SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-12137
THERMO FIBERGEN INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3311544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Alfred Circle
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
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 [ ] No [ X ]
The Registrant became subject to the filing requirements
of the Securities Exchange Act of 1934 on September 12,
1996, the date its Registration Statements on Form S-1 and
Form 8-A became effective, and has filed all reports
required to be filed thereunder since such date.
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at October 25, 1996
---------------------------- -------------------------------
Common Stock, $.01 par value 14,715,000
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERGEN INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $57,598 $ -
Accounts receivable 488 -
Inventories 332 -
Other current assets 15 -
------- -------
58,433 -
------- -------
Property, Plant and Equipment, at Cost 6,070 -
Less: Accumulated depreciation and amortization 310 -
------- -------
5,760 -
------- -------
Other Assets 990 -
------- -------
Cost in Excess of Net Assets of Acquired
Company (Note 2) 4,800 -
------- -------
$69,983 $ -
======= =======
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THERMO FIBERGEN INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
-----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 292 $ -
Accrued payroll and employee benefits 101 -
Accrued acquisition expenses 200 -
Other accrued expenses 444 -
Due to parent company 1,260 -
------- -------
2,297 -
------- -------
Common Stock Subject to Redemption ($60,116
redemption value), 4,715,000 shares issued
and outstanding (Note 3) 55,786 -
------- -------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000
shares authorized; 10,000,000 shares
issued and outstanding 100 -
Capital in excess of par value 12,367 -
Accumulated deficit (567) -
------- -------
11,900 -
------- -------
$69,983 $ -
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues $ 984 $ -
------- -------
Costs and Operating Expenses:
Cost of revenues 686 -
Selling, general and administrative expenses 365 -
Research and development expenses 427 123
------- -------
1,478 123
------- -------
Operating Loss (494) (123)
Interest Income 114 -
------- -------
Loss Before Income Taxes (380) (123)
Income Taxes - -
------- -------
Net Loss $ (380) $ (123)
======= =======
Loss per Share $ (.04) $ (.01)
======= =======
Weighted Average Shares 10,570 10,073
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $ 984 $ -
------- -------
Costs and Operating Expenses:
Cost of revenues 686 -
Selling, general and administrative expenses 365 -
Research and development expenses 975 399
------- -------
2,026 399
------- -------
Operating Loss (1,042) (399)
Interest Income 381 -
------- -------
Loss Before Income Taxes (661) (399)
Income Taxes - -
------- -------
Net Loss $ (661) $ (399)
======= =======
Loss per Share $ (.06) $ (.04)
======= =======
Weighted Average Shares 10,239 10,073
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net loss $ (661) $ (399)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 390 -
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable 269 -
Inventories (77) -
Other current assets (13) -
Accounts payable 143 -
Other current liabilities 387 -
-------- --------
Net cash provided by (used in)
operating activities 438 (399)
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 2) (12,028) -
Purchases of property, plant and equipment (408) -
Other (11) -
-------- --------
Net cash used in investing
activities (12,447) -
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 55,753 -
Cash transfer from parent company in
connection with capitalization of
the Company 12,500 -
Transfer from parent company prior to
capitalization of the Company 94 399
Increase in due to parent company 1,260 -
-------- --------
Net cash provided by financing
activities 69,607 399
-------- --------
Increase in Cash and Cash Equivalents 57,598 -
Cash and Cash Equivalents at Beginning
of Period - -
-------- --------
Cash and Cash Equivalents at End of Period $ 57,598 $ -
======== ========
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THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
-----------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired company $ 12,606 $ -
Cash paid for acquired company (12,099) -
-------- --------
Liabilities assumed of acquired company $ 507 $ -
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Fibergen Inc. (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at
September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 30, 1995,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q, and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Registration
Statement on Form S-1 (File No. 333-07585), filed with the Securities and
Exchange Commission.
Prior to its July 1996 acquisition of Granulation Technology, Inc.
