<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 28, 1997
[ ] 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.)
3918 Montclair Road, Suite 206
Birmingham, Alabama 35213
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205)870-0588
--------------
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)
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
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ENVIROQ CORPORATION AND SUBSIDIARIES
FORM 10-QSB June 28, 1997
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS -
JUNE 28, 1997 AND MARCH 29, 1997 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS-
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 6
NOTES TO CONSOLIDATED CONDENSED 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
<PAGE> 3
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,431,883 $ 2,379,613
Accounts receivable (no allowance considered necessary) 260,915 314,772
License fees receivable 930 930
Inventories 88,527 52,830
Notes Receivable 22,065 --
Refundable Income Taxes 106,030 101,147
Prepaid expenses and other assets 4,500 23,564
----------- -----------
Total current assets 2,914,850 2,872,856
----------- -----------
OTHER ASSETS:
Employee notes receivable 13,819 13,819
Total other assets 13,819 13,819
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 310,135 310,135
Operating equipment 25,563 25,563
Other equipment and vehicles 40,241 40,241
----------- -----------
375,939 375,939
Less accumulated depreciation (48,124) (45,506)
----------- -----------
Property, plant and equipment, net 327,815 330,433
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TOTAL ASSETS $ 3,256,484 $ 3,217,108
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
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ENVIROQ CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
---------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 136,823 $ 69,292
Salaries, wages and related taxes 18,335 18,824
Income taxes payable 958 958
----------- -----------
Total current liabilities 156,116 89,074
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COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock (par value $.01 per share),
authorized 10,000,000 shares, issued
and outstanding 1,009,377 shares 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (3,100,373) (3,072,707)
----------- -----------
Total stockholders' equity 3,100,368 3,128,034
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,256,484 $ 3,217,108
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
================================================================================
(ALL PERIODS UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
REVENUES $ 313,486 $ 324,567
COST OF REVENUES 201,191 181,729
--------- ---------
GROSS PROFIT 112,296 142,838
--------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 176,806 149,364
--------- ---------
LOSS FROM OPERATIONS (64,511) (6,526)
--------- ---------
OTHER INCOME 31,960 39,874
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (32,550) 33,348
--------- ---------
INCOME TAX (BENEFIT) (4,883) --
--------- ---------
NET INCOME (LOSS) $ (27,667) $ 33,348
========= =========
NET INCOME (LOSS) PER
SHARE $ (0.03) $ 0.03
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
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ENVIROQ CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 28, 1997 JUNE 29, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (27,667) $ 33,348
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,618 1,612
Amortization -- 4,497
Changes in assets and liabilities provided (used) cash 82,202 (1,297,956)
----------- -----------
Net cash provided by (used in) operating activities 52,270 (1,258,499)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities (0) (0)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES -- --
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 52,270 (1,258,499)
----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,379,613 3,628,990
CASH AND CASH EQUIVALENTS ----------- -----------
AT END OF PERIOD $ 2,431,883 $ 2,370,491
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
6
<PAGE> 7
ENVIROQ CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - MANAGEMENT'S REPRESENTATION
The accompanying unaudited consolidated condensed 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 28, 1997 are not
necessarily indicative of the results to be expected for the full year ending
March 28, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
March 29, 1997, 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.
The Company's principal executive office is located at 3918 Montclair Road,
Suite 206, Birmingham, Alabama 35213, and its telephone number is (205)
870-0588. The Company's mailing address is P. O. Box 130062, Birmingham,
Alabama 35213.
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.
7
<PAGE> 8
B. Basis of Presentation
Principles of Consolidation - The consolidated financial statements include
the accounts of Enviroq Corporation, Synox and Sprayroq. 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. Net Loss Per Share
Net loss per share was computed by dividing net loss by the 1,009,377
shares of common stock outstanding as of June 28, 1997, 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 (as amended), 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. The license agreement
was amended on December 20, 1996 to change the expiration date of the license
and to provide that no minimum royalty payment would be due on January 1, 1997,
but that such minimum royalty payments would resume on January 1, 1998, in
accordance with the following schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1998 $ 90,336
January 1, 1999 180,671
January 1, 2000 180,671
January 1, 2001 through 2008 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 receive 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 December 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
8
<PAGE> 9
to elect three directors designated by the Company and two directors designated
by Replico. Sprayroq has obtained its operating funds primarily from the
Company. Prior to October 15, 1996, the Company had made loans to Sprayroq to
fund the working capital and other needs of Sprayroq. On October 15, 1996, the
board of directors of Sprayroq voted to restructure and consolidate this debt
with the Company, and a Consolidated Note evidencing the restructured debt was
executed on October 21, 1996 by Sprayroq. As of June 28, 1997, the principal
amount of the debt was approximately $755,000. The rate of interest on the
debt is 7% per annum. The debt will be amortized over a 30-year period, with
the balance of the principal due, in the form of a "balloon" payment, on
October 1, 2001.
* * * * *
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue
For the three months ended June 28, 1997, the Company generated revenues of
approximately $313,000, as compared to approximately $325,000 for the three
months ended June 29, 1996, representing a decrease of approximately 4%.
The decrease in revenues for the three-month period is primarily
attributable to differences in timing in the release of orders for
materials from Sprayroq's licensees.
