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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, 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 September 30, 2000 was 3,972,436.
1
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ENVIROGEN, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three and Nine
Months Ended September 30, 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 10
Other Matters 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 12
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,884,009 $ 4,527,979
Accounts receivable, net 4,170,433 5,906,081
Unbilled revenue 2,163,874 3,128,747
Prepaid expenses and other current assets 400,328 501,171
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Total current assets 10,618,644 14,063,978
Property and equipment, net 1,058,023 1,128,562
Intangible assets, net 815,535 957,716
Other assets 199,246 220,609
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Total assets $ 12,691,448 $ 16,370,865
============= =============
LIABILITIES
Current liabilities:
Accounts payable $ 2,426,428 $ 4,192,023
Accrued expenses and other liabilities 952,764 942,263
Reserve for claim adjustments and warranties 3,317,889 3,596,136
Deferred revenue 611,602 542,409
Current portion of long-term note payable 4,976
Current portion of capital lease obligations 4,644
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Total current liabilities 7,313,659 9,277,475
Long-term note payable, net of current portion 12,678
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Total liabilities 7,326,337 9,277,475
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Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (50,000,000 shares
authorized; 3,982,353 and 3,975,868 issued at
September 30, 2000 and December 31, 1999, respectively) 39,823 39,759
Additional paid-in capital 59,775,119 59,727,189
Accumulated deficit (54,443,881) (52,667,608)
Less: Treasury stock, at cost (5,950) (5,950)
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Total stockholders' equity 5,365,111 7,093,390
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Total liabilities and stockholders' equity $ 12,691,448 $ 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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Commercial operations $ 4,539,493 $ 5,267,455 $ 13,335,902 $ 14,693,415
Research and development services 318,035 723,247 1,338,149 2,232,245
------------ ------------ ------------- -------------
Total revenues 4,857,528 5,990,702 14,674,051 16,925,660
------------ ------------ ------------- -------------
Cost of commercial operations 3,991,329 4,282,324 11,302,409 12,327,911
Research and development costs 455,575 775,243 1,569,385 2,235,388
Marketing, general and administrative expenses 1,233,304 1,173,968 3,724,121 3,594,593
------------ ------------ ------------- -------------
Total costs and expenses 5,680,208 6,231,535 16,595,915 18,157,892
------------ ------------ ------------- -------------
Other income (expense):
Interest income 53,976 36,741 153,051 107,205
Interest expense (3,026) (4,467) (9,426) (10,397)
Equity in loss of joint venture (118) (188)
Other, net 1,900 840 1,966 (7,235)
------------ ------------ ------------- -------------
Other income, net 52,850 32,996 145,591 89,385
------------ ------------ ------------- -------------
Net loss ($769,830) ($207,837) ($1,776,273) ($1,142,847)
============ ============ ============= =============
Basic and diluted net loss per share ($0.19) ($0.05) ($0.45) ($0.29)
============ ============ ============= =============
Weighted average number of shares of
Common Stock used in computing basic
and diluted net loss per share 3,972,436 3,965,951 3,968,990 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>
Nine Months Ended
September 30,
--------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,776,273) ($1,142,847)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 528,806 598,001
Provision for claim adjustments and warranties 169,127 367,958
Provision for doubtful accounts 130,142 223,373
Deferred fees 45,000 57,000
Equity in loss of joint venture 188
Other (1,966) 7,235
Changes in operating assets and liabilities:
Accounts receivable 1,605,506 878,612
Unbilled revenue 964,873 1,135,573
Prepaid expenses and other current assets 100,843 355,257
Restricted cash 309,300
Other assets 21,363 20,145
Accounts payable (1,765,595) (1,079,128)
Accrued expenses and other liabilities 10,501 (557,617)
Reserve for claim adjustments and warranties (447,374) (843,004)
Deferred revenue 69,193 204,210
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Net cash (used in) provided by operating activities (345,854) 534,256
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Cash flows from investing activities:
Capital expenditures (295,277) (132,580)
Proceeds from sale of property and equipment 1,966 15,838
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Net cash used in investing activities (293,311) (116,742)
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Cash flows from financing activities:
Capital lease principal repayments (4,644) (5,332)
Repayment of long-term debt (3,155)
Net proceeds from exercise of stock options 2,994
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Net cash used in financing activities (4,805) (5,332)
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Net (decrease) increase in cash and cash equivalents (643,970) 412,182
Cash and cash equivalents at beginning of period 4,527,979 3,407,910
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Cash and cash equivalents at end of period $3,884,009 $3,820,092
=========== ===========
Supplemental disclosures of cash flow information:
--------------------------------------------------
Cash paid for interest $9,407 $17,517
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Cash refunded for income taxes ($1,955) ($9,764)
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</TABLE>
The Company financed a capital expenditure through 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 nine months ended September 30,
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 591,356 and 537,356 shares of common stock outstanding
at September 30, 2000 and 1999, respectively.