(Granulation Technology) and Biodac, a division of Edward Lowe
Industries, Inc., the Company was in the development stage and its
principal business consisted of conducting research and development to
commercialize equipment and systems to recover valuable materials from
pulp residue generated by plants that produce virgin and recycled pulp
and paper.
2. Acquisition
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Granulation Technology and Biodac for
approximately $12.1 million in cash. The acquisition has been accounted
for using the purchase method of accounting and the combined results of
operations of Granulation Technology and Biodac have been included in the
accompanying financial statements from the date of acquisition. The cost
of the acquisition exceeded the estimated fair value of the acquired net
assets by approximately $4.9 million, which is being amortized over 20
years. Allocation of the purchase price for the acquisition was based on
the estimated fair value of net assets acquired and is subject to
adjustment.
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THERMO FIBERGEN INC.
2. Acquisition (continued)
Based upon unaudited data, the following table presents selected
financial information for the Company and Granulation Technology and Biodac
on a pro forma basis, assuming the companies had been combined since the
beginning of 1995.
Three Months Ended Nine Months Ended
------------------ -----------------------------
(In thousands except September 30, September 28, September 30,
per share amounts) 1995 1996 1995
-------------------------------------------------------------------------
Revenues $ 522 $ 4,138 $ 3,478
Net Loss (2,150) (514) (3,317)
Loss per Share (.21) (.05) (.33)
3. Initial Public Offering
In September 1996, the Company sold 4,715,000 units in an initial
public offering at $12.75 per unit for net proceeds of approximately $55.8
million. Each unit consists of one share of the Company's common stock and
one redemption right which entitles the holder to sell one share of common
stock back to the Company during September 2000 and 2001. The difference
between the redemption value and the original carrying amount of common
stock subject to redemption is accreted using the straight-line method over
the period ending September 2000, which corresponds with the first
redemption period. The accretion is charged to capital in excess of par
value in the accompanying balance sheet. The redemption rights are
guaranteed, on a subordinated basis, by Thermo Electron Corporation (Thermo
Electron). Following the initial public offering, Thermo Fibertek Inc., a
majority-owned subsidiary of Thermo Electron, owned 68% of the Company's
outstanding common stock.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Description of Business
The Company operated as a division of Thermo Fibertek beginning
December 29, 1991 until its incorporation in February 1996. Prior to its
July 1996 acquisition of Granulation Technology, Inc. (Granulation
Technology) and Biodac, a division of Edward Lowe Industries, Inc., the
Company was in the development stage and its principal business consisted
of conducting research and development to commercialize equipment and
systems to recover valuable materials from pulp residue generated by plants
that produce virgin and recycled pulp and paper. Granulation Technology and
Biodac, which were acquired by the Company's wholly owned GranTek Inc.
subsidiary, convert the residue from paper-recycling operations into
granules that can be used as carriers for agricultural chemicals. The
Company is also developing other applications for these granules, including
using them as absorbents for oil and grease, and as cat-box fillers.
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THERMO FIBERGEN INC.
Description of Business (continued)
The Company currently intends to limit the pace and amount of its
research and development on both its fiber-recovery system and on new
products, if any, which may be developed from recovered fibers and other
components of pulp residue, so that its internally funded research and
development expenditures will be approximately equivalent to the interest
or dividend income earned on its cash balances, plus the Company's
operating earnings, if any.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Revenues of $984,000 for the third quarter of 1996 represent
revenues from Granulation Technology and Biodac, which were acquired in
July 1996. No revenues were recorded during the third quarter of 1995 as
the Company was in the development stage, and its principal business
consisted of conducting research and development associated with the
development of the Company's fiber-recovery system.
The gross profit margin was 30% in the third quarter of 1996.
Selling, general and administrative expenses as a percentage of
revenues were 37% in the third quarter of 1996.