Cost of Revenues / Gross Profit
Cost of revenues were approximately $201,000 for the three months ended
June 28, 1997, as compared to approximately $182,000 for the three months
ended June 29, 1996, representing an increase of approximately 10%. Cost
of revenues for the three-month period increased primarily as a result of
the accrual of anticipated costs associated with new licenses. Gross
profit margin was approximately 36% for the three months ended June 28,
1997, as compared to approximately 44% for the three months ended June 29,
1996.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("S,G&A") for the three
months ended June 28, 1997 were approximately $177,000, as compared to
approximately $149,000 for the three months ended June 29, 1996, an
increase of 19%. The increase in S,G&A for the three-month period is
primarily a result of increased expenses relating primarily to the
relocation to Birmingham, Alabama of the operations of Sprayroq in addition
to increased expenses relating to the promotion of Sprayroq products.
Other Income (Expense) - Net
Other Income (Expense) - Net was approximately $32,000 in income for the
three months ended June 28, 1997, as compared to approximately $40,000 for
the three months ended June 29, 1996. For the three-month period ended
June 28, 1997, most of the other income resulted from interest income to
the Company from its bank cash deposits, money market accounts, and other
investments.
Net Income (Loss)
For the three months ended June 28, 1997, the net loss was approximately
$27,000, as compared to net income of approximately $33,000 for the three
months ended as of June 29, 1996. The net loss for the three months ended
June 28, 1997 was primarily attributable to increased expenses relating to
the relocation of Sprayroq's operations and to increases in promotional
activities at Sprayroq.
10
<PAGE> 11
Financial Condition
For the three months ended June 28, 1997, stockholders' equity decreased as
compared to the preceding quarter ended March 29, 1997 primarily as a
result of the associated net loss.
At June 28, 1997, the Company had approximately $2,759,000 in working
capital and a current ratio of 18.7-to-1, as compared to working capital of
approximately $2,784,000 and a current ratio of 32.3-to-1 at March 29,
1997. The change in current ratio resulted primarily from increases in
accounts payable and accrued expenses.
At June 28, 1997, the Company's cash and cash equivalents totaled
approximately $2,432,000. In addition, accounts receivable totaled
approximately $261,000. The Company generated approximately $52,000 in cash
from operating activities during the quarter ended June 28, 1997, primarily
as a result of decreases in accounts receivable.
Depreciation and amortization expense was approximately $3,000 for the
three months ended June 28, 1997. Net fixed assets decreased approximately
$2,000 between March 29, 1997 and June 28, 1997. This decrease is
attributable to the accumulated depreciation as well as adjustments. There
were no purchases or abandonments during the current quarter.
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 1998.
11
<PAGE> 12
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
Pursuant to the Stockholder Agreement dated as of March 25,
1992 between the Company (as a successor to Old Enviroq), Sprayroq and
Replico (the "Stockholder Agreement"), the parties agreed to vote
their respective shares to elect three directors designated by the
Company and two directors designated by Replico. The Stockholder
Agreement also provides that the Company is given certain rights of
control over Sprayroq, including the right to designate its executive
officers and to elect a majority of the board of directors. Since the
formation of Sprayroq, the chief executive officer of Sprayroq has
also been the chief executive officer of the Company. Nevertheless,
from time to time during fiscal year 1997 and continuing to the
present, one or more of the principals of Replico has, either on their
own behalf or on the behalf of Replico, raised issues or otherwise
questioned the Company's management of and designation of officers of
Sprayroq. Among such issues and questions is the suggestion of a
conflict of interest, as yet undefined, in connection with the
election of William J. Long as the chief executive officer of both
Sprayroq and the Company. Another such issue relates to the assertion
that Replico and or certain affiliates of Replico should be free to
engage in certain ventures that may present opportunities for Sprayroq
and/or be competitive with Sprayroq, or that utilize certain
technology and/or technology rights belonging to Sprayroq, and that
the corresponding responses of Sprayroq's management to Replico might
somehow be improper. Management of the Company believes that all
actions taken have been entirely within the terms and the sprit of the
Stockholder Agreement with respect to the management of Sprayroq, and
Sprayroq's responses to the questions and issues raised by Replico and
or its principals. However, no assurances can be given that Replico
or its affiliates will not pursue claims against Sprayroq, the
Company, and/or their respective affiliates, or that the outcome of
such matters will be favorable to the Company.
12
<PAGE> 13
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
<TABLE>
<CAPTION>
Item
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<S> <C>
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).
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).
</TABLE>
(b) Reports on Form 8K filed during the period:
None.
13
<PAGE> 14
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: July 10, 1997 By: /s/ William J. Long
----------------------
William J. Long, President
and Chief Executive Officer
(Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
28, 1997 UNAUDITED FINANCIAL STATEMENTS OF ENVIROQ CORPORATION AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 2,431,883
<SECURITIES> 0
<RECEIVABLES> 260,915
<ALLOWANCES> 0
<INVENTORY> 88,527
<CURRENT-ASSETS> 2,914,850
<PP&E> 375,939
<DEPRECIATION> 48,124
<TOTAL-ASSETS> 3,256,484
<CURRENT-LIABILITIES> 156,116
<BONDS> 0
0
0
<COMMON> 10,094
<OTHER-SE> 3,090,274
<TOTAL-LIABILITY-AND-EQUITY> 3,256,484
<SALES> 313,486
<TOTAL-REVENUES> 313,486
<CGS> 201,191
<TOTAL-COSTS> 176,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (31,960)
<INCOME-PRETAX> (32,550)
<INCOME-TAX> (4,883)
<INCOME-CONTINUING> (27,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,667)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
