<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
For Quarter Ended September 30, 1997 Commission File Number 0-20404
ENVIROGEN, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 22-2899415
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4100 Quakerbridge Road
Princeton Research Center
Lawrenceville, NJ 08648
-----------------------
(Address of principal executive offices)
(609) 936-9300
--------------
(Registrant's telephone number, including area code)
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 [_]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of September 30, 1997 was 23,261,635.
- --------------------------------------------------------------------------------
<PAGE>
ENVIROGEN, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 (Unaudited) 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General 8
Results of Operations 9
Liquidity and Capital Resources 11
Other Matters 11
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
2
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,688,207 $4,614,062
Accounts receivable-trade, net 6,924,333 3,100,447
Unbilled revenue 3,963,431 1,776,004
Inventory 283,348 55,027
Prepaid expenses and other current assets 527,330 175,941
--------------------- -------------------
Total current assets 16,386,649 9,721,481
Property and equipment, net 1,870,039 922,320
Restricted cash 309,300 309,300
Investment in and advances to joint venture 80,458 228,934
Intangible assets, net 24,476,649 1,348,677
Other assets 287,832 185,912
--------------------- -------------------
Total assets $43,410,927 $12,716,624
===================== ===================
LIABILITIES
Current liabilities:
Accounts payable $2,248,422 $1,335,954
Accrued expenses and other liabilities 1,461,604 777,811
Reserve for claim adjustments 2,774,755 178,075
Deferred revenue 469,628 312,784
Current portion of note payable 803 4,287
Current portion of capital lease obligations 17,761 18,304
--------------------- -------------------
Total current liabilities 6,972,973 2,627,215
Deferred rent 12,222
Capital lease obligations, net of current portion 16,349 29,954
--------------------- -------------------
Total liabilities 6,989,322 2,669,391
--------------------- -------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock 233,211 129,319
Additional paid-in capital 58,802,212 31,925,861
Accumulated deficit (22,607,868) (22,001,997)
Less: Treasury stock (5,950) (5,950)
--------------------- -------------------
Total stockholders' equity 36,421,605 10,047,233
--------------------- -------------------
Total liabilities and stockholders' equity $43,410,927 $12,716,624
===================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Commercial operations $ 7,292,027 $ 2,604,163 $ 15,999,246 $ 7,621,681
Research and development services 636,748 436,620 2,024,526 1,287,156
------------ ------------ ------------ ------------
Total revenues 7,928,775 3,040,783 18,023,772 8,908,837
------------ ------------ ------------ ------------
Cost of commercial operations 4,880,074 2,283,010 10,826,093 6,967,717
Provision for contract claim 150,000 550,000
Research and development costs 617,492 539,646 1,954,965 1,692,965
Marketing, general and administrative expenses 2,628,245 691,994 5,851,623 2,060,923
------------ ------------ ------------ ------------
Total costs and expenses 8,125,811 3,664,650 18,632,681 11,271,605
------------ ------------ ------------ ------------
Other income (expense):
Interest income 63,855 70,659 189,618 131,011
Interest expense (9,601) (6,476) (23,608) (19,320)
Equity in (loss) income of joint venture (41,346) (49,619) (189,019) 29,168
Other, net 350 26,047
------------ ------------ ------------ ------------
Other income (expense), net 13,258 14,564 3,038 140,859
------------ ------------ ------------ ------------
Net loss (183,778) (609,303) (605,871) (2,221,909)
Preferred stock dividends (36,458)
------------ ------------ ------------ ------------
Net loss applicable to Common Stock ($183,778) ($609,303) ($605,871) ($2,258,367)
============ ============ ============ ============
Net loss per share applicable to Common Stock ($0.01) ($0.05) ($0.03) ($0.21)
============ ============ ============ ============
Weighted average number of shares of
Common Stock outstanding 23,211,635 12,869,165 19,066,095 10,926,226
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
1997 1996
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($605,871) ($2,221,909)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization 1,268,556 724,552
Provisions for claim adjustments and doubtful accounts 579,538 63,100
Equity in (income) loss of joint venture 189,019 (29,168)
Other (1,047) 549
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 218,555 (319,982)
(Increase) decrease in unbilled revenue (446,195) 141,036
(Increase) decrease in prepaid expenses and other current assets (194,001) 25,473
Decrease in inventory 9,408 3,231
(Increase) in restricted cash (89,782)
(Increase) decrease in other assets (101,920) 8,236
(Decrease) in accounts payable (2,142,279) (275,264)
(Decrease) in accrued expenses and other liabilities (63,799) (16,169)