Research and development expenses increased to $427,000 in the third
quarter of 1996 from $123,000 in the third quarter of 1995. This increase
was due to the acceleration of the Company's research and development
efforts associated with the Company's fiber-recovery system and the
inclusion of $98,000 in research and development expenses from
Granulation Technology and Biodac. The Company expects that its spending
on research and development will continue to increase during the next
fiscal year.
Interest income in the third quarter of 1996 resulted primarily from
interest earned on cash received in connection with the initial
capitalization of the Company in February 1996 and the invested proceeds
from the Company's September 1996 initial public offering.
First Nine Months 1996 Compared With First Nine Months 1995
Revenues of $984,000 for the first nine months of 1996 represent
revenues from Granulation Technology and Biodac, which were acquired in
July 1996. No revenues were recorded during the first nine months of 1995
as the Company was in the development stage, and its principal business
consisted of conducting research and development associated with the
Company's fiber-recovery system.
The gross profit margin was 30% in the first nine months of 1996.
Selling, general and administrative expenses as a percentage of
revenues were 37% in the first nine months of 1996.
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THERMO FIBERGEN INC.
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
Research and development expenses increased to $975,000 in the first
nine months of 1996 from $399,000 in the first nine months of 1995 for
the reasons discussed in the results of operations for the third quarter.
Interest income in the first nine months of 1996 resulted primarily
from the reasons discussed in the results of operations for the third
quarter.
Liquidity and Capital Resources
Consolidated working capital was $56,136,000 at September 28, 1996,
compared with no working capital at December 30, 1995. Included in
working capital at September 28, 1996 are cash and cash equivalents of
$57,598,000. During the first nine months of 1996, $438,000 of cash was
provided by operating activities.
In July 1996, the Company acquired substantially all of the assets,
subject to certain liabilities, of Granulation Technology and Biodac for
approximately $12.1 million in cash (Note 2).
In September 1996, the Company sold 4,715,000 units in an initial
public offering for net proceeds of approximately $55.8 million (Note 3).
Each unit consists of one share of the Company's common stock and one
redemption right which entitles the holder to sell one share of common
stock back to the Company during September 2000 and 2001. The rights are
guaranteed, on a subordinated basis, by Thermo Electron.
During the first nine months of 1996, the Company expended $408,000
for purchases of property, plant and equipment. In the remainder of 1996,
the Company plans to make capital expenditures of approximately $500,000.
The Company anticipates it will require significant amounts of cash
to complete the commercialization of its fiber-recovery system. The
Company expects to finance commercialization of its fiber-recovery system
through a combination of internal funds, including the net proceeds from
its initial public offering, additional debt or equity financing, and/or
short-term borrowings from Thermo Fibertek and Thermo Electron, although
there is no agreement with Thermo Fibertek or Thermo Electron under which
such parties would be obligated to lend funds to the Company. The Company
currently has no commitments or agreements in principle, and is not
currently involved in any discussions with respect to the acquisition of
complementary businesses or technologies. The Company believes that its
existing resources will be sufficient to meet the Company's capital
requirements for the foreseeable future.
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THERMO FIBERGEN INC.
PART II - OTHER INFORMATION
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Operating Losses. Thermo Fibergen Inc. (the Company) has not been
profitable since its inception as a division of Thermo Fibertek Inc.
(Thermo Fibertek) on December 29, 1991. As of September 28, 1996, the
cumulative operating losses of the Company were approximately $2,024,000.
The Company expects to continue to incur operating losses for at least
the next several years.
Uncertainty of Product Development; Dependence on Thermo Fibertek.
The Company's fiber-recovery system incorporates new technology currently
under development. Although the Company has completed the construction of
its mobile pilot fiber-recovery system, it has not yet begun the
commercial production of full-scale fiber-recovery systems. The Company's
success will depend in part on Thermo Fibertek, which is developing a
proprietary "scalping" technology that is a key component of the
Company's fiber-recovery system. The principal development risk
associated with the technology comprising the Company's mobile pilot
system, including the "scalping" technology under development by Thermo
Fibertek, is that such technology may not be readily scaleable.
