SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
Commission File Number 33-46104-FW
THERMOENERGY CORPORATION
(EXACT NAME OF REGISTRATION AS SPECIFIED IN ITS CHARTER)
Arkansas 71-00659511
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification Number)
323 Center Street, Suite 1300
Little Rock, Arkansas 72201
(Address of principal executive offices including Zip Code)
Registrant's telephone number, including area code:
(501) 376-6477
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Exchange on Which Registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Each Class
None
Indicate by check mark whether the registrant (1) has filed all
reports 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 _______.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in any amendment to this Form 10-K.[x].
1
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As of December 22, 1997, there were 3,486,797 shares of common stock issued
and 3,402,968 outstanding. The aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant as of December 22, 1997 is
explained in Item 5.
2
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data should be read in conjunction with and is
qualified in its entirety by reference to the consolidated financial statements
and the notes thereto set forth in this Annual Report on Form 10-K.
<TABLE>
<S> <C> <C> <C> <C> <C>
Cumulative During
Development Stage
Through 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
September 30, 1997
Net loss (1) (6,737,437) $(1,196,036) $(551,621) $(896,998) $(767,427) $(1,207,921)
Total assets 349,911 173,333 125,215 49,541 386,358
Net loss per
common
share (2)
(1.81) (.31) (.15) (.24) (.20) (.32)
</TABLE>
(1) To date, the Company has not derived any revenues from operations. See Note
9 of Notes to Financial Statements for management's consideration of going
concern matters.
(2) See Note 1 of Notes to Financial Statements for a discussion of Financial
Accounting Standards Board Statement No. 128, "Earnings per Share".
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
ThermoEnergy Corporation ("Company") is a development stage company
involved in the marketing and development of certain environmental technologies
primarily used for solving waste water problems. These technologies include
three chemical processes known as the Sludge-To-Oil
3
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Reactor System (STORS(TM)) and Nitrogen Removal (NitRem(TM)) and the Ammonia
Recovery Process (ARP). The fourth technology, a dual-shell pressure balance
vessel, known as the Dual-Shell Reactor(TM) ("DSR"), is the unique reactor
equipment in which the STORS and NitRem chemistries are conducted (STORS,
NitRem, ARP and DSR are referred to collectively as the "Technologies"). The
Company's application of STORS and NitRem through the use of a STORS-DSR,
NitRem- DSR, or a combination of both types of equipment, are designed to
eliminate damaging organic and nitrogenous contaminants, respectively, from
municipal and industrial waste streams. The Company's ARP process is designed to
recover ammonia from fluid water streams resulting in the manufacture of various
by-products such as ammonium sulfate fertilizer when sulfuric acid is added to
the highly concentrated ammonia stream that is recovered.
The Company is the exclusive worldwide licensee for the Technologies
(except for STORS in Japan) which were developed by Battelle Memorial Institute
("Battelle"), an independent research and development organization. The Company
intends to sell equipment (i.e. STORS-DSR, NitRem- DSR or ARP) and services to
government and industrial users, sublicense the Technologies to industrial users
or third parties, or build, own and operate municipal and/or industrial waste
water treatment facilities. The Company's business strategy is based upon
entering into collaborative working relationships with established engineering
and environmental companies, or formal joint venture agreements relative to the
application of the technologies for specified industries or markets. The Company
is currently negotiating project-specific working arrangements with Foster
Wheeler Environmental Corporation. The Company also has joint marketing
arrangements with Roy F. Weston, Inc., Dan Cowart, Inc., and Mitsui & Co.
(U.S.A.), Inc. and plans to enter project specific working arrangements when
such projects are identified and funding is obtained. The Company has not
generated any operating revenues or any profits. The Company has recently
completed demonstration of its NitRem-DSR technology at the TRIES, Radford Army
Ammunition Plant project in Radford, Virginia. This NitRem-DSR project took a
wastewater stream containing dinitrotoluene (DNT) and successfully reduced the
concentration of DNT from 120,000 ppb to less than 5 ppb, acheiving a
destruction efficiency of 99.996%, well below National Pollution Discharge
Elimination System (NPDES) discharge limits. Based on these test results, the
Company, individually and jointly with Foster Wheeler Environmental Corporation,
is actively marketing the NitRem-DSR units to potential industrial clients and
to various divisions within the DOD. The Company has a project to demonstrate
its ARP technology at New York City's Staten Island wastewater treatment
facility. The demonstration project is scheduled to begin March of 1998 and will
run for 150 consecutive days. In addition, the Company is in the process of
negotiating a STORS demonstration facility for the San Bernardino Valley
Municipal Water District. The Company will not be required to make capital
contributions to any such projects and the Company will not receive any revenues
or earnings from these demonstration projects. The Company will be reimbursed
for administrative and operating costs from the two demonstration projects
underway and is negotiating similar arrangements for the third demonstration
project.
