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, 1999.
[ ] 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 INCORPORATION) (IRS EMPLOYER 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 6, 1999, the registrant had 19,184751 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, 1999 ..................................... 3
Consolidated statement of operations for the three
months ended March 31, 1999 and 1998 ............... 4
Consolidated statement of operations for the six
months ended March 31, 1999 and 1998 ............... 5
Consolidated statement of cash flows for the six
months ended March 31, 1999 and 1998 ............... 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 ...................................... 12
Item 2. Changes in Securities ................................ 12
Item 3. Defaults Upon Senior Securities ...................... 12
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 ..................... 13
Signature ...................................................... 14
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 239,099
Restricted cash ....................................... 14,340
Accounts receivable ................................... 214,832
Inventory ............................................. 32,872
Prepaid expenses ...................................... 9,373
------------
Total current assets .......................... 510,516
Inventory ..................................................... 77,003
Property and equipment, net ................................... 831,187
Intangible assets, net ........................................ 3,582,342
Other assets .................................................. 20,239
------------
Total assets .................................. $ 5,021,287
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 179,456
Accrued expenses ...................................... 35,523
Notes Payable ......................................... 7,238
Notes payable to related parties ...................... 479,602
Payable to related parties ............................ 395,199
------------
Total current liabilities ..................... 1,097,018
Note payable to bank .......................................... 11,617
------------
Total liabilities ............................. 1,108,635
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
Shares authorized, 19,184,751 issued and
outstanding ................................... 19,185
Preferred stock, no par value, 10,000,000 shares
Authorized, none outstanding
Additional paid-in capital ............................ 10,331,330
Accumulated deficit ................................... (6,437,863)
------------
Total stockholders' equity .................... 3,912,652
------------
Total liabilities and stockholders' equity .... $ 5,021,287
============
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,
-----------------------------
1999 1998
------------ ------------
Revenues:
Service and lease .......................... $ 232,982 $ 339,121
Product sales .............................. 379,389 $ 32,021
Product demonstrations ..................... 4,200 0
------------ ------------
Total revenues ........................ 616,571 371,142
Cost of sales:
Product Costs ............................. 340,526 212,143
Depreciation expense ...................... 44,856 36,938
------------ ------------
Total cost of sales .................... 385,382 249,081
------------ ------------
Gross profit ................................. 231,189 122,061
Selling, general and administrative
expenses:
Depreciation and amortization expense ..... 109,955 115,518
Other expenses ............................ 248,516 182,987
------------ ------------
Total selling, general and
administrative expenses ................ 358,471 298,505
Interest expense, net ........................ 20,626 7,504
------------ ------------
Net loss .................................. (147,908) (183,948)
------------ ------------
Net loss applicable to common stock ....... ($ 147,908) ($ 183,948)
============ ============
Net loss per share ........................ ($ 0.01) ($ 0.01)
============ ============
Weighted average shares outstanding .......... 19,184,751 19,084,751
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Six months ended March 31,
----------------------------
1999 1998
------------ ------------
Revenues:
Service and lease ............................ $ 400,777 $ 703,523
Product sales ................................ 653,665 62,021
Product demonstrations ....................... 29,040 0
------------ ------------
Total revenues .......................... 1,083,482 765,544
Cost of sales:
Product costs ............................... 630,173 441,973
Depreciation expense ........................ 81,481 73,876
------------ ------------
Total cost of sales ...................... 711,654 515,849
------------ ------------
Gross profit ................................... 371,828 249,695
Selling, general and administrative expenses:
Depreciation and amortization expense ....... 218,646 231,035
Other expenses .............................. 478,822 403,586
------------ ------------
Total selling, general and
administrative expenses .................. 697,468 634,621
Interest expense, net .......................... 40,852 12,151
------------ ------------
Net loss .................................... (366,492) (397,077)
------------ ------------
Net loss applicable to common stock ......... ($ 366,492) ($ 397,077)
============ ============
Net loss per share .......................... ($ 0.02) ($ 0.02)
============ ============
Weighted average shares outstanding ............ 19,184,751 19,084,751
============ ============
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)
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... ($366,492) ($397,077)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ..................... 300,127 304,911
Basis of assets sold .............................. 0 164,886
Compensation element of stock warrants ............ 0 6,250
Accretion of note discount ........................ 13,602 0
Changes in assets and liabilities:
Trade accounts receivable ......................... (78,818) (4,961)
Inventory ......................................... 67,381 (7,033)
Prepaid expenses .................................. 28,317 31,867
Other assets ...................................... 0 (200)
Accounts payable .................................. (26,641) 44,953
Accrued expenses .................................. 3,193 (37,781)
Deferred revenues ................................. (88,385) 0
Payable to related party .......................... 268,683 25,259
--------- ---------
Net cash provided by (used in) operating activities ............... 120,967 131,074
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (116,011) (59,857)
--------- ---------
Net cash used in investing activities ............................. (116,011) (59,857)
--------- ---------
Cash flows from financing activities:
Decrease(Increase) in restricted cash ............... (10,726) 6,465
Proceeds from sale of common stock ................. 1,000 0
Loan Proceeds ...................................... 19,493 0
Loan Payments ...................................... (1,831) (59,896)
--------- ---------
Net cash provided by (used in) financing activities ............... 7,936 (53,431)
Net increase (decrease) in cash and cash equivalents .............. 12,892 17,786
Cash and cash equivalents beginning of period ..................... 226,207 115,038
--------- ---------
Cash and cash equivalents end of period ........................... $ 239,099 $ 132,824
========= =========
Supplemental disclosure of cash flow information:
Interest paid ............................................. $ 1,136 $ 12,361
Income tax paid .......................................... 0 0
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statement.