Accordingly, further engineering will be required to adapt such
technology to permit it to process pulp residue at volumes necessary for
successful commercial operation. In addition, while pulp residues from
all recycled pulp mills share certain defining principal characteristics,
such technology must be further engineered to maximize its ability to
scalp fibers from the residue streams of specific mills. No assurance can
be given that the development efforts of the Company or of Thermo
Fibertek will be successful. Failure to successfully develop the
Company's recovery equipment and system would have a material adverse
effect on the business of the Company. The Company's success will depend
to some degree on its ability to identify and develop technologies to
maximize the value of the components of pulp residue, such as minerals,
for sale into other markets. There can be no assurance that the Company
will succeed in obtaining or developing any such technologies. Failure of
the Company to obtain or develop such technologies, or to develop active
markets for the components of the pulp residue it processes, would both
increase the Company's ultimate waste-disposal costs, and reduce the
Company's anticipated revenue stream. Accordingly, such a failure would
have a material adverse effect on the business of the Company.
Risks of Uncertain Market Acceptance. The Company's proposed
fiber-recovery process and market approach are significantly different
from processing and disposal methods that are currently available
commercially. There is a substantial risk with any new technology that
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THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
the marketplace may not accept or be receptive to the potential benefits
of such technology. Market acceptance of the Company's proposed services
and products will depend, in large part, upon the ability of the Company
to demonstrate the economic advantage of its system over available
alternatives. There can be no assurance that the Company's services will
be accepted by the pulp and paper industry, that any products the Company
may develop from the recoverable components of papermaking residues will
be accepted in their respective markets, or that the Company will be able
to sell such products, if accepted, at commercially viable prices.
Failure of either the Company's technology to gain market acceptance by
the pulp and paper industry, or of any such products to gain market
acceptance, generally would have a material adverse effect on the
business of the Company.
Lack of Operating History and Management. The Company has no
operating history other than research and development relating to its
fiber-recovery equipment and process, and the business recently acquired
by its GranTek subsidiary. The Company expects to hire several additional
employees within the next year, all of whom are expected to be engaged in
research and development and/or sales and marketing. No assurance can be
given that management experienced in building a research and development
or manufacturing organization, or additional skilled personnel necessary
to successfully commercialize and expand the Company's business and
operations, can be recruited and retained. Failure of the Company to
achieve these objectives would have a material adverse effect on the
business of the Company.
Risks Associated with Protection, Defense, and Use of Proprietary
Technology and Intellectual Property. The Company holds several United
States and foreign patents relating to various aspects of the processing
and use of cellulose-based granular materials, including the processing
and use of such materials as an agricultural carrier. Thermo Fibertek
holds two United States patents and several foreign patents, and expects
to file additional United States patent applications in the near future,
relating to the "scalping" technology that is a key component of the
Company's fiber-recovery system. Proprietary rights relating to the
Company's technology are protected from unauthorized use by third parties
only to the extent that they are covered by valid and enforceable patents
or are maintained in confidence as trade secrets. Moreover, although the
Company is developing methods to separate the various components of the
residue stream for which it believes that it may be able to obtain patent
protection, there can be no assurance that patents will issue from any
pending or future patent applications owned by or licensed to the
Company, or that the claims allowed under any issued patents will be
sufficiently broad to protect the Company's technology. In the absence of
patent protection, the Company may be vulnerable to competitors who
attempt to copy the Company's services or products, or gain access to its
trade secrets and know-how. Proceedings initiated by the Company to
protect its proprietary rights could result in substantial costs to the
Company. There can be no assurance that competitors of the Company will
not initiate litigation to challenge the validity of the Company's
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THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
patents, or that they will not use their resources to design comparable
products that do not infringe the Company's patents. There may also be
pending or issued patents held by parties not affiliated with the Company
that relate to the Company's products or technologies. The Company may
need to acquire licenses to, or contest the validity of, any such
patents. There can be no assurance that any license required under any
such patent would be made available on acceptable terms or that the
Company would prevail in any such contest. The Company could incur
substantial costs in defending itself in suits brought against it or in
suits in which the Company may assert its patent rights against others.
