<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 March 31, 2000 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 March 31, 2000 was 3,966,670.
- --------------------------------------------------------------------------------
1
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ENVIROGEN, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General 8
Results of Operations 8
Liquidity and Capital Resources 9
Other Matters 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 11
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Currents assets:
Cash and cash equivalents $ 3,644,276 $ 4,527,979
Accounts receivable, net 4,739,755 5,906,081
Unbilled revenue 2,422,943 3,128,747
Prepaid expenses and other current assets 434,085 501,171
------------ -------------
Total current assets 11,241,059 14,063,978
Property and equipment, net 1,107,384 1,128,562
Intangible assets, net 910,322 957,716
Other assets 213,466 220,609
------------ -------------
Total assets $ 13,472,231 $16,370,865
============ =============
LIABILITIES
Current liabilities:
Accounts payable $ 2,166,986 $ 4,192,023
Accrued expenses and other liabilities 754,258 942,263
Reserve for claim adjustments and warranties 3,492,651 3,596,136
Deferred revenue 465,205 542,409
Current portion of long-term note payable 4,856
Current portion of capital lease obligations 2,695 4,644
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Total current liabilities 6,886,651 9,277,475
Long-term note payable, net of current portion 15,601
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Total liabilities 6,902,252 9,277,475
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Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (50,000,000 shares
authorized; 3,976,587 and 3,975,868 issued at
March 31, 2000 and December 31, 1999, respectively) 39,766 39,759
Additional paid-in capital 59,745,667 59,727,189
Accumulated deficit (53,209,504) (52,667,608)
Less: Treasury stock, at cost (5,950) (5,950)
------------ -------------
Total stockholder's equity 6,569,979 7,093,390
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Total liabilities and stockholder's equity $ 13,472,231 $ 16,370,865
============ =============
</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
March 31,
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2000 1999
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<S> <C> <C>
Revenues:
Commerical operations $ 3,822,630 $ 4,380,514
Research and development services 608,815 686,610
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Total revenues 4,431,445 5,067,124
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Cost of commercial operations 3,145,802 3,777,620
Research and development costs 606,743 695,692
Marketing, general and administrative expenses 1,264,179 1,237,640
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Total costs and expenses 5,016,724 5,710,952
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Other income (expense):
Interest income 46,580 37,026
Interest expense (3,263) (2,649)
Equity in income of joint venture 1,529
Other, net 66 (8,125)
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Other income, net 43,383 27,781
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Net loss ($541,896) ($616,047)
=========== ===========
Basic and diluted net loss per share ($0.14) ($0.16)
=========== ===========
Weighted average number of shares of
Common Stock used in computing basic
and diluted net loss per share 3,966,390 3,965,951
=========== ===========
</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>
Three Months Ended
March 31,
--------------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($541,896) ($616,047)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 176,177 203,712
Provision for claim adjustments and warranties 45,388 157,301
Provision for doubtful accounts 66,024 76,708
Deferred fees 17,000
Equity in income of joint venture (1,529)
Other 8,125
Changes in operating assets and liabilities:
Accounts receivable 1,100,302 1,103,807
Unbilled revenue 705,804 482,576
Prepaid expenses and other current assets 67,086 196,172
Other assets 7,143 8,358
Accounts payable (2,025,037) (1,212,359)
Accrued expenses and other liabilities (188,005) (528,651)
Reserve for claim adjustments and warranties (148,873) (327,050)
Deferred revenue (77,204) 155,952
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Net cash used in operating activities (796,091) (292,925)
------------ -------------
Cash flows from investing activities:
Capital expenditures (86,796) (52,107)
Proceeds from sale of property and equipment 3,370
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Net cash used in investing activities (86,796) (48,737)
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Cash flows from financing activities:
Capital lease principal repayments (1,949) (1,723)
Repayment of long-term debt (352)
Net proceeds from excercise of stock options 1,485
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Net cash used in financing activities (816) (1,723)
------------ -------------
Net decrease in cash and cash equivalents (883,703) (343,385)
Cash and cash equivalents at beginning of period 4,527,979 3,407,910
------------ -------------
Cash and cash equivalents at end of period $3,644,276 $3,064,525
============ =============
Supplemental disclosures of cash flow information:
- ------------------------------------------------
Cash paid for interest $2,710 $9,945
============ =============
Cash paid (refunded) for income taxes $45 ($9,764)
============ =============
</TABLE>
- -The Company entered into a note payable amounting to $20,809 in the first
quarter of 2000.
