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, 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 Feb. 10, 2000, 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
December 31, 1999. . . . . . . . . . . . . . . . . . 3
Consolidated statement of operations for the three
months ended December 31, 1999 and 1998 . . . . . . .4
Consolidated statement of cash flows for the three
months ended December 31, 1999 and 1998 . . . . . . 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
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
<PAGE>
ROCHEM ENVIRONMENTAL, INC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 218,949
Trade accounts receivable ...................... 70,357
Inventory ...................................... 433,736
Prepaid expenses ............................... 14,650
------------
Total current assets ............... 737,692
Inventory .......................................... 47,465
Property and equipment, net ........................ 715,133
Other assets ....................................... 13,984
------------
Total assets ....................... $ 1,514,274
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 133,053
Accrued expenses ............................... 104,352
Notes Payable .................................. 7,724
Notes payable to related parties ............... 500,000
Payable to related parties ..................... 503,769
Customer deposits .............................. 599,999
------------
Total current liabilities .................. 1,848,897
Note payable to bank ............................... 9,424
------------
Total liabilities .......................... 1,858,321
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 ............................ (10,694,562)
------------
Total stockholders' equity ................. (344,047)
------------
Total liabilities and stockholders' equity . $ 1,514,274
============
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 Dec. 31,
-----------------------------
1999 1998
------------ ------------
Revenues:
Service ................................... $ 28,214 $ 167,794
Product sales ............................. 1,492 $ 274,277
Product demonstrations .................... 5,000 24,840
------------ ------------
Total revenues ....................... 34,706 466,911
Cost of sales:
Product Costs ............................ 47,431 289,646
Depreciation expense ..................... 36,531 36,625
------------ ------------
Total cost of sales ................... 83,962 326,271
------------ ------------
Gross profit ................................ (49,256) 140,640
Selling, general and administrative expenses:
Depreciation and amortization expense .... 15,501 108,691
Other expenses ........................... 193,129 229,745
------------ ------------
Total selling, general and
administrative expenses ............... 208,630 338,436
Interest expense(income), net ............... 20,898 20,789
------------ ------------
Net loss ................................. (278,784) (218,585)
------------ ------------
Net loss applicable to common stock ...... $ (278,784) $ (218,585)
============ ============
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 CASH FLOWS
(Unaudited)
Three months ended Dec. 31,
--------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net loss .......................................... ($278,784) ($218,585)
Adjustments to reconcile net loss to net
cash used in operating activites:
Depreciation and amortization ..... 52,032 145,316
Accretion of note discount ........ 6,796 6,801
Changes in assets and liabilities:
Trade accounts receivable ......... (371) (46,906)
Inventory ......................... (408,730) 89,479
Prepaid expenses .................. (1,081) 20,843
Accounts payable .................. 13,219 6,868
Accrued expenses .................. 34,776 (22,512)
Deferred revenues ................. 599,999 (88,385)
Payable to related party .......... 3,076 17,850
--------- ---------
Net cash provided by operating activities ......... 20,932 (89,531)
--------- ---------
Cash flows from investing activities:
Capital expenditures .............. 0 (113,260)
--------- ---------
Net cash used in investing activities ............. 0 (113,260)
--------- ---------
Cash flows from financing activities:
Increase in restricted cash ......... 0 13,101
Proceeds from sale of common stock . 0 1,000
Loan Proceeds ...................... 0 19,493
Loan Payments ...................... (1,401) (521)
--------- ---------
Net cash provided by financing activities ......... (1,401) 6,871
Net increase (decrease) in cash and
cash equivalents ................................ 19,531 (195,920)
Cash and cash equivalents beginning of period ..... 199,418 226,207
--------- ---------
Cash and cash equivalents end of period ........... $ 218,949 $ 30,287
========= =========
Supplemental disclosure of cash flow information:
Interest paid ............................. $ 972 $ 13,488
Income tax paid ........................... 0 0
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 AND RELATED PARTY:
The Company had sales constituting approximately 77% of revenue from two
customers during the three months ended December 31, 1999, of which
approximately 40% was derived from a related party.
3. NOTES PAYABLE:
Notes payable as of December 31, 1999 are as follows:
Notes payable to banks
Woodforest Bank $ 14,283
Citizens Bank & Trust $ 3,086
-------------
$ 17,369
=============
Notes payable to related party
10.5%, $500,000 face value, interest
imputed at 14.7%,unsecured, principal
and interest due December 31, 1999 $ 500,000
=============
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. In the opinion of Management, 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 commercial wastewater treatment
equipment to the marine industry and 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.
In November 1999, the Company was awarded a major contract to supply waste
water treatment systems to a major cruise line. Under this contract, the Company
will deliver two Rochem UF systems at a total contract price of approximately of
$2,000,000. The first system was delivered in February 2000 and the second will
be delivered in March/April 2000. Under the contract, the cruise line client has
an option to purchase three more systems at the same pricing.
The Company's consolidated revenues were $34,706 for the three months
ended December 31, 1999 compared to $466,911 for the three months ended December
31, 1998. The decrease in revenue is primarily due to the lower volume of
service work and that the Company will recognize the revenue from the equipment
sales after installation and acceptance by the customer.
