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, 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 (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 August 4, 1999, the registrant had 19,184,751 shares of Common
Stock, par value $0.001 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, 1999...............................3
Consolidated statement of operations
for the three months ended June 30,
1999 and 1998...............................4
Consolidated statement of operations
for the nine months ended June 30, 1999
and 1998....................................5
Consolidated statement of cash flows
for the nine months ended June 30, 1999
and 1998....................................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.............................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.............................12
Item 6. Exhibits and Reports on Form 8-K..............12
Signature.....................................................14
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 321,382
Restricted cash ............................................ 9,758
Accounts receivable ........................................ 225,686
Inventory .................................................. 45,125
Prepaid expenses ........................................... 21,084
------------
Total current assets .................................. 623,035
Inventory ...................................................... 77,003
Property and equipment, net .................................... 777,605
Intangible assets, net ......................................... 3,488,058
Other assets ................................................... 20,239
------------
Total assets ......................................... $ 4,985,940
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 184,752
Accrued expenses ........................................... 92,553
Notes Payable .............................................. 8,244
Notes payable to related parties ........................... 486,403
Payable to related parties ................................. 462,277
------------
Total current liabilities .............................. 1,234,229
Long term note payable to bank ................................. 12,103
------------
Total liabilities ...................................... 1,246,332
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 .................................... (6,610,907)
------------
Total stockholders' equity ..................... 3,739,608
------------
Total liabilities and stockholders' equity ..... $ 4,985,940
============
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ROCHEM ENVIRONMENTAL, INC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Service and lease ......................................................... $ 233,919 $ 366,900
Product sales ............................................................. 174,000 16,066
Product demonstrations .................................................... 19,813 0
------------ ------------
Total revenues ....................................................... 427,732 382,966
Cost of sales:
Product costs ............................................................. 204,693 216,544
Depreciation expense ...................................................... 44,856 37,993
------------ ------------
Total cost of sales ..................................................... 249,549 254,537
------------ ------------
Gross profit ................................................................ 178,183 128,429
Selling, general and administrative
expenses:
Depreciation and amortization expense ..................................... 109,955 115,835
Other expenses ............................................................ 220,758 230,659
------------ ------------
Total selling, general and
administrative expenses ................................................. 330,713 346,494
Interest expense(income), net ............................................... 20,515 3,770
------------ ------------
Net loss .................................................................. (173,045) (221,835)
------------ ------------
Net loss applicable to common stock ....................................... $ (173,045) $ (221,835)
============ ============
Net loss per share ........................................................ $ (0.01) $ (0.01)
============ ============
Weighted average shares outstanding ......................................... 19,184,751 19,084,751
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
------------ ------------
Revenues:
Service and lease ........................... $ 634,696 $ 1,070,422
Product sales ............................... 827,665 78,088
Product demonstrations ...................... 48,853 0
------------ ------------
Total revenues ........................... 1,511,214 1,148,510
Cost of sales:
Product costs ............................... 834,866 658,517
Depreciation expense ........................ 126,337 111,869
------------ ------------
Total cost of sales ...................... 961,203 770,386
------------ ------------
Gross profit ................................. 550,011 378,124
Selling, general and administrative
expenses:
Depreciation and amortization expense ....... 328,601 346,870
Other expenses .............................. 699,580 634,245
------------ ------------
Total selling, general and
administrative expenses ................... 1,028,181 981,115
Interest expense(income), net ................ 61,367 15,922
