<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
Commission file number 0-25528
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ENVIROQ CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Union Hill Drive, Suite 100
P.O. Box 11169
Birmingham, Alabama 35209
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205)251-2400
-------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, par value $0.01 1,009,377
----------------------------- ------------------
(Class) (Number of Shares)
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ENVIROQ CORPORATION AND SUBSIDIARIES
FORM 10-QSB JUNE 29, 1996
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS -
MARCH 30, 1996 AND JUNE 29, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS-
THREE MONTHS ENDED JUNE 29, 1996 AND JUNE 24, 1995 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED JUNE 29, 1996 AND JUNE 24, 1995 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 12
SIGNATURES 14
</TABLE>
2
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ENVIROQ CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 29, March 30,
1996 1996
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,370,491 $3,628,990
Interest receivable 0 7,890
Accounts receivable (no allowance considered necessary) 163,735 126,397
License fees receivable 4,960 4,960
Inventories 154,429 118,390
Notes receivable 30,577 0
Prepaid expenses and other assets 86,248 34,078
---------- ----------
Total current assets 2,810,440 3,920,705
---------- ----------
OTHER ASSETS:
Employee notes receivable 17,000 17,000
Other 13,492 17,989
---------- ----------
Total other assets 30,492 34,989
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 310,135 310,135
Building 0 0
Operating equipment 25,563 25,563
Other equipment and vehicles 54,452 55,048
---------- ----------
390,150 390,746
Less accumulated depreciation (58,014) (56,402)
---------- ----------
Property, plant and equipment, net 332,136 334,344
---------- ----------
TOTAL ASSETS $3,173,068 $4,290,038
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
3
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ENVIROQ CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 29, March 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 58,690 $ 165,753
Salaries, wages and related taxes 7,063 9,814
Income taxes payable 1,040,504
---------- ----------
Total liabilities 65,753 1,216,071
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock (par value $.01 per share), authorized
10,000,000 shares, issued and outstanding effective
April 18, 1995 1,009,377 shares 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (3,093,426) (3,126,774)
---------- ----------
Total stockholders' equity 3,107,315 3,073,967
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,173,068 $4,290,038
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
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ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(All Periods Unaudited)
Three Months Ended
------------------------
June 29, June 24,
1996 1995
-------- --------
<S> <C> <C>
REVENUES $324,567 $ 92,026
COST OF REVENUES 181,729 51,249
-------- --------
GROSS PROFIT 142,838 40,777
-------- --------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 149,364 192,238
-------- --------
LOSS FROM OPERATIONS (6,526) (151,461)
-------- --------
OTHER INCOME 39,874 28,983
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 33,348 (122,478)
-------- --------
INCOME TAX (BENEFIT) 0 (36,743)
-------- --------
NET INCOME (LOSS) $ 33,348 ($85,735)
======== ========
NET INCOME (LOSS) PER
SHARE $ 0.03 ($0.08)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
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ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (All Periods Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
--------------------------------
June 29, 1996 June 24, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 33,348 ($85,735)
Adjustments to reconcile net Income (loss) to net
cash used in operating activities:
Depreciation 1,612 23,177
Amortization 4,497 21,625
Changes in assets and liabilities provided (used) cash: (1,297,956) (67,943)
---------- ---------
Net cash used in operating activities (1,258,499) (108,876)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,370)
---------- ---------
Net cash used in investing activities (3,370)
---------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,258,499) (112,246)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,628,990 505,169
---------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,370,491 $ 392,923
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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ENVIROQ CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MANAGEMENT'S REPRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These unaudited financial statements include all adjustments, consisting of
normal recurring accruals, which Enviroq Corporation considers necessary for a
fair presentation of the financial position and the results of operations for
these periods.
The results of operations for the three months ended June 29, 1996 are not
necessarily indicative of the results to be expected for the full year ending
March 29, 1997. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
March 30, 1996 as filed with the Securities and Exchange Commission.
NOTE 2 - GENERAL
A. COMPANY INFORMATION
Enviroq Corporation, a Delaware corporation (the "Company"), was
incorporated on February 9, 1995. At the time of its incorporation,
the Company was a wholly-owned subsidiary of a Delaware corporation
formerly named Enviroq Corporation ("Old Enviroq"). Prior to April
18, 1995, the Company was named New Enviroq Corporation ("New
Enviroq"). On April 18, 1995, Old Enviroq distributed all of the
issued and outstanding capital stock of New Enviroq to the holders of
the common stock of Old Enviroq (the "Distribution"). Following the
Distribution, the Company changed its name from New Enviroq
Corporation to Enviroq Corporation. Also following the Distribution,
Old Enviroq merged with a subsidiary of Insituform Mid-America, Inc.
("IMA") and changed its name to Insituform Southeast, Inc ("Insituform
Southeast").
The Company's principal executive office is located at 100 Union
Hill Drive, Birmingham, Alabama 35209, and its telephone number is
(205) 251-2400. The Company's mailing address is P. O. Box 11169,
Birmingham, Alabama 35202.