Since its formation in 1988, the Company has devoted substantially all
of its resources to funding the payments due under license agreements, searching
for opportunities to employ its technologies in demonstration facilities and
seeking capital necessary to sustain the Company's
4
<PAGE>
efforts. After a demonstration unit has been successfully operated and the
Technologies have been proven commercially viable, the Company may still require
additional investment capital and/or debt financing to continue its operations.
Plan of Operations
The Company had planned to use the net proceeds of a proposed public
offering to fund the operations of the Company and complete the Radford Army
Ammunition Plant and the New York City demonstration projects. As discussed in
Note 7 of Notes to Financial Statements, the managing underwriter of the
proposed offering notified the Company in October 1997 that it would be unable
to complete the offering. The Company now plans to use the proceeds from the
sale of its Series 98 Convertible Debentures (see Note 12 of Notes to Financial
Statements) to satisfy the cash requirements for its basic operations for the
next year. Additional funds may be necessary in the event the Company takes on
other projects or makes an acquisition of another company to facilitate the
Company's commercial demonstration of its technologies.
The overall goal of the Company is to successfully complete a
demonstration project for STORS and/or NitRem through all of the projects and
strategic working arrangements discussed above. Management plans to utilize
these demonstration facilities to expand the visibility of the Company in the
municipal, industrial, Department of Defense and Department of Energy markets. A
successful demonstration project is the single most important business factor in
the implementation of the Company's plan of operation.
Management is seeking other sources of funding to complete the Radford
Army Ammunition Plant and the New York City demonstration projects. The Company
believes that such projects, if successful, will allow the Company to generate
income through the commercialization of the Technologies.
Results of Operations
Year ended September 30, 1997 compared to year ended September 30, 1996
and year ended September 30, 1996 compared to year ended September 30, 1995.
5
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The net losses for the periods presented resulted primarily from
salaries and other administrative expenses, contractual obligations to Battelle
Memorial Institute Pacific Northwest Laboratories, travel expenses and
professional fees. The increase in general and administrative expenses during
the year ended September 30, 1997 compared to the same period of the prior year
was due primarily to the Company's efforts in pursuing equity capital and
selected projects during the first nine months of fiscal 1997 and the failure of
the proposed public offering which resulted in the recognition in general and
administrative expenses of approximately $282,000 of deferred offering expenses
as of September 30, 1997. The decrease in general and administrative expenses
during the year ended September 30, 1996 compared to the same period of the
prior year was due primarily to the concentration of the Company's efforts in
pursuing selected projects and conserving cash.
Payments under licenses were $25,000 for the year ended September 30,
1997 and $123,000 for the year ended September 30, 1995. There were no such
expenses for the year ended September 30, 1996.
Travel and entertainment expenses increased during the year ended September
30, 1997 compared to the prior year due to the Company's efforts in pursuing
selected projects. Travel and entertainment expenses decreased during the year
ended September 30, 1996 compared to the prior year due to the Company's efforts
to conserve cash. Interest expense increased during each of the three years
ended September 30, 1997 due to the increase in the Company's notes payable to
stockholders, which are more fully described in Note 4 of Notes to Financial
Statements.
Liquidity and Capital Resources
During the year ended September 30, 1997, the Company used $753,287 of
cash in operations compared to $257,166 in 1996 and $506,809 in 1995. During
1992, the Company initiated a public offering of 125,000 shares of Series B
Common Stock at a price of $16.00 per share. The offering was conducted on a
"best efforts" basis, primarily by directors and officers of the Company.
