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, 2000.
[ ] 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 May 5, 2000, the registrant had 19,184,751 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
March 31, 2000.................................. 3
Consolidated statement of operations for the three
months ended March 31, 2000 and 1999............ 4
Consolidated statement of operations for the six
months ended March 31, 2000 and 1999............ 5
Consolidated statement of cash flows for the six
months ended March 31, 2000 and 1999............ 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................................... 12
Item 6. Exhibits and Reports on Form 8-K.................... 12
Signature....................................................... 13
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 334,987
Trade accounts receivable ................................ 387,937
Inventory ................................................ 798,937
Prepaid expenses ......................................... 5,204
------------
Total current assets ............................. 1,527,065
Inventory .................................................... 47,465
Property and equipment, net .................................. 666,084
Other assets ................................................. 13,989
------------
Total assets ..................................... $ 2,254,603
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 214,089
Accrued expenses ......................................... 115,380
Notes Payable ............................................ 7,790
Notes payable to related parties ......................... 500,000
Payable to related parties ............................... 511,269
Customer deposits ........................................ 1,499,997
------------
Total current liabilities ........................ 2,848,525
Note payable to bank ......................................... 7,423
------------
Total liabilities ................................ 2,855,948
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 .......................... 0
Additional paid-in capital ............................... 10,331,330
Accumulated deficit ...................................... (10,951,860)
------------
Total stockholders' equity ....................... (601,345)
------------
Total liabilities and stockholders' equity ....... $ 2,254,603
============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
-----------------------------
2000 1999
------------ ------------
Revenues:
Service and lease .......................... $ 20,804 $ 232,982
Product sales .............................. 1,811 379,389
Product demonstrations ..................... 0 4,200
------------ ------------
Total revenues ........................ 22,615 616,571
Cost of sales:
Service and Product Costs ................. 19,113 340,526
Depreciation expense ...................... 0 44,856
------------ ------------
Total cost of sales .................... 19,113 385,382
------------ ------------
Gross profit ................................. 3,502 231,189
Selling, general and administrative
expenses:
Depreciation and amortization expense ..... 52,032 109,955
Other expenses ............................ 195,005 248,516
------------ ------------
Total selling, general and
administrative expenses ................ 247,037 358,471
Interest expense(income), net ................ 13,387 20,626
------------ ------------
Net loss .................................. (256,922) (147,908)
------------ ------------
Net loss applicable to common stock ....... $ (256,922) $ (147,908)
============ ============
Net loss per share ........................ $ (0.01) $ (0.01)
============ ============
Weighted average shares outstanding .......... 19,184,751 19,184,751
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Six months ended March 31,
----------------------------
2000 1999
------------ ------------
Revenues:
Service and lease ............................ $ 49,018 $ 400,777
Product sales ................................ 3,303 $ 653,665
Product demonstrations ....................... 5,000 29,040
------------ ------------
Total revenues .......................... 57,321 1,083,482
Cost of sales:
Service and Product Costs ................... 66,544 630,173
Depreciation expense ........................ 36,531 81,481
------------ ------------
Total cost of sales ...................... 103,075 711,654
------------ ------------
Gross profit ................................... (45,754) 371,828
Selling, general and administrative expenses:
Depreciation and amortization expense ....... 67,533 218,646
Other expenses .............................. 388,134 478,822
------------ ------------
Total selling, general and
administrative expenses ................ 455,667 697,468
Interest expense(income), net .................. 34,285 40,852
------------ ------------
Net loss .................................... (535,706) (366,492)
------------ ------------
Net loss applicable to common stock ......... $ (535,706) $ (366,492)
============ ============
Net loss per share .......................... $ (0.03) $ (0.02)
============ ============
Weighted average shares outstanding ............ 19,184,751 19,184,751
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ROCHEM ENVIRONMENTAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (535,706) $ (366,492)
Adjustments to reconcile net loss to net
cash used in operating activites:
Depreciation and amortization ...... 104,064 300,127
Accretion of note discount ......... 6,796 13,602
Changes in assets and liabilities:
Trade accounts receivable .......... (315,136) (78,818)
Inventory .......................... (773,931) 67,381
Prepaid expenses ................... 5,545 28,317
Accounts payable ................... 94,255 (26,641)
Accrued expenses ................... 45,648 3,193
Deferred revenues .................. 1,499,997 (88,385)
Payable to related party ........... 10,576 268,683
----------- -----------
Net cash provided by operating activities .......... 142,108 120,967
----------- -----------
Cash flows from investing activities:
Capital expenditures ............... (2,982) (116,011)
----------- -----------
Net cash used in investing activities .............. (2,982) (116,011)
----------- -----------
Cash flows from financing activities:
Increase in restricted cash .......... 0 (10,726)
Proceeds from sale of common stock ... 0 1,000
Loan Proceeds ........................ 0 19,493
Loan Payments ........................ (3,557) (1,831)
----------- -----------
Net cash provided by financing activities .......... (3,557) 7,936
Net increase (decrease) in cash and cash equivalents 135,569 12,892
Cash and cash equivalents beginning of period ...... 199,418 226,207
----------- -----------
Cash and cash equivalents end of period ............ $ 334,987 $ 239,099
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid .............................. $ 1,234 $ 1,136
Income tax paid ............................ 0 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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, 1999, for details of accounting policies and
accounts.