The Company is principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous
products, and in the treatment of municipal wastewater biosolids. The
Company's operations are conducted primarily through Sprayroq(R),
Inc., a Florida corporation ("Sprayroq"), and through Synox(R)
Corporation, a Delaware corporation and a wholly-owned subsidiary of
the Company ("Synox"). The Company owns 50% of the outstanding
capital stock of Sprayroq. Sprayroq is engaged in the development,
commercialization, manufacture and marketing of spray-applied resinous
materials. Synox is engaged in the research, development and
marketing of a process for the treatment of municipal wastewater
biosolids. To date, most of the revenue and operating income for the
Company have resulted from the operations of Sprayroq.
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B. BASIS OF PRESENTATION
Principles of Consolidation - The consolidated financial statements include
the accounts of Enviroq Corporation, Synox and Sprayroq. These financial
statements included the historical financial statements of Synox and
Sprayroq effective April 18, 1995, as if the operations included herein had
been operating as one entity for the periods presented. They include, at
their historical amounts, the assets, liabilities, revenues and expenses
directly related and those allocated to the businesses which comprise most
of the Company's operations. All significant intercompany transactions are
eliminated. Although the Company owns 50% of the outstanding capital stock
of Sprayroq, all of the operating results of Sprayroq have been included,
without discount or reduction.
C. INCOME (LOSS) PER SHARE
Income per share was computed by dividing net income by the 1,009,377 shares
of common stock outstanding as of June 29, 1996, considering these shares
to be outstanding for all periods presented.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how under a
license agreement with a company controlled by certain affiliates of the
Company. The agreement currently covers 15 states in the license territory and
grants an option to acquire additional territory on a payment of a prepaid
royalty. The option rights expire December 31, 1997.
Under the terms of its license agreement, Synox is subject to minimum royalty
provisions and to the maintenance of a $50,000 net worth and the performance of
other material provisions of the license agreement. Minimum annual royalties
(based upon retaining the 15 states currently under the agreement) are due each
January 1, for the ensuing calendar year through the license expiration,
according to the following schedule. On January 1, 1995, a minimum royalty
expense of $45,168 was paid.
<TABLE>
<CAPTION>
Due Date Amount
- -------- --------
<S> <C>
January 1, 1997 $ 90,336
January 1, 1998 180,671
January 1, 1999 180,671
January 1, 2000 through 2007 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq shares
valued at $672,000 in the aggregate plus the right to received additional
shares of Old Enviroq, dependent on the earnings of Synox, up to a maximum
value of $2,017,000. In addition, the then existing obligations of Synox under
promissory notes to certain shareholders ($767,376 at September 30, 1991 plus
additional interest at 7.66%) shall become payable by Synox in cash only after
such time as (i) all the contingent shares have been issued and (ii)
accumulated retained earnings are available for such payment. Interest shall
become payable only to the extent of available net earnings. As a result of
the Distribution of Company shares referred to in Note 2.A above, the
obligation to issue contingent shares became an obligation of the Company to
issue its shares in lieu of Old Enviroq shares. To the extent additional,
contingent shares become issuable in the future or additional obligations
become payable in the future, such consideration will be recorded at that time
at its fair value and accounted for as additional intangible assets.
The Company and Replico Development Company, Inc. ("Replico") each own
50% of the outstanding capital stock of Sprayroq, and pursuant to the
Stockholder Agreement dated as of March 25, 1992 between the Company (as
successor to Old Enviroq), Sprayroq and Replico, the parties agreed to vote
their respective shares to elect three directors designated by the Company and
two directors designated by Replico. Sprayroq was organized with minimum
capital, and has obtained operating funds primarily from the Company. As of
June 29, 1996, the Company had made loans to Sprayroq to fund the working
capital and other needs of Sprayroq in the aggregate outstanding
8
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amount of approximately $710,000. These loans became due on April 1,
1995 and the Company has advised Sprayroq that it considers these amounts
overdue and immediately payable, and that suitable arrangements need to be made
for repayment of this debt. Representatives of Replico have responded by
stating that Sprayroq would have difficulty in repaying these amounts, raising
questions regarding the propriety of the Company's and its representatives'
actions and raising questions regarding the possibility of one party buying out
the other party's interest in Sprayroq. The Company has denied any wrongdoing
and is engaged in discussions with representatives of Replico to resolve
outstanding issues among Replico, Sprayroq and the Company. The discussions
regarding these and other issues are ongoing, and the outcome of such
discussions cannot be predicted at the time of filing this report.
* * * * *
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue
For the three months ended June 29, 1996, the Company generated revenues of
approximately $325,000, as compared to approximately $92,000 for the three
months ended June 24, 1995, representing an increase of approximately 253%.
The increase in revenues is primarily attributable to increased sales by the
Company's Sprayroq subsidiary.
Cost of Revenues / Gross Profit
Cost of revenues were approximately $182,000 for the three months ended June
29, 1996, as compared to approximately $51,000 for the three months ended
June 24, 1995, representing an increase of approximately 257%. Cost of
revenues increased primarily as a result of increased revenues.