Effective January 5, 1994, the offering was terminated. A total of 93,129 shares
were sold at a price of $16.00 per share and an additional 6,438 shares were
issued at $16.00 per share in satisfaction of notes payable and related accrued
interest. Currently, there is no public market for the Series B Common Stock. As
previously discussed, the Company's proposed 1997 public offering did not occur.
During 1997, 1996 and 1995, the Company met its liquidity needs
primarily from borrowings from stockholders (see Note 4 of Notes to Financial
Statements). Management plans to meet the Company's liquidity needs during the
year ending September 30, 1998 with proceeds from the sale of convertible
debentures and public or private placement offerings of Common Stock. Management
plans to meet long-term liquidity needs primarily from revenues derived from
commercial contracts the Company hopes to obtain subsequent to successful
demonstrations of its Technologies, such as the Radford NitRem, New York City
NitRem and San Bernardino STORS demonstration projects.
6
<PAGE>
Recent Pronouncements of the Financial Accounting Standards Board
During 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", Statement No. 130, "Reporting Comprehensive Income",
and Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Statement No. 128, which is effective during the year ending
September 30, 1998, simplifies the calculation of earnings per share and
requires that all prior period earnings per share data be restated to conform
with the provisions of the Statement. Since the Company must use the
computational guidance contained in SAB 83 Topic 4D, adoption of this Statement
should have no effect on prior period loss per share data. Statement No. 130,
which is effective during the year ending September 30, 1999, establishes new
rules for the reporting and display of comprehensive income and its components.
Application of Statement No. 130 will not impact amounts previously reported for
net income or affect the comparability of previously issued financial
statements. Statement No. 131, which is effective during the year ending
September 30, 1999, changes the requirements for reporting segment information
in annual and interim financial statements. The industry segment approach under
Statement No. 14 will be replaced with a management approach of reporting
financial and descriptive information about operating segments.
Net Operating Losses
The Company has net operating loss carryforwards as of September 30,
1997, of approximately $5,500,000 which expire in the years 2003 through 2012.
The amount of net operating loss carried forward that can be used in any one
year will be limited by the applicable tax laws which are in effect at the time
such carry forward can be utilized. A valuation allowance of approximately
$2,125,000 has been established to offset any benefit from the net operating
loss carry forward as it cannot be determined when or if the Company will be
able to utilize the net operating losses. See Note 5 of Notes to Financial
Statements.
Impact of Inflation
Although inflation has slowed in recent years, it is still a factor in
the economy. Since the Company has no significant revenues, inflation primarily
affects the Company's travel costs and cost of outside services. It could also
affect the cost of constructing demonstration and full-scale facilities in the
future. The Company will consider the impact of inflation in its financing
plans.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Item 14 to this
report.
7
<PAGE>
ITEM 14.
EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a)
(1) and (2) Financial Statements and Financial Statement
Schedules. To be filed by Amendment, pursuant to
Rule 12b-25
1. Balance Sheets
September 30, 1997 and 1996.
2. Statements of Operations -- years ended September 30, 1997,
1996 and 1995 and cumulative during development stage through
September 30, 1997.
3. Statements of changes in stockholders'
equity (deficit) -- periods ended
September 30, 1988 through
September 30, 1997.
4. Statements of cash flows -- years ended September 30, 1997,
1996 and 1995 and cumulative during development stage through
September 30, 1997.