The accompanying notes are an integral part of these consolidated financial
statements.
5
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ENVIROGEN, INC.
NOTES TO CONDENSED 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 consisting of
normal recurring accruals 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, 1999.
Since the Company incurred net losses for the three months ended March 31, 2000
and 1999, both basic and diluted per share calculations are the same. The
inclusion of additional shares assuming the exercise of options, warrants and
stock credits would have been antidilutive. There were options, warrants and
other rights to purchase 631,175 and 516,658 shares of common stock outstanding
at March 31, 2000 and 1999, respectively.
2. LITIGATION
----------
The Company is currently involved in litigation relating to services previously
provided at a customer site, where remediation work was performed. This
customer filed a claim against the Company for professional malpractice, breach
of warranty of professional services contract and misrepresentation. No
specific damages have been claimed by this customer and, at the present time,
management of the Company is unable to predict the outcome of this matter or to
determine whether the outcome of this matter will materially affect the
Company's results of operations, cash flows or financial position.
The Company is subject to claims and lawsuits in the ordinary course of its
business. In the opinion of management, such claims are either adequately
covered by insurance or, if not insured, will not individually or in the
aggregate result in a material adverse effect on the consolidated financial
condition of the Company.
6
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3. SEGMENT INFORMATION
-------------------
Information about reported segments for the three months ended March 31, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
Research and
Commercial Development
Operations Services Other Total
--------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Three Months Ended March 31,
2000
----
Revenues $ 3,822,630 $ 608,815 $ - $4,431,445
Segment profit (loss) 676,828 2,072 (1,220,796) (541,896)
1999
----
Revenues $ 4,380,514 $ 686,610 $ - $5,067,124
Segment profit (loss) 602,894 (9,082) (1,209,859) (616,047)
</TABLE>
The following table presents the details of the "Other" segment for the three
months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------------
2000 1999
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<S> <C> <C>
Marketing, general and
administrative expenses ($ 1,264,179) ($ 1,237,640)
Interest income 46,580 37,026
Interest expense (3,263) (2,649)
Equity in income of
joint venture - 1,529
Other, net 66 (8,125)
------------- ----------------
($ 1,220,796) ($ 1,209,859)
============= ================
</TABLE>
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 and 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,
1999.
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 Company's revenues to date have been from (i) commercial operations,
consisting of revenue from remediation services, conventional treatment systems
and soil vapor extraction systems and the Company's biological degradation
systems (including both in situ and ex situ bioremediation), and (ii) funds
received from third parties and government agencies to conduct specific research
and development programs. While the Company has realized commercial revenues for
several years from remediation services and from traditional remediation systems
such as soil vapor extraction systems, it has only recently seen the first
revenues from sales of full-scale biological degradation systems for the
treatment of contaminated air and water. Although full-scale commercial systems
have been installed for each current reactor type, additional expenditures will
be required for continued research and development, and additional marketing
activities for the further commercialization of the Company's biodegradation
systems are planned. The amount and timing of such expenditures cannot be
predicted and 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.
Results of Operations
- ---------------------
Three Months Ended March 31, 2000 Compared to
- ---------------------------------------------
Three Months Ended March 31, 1999
- ---------------------------------
For the three months ended March 31, 2000, the Company's total revenues
decreased 13% to $4,431,445 from $5,067,124 in the same period in 1999. The
net loss decreased to $541,896 from $616,047 in the same period of 1999, while
the basic and diluted net loss per share was $0.14 compared to $0.16 in the same
period in 1999.
Commercial revenues in 2000 decreased 13% to $3,822,630 from $4,380,514 in the
same period in 1999. The decreased commercial revenues are due primarily to
reduced revenue under the Wisconsin Petroleum Environmental Cleanup Fund Act
("PECFA") program, which is funded by the state of Wisconsin for cleaning up
underground storage tanks.