Gross profit margin was 44% for the three months ended June 29, 1996, as
compared to approximately 44% for the three months ended June 24, 1995. The
Company was able to maintain approximately the same gross profit margin for
the three month period as compared to the corresponding period last year
primarily as a result of the ability of the Company's Sprayroq subsidiary to
offset increases in costs of materials with increased economies of scale.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("S,G&A") for the three months
ended June 29, 1996 were approximately $149,000, as compared to
approximately $192,000 for the three months ended June 24, 1995, a decrease
of 22%. The decrease in S,G&A for the three month period is primarily
attributable to reduction in expenses at the Company's Synox subsidiary.
Other Income
Other Income was approximately $40,000 in income for the three months
ended June 29, 1996, as compared to approximately $29,000 for the three
months ended June 24, 1995. For the three month period ended June 29,
1996, most of the other income resulted from interest income and accrued
interest receivable by the Company from its bank cash deposits, money market
accounts, and other investments.
Net Income (Loss)
For the three months ended June 29, 1996, net income was approximately
$33,000, as compared to a net loss of approximately $86,000 for the three
months ended June 24, 1995. The net income for the three months ended June
29, 1996 was primarily attributable to increased revenues and income at the
Company's Sprayroq subsidiary as well as decreased S,G&A expenses. The net
loss for the three months ended June 24, 1995, was primarily attributable
to losses at the Company's Synox and Sprayroq subsidiaries.
10
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Financial Condition
For the three months ended June 29, 1996, stockholder's equity increased,
primarily as a result of the associated net income. Total assets, total
liabilities and working capital decreased, primarily as a result of the
payment of income taxes.
At June 29, 1996, the Company had approximately $2,745,000 in working
capital and a current ratio of 42.7-to-1, as compared to working capital of
approximately $2,705,000 and a current ratio of 3.2-to-1 at March 30, 1996.
At June 29, 1996, the Company's cash and cash equivalents totaled
approximately $2,370,000. In addition, accounts receivable totaled
approximately $164,000. The Company used cash of approximately $1,259,000
for the three months ended June 29, 1996, primarily as a result of the
payment of income taxes and, to a lesser extent, as a result of increased
inventories, accounts receivable and prepaid expenses.
Depreciation and amortization expense was approximately $2,000 for the three
months ended June 29, 1996. Net fixed assets decreased approximately $2,000
between March 30, 1996 and June 29, 1996. This decrease is attributable to
accumulated depreciation offsetting the purchase of equipment.
The Company does not believe that there is any appreciable seasonal impact
on the business of the Company, although extreme cold weather may impair
installation of spray-applied materials which may result in decreased resin
sales by Sprayroq.
The Company's undeveloped property in Jacksonville, Florida (approximately
10.6 acres) is currently being offered for sale which may result in an
increase in the Company's cash.
Operating cash flow combined with available cash and cash equivalents are
currently expected to be sufficient in amount to provide resources to the
Company's working capital needs during fiscal year 1997. To the extent that
the Company is not able to meet its financial goals, however, the Company's
revenues may not be sufficient to satisfy the Company's working capital
needs. Consequently, there can be no assurance that the Company's revenues
will be sufficient to adequately fund the Company's future working capital
needs.
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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 included or are incorporated by reference into
this Form 10-QSB:
Description of Exhibits
Item
3.01 Certificate of Incorporation of New Enviroq Corporation. Exhibit
3.01 to the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference (Commission File
No. 0-25528).
3.02 Certificate of Amendment to Certificate of Incorporation of New
Enviroq Corporation. Exhibit 3.02 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is incorporated
herein by reference (Commission File No. 0-25528).
3.03 Bylaws of New Enviroq Corporation. Exhibit 3.03 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No. 0-25528).
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4.01 Certificate of Designation of Rights and Preferences of Series A
Preferred Stock. Exhibit 4.01 to the Company's Registration Statement
on Form 10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
4.02 Form of Certificate of Common Stock. Exhibit 4.02 to the
Company's Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File No.
0-25528).
4.03 Form of Certificate of Series A Preferred Stock. Exhibit 4.03 to
the Company's Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File No.
0-25528).
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8K filed during the period:
None.
13
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIROQ CORPORATION
Date: August 12, 1996 By: /s/ William J. Long
---------------------------------
William J. Long, President
and Chief Executive Officer
(Principal Financial and
Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1
<CASH> 2,370,491
<SECURITIES> 0
<RECEIVABLES> 199,272
<ALLOWANCES> 0
<INVENTORY> 154,429
<CURRENT-ASSETS> 2,810,440
<PP&E> 390,150
<DEPRECIATION> 58,014
<TOTAL-ASSETS> 3,173,068
<CURRENT-LIABILITIES> 65,753
<BONDS> 0
0
0
<COMMON> 10,094
<OTHER-SE> 3,093,426
<TOTAL-LIABILITY-AND-EQUITY> 3,173,068
<SALES> 324,567
<TOTAL-REVENUES> 324,567
<CGS> 181,729
<TOTAL-COSTS> 149,364
<OTHER-EXPENSES> (39,874)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,348
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,348
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