If the outcome of any such litigation is unfavorable to the Company, the
Company's business and results of operations could be materially
adversely affected. In addition, the Company relies on trade secrets and
proprietary know-how which it seeks to protect, in part, by
confidentiality agreements with its collaborators, employees, and
consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.
Commodity Price Risks. The Company expects to recover high quality
long fibers from the residue streams of pulp and paper mills and to sell
them back to mills under long-term contracts. The prices at which the
Company may be able to sell such fibers will generally not be fixed over
the term of the contracts and will depend on several factors, including
the prevailing prices for both finished paper products and wastepaper.
These prices tend to be cyclical and to vary according to paper type. The
Company also anticipates that it will seek to sell other recoverable
components of the residue streams, such as fines, wastewater, and
minerals. The Company will be exposed to commodity price risk during the
period that it has title to these products held in inventory. Prices of
these commodities can be volatile, and no assurance can be given that the
Company will be able to sell recovered components at a profit.
Future Capital Needs; Project Financing; Dependence on Capital
Markets. The Company's future capital requirements will depend on many
factors, including continued progress in its research and development
program, the magnitude of such program, competing technological and
market developments, the cost of manufacturing activities, and the
Company's ability to market its services and products successfully. Any
equity or debt financings, if available at all, may be on terms that are
not favorable to the Company and, in the case of equity financings, could
result in dilution to the Company's stockholders. If adequate funds are
not available, the Company may be required to curtail development and
commercialization of its fiber-recovery technology.
In addition, the Company expects to seek to finance each of its
recovery plants in a manner that is substantially non-recourse to the
Company. To minimize its equity commitment, the Company will be required
to borrow substantial amounts from third party lenders. These borrowings
typically would be secured only by the recovery plant assets and/or by
the capital stock of a subsidiary operating such plant. If the
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THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
Company were unable to repay the principal of, and all interest on, such
borrowings, the lender would have the right to foreclose on, and obtain
title to, such assets or capital stock. The Company anticipates that it
will require substantial financing to fund both the equity and debt
components of future plants. The ability to finance the Company's
recovery plants on a non-recourse basis will depend on a number of
factors, including interest coverage ratios, the length and terms of the
Company's contracts with pulp mill customers, and the perception of
technology risks by lenders. The Company has had no discussions with
potential lenders, and no assurance can be given that financing for
future plants will be available on acceptable terms, or at all. Any
failure by the Company to obtain adequate amounts of project financing on
acceptable terms would have a material adverse effect on the future
growth of the Company.
Competition. The Company expects to encounter intense competition
in the sale of its services and products. The Company expects that its
principal competitors will be landfills, which currently have a
collective 70% market share in North America, and approximately 40% in
Europe. In addition, many pulp mills have already made substantial
investments in de-watering and drying equipment to reduce their landfill
costs. Mills are familiar with such methods and may be reluctant to
switch to a new solution unless the Company demonstrates significant cost
savings to them. Several large waste-management companies have increased
their marketing activities to provide landfill disposal services to the
pulp and paper industry. Certain competitors are seeking to develop
similar technologies and services to treat and process pulp residues. No
assurance can be given that these technologies may not be superior to
those of the Company or that they may not make the Company's technology
obsolete. Some of these competitors may have substantially greater
financial, marketing, and other resources than those of the Company. As a
result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their services and products than
the Company. There can be no assurance that the Company's current
technology, technology under development, or ability to discover new
technologies will be sufficient to enable it to compete effectively with
its competitors.
