<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 June 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 June 30, 2000 was 3,972,436.
1
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ENVIROGEN, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three and Six
Months Ended June 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
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>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,214,670 $ 4,527,979
Accounts receivable, net 4,627,501 5,906,081
Unbilled revenue 2,318,213 3,128,747
Prepaid expenses and other current assets 507,362 501,171
-------------- --------------
Total current assets 11,667,746 14,063,978
Property and equipment, net 1,087,484 1,128,562
Intangible assets, net 862,929 957,716
Other assets 206,823 220,609
-------------- --------------
Total assets $ 13,824,982 $ 16,370,865
============== ==============
LIABILITIES
Current liabilities:
Accounts payable $ 2,719,281 $ 4,192,023
Accrued expenses and other liabilities 1,026,463 942,263
Reserve for claim adjustments and warranties 3,446,832 3,596,136
Deferred revenue 490,514 542,409
Current portion of long-term note payable 4,916
Current portion of capital lease obligations 685 4,644
-------------- --------------
Total current liabilities 7,688,691 9,277,475
Long-term note payable, net of current portion 14,350
-------------- --------------
Total liabilities 7,703,041 9,277,475
-------------- --------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (50,000,000 shares
authorized; 3,982,353 and 3,975,868 issued at
June 30, 2000 and December 31, 1999, respectively) 39,823 39,759
Additional paid-in capital 59,762,119 59,727,189
Accumulated deficit (53,674,051) (52,667,608)
Less: Treasury stock, at cost (5,950) (5,950)
-------------- --------------
Total stockholders' equity 6,121,941 7,093,390
-------------- --------------
Total liabilities and stockholders' equity $ 13,824,982 $ 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 Six Months Ended
June 30, June 30,
------------------------------ -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Commercial operations $ 4,973,779 $ 5,045,446 $ 8,796,409 $ 9,425,960
Research and development services 411,299 822,388 1,020,114 1,508,998
----------- ----------- ------------ -----------
Total revenues 5,385,078 5,867,834 9,816,523 10,934,958
----------- ----------- ------------ -----------
Cost of commercial operations 4,165,278 4,267,967 7,311,080 8,045,587
Research and development costs 507,067 764,453 1,113,810 1,460,145
Marketing, general and administrative expenses 1,226,638 1,182,985 2,490,817 2,420,625
----------- ----------- ------------ -----------
Total costs and expenses 5,898,983 6,215,405 10,915,707 11,926,357
----------- ----------- ------------ -----------
Other income (expense):
Interest income 52,495 33,438 99,075 70,464
Interest expense (3,137) (3,281) (6,400) (5,930)
Equity in income of joint venture (1,599) (70)
Other, net 50 66 (8,075)
----------- ----------- ------------ -----------
Other income, net 49,358 28,608 92,741 56,389
----------- ----------- ------------ -----------
Net loss ($464,547) ($318,963) ($1,006,443) ($935,010)
=========== =========== ============ ===========
Basic and diluted net loss per share ($0.12) ($0.08) ($0.25) ($0.24)
=========== =========== ============ ===========
Weighted average number of shares of
Common Stock used in computing basic
and diluted net loss per share 3,968,426 3,965,951 3,967,514 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>
Six Months Ended
June 30,
----------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,006,443) ($935,010)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 349,739 406,416
Provision for claim adjustments and warranties 113,091 256,931
Provision for doubtful accounts 95,933 147,465
Deferred fees 32,000
Equity in income of joint venture 70
Other (66) 8,075
Changes in operating assets and liabilities:
Accounts receivable 1,182,647 126,177
Unbilled revenue 810,534 676,378
Prepaid expenses and other current assets (6,191) 201,494
Restricted cash 309,300
Other assets 13,786 15,502
Accounts payable (1,472,742) (405,630)
Accrued expenses and other liabilities 84,200 (407,124)
Reserve for claim adjustments and warranties (262,395) (823,701)
Deferred revenue (51,895) 479,861
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Net cash (used in) provided by operating activities (117,802) 56,204
------------ -----------
Cash flows from investing activities:
Capital expenditures (193,065) (97,051)
Proceeds from sale of property and equipment 66 3,420
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Net cash used in investing activities (192,999) (93,631)
------------ -----------
Cash flows from financing activities:
Capital lease principal repayments (3,959) (2,309)
Repayment of long-term debt (1,543)
Net proceeds from exercise of stock options 2,994
------------ -----------
Net cash used in financing activities (2,508) (2,309)
------------ -----------
Net decrease in cash and cash equivalents (313,309) (39,736)
Cash and cash equivalents at beginning of period 4,527,979 3,407,910
------------ -----------
Cash and cash equivalents at end of period $ 4,214,670 $ 3,368,174
============ ===========
Supplemental disclosures of cash flow information:
-------------------------------------------------
Cash paid for interest $ 6,460 $ 13,251
============ ===========
Cash refunded for income taxes ($1,955) ($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 six months ended June 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 592,911 and 508,837 shares of common stock outstanding at
June 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
-------------------
Information about reported segments for the three and six months ended June 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 June 30,
2000
----
Revenues $4,973,779 $ 411,299 $ - $ 5,385,078
Segment profit (loss) 808,501 (95,768) (1,177,280) (464,547)
1999
----
Revenues $5,045,446 $ 822,388 $ - $ 5,867,834
Segment profit (loss) 777,479 57,935 (1,154,377) (318,963)
Six Months Ended June 30,
2000
----
Revenues $8,796,409 $1,020,114 $ - $ 9,816,523
Segment profit (loss) 1,485,329 (93,696) (2,398,076) (1,006,443)
1999
----
Revenues $9,425,960 $1,508,998 $ - $10,934,958
Segment profit (loss) 1,380,373 48,853 (2,364,236) (935,010)
</TABLE>
The following table presents the details of the "Other" segment for the three
and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Marketing, general and
administrative expenses ($ 1,226,638) ($ 1,182,985) ($ 2,490,817) ($ 2,420,625)
Interest income 52,495 33,438 99,075 70,464
Interest expense (3,137) (3,281) (6,400) (5,930)
Equity in income (loss) of
joint venture - (1,599) - (70)
Other, net - 50 66 (8,075)
------------ ------------ ------------ ------------
($ 1,177,280) ($ 1,154,377) ($ 2,398,076) ($ 2,364,236)
============ ============ ============ ============
</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 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
---------------------
Six Months Ended June 30, 2000 Compared to
------------------------------------------
Six Months Ended June 30, 1999
------------------------------
For the six months ended June 30, 2000, the Company's total revenues decreased
10% to $9,816,523 from $10,934,958 in the same period in 1999. The net loss
increased to $1,006,443 from $935,010 in the same period of 1999, while the
basic and diluted net loss per share was $0.25 compared to $0.24 in the same
period in 1999.