2. LITIGATION
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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
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Information about reported segments for the three and nine months ended
September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Research and
Commercial Development
Operations Services Other Total
---------- ------------ ------- --------
<S> <C> <C> <C> <C>
Three Months Ended September 30,
2000
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Revenues $ 4,539,493 $ 318,035 $ - $ 4,857,528
Segment profit (loss) 548,164 (137,540) (1,180,454) (769,830)
1999
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Revenues $ 5,267,455 $ 723,247 $ - $ 5,990,702
Segment profit (loss) 985,131 (51,996) (1,140,972) (207,837)
Nine Months Ended September 30,
2000
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Revenues $ 13,335,902 $ 1,338,149 $ - $ 14,674,051
Segment profit (loss) 2,033,493 (231,236) (3,578,530) (1,776,273)
1999
----
Revenues $ 14,693,415 $ 2,232,245 $ - $ 16,925,660
Segment profit (loss) 2,365,504 (3,143) (3,505,208) (1,142,847)
</TABLE>
The following table presents the details of the "Other" segment for the three
and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Marketing, general and
administrative expenses ($1,233,304) ($1,173,968) ($3,724,121) ($3,594,593)
Interest income 53,976 36,741 153,051 107,205
Interest expense (3,026) (4,467) (9,426) (10,397)
Equity in loss of
joint venture - (118) - (188)
Other, net 1,900 840 1,966 (7,235)
----------- ----------- ----------- -----------
($1,180,454) ($1,140,972) ($3,578,530) ($3,505,208)
=========== =========== =========== ===========
</TABLE>
7
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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 less experience with 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
type of reactor currently offered by the Company, 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
---------------------
Nine Months Ended September 30, 2000 Compared to
------------------------------------------------
Nine Months Ended September 30, 1999
------------------------------------
For the nine months ended September 30, 2000, the Company's total revenues
decreased 13% to $14,674,051 from $16,925,660 in the same period in 1999. The
net loss increased to $1,776,273 from $1,142,847 in the same period of 1999,
while the basic and diluted net loss per share was $0.45 compared to $0.29 in
the same period in 1999.
Commercial revenues in 2000 decreased 9% to $13,335,902 from $14,693,415 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
nine-month period ended September 30, 2000 by 40% to $1,338,149 from $2,232,245
in 1999. Revenues decreased primarily due to fewer government projects in
process in 2000 than in 1999.
Total costs and expenses decreased 9% to $16,595,915 in the nine-month period
ended September 30, 2000 from $18,157,892 in the same period in 1999. The cost
of commercial operations decreased 8% to $11,302,409 during the first nine
months of 2000 from $12,327,911 in the same period in 1999 due primarily to
decreased revenue levels. Research and development expenses decreased 30% to
$1,569,385 during the first nine months of 2000 from $2,235,388 in the same
period in 1999 due primarily to a decrease in the corporate and government
research and development projects in progress. Marketing, general and
administrative expenses increased 4% to $3,724,121 from $3,594,593 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 43% to $153,051 in the nine-month period ended
September 30, 2000 from $107,205 in 1999, due primarily to the combination of
increased average cash available for investment and higher interest rates.
Three Months Ended September 30, 2000 Compared to
-------------------------------------------------
Three Months Ended September 30, 1999
-------------------------------------
For the three months ended September 30, 2000, the Company's total revenues
decreased 19% to $4,857,528 from $5,990,702 in the same period in 1999. The net
loss increased to $769,830 from $207,837 in the same period of 1999, while the
basic and diluted net loss per share was $0.19 compared to $0.05 in the same
period in 1999.
Commercial revenues in the third quarter of 2000 decreased 14% to $4,539,493
from $5,267,455 in the same period in 1999. The decreased commercial revenues
are due primarily to reduced revenue under the PECFA program, which is funded by
the State of Wisconsin for cleaning up underground storage tanks.
Revenues from corporate research and development contracts decreased in the
three-month period ended September 30, 2000 by 56% to $318,035 from $723,247 in
1999. Revenues decreased primarily due to a reduced number of government
projects in process in 2000.
Total costs and expenses decreased 9% to $5,680,208 in the three-month period
ended September 30, 2000 from $6,231,535 in the same period in 1999. The cost of
commercial operations decreased 7% to $3,991,329 during the third quarter of
2000 from $4,282,324 in the same period in 1999 due primarily to decreased
revenue levels. Research and development expenses decreased 41% to $455,575
during the third quarter of 2000 from $775,243 in the same period in 1999 due
primarily to a decrease in the corporate and government research and development
projects in progress. Marketing, general and administrative expenses increased
5% to $1,233,304 from $1,173,968 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 47% to $53,976 in the three-month period ended
September 30, 2000 from $36,741 in 1999, due primarily to the combination of
increased average cash available for investment and higher interest rates.
9
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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
September 30, 2000, the Company had cash and cash equivalents of $3,884,009 and
working capital of $3,304,985. Cash and cash equivalents decreased $643,970 from
December 31, 1999 to September 30, 2000 due primarily to cash used in operations
of $345,854 and capital expenditures of $295,277.
From December 31, 1999 to September 30, 2000, accounts receivable decreased by
$1,735,648 primarily as a result of reduced revenue levels and improved
collections. In the same period, accounts payable decreased by $1,765,595 due to
reduced expense levels on lower revenues as well as shifts in the timing of
project expenses. At September 30, 2000, the Company had $3,317,889 in reserve
for claim adjustments and warranties, $3,069,787 of which is available with
respect to potential PECFA claim adjustments related to approximately $42
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.
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.
10
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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
11
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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 8, 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
12
