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 December 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 February 12, 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, 1997.................................... 3
Consolidated statement of operations for the
three months ended December 31, 1997 and 1996........ 4
Consolidated statement of cash flows for the
three months ended December 31, 1997 and 1996........ 5
Notes to consolidated financial statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
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
Item 6. Exhibits and Reports on Form 8-K........................ 10
Signatures....................................................... 12
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 74,710
Restricted cash ...................................... 21,773
Trade accounts receivable ............................ 107,978
Prepaid expenses ..................................... 34,418
------------
Total current assets ......................... 238,879
Inventory .................................................... 83,872
Property and equipment, net .................................. 1,123,137
Intangible assets, net ....................................... 4,053,763
Other assets ................................................. 20,439
------------
Total assets ................................. $ 5,520,090
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 193,460
Accrued expenses ..................................... 70,460
Notes Payable ........................................ 33,444
Payable to related parties ........................... 200,478
Notes payable to related parties ..................... 125,000
Deferred Income ...................................... 8,222
------------
Total current liabilities .................... 631,064
Note payable to related party ................................ 25,000
------------
Total liabilities ............................ 656,064
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
Additional paid-in capital ........................... 10,302,680
Accumulated deficit .................................. (5,457,739)
------------
Total stockholders' equity ................... 4,864,026
------------
Total liabilities and
stockholders' equity ....................... $ 5,520,090
============
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 December 31,
----------------------------------------
1997 1996
------------ ------------
Revenues:
Service and Lease .......................... $ 364,402 $ 242,262
Product sales .............................. 30,000 --
------------ ------------
Total revenues ........................ 394,402 242,262
Cost of sales:
Service and Lease ......................... 214,201 119,131
Product sales ............................. 15,630 --
Depreciation expense ...................... 36,938 36,746
------------ ------------
Total cost of sales .................... 266,769 155,877
------------ ------------
Gross profit ................................. 127,633 86,385
Selling, general and administrative
expenses:
Depreciation and amortization expense ..... 115,518 120,653
Other expenses ............................ 210,597 155,613
------------ ------------
Total selling, general and
administrative expenses .............. 326,115 276,266
Interest expense, net ........................ 4,647 7,889
------------ ------------
Net loss .................................. (203,129) (197,770)
------------ ------------
Net loss applicable to common stock ....... $ (203,129) $ (197,770)
============ ============
Net loss per share ........................ $ (0.01) $ (0.01)
============ ============
Weighted average shares outstanding .......... 19,084,751 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 CASH FLOWS
(Unaudited)
Three months ended
December 31,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss ............................................. ($203,129) ($197,770)
Adjustments to reconcile net loss
to net cash used in operating activites:
Depreciation and
amortization ....................... 152,456 157,399
Basis of assets sold ................. 90,258 0
Compensation element of
stock warrants ..................... 6,250 6,250
Changes in assets and liabilities:
Trade accounts receivable ............ (7,479) 200
Inventory............................. (6,868) 0
Prepaid expenses ..................... 14,474 16,690
Other assets ......................... 0 (180)
Accounts payable ..................... 3,976 (24,004)
Accrued expenses ..................... (16,128) (33,276)
Deferred revenues .................... 8,222 0
Payable to related party ............. 24,487
Net cash provided by (used in) operating
activities ......................................... 66,519 (73,073)
--------- ---------
Cash flows from investing activities:
Capital expenditures ................. (39,358) 0
--------- ---------
Net cash used in investing activities ................ (39,358) 0
--------- ---------
Cash flows from financing activities:
Increase in restricted cash ........... (15,308) 10,192
Loan Payments ......................... (52,181) 0
--------- ---------
Net cash provided by financing activities ............ (67,489) 10,192
Net increase (decrease) in cash and
cash equivalents ................................... (40,328) (62,881)
Cash and cash equivalents beginning of period ........ 115,038 151,079
--------- ---------
Cash and cash equivalents end of period .............. $ 74,710 $ 88,198
========= =========
Supplemental disclosure of cash flow information:
Interest paid ................................ $ 4,647 $ 8,045
Income tax paid .............................. 0 0
The accompanying notes are an integral part of the consolidated financial
statements.