Increase (decrease) in reserve for claim adjustments (187,559) 71,465
Increase (decrease) in deferred revenue 144,723 (8,225)
------------------ ----------------
Net cash used by operating activities (1,332,872) (1,922,857)
------------------ ----------------
Cash flows from investing activities:
Capital expenditures (420,093) (168,798)
Investment in and advances to joint venture (304,770) (100,000)
Expenses relating to purchase of remaining 50%
interest in joint venture (9,201)
Acquisition of Fluid Management, Inc. (13,577,932)
Acquisition of MWR, Inc. (1,319,018)
Proceeds from sale of equipment 22,004 1,600
------------------ ----------------
Net cash used in investing activities (14,289,992) (1,586,216)
------------------ ----------------
Cash flows from financing activities:
Debt repayment (3,484) (3,217)
Capital lease principal repayments (14,148) (98,426)
Net proceeds from exercise of stock options 3,265 15,692
Net proceeds from issuance of Common Stock 15,711,376 4,620,186
Cash dividends paid on Redeemable Cumulative
Convertible Preferred Stock (51,041)
------------------ ----------------
Net cash provided by financing activities 15,697,009 4,483,194
------------------ ----------------
Net increase in cash and cash equivalents 74,145 974,121
Cash and cash equivalents at beginning of period 4,614,062 3,748,197
------------------ ----------------
Cash and cash equivalents at end of period $4,688,207 $4,722,318
================== ================
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid for interest $16,456 $19,014
================== ================
Cash paid for income taxes $113,151 $1,250
================== ================
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
- ------------------------------------------------------------------------
- -The Company entered into capital lease obligations amounting to $49,116 for the
nine months ended September 30, 1996.
- -In August 1997, the Company purchased the 50% interest held by n.v. VAM in CVT
America L.L.C., a joint venture between VAM and the Company, for 100,000 shares
of Common Stock valued at $265,600 and incurred expenses associated with the
acquisition of $9,201.
- -In April 1997, the Company acquired Fluid Management, Inc. for $12,191,266 in
cash and 4,190,477 shares of Common Stock valued at $11,000,002. In connection
with the acquisition, the Company also paid $1,386,666 of FMI's outstanding
debt.
- -In February 1996, the Company purchased MWR, Inc. for $1,319,018 in cash and
456,500 shares of Common Stock valued at $1,511,015.
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ENVIROGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
The financial information presented reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the fiscal year ended December 31, 1996. Certain reclassifications
have been made to conform prior year's presentation with the 1997 financial
statement presentation.
2. PRIVATE PLACEMENT OF COMMON STOCK
---------------------------------
On April 10, 1997, the Company issued 6,095,238 shares of common stock to
Warburg, Pincus Ventures, L.P. ("Warburg Pincus") resulting in net proceeds of
$15,711,376. The net proceeds from the financing were used to fund the cash
portion of the Fluid Management, Inc. acquisition and will also supplement the
working capital of the combined enterprise. An officer of Warburg Pincus was
elected to the Company's Board of Directors at its 1997 annual meeting.
3. ACQUISITIONS
------------
On April 10, 1997, the Company acquired Fluid Management, Inc. (FMI) of
Pewaukee, Wisconsin for approximately $12.2 million in cash and 4,190,477 shares
of the Company's common stock valued at $11,000,002. In connection with the
acquisition, the Company also paid approximately $1.4 million of FMI's
outstanding debt. A portion of the purchase price is being held in escrow to
satisfy the sellers' indemnification obligations under the Merger Agreement. FMI
is a full-service environmental consulting and engineering firm with offices in
Pewaukee, La Crosse, Ashwaubenon and Mosinee, Wisconsin and Geneva, Illinois.
FMI was merged into the Company and the acquisition has been accounted for under
the purchase method of accounting. The excess of the aggregate purchase price
over the fair market value of net assets acquired resulted in goodwill of
$23,557,722 and is being amortized over 20 years. The operating results of FMI
are included in the Company's consolidated results of operations from the date
of acquisition.
In addition, on August 8, 1997, the Company issued 100,000 shares of common
stock valued at $265,600 to N.V. VAM ("VAM") in exchange for the transfer by VAM
to the Company of (i) VAM's 50% ownership interest in CVT America L.L.C. (a
joint venture between the Company and VAM) and (ii)
6
<PAGE>
certain patents and proprietary technology related to the biological treatment
of chemical contaminants in air streams. The Company also incurred approximately
$9,000 in expenses associated with the acquisition. The acquisition resulted in
goodwill of $297,245 which is being amortized over ten years. CVT America was
dissolved upon the closing of the transaction and the Company continued its
operations thereafter.
