310
Other assets ..................................... (180) (7,688)
Accounts payable ................................. (24,004) 15,727
Accrued expenses ................................. (33,276) (37,072)
Deferred revenues ................................ 0 48,750
Payable to related party ......................... 1,618 (68)
--------- ---------
Net cash (used in) provided by
operating activities ............................... (73,073) (52,548)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................. 0 (2,954)
--------- ---------
Net cash used in investing activities .............. 0 (2,954)
--------- ---------
Cash flows from financing activities:
Decrease in restricted cash ........................ 10,192 19,680
Proceeds from related party loan ................... 0 25,000
--------- ---------
Net cash provided by financing activities ............ 10,192 44,680
Net increase (decrease) in cash and cash equivalents . (62,881) (10,822)
Cash and cash equivalents beginning of period ........ 151,079 78,919
--------- ---------
Cash and cash equivalents end of period .............. $ 88,198 $ 68,097
========= =========
Supplemental disclosure of cash flow information:
Interest paid ...................................... $ 8,045 $ 7,650
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:
The Company had sales constituting approximately 91% of revenue from one
customer during the three months ended December 31, 1996. In December 1996,
the Company executed a letter of intent with a company for the lease/purchase
of a 75- 125 gallon per minute system to be used for industrial wastewater
treatment. The terms of this agreement is contingent on the customer
obtaining the necessary financing for the development and operation of the
plant as well as performance guarantees and warrantees for the
Rochem-supplied equipment.
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 December 1996, Fluid Separation Systems, an affiliate of Rochem AG,
granted a six month extension to the maturity date of the December 1995
($25,000), January 1996 ($50,000) and June 1996 ($25,000) notes payable and
are due June 1997, July 1997 and December 1997, respectively. The loans bear
interest of prime plus 2% for the December 1995 loan and 10% for the January
and June 1996 loans.
5. SUBSEQUENT EVENT:
In January 1997, Mr. Neuman exercised warrants to purchase 250,000 shares of
common stock per Mr. Neuman's employment contract.
7
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Additionally, 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.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Rochem Environmental, Inc., a Utah corporation (the "Company"), is primarily
engaged in the business of providing industrial wastewater treatment services
and capital equipment to companies in the refining, petrochemical and oil and
gas industries. In connection therewith, the Company utilizes patented
technology licensed exclusively to it through a distributor agreement from
Rochem Separation Systems, Inc. ("RSS"), a majority owned subsidiary of Rochem
AG. The patented technology involves the use of Rochem's Disc Tube(TM) form of
membrane separation modules. This technology may be referred to herein as the
"Rochem System" or "Disc Tube" system. Management believes this process is
superior to other technologies in its ability to cost effectively treat a wide
variety of wastewaters with the recovery of relatively pure water and the
concentration of products and by-products for reuse or disposal.
The Company's consolidated revenues grew by 12% from $216,189 for the three
months ended December 31, 1995, to $242,262 for the three months ended December
31, 1996. The increased revenue is due to increased service work for one of the
Company's major customers during the three months ended December 31, 1996 as
compared to the three months ended December 31, 1995.
The revenue generated by service activity continues to be driven by a narrow
customer base evidenced by 91% of the three months ended December 31, 1996
revenue being provided by one customer.
Gross profit as a percent of revenue increased to 36% for the three months ended
December 31, 1996 as compared to 26% for the three months ended December 31,
1995. The increase was achieved through operational efficiencies implemented
over previous periods.
Selling, general and administrative expenses decreased from $308,229 to
$276,266, of which approximately $128,123 and $120,653, respectively, were non
cash expenses associated with amortization and depreciation. This decrease
resulted primarily from a reduction in costs associated with personnel and
related costs.
Interest expense increased from $7,556 for the three months ended December 31,
1995 to $7,889 for the three months ended December 31, 1996. This increase was
due primarily to the interest expense associated with the factoring arrangement
with Citizens Bank.
9
<PAGE>
Net loss was reduced by 24% to $197,770 for the three months ended December 31,
1996 as a result of the improved gross profit and reductions in selling, general
and administrative costs.
As of December 31, 1996, the Company had a total of 10 employees, 7 of whom were
involved in field operations and testing, 1 devoted full time to sales
activities and 2 involved in the general administrative and financial areas.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had a working capital deficit of $266,842.
Net cash used for operating activities during the three months ended December
31, 1996 was $73,073.
To date, the Company has not generated sufficient internal cash flow to fund
operations and to satisfy the debt obligations to Fluid Separation Systems, an
affiliate of Rochem AG. Through a $100,000 credit facility, Fluid Separation
Systems loaned the Company $25,000 in December 1995, $50,000 in January 1996,
and $25,000 in July 1996. In December 1996, Fluid Separation Systems granted a
six month extension to the maturity date and waived interest payments until the
maturity date of the loans. The loans bear interest of prime plus 2% for the
December 1995 loan and 10% for the January and July 1996 loans and are due June
1997, July 1997 and December 1997, respectively. In February 1997, the Company
entered into an additional loan agreement with Fluid Separation Systems for
$50,000 that bears an interest of 10% and is due in February 1998.
Management believes that the cash flow from operations will be sufficient to
fund operations for the remainder of the 1997 fiscal year. The Company has
created a backlog of projects that are expected to produce cash to meet working
capital needs. Because the timing of these projects cannot be controlled and
delays have been experienced, the Company is evaluating and exploring other
financing alternatives. With the four year extension of the contract with the
Company's largest customer, the Company is considering financing part or all of
the equipment to generate sufficient financing to reduce expense related to
rental of equipment and the factoring of receivables. 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 assurances that any of
these will be available to the Company.
10
<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
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
11
<PAGE>
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.
12
<PAGE>
SIGNATURES
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: February 14, 1997 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and
Principal
Accounting Officer
Date: February 14, 1997 By: /s/ WILLIAM E. BRACKEN
William E. Bracken, Vice-President;
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 88,198
<SECURITIES> 0
<RECEIVABLES> 6,941
<ALLOWANCES> 0
<INVENTORY> 197,576
<CURRENT-ASSETS> 136,113
<PP&E> 2,003,792
<DEPRECIATION> (876,618)
<TOTAL-ASSETS> 5,923,679
<CURRENT-LIABILITIES> 402,955
<BONDS> 0
0
0
<COMMON> 18,834,751
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,923,679
<SALES> 242,262
<TOTAL-REVENUES> 242,262
<CGS> 155,877
<TOTAL-COSTS> 155,877
<OTHER-EXPENSES> 155,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,889
<INCOME-PRETAX> (197,770)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,770)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