------------ ------------
Net loss .................................. (539,537) (618,913)
------------ ------------
Net loss applicable to common stock ....... $ (539,537) $ (618,913)
============ ============
Net loss per share ........................ $ (0.03) $ (0.03)
============ ============
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>
NINE MONTHS ENDED JUNE 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $ (539,537) $ (618,913)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 454,938 458,739
Accretion of note discount ..................... 20,403 0
Changes in assets and liabilities:
Trade accounts receivable ...................... (89,672) (44,830)
Inventory ...................................... 55,125 (205,375)
Prepaid expenses ............................... 16,606 16,974
Accounts payable ............................... (8,596) 56,469
Accrued expenses ............................... 47,477 2,763
Deferred revenues .............................. (88,385) 0
Payable to related party ....................... 335,762 71,934
----------- -----------
Net cash provided by (used in) operating activities .... 204,121 154,561
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................... (122,956) (60,547)
----------- -----------
Net cash used in investing activities .................. (122,956) (60,547)
Cash flows from financing activities:
(Increase) in restricted cash .................. (6,144) (4,159)
Proceeds from sale of common stock ............. 1,000 0
Loan Proceeds .................................. 22,468 0
Loan Payments .................................. (3,314) (59,896)
----------- -----------
Net cash provided by financing activities .............. 14,010 (64,055)
Net increase (decrease) in cash and cash equivalents ... 95,175 29,959
Cash and cash equivalents beginning of period .......... 226,207 115,038
----------- -----------
Cash and cash equivalents end of period ................ $ 321,382 $ 144,997
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ...................................... $ 1,782 $ 16,197
Income tax paid .................................... 0 0
</TABLE>
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 the 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 AND RELATED PARTY:
The Company had sales constituting approximately 92.3% of revenue from three
customers during the nine months ended June 30, 1999. Service and lease
revenue from the Chevron refinery in Pascagoula, Mississippi accounted for
approximately 39.5% of the total revenue generated during the nine months
ended June 30, 1999.
3. NOTES PAYABLE:
Notes payable as of June 30, 1999 are as follows:
Notes payable to banks
Woodforest Bank ................................................. $ 16,746
Citizens Bank & Trust ........................................... $ 3,601
------------
$ 20,347
============
Notes payable to related party
10.5%, $500,000 face value, interest
imputed at 14.7%, unsecured, principal
and interest due December 31, 1999............................... $ 486,403
============
4. SUBSEQUENT EVENT:
Rochem Environmental, Inc. has been treating waste water generated by a
hydrodrilling service. In order to streamline their contracting, Chevron
decided to combine both of these activities under one contract and offered it
for bids. The Company was notified on July 2, 1999 that it was not selected
as the final contractor for both the hydrodrilling and waste water treatment
service. Therefore, as of August 1999, the Company will no longer provide
these services, which has been a significant source of revenue for the
Company.
For the fiscal year ended September 30, 1997, the Company's revenue totaled
$1,427,202 of which $768,738 was generated by service work at the Chevron
refinery. For the fiscal year ended September 30, 1998, the Company's revenue
totaled $1,427,257 of which $772,539 was generated by service work at the
Chevron
7
<PAGE>
refinery. For the nine months ended June 30, 1999 revenue generated by the
service work at the Chevron refinery was $597,290 of the total revenue of
$1,511,214.
The Company is in negotiations for several contracts that range in value from
$250,000 to $4,500,000 that the Company believes will be finalized in the
near future and which are expected to 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.
8
<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 grew by 32% to $1,511,214 for the nine
months ended June 30, 1999, from $1,148,510 for the nine months ended June 30,
1998. The increased revenue is primarily due to an increase in product sales
during the nine months ended June 30, 1999 as compared to the nine months ended
June 30, 1998. The consolidated revenues increased to $427,732 for the three
months ended June 30, 1999, from $382,966 for the three months ended June 30,
1998.
The revenue generated by product sales continued to experience growth
during the nine months ended June 30, 1999 with $827,665 of revenue as compared
to $78,088 of revenue for the nine months ended June 30, 1997. Revenue from
service and lease related activities of $634,696 is lower for the nine months
ended June 30, 1999, from $1,070,422 for the nine months ended June 30, 1998.
Affecting the service and lease revenues has been the delay in projects that the
Company has a key role to provide equipment. During the three months ended June
30, 1999, the Company completed laboratory testing for 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 the product sales.