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, 1998, for details of accounting policies and
accounts.
2. SIGNIFICANT CUSTOMERS:
The Company had sales constituting approximately 60.3% of revenue from three
customers during the six months ended March 31, 1999. Service and lease
revenue from two customers accounted for approximately 37% of revenue for the
six months ended March 31, 1999.
3. NOTES PAYABLE:
Notes payable as of March 31, 1999 are as follows:
Notes payable to banks
Woodforest Bank $ 17,941
Citizens Bank & Trust $ 914
--------
$ 18,855
Notes payable to related party
10.5%, $500,000 face value, interest
imputed at 14.7%, unsecured, principal
and interest due December 31, 1999 $479,602
========
4. SIGNIFICANT EVENT:
On March 18, 1999, David A. LaMonica resigned from the Board of Directors.
Mr. LaMonica did not have any disagreements with the Company on any matter
relating to the Company's operations, policies or practices. On March 18,
1999, the Board of Directors elected William C. Palmer, Senior Vice
President of Pall Corporation, to fill the vacancy. Mr. Palmer will serve
until the next respective annual meeting of the stockholders or until his
respective successor has been elected or resigns.
7
<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 reverse
osmosis and nanofiltration technology licensed exclusively to it through a
distributor agreement from Pall Rochem (formerly Rochem Separation Systems,
Inc.), a wholly owned subsidiary of Pall Corporation. The Company also utilizes
patented ultrafiltration technology through a distributor agreement from Rochem
Ultrafiltration. The patented technologies involve 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 of $616,571 for the three months ended March
31, 1999 were approximately 66% greater than the $371,142 for the three months
ended March 31, 1998. The Company's consolidated revenues grew by 42% to
$1,083,482 for the six months ended March 31, 1999, from $765,544 for the six
months ended March 31, 1998. The increased revenue is primarily due to sale of
reverse osmosis equipment to a large engineering and construction company for
use on a drilling rig.
Revenue generated by product sales continued to experience growth during the
three months ended March 31, 1999 with $379,389 of revenue compared to $32,021
of revenue for the three months ended March 31, 1998. Revenue from service and
lease related activities was $232,982 for the three months ended March 31, 1999
as compared to $339,121 for the same period in Fiscal 1998. Revenue from service
activities were lower than anticipated due to the continued delay in work at a
large refinery where the Company performs waste water treatment services. During
the three months ended March 31, 1999, the Company did not have any lease
activity as compared with $70,200 in the three months ended March 31, 1998 that
later was converted to a product sale through a purchase agreement. During the
three months ended March 31, 1999, the Company completed a major test for a
petrochemical plant and began laboratory testing for other new customers. The
Company continues to focus significant resources on the continued growth in
these technology demonstration efforts, as they are essential to the Company's
strategy to increase product sales.
8
<PAGE>
Gross profit for the three months ended March 31, 1999 of $231,189 increased by
89% as compared to $122, 061 for the same period in Fiscal 1998. Gross profit
for the six months ended March 31, 1999 of $371,828 increased by 49% as compared
to $249, 695 for the six months ended March 31, 1998. The increase was primarily
due to higher product sales. The Company is in negotiations for the sale of
equipment for projects that range in value from $250,000 to $4,500,000.
Management can provide no assurance these negotiations will result in firm
contracts.
Selling, general and administrative (SG&A) expenses increased to $358,471 from
$298,505 for the three months ended March 31, 1999, of which approximately
$109,955 and $115,518, respectively, were non-cash expenses associated with
amortization and depreciation. SG&A expenses for the six months ended March 31,
1999 was $697,468 as compared to $634,621 for the same period of Fiscal 1998.
This increase resulted from an increase in personnel and related costs. These
costs associated with personnel are related with the Company's growth strategy
and expanded sales and demonstration activities.
Interest expense increased from $7,504 for the three months ended March 31, 1998
to $20,626 for the three months ended March 31, 1999. Interest expense for the
six months ended March 31, 1999 was $40,852 compared to $12,151 for the same
period of Fiscal 1998.