The revenue generated by product sales decreased during the three months
ended December 31, 1999 with $1,492 of revenue as compared to $274,277 of
revenue for the three months ended December 31, 1998. Revenue from service
activities of $28,214 decreased for the three months ended December 31, 1999,
from $167,794 for the three months ended December 31, 1998. The Company has
performed water treatment services at a refinery until 1999. Due to a change in
maintenance procedures, the Company's services are no longer required for this
work which primarily contributed to the decreased revenues. During the three
months ended December 31, 1999, the Company generated $5,000 in revenue from
product demonstrations compared with $24,840 for the same period in Fiscal 1999.
Due to lower revenues, gross profit decreased to a loss of $49,256 for the
three months ended December 31, 1999, as compared to a gross profit of $140,640
for the three months ended December 31, 1998.
Selling, general and administrative expenses decreased to $208,630 for the
three months ended December 31, 1999 from $338,436 for the three months ended
December 31, 1998, of which approximately $15,501 and $108,691, respectively,
were non-cash expenses associated with amortization and depreciation.
Interest expense increased to $20,898 for the three months ended December
31, 1999 from $20,789 for the three months ended December 31, 1998.
7
<PAGE>
Net loss increased to $278,784 for the three months ended December 31,
1999 from $218,585 for the three months ended December 31, 1998. This increase
is due to the lower revenues for the three month period.
As of December 31, 1999, the Company had a total of 7 employees, 3 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 December 31, 1999, the Company had a working capital deficit of
$1,111,205 and a current ratio of 0.4 to 1.0 as compared to net working capital
deficit of $589,488 and a current ratio of 0.3 to 1.0 on December 31, 1998.
Current assets increased to $787,501 as of December 31, 1999 from $257,540 as of
December 31, 1998.
Net cash provided by operating activities for the three months ended
December 31, 1999 was $20,932. In contrast, in the three months ended December
31, 1998 operating activities used $89,531 in net cash. This increase in net
cash provided by operating activities is primarily due to the sale of the
systems to the cruise lines.
Net cash used for the purchase of capital equipment during the three
months ended December 31, 1999 was $0 as compared to $113,260 during the three
months ended December 31, 1998.
During the three months ended December 31, 1999, financing activities used
net cash of $1,401. During the three months ended December 31, 1998, financing
activities provided $6,871.
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 February 29, 2000.
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 exercise price for the Warrant is $0.25 per
share for the term of the Warrant. 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 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 indebtedness in full by December 30, 1999. If this occurs, the
Company would pursue a non-exclusive license to protect the business that the
Company has successfully developed and would work to broaden the non-exclusive
license to other markets where the Company believes opportunities exist. In the
event the Distributor Agreement from the Pall Corporation is terminated, the
gray water business that the Company has successfully developed will not be
affected as it does not utilize Pall's Disc Tube technology but instead uses the
FM module provided by the Rochem Group. Pall Corporation has agreed not to
pursue any action with respect to this notice until after March 15, 2000.
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 2000. 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
8
<PAGE>
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. Failure of the Company to obtain
adequate financing in order to fund its working capital requirements could
result in curtailed operations or force the Company to sell assets.
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and the Company has not
experienced any immediate adverse impact from the transition to the year 2000,
the Company cannot provide any assurance that its suppliers and customers have
not been affected in a manner that is not yet apparent. In addition, some
computer programs which were date sensitive to the year 2000 may not have been
programmed to process the year 2000 as a leap year, and any negative
consequential effects remain unknown. As a result, the Company will continue to
monitor its year 2000 compliance. The costs related to verifying and testing our
year 2000 compliance have been nominal and immaterial to our business.
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.
10.7(6) - Agreement Between Company and Rochem Separation
Systems, Inc.
10.8(6) - Agreement Between Company and Rochem AG
10.9(6) - Employment Agreement With Erick Neuman
16.1(7) - 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.
10
<PAGE>
(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
None.
11
<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: February 22, 2000 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
And Principal Accounting Officer
Date: February 22, 2000 By: /s/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
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: February 22, 2000 By: /s/ ERICK J. NEUMAN
Erick J. Neuman, President;
Secretary; Chief Executive Officer,
And Principal Accounting Officer
Date: February 22, 2000 By: /s/ WILLIAM E. BRACKEN
William E. Bracken, Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 218,949
<SECURITIES> 0
<RECEIVABLES> 70,357
<ALLOWANCES> 0
<INVENTORY> 433,736
<CURRENT-ASSETS> 737,692
<PP&E> 715,133
<DEPRECIATION> (1,307,803)
<TOTAL-ASSETS> 1,514,274
<CURRENT-LIABILITIES> 1,848,897
<BONDS> 0
0
0
<COMMON> 19,185
<OTHER-SE> (363,232)
<TOTAL-LIABILITY-AND-EQUITY> 1,514,274
<SALES> 1,492
<TOTAL-REVENUES> 34,706
<CGS> 83,962
<TOTAL-COSTS> 83,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,898
<INCOME-PRETAX> (278,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (278,784)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