The following pro forma financial information assumes the acquisitions occurred
at the beginning of the periods presented and does not purport to be indicative
of what would have occurred had the acquisitions been made as of these dates or
of results which may occur in the future.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net revenues $24,546,960 $23,225,532
Net income (loss) $520,635 ($321,289)
Net income (loss) per share
applicable to Common Stock $0.02 ($0.02)
Weighted average number of
shares of Common Stock
outstanding 23,260,381 21,311,941
</TABLE>
4. IMPACT OF THE FUTURE ADOPTIONS OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 will
require the Company to replace the current presentation of "primary" per share
data with "basic" and "diluted" per share data. Currently, outstanding common
stock equivalents are antidilutive and therefore management estimates that the
future adoption of SFAS 128 currently will not have a material impact on the
Company's per share data. SFAS 128 will be adopted by the Company for periods
ending after December 15, 1997.
The Financial Accounting Standards Board issued Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. The Company will adopt
SFAS 130 for the year ending December 31, 1998.
Also in June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 requires that a business enterprise
report certain information about operating segments, products and services,
geographic areas of operation, and major customers in complete sets of financial
statements and in condensed financial statements for interim periods. The
Company is required to adopt this standard in 1998 and is currently evaluating
the impact of the standard.
5. SUBSEQUENT EVENT
----------------
On October 20, 1997, Harcharan S. Gill resigned as President, Chief Executive
Officer and director of the Company. The related severance costs, which will be
incurred over the next 18 months, were accrued and charged to income upon his
resignation. William C. Smith, Chairman of the Board, has been elected interim
CEO while a search for a new President and CEO is being conducted by a committee
of the Board.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included in this
Quarterly Report, the consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K for the fiscal year ended December 31, 1996
and the Proxy Statement for the April 9, 1997 Annual Meeting of Stockholders.
Certain statements made herein are forward-looking and are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties which may cause results to differ
materially from those set forth in these statements. In particular,
unanticipated changes in the economic, competitive, governmental, technological,
marketing and other factors identified herein and in the Company's other filings
with the Securities and Exchange Commission could affect such results.
General
- -------
The sources of the Company's revenues to date include (i) remediation services,
including both in situ and ex situ bioremediation, (ii) commercial sales of the
Company's biological degradation systems, and (iii) funds received from third
parties and government agencies to conduct specific research and development
programs. While the Company has realized significant commercial revenues for
several years from remediation services, it has only recently seen the first
substantial revenues from sales of full-scale biological degradation systems for
the treatment of contaminated air and water streams. Although great strides have
been made in the commercialization of these systems, significant expenditures
will be required for continued research and development, additional marketing
activities and ultimately the development of manufacturing capabilities for the
further commercialization of the Company's biodegradation systems. The amount
and timing of such expenditures will vary depending on several factors,
including the progress of development and testing, funding from third parties,
the level of enforcement of environmental regulations by federal and state
agencies, technological advances, changing competitive conditions and
determinations with respect to the commercial potential of the Company's
systems. The amount and timing of such expenditures cannot be predicted.
On April 10, 1997 the Company acquired FMI, a full-service environmental
consulting and engineering firm that is now operated as the Company's FMI
Operations Group. Remediation services are FMI's core business and generate the
greatest portion of FMI's revenues. The majority of FMI's work is eligible for
reimbursement to its clients (or their lending banks) under the Wisconsin
Petroleum Environmental Cleanup Fund Act ("PECFA"). Review of the PECFA claims
by the Wisconsin Department of Commerce ("DCOM") and determination of any
ineligible costs typically is not completed until one to three years after the
expense has been incurred and paid by FMI's client (or its bank). This exposes
the client to the risk that remediation expenses it incurred and paid ultimately
may be disallowed for PECFA reimbursement by DCOM. While not contractually
obligated to do so, FMI has in a number of instances reimbursed its clients (or
their lending banks) for the remediation costs for services provided by FMI
which ultimately are determined by DCOM to be ineligible for reimbursement under
PECFA.
The 1997 Wisconsin state budget bill, which was passed in October 1997, extended
through December 2001 the $1 million maximum per site reimbursement under the
PECFA program (which, under previous legislation, was to be reduced to $190,000
for sites entering the program after June 1, 1998). However,
8
<PAGE>
revised administrative policies and procedures recently implemented by DCOM in
connection with the legislative process have limited, and are expected to
continue to limit, the types and costs of services reimbursable by DCOM. DCOM
has recently limited approval, absent special circumstances, for implementation
of remediation activities, instead favoring natural attenuation as the presumed
remedy and generally allowing reimbursement primarily for site investigation and
monitoring costs. The implementation of such revised policies has resulted, and
is expected to continue to result, in a decrease in revenues per site generated
by FMI. A more aggressive marketing strategy has been implemented with the goal
of bringing a greater number of sites under contract and increasing overall
revenue.