Net loss decreased for the three months ended March 31, 1999 to $147,908 as
compared to $183,948 for the same period in Fiscal 1998. Net loss for the six
months ended March 31, 1999 of $366,492 decreased as compared to $397,077 for
the six months ended March 31, 1998. This decrease is primarily a result of
increase product sales although the effect of increased interest expense and
personnel related costs offset a significant reduction in the net loss in this
quarter.
As of March 31, 1999, the Company had a total of 9 employees, 5 of whom were
involved in field operating activities and testing, 3 devoted full time to sales
activities and 1 involved in the general administration and financial areas. The
Company utilizes contract employees for certain activities.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had a net working capital deficit of $586,502
and a quick ratio of 0.5 to 1.0 as compared to a net working capital deficit of
$379,914 and a quick ratio of 0.4 to 1.0 on March 31, 1998. Current assets
increased to $510,516 as of March 31, 1999 from $255,310 as of March 31, 1998.
Net cash provided by operating activities in the six months ended March 31, 1999
was $120,967. In the six months ended March 31, 1998 operating activities
provided $131,074 in net cash.
Net cash used for the purchase of capital equipment during the six months ended
March 31, 1999 was $116,011 as compared to $59,587 during the six months ended
March 31, 1998.
9
<PAGE>
During the six months ended March 31, 1999, financing activities provided net
cash of $7,936. In contrast, during the six months ended March 31, 1998, net
cash used in financing activities was $53,431.
In September of 1998, the Company obtained a $500,000 loan from Rochem Group SA,
an affiliate of Fluid Separation Systems. The loan, which bears an interest rate
of 10.5% per annum, with interest payable upon maturity, matures on December 31,
1999. As part of the loan agreement, the Company agreed to issue a stock
purchase warrant entitling Rochem Group, SA to purchase an aggregate of
1,250,000 shares of the Company's common stock. The proceeds of this transaction
were used to repay loans to Fluid Separation Systems totaling $150,000 in
principal. Specifically, these loans were $25,000 in December 1995, $50,000 in
February 1996, $25,000 in July 1996 and $50,000 in January 1997. To date the
Company has not made any principal or interest payment on this loan. The
exercise price for the Warrant is $0.25 per share.
In Fiscal 1998, 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 1999.
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 1999. Management can provide no
assurance these negotiations will result in firm contracts. 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
alternative will be available to the Company.
IMPACT OF YEAR 2000
The year 2000 is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company presently believes that the
Year 2000 issue will not pose significant operational problems for its computer
systems.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties failure to remediate
their own Year 2000 Issues. There can be no guarantee that the systems of other
companies on which the Company's system rely will be timely converted and would
not have an adverse effect on the
10
<PAGE>
Company's systems. The Company has determined it has no exposure to
contingencies related to the Year 2000 Issue for services it has provided.
11
<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
The following matters were submitted to a vote of shareholders
during the Annual Meeting of Stockholders held on March 12,1999.
On March 12, 1999 the holders of a majority of shares of Common
Stock of the Company approved the election of four directors for the
coming year.
FOR WITHHELD ABSTAIN
---------- -------- -------
William E. Bracken 15,509,471 31,945 0
David A. LaMonica 15,506,821 34,595 0
Philip LeFevre 15,506,821 34,595 0
Erick J. Neuman 15,506,821 34,595 0
On March 12, 1999 the holders of a majority of shares of Common
Stock of the Company approved the ratification of Weinstein Spira &
Company, P.C. as independent auditors for the fiscal year ending
September 30, 1999.
FOR AGAINST ABSTAIN
---------- --------- ---------
15,510,742 29,595 1,079
12
<PAGE>
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.
(b) Reports on Form 8-K
On March 23, 1999 the Company filed a current report on Form 8-K to
report the March 18, 1999 resignation of David A. LaMonica from the
board of directors. Mr. LaMonica did not have any disagreements with
the Company on any matter relating to the Company's operations,
policies or practices. On March 18, 1999, the board elected William
Palmer, Senior Vice President of Pall Corporation, to fill the
vacancy. Mr. Palmer will serve until the next respective annual
meeting of the stockholders or until his representative successor has
been elected or resigns.
13
<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 17, 1999 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
Date: May 17, 1999 By: /s/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 239,099
<SECURITIES> 0
<RECEIVABLES> 214,832
<ALLOWANCES> 0
<INVENTORY> 32,872
<CURRENT-ASSETS> 510,516
<PP&E> 831,187
<DEPRECIATION> (1,165,573)
<TOTAL-ASSETS> 5,021,287
<CURRENT-LIABILITIES> 1,108,635
<BONDS> 0
0
0
<COMMON> 19,185
<OTHER-SE> 3,912,652
<TOTAL-LIABILITY-AND-EQUITY> 5,021,287
<SALES> 653,665
<TOTAL-REVENUES> 1,083,482
<CGS> 711,654
<TOTAL-COSTS> 711,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,852
<INCOME-PRETAX> (336,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (366,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (366,492)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
