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, 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 July 31, 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
June 30, 1997. . . . . . . . . . . . . . . . . . 3
Consolidated statement of operations for the nine
months ended June 30, 1997 and 1996 . . . . . . 4
Consolidated statement of operations for the three
months ended June 30, 1997 and 1996. . . . . . . 5
Consolidated statement of cash flows for the nine
months ended June 30, 1997 and 1996 . . . . . . 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
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 203,253
Restricted cash ......................................... 11,732
Trade accounts receivable ............................... 43,097
Prepaid expenses ........................................ 68,700
--------------
Total current assets ................................. 326,782
Inventory ................................................. 84,298
Property and equipment, net ............................... 1,259,841
Intangible assets, net .................................... 4,242,413
Other assets .............................................. 33,539
--------------
Total assets ......................................... $ 5,946,873
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 213,812
Accrued expenses ........................................ 78,958
Notes payable ........................................... 99,684
Payable to related parties .............................. 144,624
Notes payable to related parties ........................ 200,000
--------------
Total current liabilities ............................ 737,078
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 .............................. 10,290,180
Accumulated deficit ..................................... (5,099,470)
--------------
Total stockholders' equity ........................... 5,209,795
--------------
Total liabilities and stockholders' equity ........... $ 5,946,873
==============
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
Revenues:
Service ..................................... $ 781,844 $ 731,827
Product sales ............................... 208,124 195,735
------------ ------------
Total revenues ........................... 989,968 927,562
Cost of sales:
Service ..................................... 346,781 417,000
Equipment costs ............................. 102,627 199,026
Depreciation ................................ 121,771 130,065
------------ ------------
Total cost of sales ...................... 571,179 746,091
------------ ------------
Gross profit .................................. 418,789 181,471
Selling, general and administrative expenses:
Depreciation and amortization expense ....... 361,959 384,360
Other expenses .............................. 572,036 593,201
------------ ------------
Total selling, general and
administrative expenses ................ 933,995 977,561
Interest expense (income), net ................ 12,494 23,838
------------ ------------
Net loss .................................... (527,700) (819,928)
------------ ------------
Net loss applicable to common stock ......... ($ 527,700) ($ 819,928)
============ ============
Net loss per share .......................... ($ 0.03) ($ 0.05)
============ ============
Weighted average shares outstanding ........... 19,022,251 18,084,751
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
Revenues:
Service ...................................... $ 276,040 $ 185,159
Product sales ................................ 114,967 195,735
------------ ------------
Total revenues ............................ 391,007 380,894
Cost of sales:
Service ...................................... 119,705 147,221
Product costs ................................ 60,673 199,026
Depreciation ................................. 46,719 43,355
------------ ------------
Total cost of sales ....................... 227,097 389,602
------------ ------------
Gross profit ................................... 163,910 (8,708)
Selling, general and administrative expenses:
Depreciation and amortization expense ........ 120,653 128,120
Other expenses ............................... 192,600 166,809
------------ ------------
Total selling, general and
administrative expenses ................. 313,253 294,929
Interest expense (income), net ................. 6,023 4,772
------------ ------------
Net loss ..................................... (155,366) (308,409)
------------ ------------
Net loss applicable to common stock .......... ($ 155,366) ($ 308,409)
============ ============
Net loss per share ........................... ($ 0.01) ($ 0.02)
============ ============
Weighted average shares outstanding ............ 19,022,251 18,834,751
============ ============
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)
NINE MONTHS ENDED
JUNE 30,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss ............................................. ($527,700) ($819,928)
Adjustments to reconcile net loss to net
cash used in operating activites:
Depreciation and amortization ................... 483,730 514,427
Compensation element of stock warrants .......... 25,000 0
(Gain) loss on sale of equipment ................ (670) 4,026
Changes in assets and liabilities:
Trade accounts receivable ....................... (35,956) (75,724)
Inventory ....................................... (2,633) 6,387
Prepaid expenses ................................ (24,191) (13,353)
Other assets .................................... (1,983) (1,707)
Accounts payable ................................ 1,037 20,992
Accrued expenses ................................ 13,138 2,027
Payable to related party ........................ 114,601 13,067
--------- ---------
Net cash provided by operating activities ............ 44,373 (349,786)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................ (155,373) 0
Proceeds from sale of equipment ................. 1,624 195,000
--------- ---------
Net cash used in investing activities ................ (153,749) 195,000
--------- ---------
Cash flows from financing activities:
Decrease in restricted cash ..................... 11,616 24,078
Proceeds from sale of common stock .............. 250 50,000
Proceeds from notes payable to rel. party ....... 50,000 75,000
Proceeds from notes payable ..................... 120,000 0
Payments on loans ............................... (20,316) (50,000)
--------- ---------
Net cash provided by financing activities ............ 161,550 99,078
Net increase (decrease) in cash and cash equivalents . 52,174 (55,708)
Cash and cash equivalents beginning of period ........ 151,079 78,919
--------- ---------
Cash and cash equivalents end of period .............. $ 203,253 $ 23,211
========= =========
Supplemental disclosure of cash flow information:
Interest paid ................................... $ 12,785 $ 24,193
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 97% of revenue from three
customers (Chevron, TVX Gold and Borden Chemical) during the nine months
ended June 30, 1997. In March 1997, the Company entered into a six month
lease agreement to provide a gold mine in Montana with (2) Rochem Disc
Tube reverse osmosis units. These systems are being used to separate the
pond water into two separate streams; a purified water stream which meets
their discharge quality needs and a concentrated stream that is returned
to the pond. In May 1997, the gold mine entered into another six month
lease agreement with the Company to lease a third Rochem Disc Tube reverse
osmosis unit. Both of these lease agreements allow for the purchase of the
equipment during the lease period.