8
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Revenues from corporate research and development contracts decreased in the
three-month period ended March 31, 2000 by 11% to $608,815 from $686,610 in
1999. Revenues decreased primarily due to the timing and composition of work
associated with government projects.
Total costs and expenses decreased 12% to $5,016,724 in the three-month period
ended March 31, 2000 from $5,710,952 in the same period in 1999. The cost of
commercial operations decreased 17% to $3,145,802 during the first three months
of 2000 from $3,777,620 in the same period in 1999 due primarily to decreased
revenue levels. Research and development expenses decreased 13% to $606,743
during the first three months of 2000 from $695,692 in the same period in 1999
due primarily to the decreased revenues under various corporate and government
research and development contracts and to less spending on internal research
projects. Marketing, general and administrative expenses increased 2% to
$1,264,179 from $1,237,640 due primarily to increased sales and marketing
efforts, which were offset somewhat by a reduction in administrative costs due
to ongoing cost reduction programs.
Interest income increased 26% to $46,580 in the three-month period ended March
31, 2000 from $37,026 in 1999, due primarily to the combination of increased
average cash available for investment and higher interest rates.
Liquidity and Capital Resources
- -------------------------------
The Company has funded its operations to date primarily through revenues from
commercial services, sales of biodegradation systems, public offerings and
private placements of equity securities, research and development agreements
with major industrial companies and research grants from government agencies.
At March 31, 2000, the Company had cash and cash equivalents of $3,644,276 and
working capital of $4,354,408. Cash and cash equivalents decreased $883,703
from December 31, 1999 to March 31, 2000 due primarily to cash used in
operations of $796,091 and capital expenditures of $86,796.
From December 31, 1999 to March 31, 2000, accounts receivable decreased by
$1,166,326 primarily as a result of reduced revenue levels. In the same
period, accounts payable decreased by $2,025,037 due to reduced expense levels
on lower revenues as well as shifts in the timing of project expenses. Accrued
expenses and other liabilities decreased by $188,005 from December 31, 1999 to
March 31, 2000 primarily due to fluctuations in accrued salaries and wages and
the payment in the first quarter of 2000 of deferred compensation related to the
prior year. At March 31, 2000, the Company had $3,492,651 in reserve for claim
adjustments and warranties, $3,244,549 of which is available with respect to
potential PECFA claim adjustments related to approximately $54 million in
unsettled PECFA submittals and $248,102 of which is available with respect to
potential warranty claims and other contract issues.
It is anticipated that the Company's currently available cash, cash equivalents
and cash expected to be generated from operations will provide sufficient
operating capital for at least the next 18 to 24 months. The Company may seek
additional funds through equity or debt financing. However, there can be no
assurance that such additional funds will be available on terms favorable to the
Company, if at all.
9
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Other Matters
- -------------
As of December 31, 1999, the Company had a net operating loss carry forward of
approximately $25 million for federal income tax reporting purposes available to
offset future taxable income, if any, through 2019. 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 $1,700,000 per year based on preliminary
calculations of certain ownership changes to date and may be further limited in
the event of additional ownership changes.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
10
<PAGE>
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: May 9, 2000 By: /s/ Robert S. Hillas
---------------------------------------
Robert S. Hillas
President and Chief Executive Officer
By: /s/ Mark J. Maten
---------------------------------------
Mark J. Maten
Vice President of Finance
and Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,644,276
<SECURITIES> 0
<RECEIVABLES> 5,513,058
<ALLOWANCES> (773,303)
<INVENTORY> 42,516
<CURRENT-ASSETS> 13,472,231
<PP&E> 5,787,058
<DEPRECIATION> (4,679,674)
<TOTAL-ASSETS> 13,472,231
<CURRENT-LIABILITIES> 6,886,651
<BONDS> 0
0
0
<COMMON> 39,766
<OTHER-SE> 6,530,213
<TOTAL-LIABILITY-AND-EQUITY> 13,472,231
<SALES> 0
<TOTAL-REVENUES> 4,431,445
<CGS> 0
<TOTAL-COSTS> 5,016,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,263
<INCOME-PRETAX> (541,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (541,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (541,896)
<EPS-BASIC> ($0.14)
<EPS-DILUTED> ($0.14)
</TABLE>