As a result of the acquisition of FMI in April 1997, the results of operations
of the Company during the 1996 and 1997 periods presented may not be directly
comparable.
Results of Operations
- ---------------------
Nine Months Ended September 30, 1997 Compared to
- ------------------------------------------------
Nine Months Ended September 30, 1996
- ------------------------------------
For the nine months ended September 30, 1997, the Company reported total
revenues of $18,023,772, an increase of 102% from the same period in 1996. The
net loss in the period decreased 73% to $605,871 from $2,258,367 in the same
period in 1996, while the net loss per share was $0.03 compared to $0.21 in the
same period in 1996. The decrease in net loss per share is due to the
performance of the FMI Operations Group as well as an increase in the number of
shares outstanding primarily from issuances in connection with the FMI
acquisition and a related private placement.
Commercial revenues increased 110% to $15,999,246 from $7,621,681 in the same
period in 1996, while revenues from corporate and government research and
development contracts increased 57% to $2,024,526 from $1,287,156 in the same
period in 1996. The increased commercial revenues are due primarily to an
increase in remediation revenues from the Company's FMI Operations Group (net of
an approximate $100,000 write-off of unbilled revenues for remediation
services). Increased commercial revenues more than offset decreased revenues
from the Company's pollution control business. The Company recognized
significant revenues from a major biofilter project during 1996, when the
project was completed. Revenues from remediation activities accounted for 98% of
the Company's commercial revenues in the nine-month period ended September 30,
1997.
Revenues from corporate and government research and development contracts
increased primarily due to the increased volume of Phase II government projects
that the Company is actively working on. In the nine-month period ended
September 30, 1997, the Company recorded initial revenues under a Phase I grant
from the National Science Foundation, two Phase II grants from the National
Science Foundation, two Phase I SBIR grants and one Phase II grant from the
Department of Defense, as well as two other grants from the Department of
Defense.
Total costs and expenses increased 65% to $18,632,681 in the first nine months
of 1997 from $11,271,605 in the same period in 1996. The cost of commercial
operations increased 55% to $10,826,093 due to the increased revenue levels
combined with a $200,000 increase in the reserve for bad debts to cover the
write-off of certain uncollectible receivables of the MWR Operations Group.
Research and development expenses increased 15% to $1,954,965 due to an increase
in work under corporate and government research and development contracts.
Marketing, general and administrative expenses increased 184% to
9
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$5,851,623 due primarily to expenses of the FMI Operations Group, amortization
of goodwill associated with the FMI acquisition and increased marketing expenses
associated with the Company's proposed development program with Rhone-Poulenc.
In the first nine months of 1996 the Company set aside a provision for a
contract claim of $550,000 to cover the cost of repairing the biofiltration
system the Company built for the Nylonge Corporation. The repairs to the system
were completed and the system restarted in late 1996. The Company has incurred
no costs in 1997 for the repair of this system.
Interest income increased 45% to $189,618 due primarily to the increased level
of cash available for investment as a result of the Company's private placement
of common stock to Warburg Pincus in April 1997. Equity in loss of joint venture
amounted to $189,019 in the first nine months of 1997 compared to income of
$29,168 in the same period last year due primarily to the Company's
participation in the losses of the CVT America joint venture. On August 10,
1997, the Company acquired the remaining 50% of the venture, dissolved the
venture and thereafter continued its operations.
Three Months Ended September 30, 1997 Compared to
- -------------------------------------------------
Three Months Ended September 30, 1996
- -------------------------------------
For the three months ended September 30, 1997, the Company reported total
revenues of $7,928,775, an increase of 161% from the same period in 1996. The
Company reported a net loss of $183,778 in the period versus a loss of $609,303
in the same period of 1996. The net loss per share was $0.01 compared to $0.05
in the same period in 1996. The change in per share amounts is due to improved
performance related to the FMI acquisition as well as an increase in the number
of shares outstanding resulting from issuances in connection with the FMI
acquisition and a related private placement as well as the CVT America
acquisition.
Commercial revenues increased 180% to $7,292,027 from $2,604,163 in the same
period in 1996 while revenues from corporate research and development contracts
increased 46% to $636,748 from $436,620 in the same period in 1996. The
increased commercial revenues are due primarily to an increase in remediation
revenues from the Company's FMI Operations Group offset by the write-off of
approximately $100,000 of unbilled remediation services revenues. Revenues from
remediation activities accounted for 97% of the Company's commercial revenues in
the three-month period ended September 30, 1997.