Risk of Dependence on Pulp Mill Customers. Each of the Company's
fiber-recovery plants will rely upon long-term agreements with a single
pulp mill customer for its pulp residue and tipping fee revenue. The
failure of any one pulp mill customer to fulfill its contractual
obligations could have a substantial negative impact on the Company. No
assurance can be given that a particular pulp mill will not be unwilling
or unable, at some time, to make required payments under, or to otherwise
honor, its agreements with the Company. The Company expects that each of
its commercial plants will generally occupy approximately two acres of
land to be acquired at, or immediately adjacent to, a pulp mill. To date,
the Company has not acquired any such sites, and no assurance can be
given that the Company will be able to acquire any such sites on terms
that are favorable to the Company or at all. The Company's GranTek Inc.
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THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
(GranTek) subsidiary obtains its pulp residue from a single paper mill
located near its Wisconsin plant, under a contract that provides the mill
with the exclusive right to supply pulp residue to GranTek. The contract
terminates on December 26, 1997, subject to successive mutual two-year
extensions. Although the Company believes that GranTek's relationship
with the mill is good, no assurance can be given that the mill will agree
to renew the contract upon its termination in December 1997.
Environmental and Regulatory Risks. Federal, state, and local
environmental laws govern air emissions and discharges into water, as
well as the generation, transportation, storage, treatment, and disposal
of solid and hazardous waste. These laws establish standards governing
most aspects of the construction and operation of the Company's
facilities, and often require multiple governmental permits before these
facilities can be constructed, modified, or operated. There can be no
assurance that all required permits will be issued for the Company's
recovery plants, or that the requirements for continued permitting under
environmental regulatory laws and policies governing their enforcement
may not change, requiring new technology or stricter standards for the
control of discharges of air or water pollutants, or for solid or
hazardous waste handling and disposal. Such future developments could
affect the manner in which the Company constructs and operates its plants
and could require significant additional expenditures to achieve
compliance with such requirements. It is possible that compliance may not
be technically or economically feasible. Changes in these regulations
could also affect the characteristics of the waste generated by pulp and
paper mills. As a result, it is possible that disposal of pulp residue
could be accomplished in a manner that may not involve the Company's
facilities or that would require the Company to purchase pulp residue.
Federal, state, and local laws also frequently impose liability on
the present and former owners or operators of facilities that release
hazardous substances into the environment. Furthermore, companies may be
required by law to provide financial assurances for operating facilities
in order to ensure their performance of obligations is in compliance with
applicable laws and regulations. Similar liability may be imposed upon
the generators and transporters of waste which contains hazardous
substances. In the United States, such liability stems primarily from the
federal Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), and similar state equivalents, the Federal Toxic Substances
Control Act (TSCA), and the Resource Conservation and Recovery Act of
1976 (RCRA), and similar state equivalents. CERCLA imposes joint and
several liability for the costs of remediation and natural resource
damages on the owner or operator of a facility from which there is a
release or a threat of a release of a hazardous substance into the
environment, and on the generators and transporters of those hazardous
substances. Under RCRA and equivalent state laws, regulatory authorities
may require, pursuant to administrative order or as a condition of an
operating permit, that the owner or operator of a regulated facility take
corrective action with respect to contamination resulting from past or
present operations. TSCA imposes limitations on the presence in
commercial products of polychlorinated biphenyls (PCBs), and on the
16PAGE
<PAGE>
THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
generation, handling, storage, and disposal of PCB-containing materials,
byproducts, and wastes. Such laws also require that the owner or operator
of regulated facilities provide assurance that funds will be available
for the closure and post-closure care of its facilities.
GranTek emits into the atmosphere from its Green Bay, Wisconsin,
facility approximately 1.6 pounds per year of PCBs, as well as certain
other hazardous pollutants such as formaldehyde, benzene, and volatile
organic compounds (VOCs). Applicable Wisconsin regulations limit PCB
emissions to de minimis amounts unless the generator can demonstrate that
it is using the best available control technology to limit emissions.