2. SIGNIFICANT CUSTOMERS:
The Company had sales constituting approximately 8.0% of revenue from one
customer during the three months ended March 31, 2000. Service and lease
revenue from two customers accounted for approximately 92.0% of revenue for
the three months ended March 31, 2000. The Company had sales constituting
approximately 5.8% of revenue from one customer during the six months ended
March 31, 2000. Service and lease revenue from three customers accounted for
approximately 85.5% of revenue for the six months ended March 31, 2000, of
which approximately 24.4% was derived from a related party. Revenue from
pilot testing for the six months ended March 31, 2000 constituted
approximately 8.7% of revenue from one customer. There was no revenue
generated from pilot testing for the three months ended March 31, 2000.
3. NOTES PAYABLE:
Notes payable as of March 31, 2000 are as follows:
Notes payable to banks
Woodforest Bank ........................ $ 12,729
Citizens Bank & Trust .................. $ 2,484
--------
$ 15,213
Notes payable to related party
10.5%, $500,000 face value, interest
imputed at 14.7%, unsecured, principal
and interest due May 31, 2000.......... $500,000
========
4. SIGNIFICANT EVENT:
In December 1999, the Company received notice from Pall Corporation that it
intends to pursue the termination of the Distributor Agreement if the Company
does not pay its outstanding accounts payable owed to Pall Corporation. The
Company is working with Pall Corporation to resolve this issue on an amicable
basis but does not exclude the possibility that it may have to resort to
litigation to protect its position. Pall Corporation has not taken any action
with respect to this notice. The Company is also working with the Rochem
Group to use its FM module for the treatment of gray water and is pursuing
the acquisition of a license for this technology although there are no
assurances that a satisfactory license can be obtained.
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 for the three months ended March 31, 2000
was $22,615 compared to $616,571for the three months ended March 31, 1999. The
Company's consolidated revenues for the six months ended March 31, 2000 was
$57,321, from $1,083,482 for the six months ended March 31, 1999.
In November 1999, the Company was awarded a major contract to supply gray water
treatment systems to a major cruise line. Under this contract, the Company has
delivered two Rochem gray water systems at a total contract price of
approximately $2,000,000. As of March 31, 2000 the Company has received deferred
income of $1,499.997 and has work in process of $765,499. Upon acceptance of the
equipment, the Company will recognize the revenue and cost associated with this
sale. Under the contract, the cruise line client has an option to purchase three
more systems at the same pricing. During the three months ended March 31, 2000,
the Company's primary focus was the supply of the grey water treatment systems.
Accordingly, revenue generated by product sales was $1,811 compared to $379,389
for the three months ended March 31, 1999. Revenue from service and lease
related activities was $20,804 for the three months ended March 31, 2000 as
compared to $232,982 for the same period in Fiscal 1999. Revenue generated by
8
<PAGE>
product sales for the six months ended March 31, 2000 were $3,303 as compared to
$653,665 for the same period in Fiscal 1999. Revenue generated from service and
lease related activities for the six months ended March 31, 2000 were $49,018
compared to $400,777 for the same period in Fiscal 1999. The Company had
performed water treatment services at a refinery until July 1999. Due to a
change in maintenance procedures, the Company's services were no longer required
for this work which primarily contributed to the decrease in service revenue.
Gross profit for the three months ended March 31, 2000 was $3,502 as compared to
$231,189 for the same period in fiscal 1999. Gross profit for the six months
ended March 31, 2000 was ($45,754) as compared to $371,828 for the six months
ended March 31, 1999. The Company continues to be involved with 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 decreased to $247,037 from
$358,471 for the three months ended March 31, 2000, of which approximately
$52,032 and $154,811, respectively, were non-cash expenses associated with
amortization and depreciation. SG&A expenses for the six months ended March 31,
2000 were $455,667 as compared to $697,468 for the same period of Fiscal 1999.