3. LEGAL PROCEEDINGS:
In July 1997, a subsidiary of the Company, Separations Technology Systems,
Inc. reached an out of court settlement with Harris-Forbes, Inc. The
Company and Harris-Forbes agreed to settle for 40,000 shares of the
Company's common stock and $5,000 in cash. The litigation was over a claim
to transaction fees totaling $540,000 made by a prior consultant, Scott
Thompson, President of Harris-Forbes, Inc. The common stock was purchased
off the market at a cost of $7,450. For a total cost of $12,450 for the
settlement.
4. FINANCING ACTIVITIES:
In May 1997, the Company entered into a loan agreement with Citizens Bank
and Trust Co. 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.
5. SUBSEQUENT EVENT:
In August 1997, the Company obtained a loan from Citizens Bank and Trust
Co. for $1,700. This loan is for thirty-six months and bears interest at
10.50 per year. The proceeds from this loan was used to purchase a
computer system and printer for the Company's Houston office.
7
<PAGE>
Additionally in August 1997, Fluid Separation Systems granted an extension
to the maturity date of the notes payable. The notes of December 1995
($25,000), January 1996 ($50,000), June 1996 ($25,000) and February 1997
($50,000) and are due June 1998, July 1998, December 1998 and July 1998,
respectively.
The Company has entered into a rental agreement in August, 1997, with a
barge cleaning operation to provide a reverse osmosis system to treat
rinse waters. The lease agreement provides for a monthly rental fee and a
sale of membranes for $30,420.
8
<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 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 2.5% from $380,894 for the three
months ended June 30, 1996 to $391,007 for the three months ended June 30, 1997.
For the nine months ended June 30, 1996 and 1997, the revenues increased from
$927,562 to $989,968, respectively. The revenue generated by service and sales
activity continues to be driven by a narrow customer base, which is evidenced by
97% of the nine months ended June 30, 1997 revenue being provided by only three
customers.
Gross profit as a percent of revenues increased from 20% to 42% for the nine
months ended June 30, 1996 and 1997, respectively. The improvement in gross
profit is a result of the increased utilization of equipment through lease
contracts as well as operational efficiencies. The Company has also experienced
improved margins on the sale of products. The gross profit for the three months
ended June 30, 1997 was $163,910. This was an improvement over the three months
ended June 30, 1996 which 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.
Selling, general and administrative (SG&A) expenses decreased by 5% for the nine
months ended June 30, 1996 and 1997, from $977,561 to $933,995, of which
approximately $384,360 and $361,960, 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.
The net loss for the nine months ended June 30, 1997 was $527,700 compared to
$819,928 for the same period in 1996. The net loss per share was $0.03 and $0.05
for the nine months ended June 30, 1997 and 1996, respectively.
On June 30, 1997 the Company had a total of 11 employees, 7 of whom were
involved in field operating activities and testing, 2 devoted 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 $410,296. Net
cash provided by operating activities during the nine months ended June 30, 1997
was $44,373 compared with $349,786 used for operating activities during the nine
months ended June 30, 1996. Net cash used in investing activities was $153,749
during the nine months
9
<PAGE>
ended June 30, 1997 as compared to $195,000 which was provided by investing
activities during the same period of 1996. Net cash provided by financing
activities was $161,550 during the nine months ended June 30, 1997 and net cash
from financing activities provided $99,078 for the same period in 1996.
For the three months ended June 30, 1997, the Company produced a positive cash
flow of approximately $18,256 after subtracting cash expenses totaling $173,622
from the net loss of $155,366. The non-cash expenses were comprised of $167,370
of depreciation and amortization expenses plus $6,250 in non-cash compensation
of stock warrants.
The Company has contracts which should generate approximately $300,000 in
revenue with additional revenue expected outside of these contracts for the
quarter ending September 30, 1997. At this revenue level, the management
believes the Company will be cash flow positive for the fiscal year ending
September 30, 1997. Accordingly, the Company does not anticipate a need for
additional financing during the balance of the 1997 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.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1997, a subsidiary of the Company, Separations Technology
Systems, Inc. reached an out of court settlement with Harris-Forbes,
Inc. The Company and Harris-Forbes agreed to settle for 40,000
shares of the Company's common stock and $5,000 in cash. The
litigation was over a claim to transaction fees totaling $540,000
made by a prior consultant, Scott Thompson, President of
Harris-Forbes, Inc. The common stock was purchased off the market at
a cost of $7,450. For a total cost of $12,450 for the settlement.
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
11
<PAGE>
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) No reports on Form 8-K were filed during the quarter ending June 30,
1996.
12
<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: AUGUST 14, 1997 By: /S/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
DATE: AUGUST 14, 1997 By: /S/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 203,253
<SECURITIES> 0
<RECEIVABLES> 43,097
<ALLOWANCES> 0
<INVENTORY> 84,298
<CURRENT-ASSETS> 326,782
<PP&E> 2,273,922
<DEPRECIATION> 1,014,081
<TOTAL-ASSETS> 5,946,873
<CURRENT-LIABILITIES> 737,078
<BONDS> 0
0
0
<COMMON> 19,084,751
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,946,873
<SALES> 391,007
<TOTAL-REVENUES> 391,007
<CGS> 227,097
<TOTAL-COSTS> 227,097
<OTHER-EXPENSES> 192,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,023
<INCOME-PRETAX> (115,366)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (155,366)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