Gross profit increased to $550,011 for the nine months ended June 30, 1999
as compared to $378,124 for the nine months ended June 30, 1998. For the three
months
9
<PAGE>
ended June 30, 1999 the gross profit increased to $178,183 as compared to
$128,429 for the three months ended June 30, 1998. This increase was primarily
due to increased product sales resulting in a higher contribution to gross
profit. The Company is in negotiations for the sale of equipment that range in
value from $250,000 to $4,500,000.
Selling, general and administrative expenses increased to $1,082,181 for
the nine months ended June 30, 1999 from $981,115 for the nine months ended June
30, 1998, of which approximately $328,601 and $346,870, respectively, were
non-cash expenses associated with amortization and depreciation. This increase
resulted primarily 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.
Net loss decreased to $539,537 for the nine months ended June 30, 1999
from $618,913 for the nine months ended June 30, 1998. This decrease is
primarily due to the impact of the Company's investments in strategic personnel
that are expected to result in increased revenue and gross profit in future
periods.
As of June 30, 1999, the Company had a total of 9 employees, 5 of whom
were involved in field operations and testing, 3 devoted to sales and
demonstration activities and 1 involved in the general administrative and
financial areas.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had a working capital deficit of $611,194
and a quick ratio of 0.5 to 1.0 as compared to net working capital deficit of
$391,259 and a quick ratio of 0.4 to 1.0 on June 30, 1998. This increase in
working capital deficit is primarily due to the increase in current liabilities.
Current assets increased to $623,035 as of June 30, 1999 from $277,731 as of
June 30, 1998. Inventory increased to $122,128 as of June 30, 1999 from $99,746
at June 30, 1998.
Net cash provided by operating activities in the nine months ended June
30, 1999 was $204,121 compared to $154,561 for the same period in Fiscal 1998.
Net cash used for the purchase of capital equipment during the nine months
ended June 30, 1999 was $122,956 as compared to $60,547 during the nine months
ended June 30, 1998.
During the nine months ended June 30, 1999, financing activities provided
net cash of $14,010. For the same period during Fiscal 1998, financing
activities used net cash of $64,055.
In September of 1998, the Company obtained a $500,000 loan from Rochem
Group SA, an affiliate of Fluid Separation System. 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
10
<PAGE>
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 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 and the loss of revenue from the service
work provided to the refinery in Mississippi will impact the cash flow from
operations, 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 combination. 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.
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 systems rely will be timely converted
and would not have an adverse effect on the 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
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
12
<PAGE>
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 8-K dated October 24,
1997.
(b) Reports on Form 8-K
On July 13, 1999 the Company filed a current report on Form 8-K to
report the July 2, 1999 notification that the Company was not
selected as the final contractor for both the hydrodrilling and
waste water treatment services at the Chevron refinery in
Pascagoula, Mississippi. Therefore, as of August 1999, the Company
will no longer provide these services, which has been a significant
source of revenue for the Company. For the nine months ended June
30, 1999 revenue generated by the service work at the Chevron
refinery was $633,696 of the total revenue of $1,511,214.
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: August 13, 1999 By: /S/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
And Principal Accounting Officer
Date: August 13, 1999 By: /S/ WILLIAM E. BRACKEN
------------------------------------
William E. Bracken, Vice President
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 331,140
<SECURITIES> 0
<RECEIVABLES> 225,686
<ALLOWANCES> 0
<INVENTORY> 45,125
<CURRENT-ASSETS> 623,035
<PP&E> 777,605
<DEPRECIATION> (1,210,429)
<TOTAL-ASSETS> 4,985,940
<CURRENT-LIABILITIES> 1,234,229
<BONDS> 0
0
0
<COMMON> 19,185
<OTHER-SE> 3,739,608
<TOTAL-LIABILITY-AND-EQUITY> 4,985,940
<SALES> 827,665
<TOTAL-REVENUES> 1,511,214
<CGS> 961,203
<TOTAL-COSTS> 961,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,367
<INCOME-PRETAX> (539,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (539,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539,537)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