Non-cash expenses for the six months ended March 31, 2000 were $104,064 compared
to $300,127 for the same period of Fiscal 1999. The reduction in non-cash
expenses is due to the elimination of the amortization expense associated with
the distributor agreement that was carried at cost and amortized on a
straight-line basis over fifteen years. As of July 1, 1999, the Company
recognized an impairment loss on the distributor agreement of $3,488,058,
reducing the cost to $0.
Interest expense decreased to $13,387 for the three months ended March 31, 1999
from $20,626 for the three months ended March 31, 1999. Interest expense for the
six months ended March 31, 2000 was $34,285 compared to $40,852 for the same
period of Fiscal 1999.
As of March 31, 2000, the Company had a total of 5 employees, 2 of whom were
involved in field operating activities and testing, 1 devoted full time to sales
activities and 1 full time and 1 part time involved in the general
administration and financial areas.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had a working capital deficit of $1,321,460
and a quick ratio of 0.3 to 1.0 as compared to working capital deficit of
$586,502 and a quick ration of 0.5 to 1.0 on March 31, 1999. Current assets
increased to $1,527,065 as of March 31, 2000 from $510,516 as of March 31, 1999.
Net cash provided by operating activities in the six months ended March 31, 2000
was $142,108. In the six months ended March 31, 1999 operating activities
provided $120,967 in net cash. Net cash used for the purchase of capital
equipment during the six months ended March 31, 2000 was $2,982.
9
<PAGE>
In September 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 has an original maturity
date of December 31, 1999 that has been extended to May 31, 2000. To date the
Company has not made any principal or interest payment on this loan. While there
are no assurances that the Company will be successful in this endeavor, the
Company is in discussion with Rochem Group SA to renegotiate or extend the loan.
While the Company is in discussion with the Rochem Group SA, the Company has
insufficient liquidity to pay the loan.
In December 1999, the Company received a notice from Pall Corporation that it
intends to pursue the termination of the Distributor Agreement if the Company
does not pay its outstanding accounts payable owed to Pall Corporation. The
Company is working with Pall Corporation to resolve this issue on an amicable
basis but does not exclude the possibility that it may have to resort to
litigation to protect its position. Pall Corporation has not taken any action
with respect to this notice. The Company is also working with the Rochem Group
to use its FM module for the treatment of gray water and is pursuing the
acquisition of a license for this technology although there are no assurances
that a satisfactory license can be obtained.
Failure to adequately renegotiate the Rochem Group SA loan and to extend the
payment to Pall Corporation will significantly impact the Company's ability to
continue operations. Not withstanding this situation, the Company continues to
negotiate for several contracts that the Company believes will generate
sufficient cash flow to fund operations. However, because the timing of these
projects cannot be controlled, the Company is currently evaluating and exploring
financing opportunities to provide working capital and restructure the Company's
outstanding debt. If the Company is unable to secure financing or adequately
renegotiate the indebtedness to Rochem Group SA and Pall Corporation, the
Company will need to liquidate assets.
10
<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.
11
<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
27.1 - Financial Data Sheet
------------
(1) Previously filed as an exhibit on Form 8-K dated July 20, 1993.
(2) Previously filed as an exhibit on Form 8-K dated September 30,
1993.
(3) Previously filed as an exhibit on Form 8-K dated November 5,
1993.
(4) Previously filed as an exhibit on Form 8-K dated November 19,
1993.
(5) Previously filed as an exhibit on Form 8-K dated January 13,
1994.
(6) Previously filed as an exhibit on Form 10-KSB for the fiscal
year ended September 30, 1995.
(7) Previously filed as an exhibit on Form 10-KSB for the period
ending December 31, 1995.
12
<PAGE>
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 22, 2000 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive
Officer, Chief Financial Officer,
and Principal Accounting Officer
Date: May 22, 2000 By:/s/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 334,987
<SECURITIES> 0
<RECEIVABLES> 387,937
<ALLOWANCES> 0
<INVENTORY> 798,937
<CURRENT-ASSETS> 1,527,065
<PP&E> 666,084
<DEPRECIATION> (1,359,835)
<TOTAL-ASSETS> 2,254,603
<CURRENT-LIABILITIES> 2,848,525
<BONDS> 0
0
0
<COMMON> 19,185
<OTHER-SE> (601,345)
<TOTAL-LIABILITY-AND-EQUITY> 2,254,603
<SALES> 1,811
<TOTAL-REVENUES> 22,615
<CGS> 19,113
<TOTAL-COSTS> 19,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,387
<INCOME-PRETAX> (256,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> (256,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256,922)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