Commercial revenues in 2000 decreased 7% to $8,796,409 from $9,425,960 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.
Revenues from corporate research and development contracts decreased in the six-
month period ended June 30, 2000 by 32% to $1,020,114 from $1,508,998 in 1999.
Revenues decreased primarily due to fewer government projects in process in 2000
than in 1999.
8
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Total costs and expenses decreased 8% to $10,915,707 in the six-month period
ended June 30, 2000 from $11,926,357 in the same period in 1999. The cost of
commercial operations decreased 9% to $7,311,080 during the first six months of
2000 from $8,045,587 in the same period in 1999 due primarily to decreased
revenue levels. Research and development expenses decreased 24% to $1,113,810
during the first six months of 2000 from $1,460,145 in the same period in 1999
due primarily to the decreased revenues under various corporate and government
research and development contracts. Marketing, general and administrative
expenses increased 3% to $2,490,817 from $2,420,625 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 41% to $99,075 in the six-month period ended June 30,
2000 from $70,464 in 1999, due primarily to the combination of increased average
cash available for investment and higher interest rates.
Three Months Ended June 30, 2000 Compared to
--------------------------------------------
Three Months Ended June 30, 1999
--------------------------------
For the three months ended June 30, 2000, the Company's total revenues decreased
8% to $5,385,078 from $5,867,834 in the same period in 1999. The net loss
increased to $464,547 from $318,963 in the same period of 1999, while the basic
and diluted net loss per share was $0.12 compared to $0.08 in the same period in
1999.
Commercial revenues in 2000 decreased 1% to $4,973,779 from $5,045,446 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 June 30, 2000 by 50% to $411,299 from $822,388 in 1999.
Revenues decreased primarily due to a reduced number of government projects in
process in 2000.
Total costs and expenses decreased 5% to $5,898,983 in the three-month period
ended June 30, 2000 from $6,215,405 in the same period in 1999. The cost of
commercial operations decreased 2% to $4,165,278 during the second quarter of
2000 from $4,267,967 in the same period in 1999 due primarily to decreased
revenue levels. Research and development expenses decreased 34% to $507,067
during the second quarter of 2000 from $764,453 in the same period in 1999 due
primarily to the decreased revenues under various corporate and government
research and development contracts. Marketing, general and administrative
expenses increased 4% to $1,226,638 from $1,182,985 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 57% to $52,495 in the three-month period ended June
30, 2000 from $33,438 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 June 30, 2000, the Company had cash and cash equivalents of $4,214,670 and
working capital of $3,979,055. Cash and cash equivalents decreased $313,309
from December 31, 1999 to June 30, 2000 due primarily to cash used in operations
of $117,802 and capital expenditures of $193,065.
From December 31, 1999 to June 30, 2000, accounts receivable decreased by
$1,278,580 primarily as a result of reduced revenue levels. In the same
period, accounts payable decreased by $1,472,742 due to reduced expense levels
on lower revenues as well as shifts in the timing of project expenses. At June
30, 2000, the Company had $3,446,832 in reserve for claim adjustments and
warranties, $3,198,730 of which is available with respect to potential PECFA
claim adjustments related to approximately $53 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
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 18, 2000, and in
connection therewith proxies were solicited by management pursuant to Regulation
14A under the Securities Exchange Act of 1934. The total number of outstanding
shares of Common Stock entitled to vote at the meeting was 3,567,999. At the
meeting the following matters (not including ordinary procedural matters) were
submitted to a vote of the stockholders, with the results indicated below:
1. Election of directors to serve until the 2001 Annual Meeting. The
-------------------------------------------------------------
following persons, all of whom were management's nominees, were elected.
There was no solicitation in opposition to such nominees. The tabulation
of votes was as follows:
Nominee For Withheld
------- --- --------
Robert F. Hendrickson 3,527,740 40,259
Robert S. Hillas 3,527,740 40,259
Robert F. Johnston 3,527,740 40,259
Robert C. Miller 3,527,740 40,259
Peter J. Neff 3,527,740 40,259
William C. Smith 3,527,223 40,776
2. Approval of the Company's 2000 Incentive Stock Option and Non-Qualified
-----------------------------------------------------------------------
Stock Option Plan. The Envirogen, Inc. 2000 Incentive Stock Option and Non-
-----------------
Qualified Stock Option Plan was approved. The tabulation of votes was as
follows:
For Against Abstentions
--- ------- -----------
2,819,796 118,631 4,353
3. Ratification of independent auditors. The appointment of Ernst & Young LLP
------------------------------------
as the Company's independent auditors was ratified. The tabulation of votes
was as follows:
For Against Abstentions
--- ------- -----------
3,500,456 38,142 29,401
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: August 4, 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