Revenues from corporate and government research and development contracts
increased primarily due to the greater volume of Phase II government projects
that the Company is actively working on. In the three-month period ended
September 30, 1997, the Company recorded initial revenues under a Phase II grant
from the National Science Foundation.
Total costs and expenses increased 122% to $8,125,811 in the third quarter of
1997 from $3,664,650 in the same period in 1996. The cost of commercial
operations increased 114% to $4,880,074 due to the increased revenue levels
combined with a $200,000 increase in the reserve for bad debts to cover the
write-off of certain uncollectible receivables of the MWR Operations Group.
Research and development expenses increased 14% to $617,492 due to the increased
revenues from corporate and government research and development contracts.
Marketing, general and administrative expenses increased 280% to $2,628,245 due
primarily to expenses of the FMI Operations Group, amortization of goodwill
associated with the acquisition of FMI and increased marketing expenses
associated with the Company's proposed development program with Rhone-Poulenc.
10
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has funded its operations to date primarily through public offerings
and private placements of equity securities, research and development agreements
with major industrial companies, research grants from government agencies and
revenues from commercial services and sales of biological degradation systems.
At September 30, 1997 the Company had cash and cash equivalents of $4,688,207
and working capital of $9,413,676. Additionally, the Company had restricted cash
of $309,300 that was being used to collateralize a bond for a large commercial
project. Cash and cash equivalents increased $74,145 from December 31, 1996 to
September 30, 1997 as proceeds from the issuance of common stock of $15,711,376
more than offset cash utilized in connection with the acquisition of FMI of
$13,577,932, cash used by operations of $1,332,872 (including $1,776,936 to pay
FMI accounts payable that were assumed by the Company as part of the FMI
acquisition), cash invested in and advanced to CVT America of $304,770 and
capital expenditures of $420,093. The Company expects to incur additional
capital expenditures in connection with the continued development and
commercialization of its technologies. The timing and amount of such
expenditures will fluctuate depending on the timing of field tests, systems
development activity, the rapidity with which the Company's biodegradation
systems can be further commercialized and the availability of capital.
Furthermore, future projects may require the Company to set aside additional
capital to collateralize performance bonds.
Revenue from certain of the Company's contracts is recognized as services are
provided and costs are incurred. For fixed-price contracts, revenue is
recognized on the percentage-of-completion method, measured by the percentage
relationship of costs incurred from contract inception to date to the estimated
total costs for each contract. The asset "Unbilled revenue" represents revenues
recognized in excess of amounts billed. Correspondingly, the liability "Deferred
revenue" represents billings in excess of costs and estimated earnings. The
balance in these accounts will fluctuate depending on a number of factors,
including the number and size of fixed-price contracts, contract terms and other
timing and cost issues. At September 30, 1997, unbilled revenue was $2,187,427
higher than at December 31, 1996 due primarily to the increased revenue levels
resulting from the FMI acquisition.
Accounts receivable increased by $3,823,886 and prepaid expenses increased by
$351,389 from December 31, 1996 to September 30, 1997 primarily due to the
acquisition of FMI. Accounts payable increased by $912,468 and accrued expenses
and other liabilities increased by $683,793 in the same period primarily due to
the acquisition of FMI. On September 30, 1997 the Company had $2,774,775 in
reserve for claim adjustments, substantially all of which is available to cover
potential PECFA claim adjustments with respect to approximately $54.7 million in
PECFA reimbursable revenues which DCOM had not reviewed.
It is anticipated that the Company's currently available cash and cash
equivalents and cash expected to be generated from operations will provide
sufficient operating capital for the foreseeable future.
Other Matters
- -------------
As of December 31, 1996, the Company had a net operating loss carryforward of
approximately $19,300,000 for federal income tax reporting purposes available to
offset future taxable income, if any, through 2011. The timing and manner in
which these losses may be utilized are limited under Section 382 of the Internal
Revenue Code of 1986 to approximately $2,400,000 per year based on preliminary
calculations of certain ownership changes to date and may be further limited in
the event of additional ownership changes, if any, as a result of future equity
issuances.
11
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
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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.
ENVIROGEN, INC.
(Registrant)
Date: November 13, 1997 By: /s/ William C. Smith
------------------------
William C. Smith
Chief Executive Officer
By: /s/ Patricia A. McQueary
------------------------
Patricia A. McQueary
Chief Accounting Officer
13
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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0
0
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<INCOME-PRETAX> (605,871)
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<INCOME-CONTINUING> (605,871)
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