5
<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, 1997, for details of accounting policies and
accounts.
2. SIGNIFICANT CUSTOMERS:
The Company had sales constituting approximately 79% of revenue from two
customers during the three months ended December 31, 1997.
3. NOTES PAYABLE:
Notes payable as of December 31, 1997 are as follows:
Notes payable to banks 9.5%, secured by
equipment, due in monthly installments
of principal and interest of $3,794,
or on demand, matures September 16, 1998 ................... $ 31,866
Other ...................................................... 1,578
--------
$ 31,444
========
Notes payable to related party
10%, unsecured, principal and interest
due July 27, 1998 .......................................... $ 50,000
Secured by equipment, interest at the prime
rate plus 2%, principal and interest due
June 28, 1998 ............................................ 25,000
10%, unsecured, principal and interest due
July 19, 1998 ............................................ 50,000
10%, unsecured, principal and interest due
December 25, 1998 ........................................ 25,000
--------
150,000
Less: Current portion ...................................... 125,000
--------
$ 25,000
========
4. SUBSEQUENT EVENT:
On January 1, 1998, Pall Corporation purchased 8,589,714 shares of the
Company's common stock held by Swiss-based Rochem Group. These shares
represent 45% of the Company's total outstanding shares. This purchase was
part of Pall Corporation's acquisition of the Rochem Group's reverse osmosis
and nanofiltration technologies.
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section contains forward-looking statements that are based on current
Company expectations and are subject to a number of factors that could cause
actual results to differ materially. Such factors include, but are not limited
to, market demand, competitive pricing considerations, regulatory approval and
market acceptance of new technologies.
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. 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 63% to $394,402 for the three
months ended December 31, 1997, from $242,262 for the three months ended
December 31, 1996. The increased revenue is due to a product lease contract,
product sales and increased service work during the three months ended December
31, 1997 as compared to the three months ended December 31, 1996.
The revenue generated by service activity as a percent of total continues
to be balanced with a growth in product lease and product sales indicating an
increase in customer base as evidenced by 73% of the three months ended December
31, 1997 revenue being provided by service activities as compared to 100% for
the three months ended December 31, 1996.
Gross profit increased by 48% to $127,633 for the three months ended
December 31, 1997 as compared to $86,385 for the three months ended December 31,
1996. This increase was primarily achieved through revenue growth over the
previous period.
Selling, general and administrative expenses increased to $326,115 for the
three months ended December 31, 1997 from $276,266 for the three months ended
December 31, 1996, of which approximately $115,518 and $120,653, respectively,
were non-cash expenses associated with amortization and depreciation. This
increase resulted primarily from the timing of tax payments, insurance credits
and an increase in personnel and related costs. The expenses associated with tax
payments and insurance credits will not be reoccurring through the 1998 fiscal
year. The costs associated with personnel are related with the Company's growth
strategy and expanded activities.
Interest expense decreased to $4,647 for the three months ended December
31, 1997 from $7,889 for the three months ended December 31, 1996.
7
<PAGE>
Net loss increased to $203,129 for the three months ended December 31,
1997 from $197,770 for the three months ended December 31, 1996. This increase
is primarily due to the impact of nonrecurring expenses and the Company's
investment in strategic personnel that are expected to result in increased
revenue and gross profit in future periods.
As of December 31, 1997, 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, 1997, the Company had a working capital deficit of
$392,185 and a quick ratio of 0.4 to 1.0 as compared to net working capital
deficit of $266,842 and a quick ratio of 0.3 to 1.0 on December 31, 1996. This
increase in working capital deficit is primarily due to the increase in current
liabilities for capital expenditures to acquire rental service equipment and is
related to an increase in accounts payable to related parties. Current assets
increased to $238,879 as of December 31, 1997 from $136,113 as of December 31,
1996. Inventory decreased to $83,872 as of December 31, 1997 from $197,576 at
December 31, 1996. This reduction in inventory was due to the transfer of
equipment from inventory to rental service equipment for which the Company had a
contract.