GranTek has been issued an air operating permit by the Wisconsin
Department of Natural Resources (the WDNR). GranTek's operating permit
and its application for a new Title V operating permit both require
GranTek to reduce PCB and VOC emissions and to file bi-annual reports on
the amount of PCBs being emitted. In August 1995, GranTek submitted
materials to the WDNR asserting that no technologically or economically
feasible methods to reduce PCB or VOC emissions from its facility can be
implemented at the present time and, accordingly, requesting that GranTek
be relieved of its obligation to reduce emissions. GranTek has received
no response from the WDNR to date. Although the Company believes that the
WDNR will accept GranTek's findings, and although GranTek's facility is
currently fully permitted by Wisconsin regulatory authorities, no
assurance can be given that the WDNR will not require GranTek to reduce
or eliminate its emissions, that such compliance will not require the
Company to make significant expenditures, or that such compliance will be
technologically or economically feasible. Such compliance may have
material adverse effects on the Company's capital expenditures, earnings
and/or competitive position.
The pulp residue processed by GranTek contains trace amounts of
PCBs, dioxins, furans, and other metals, residual amounts of which are
also found in GranTek's BIODAC product. Although these substances are
present in residual quantities well below the maximum levels currently
permitted under applicable federal and state regulations, no assurance
can be given that such regulations may not be made more stringent in the
future, that pulp residue containing such substances may not be regulated
as a hazardous waste under RCRA, or that federal or state regulations may
not in the future prohibit the use of materials containing these
substances in agricultural applications. Any such regulatory changes may
have material adverse effects on the Company's capital expenditures,
earnings and/or competitive position.
The Company may be required as a practical matter to assume all
environmental liabilities associated with the treatment and final
disposal of all components of the pulp mills' residue stream that cannot
be returned to mills or sold elsewhere. The Company will endeavor to
operate its business to minimize its exposure to environmental
liabilities. In entering into contracts with customers, the Company will
seek to maximize its insulation from environmental liabilities associated
with paper mill waste streams by controlling the content of the waste
streams it will accept, and by preventing customers from sending any
17PAGE
<PAGE>
THERMO FIBERGEN INC.
Item 5 - Other Information (continued)
waste streams containing hazardous components to the Company's
facilities. Any such disposal of hazardous waste could cause the Company
to be responsible for the clean-up or remediation of the disposal site in
the future under CERCLA, TSCA, RCRA and similar state laws. No assurance
can be given that claims for environmental liabilities may not be
asserted against the Company.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
18PAGE
<PAGE>
THERMO FIBERGEN INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 1st day of November
1996.
THERMO FIBERGEN INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
19PAGE
<PAGE>
THERMO FIBERGEN INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
-----------------------------------------------------------------------
11 Statement re: Computation of loss per share.
27 Financial Data Schedule.
Exhibit 11
THERMO FIBERGEN INC.
Computation of Loss per Share
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------------------------------------------------------------------------
Computation of Primary
Loss per Share:
Net Loss (a) $ (380,000) $ (123,000) $ (661,000) $ (399,000)
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 10,569,945 10,000,000 10,189,982 10,000,000
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) - 72,902 48,601 72,902
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 10,569,945 10,072,902 10,238,583 10,072,902
----------- ----------- ----------- -----------
Primary Loss per
Share (a) / (b) $ (.04) $ (.01) $ (.06) $ (.04)
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERGEN INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 57,598
<SECURITIES> 0
<RECEIVABLES> 488
<ALLOWANCES> 0
<INVENTORY> 332
<CURRENT-ASSETS> 58,433
<PP&E> 6,070
<DEPRECIATION> 310
<TOTAL-ASSETS> 69,983
<CURRENT-LIABILITIES> 2,297
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 11,800
<TOTAL-LIABILITY-AND-EQUITY> 69,983
<SALES> 984
<TOTAL-REVENUES> 984
<CGS> 686
<TOTAL-COSTS> 686
<OTHER-EXPENSES> 975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (661)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (661)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