Net cash provided by operating activities in the three months ended
December 31, 1997 was $66,519. In contrast, in the three months ended December
31, 1996 operating activities used $73,073. This increase in net cash provided
by operating activities is primarily due to the Company's improvement in gross
profit net of non-cash adjustments.
Net cash used for the purchase of capital equipment during the three
months ended December 31, 1997 was $39,358 as compared to $0 during the three
months ended December 31, 1996. This additional rental service equipment was
acquired to support contract work that is expected to continue through Fiscal
1998.
During the three months ended December 31, 1997, financing activities used
net cash of $67,489. These financing activities were primarily the retirement of
a loan.
In January 1997, the Company obtained a $50,000 loan from Fluid Separation
Systems for working capital needs. This loan bears interest at 10% due at
maturity and is due in July 1998. In May 1997, the Company obtained a $120,000
loan from Citizens Bank and Trust to partially fund the construction of
equipment for which the Company has a rental contract. This loan was for six
months and was fully repaid in November 1997.
In Fiscal 1996, the Company had not generated sufficient internal cash
flow to fund operations and to satisfy the debt obligations to Rochem AG and
Lefco. In January 1996, the Company entered into an agreement with Rochem AG
whereby Rochem AG
8
<PAGE>
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 Fiscal 1996. Through this
credit facility, Fluid Separation Systems loaned the Company $25,000 in December
1995, $50,000 in February 1996 and $25,000 in July 1996. On January 31, 1996,
the Company used the proceeds of these transactions to retire a $50,000 loan
from Citizens Bank. In December 1996, Fluid Separation Systems granted
extensions 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 February and July 1996 loans and are due June 1998,
July 1998 and December 1998, respectively.
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. In September 1996, the Company exercised the
$50,000 credit facility with Lefco. This loan was repaid in September 1997
through the Company obtaining a loan for the final payment of $43,249 from
Woodforest National Bank. This loan requires monthly installments of principal
and interest of $3,794 and matures September 1998.
As noted above, the Company has had a working capital deficit of $392,185
including $125,000 due and payable within Fiscal 1998 from loan facilities
provided by a related party. In Fiscal 1997, the Company made capital
investments to acquire additional and to upgrade existing rental service
equipment for present customers. These investments are expected to continue to
provide additional cash in Fiscal 1998. The Company is currently in negotiations
for several contracts that the Company believes will generate sufficient cash
flows to continue to fund operations and meet working capital needs during
Fiscal 1998. Because the timing of these projects cannot be controlled, the
Company is evaluating and exploring other financing alternatives. In the event
additional funding is required, the Company will consider alternatives to do so
through a combination of efforts or methods, including additional extensions on
its notes payable, financing rental service equipment or contracts, 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 alternatives will be available to the Company.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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
<PAGE>
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
16.2(7) - 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 8-K dated October 24,
1997.
11
<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 17, 1998 By:/S/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and
Principal Accounting Officer
Date: February 17, 1998 By: /S/ WILLIAM E. BRACKEN
William E. Bracken, Vice-President
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 96,483
<SECURITIES> 0
<RECEIVABLES> 107,978
<ALLOWANCES> 0
<INVENTORY> 83,872
<CURRENT-ASSETS> 238,879
<PP&E> 2,336,344
<DEPRECIATION> 1,173,849
<TOTAL-ASSETS> 5,520,090
<CURRENT-LIABILITIES> 631,064
<BONDS> 0
0
0
<COMMON> 19,085
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,520,090
<SALES> 30,000
<TOTAL-REVENUES> 394,402
<CGS> 266,769
<TOTAL-COSTS> 266,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,647
<INCOME-PRETAX> (203,129)
<INCOME-TAX> 0
<INCOME-CONTINUING> (203,129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (203,129)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