5. Notes to financial statements.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
Report of Independent Auditors
Board of Directors
ThermoEnergy Corporation
Little Rock, Arkansas
We have audited the accompanying balance sheets of ThermoEnergy Corporation,
formerly Innotek Corporation, (A Development Stage Company) as of September 30,
1997 and 1996, the related statements of operations and cash flows for each of
the three years in the period ended September 30, 1997 and for the period
cumulative during development stage through September 30, 1997, and the related
statements of changes in stockholders' equity (deficit) for each of the six
years in the period ended September 30, 1997. These financial statements are the
responsibility of the Company's
8
<PAGE>
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the balance sheets of the
Company as of September 30, 1991 and 1990, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the three years in the period ended September 30, 1991 and cumulative since
inception through September 30, 1991. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts cumulative during development stage through September 30,
1991 included in the statements of operations and cash flows cumulative during
development stage through September 30, 1997, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of ThermoEnergy Corporation (A Development Stage Company)
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1997
and for the period cumulative during development stage through September 30,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 9, the Company is in the
development stage with no significant revenues from operations, has incurred net
losses since inception, and will likely require substantial capital to
commercialize the Company's technologies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 9. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Kemp & Company
Little Rock, Arkansas
February 12, 1998
Independent Accountants' Report
Board of Directors
Innotek Corporation
Little Rock, Arkansas
We have audited the accompanying statements of changes in stockholders'
equity of INNOTEK CORPORATION (A Development Stage Company) for the years ended
September 30, 1991, 1990, and 1989 and the period from inception to September
30, 1988 and the statements of operations and cash flows for the cumulative
period from inception to September 30, 1991 (not presented herein). The
Company's financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the changes in stockholders' equity for each of the
years and period from inception to September 30, 1991, and the results of
operations and cash flows from inception to September 30, 1991, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company is in the development
stage with no significant revenues from operations, and will likely require
substantial capital to construct and operate a demonstration facility to
commercialize the technologies. These conditions raise substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Baird, Kurtz & Dobson
Little Rock, Arkansas
December 11, 1991
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
September 30,
1997 1996
---- ----
ASSETS
Cash - Total Current Assets $ 65,046 $ 62,333
Advances to officers (Note 6) 258,365 96,200
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<PAGE>
Accrued interest receivable - officers
(Note 6) 23,669 9,138
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (16,978) (14,147)
------------- -----------
2,831 5,662
-------------- -----------
$ 349,911 173,333
=========== ===========
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Accounts payable $ 778,712 $ 494,898
Accrued expenses:
Salaries 590,976 364,314
Interest - stockholders (Note 4) 92,893 57,903
Deferred compensation (Note 6) 233,516 215,460
Notes payable to stockholders (Note 4) 1,052,900 735,000
----------- -------------
Total Current Liabilities 2,748,997 1,867,575
----------- ------------
Commitments and contingencies (Notes 3, 4, 7, 10, 11 and 12):
Stockholders' equity (deficit) (Notes 7, 11 and 12): Preferred stock,
non-voting, $1 par value:
Authorized - 10,000,000 shares; none issued Common Stock, $.001 par value:
Series A Common Stock; Authorized - 10,000,000
shares; no shares issued and outstanding
Series B Common Stock; Authorized - 65,000,000
shares; issued: 1997 - 3,486,797 shares; 1996 - 3,241,201
shares; outstanding: 1997 - 3,402,968 shares; 1996 -
3,157,372 shares 3,487 3,241
Additional paid-in capital 4,334,864 3,843,918
Deficit accumulated during the development stage (6,737,437) (5,541,401)
----------- -----------
(2,399,086) (1,694,242)
----------- -----------
$ 349,911 $ 173,333
============ ============
</TABLE>
See notes to financial statements.
10
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Year Ended September 30,
September 30, 1997 1997 1996 1995
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative (Note 2) $ 5,014,698 $ 930,866 $ 423,959 $ 641,765
Payments under licenses (Note 3) 652,266 25,000 123,000
Travel and entertainment 918,607 167,937 96,405 114,576
------------- ------------ ---------- ----------
6,585,571 1,123,803 520,364 879,341
------------ ----------- --------- ----------
Loss From Operations (6,585,571) (1,123,803) (520,364) (879,341)
------------ ----------- --------- ----------
Other income (expense):
Interest income (Note 6) 76,634 15,849 6,942 2,391
Interest expense (Note 4) (228,500) (88,082) (38,199) (20,048)
------------- ------------ ---------- ----------
(151,866) (72,233) (31,257) (17,657)
------------- ------------ ---------- -----------
Net Loss $(6,737,437) $(1,196,036) $(551,621) $(896,998)
=========== ============ ========= =========
Per Common Share (Notes 1 and 7):
Loss From Operations $ (1.77) (.29) $ (.14) $ (.23)
Net Loss $ (1.81) (.31) $ (.15) $ (.24)
</TABLE>
See notes to financial statements.
11
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through September 30, 1997
<TABLE>
<CAPTION>
Deficit
Series Accumulated
B Additional During the
Common Paid-in Development
Stock Capital Stage Total
<S> <C> <C> <C> <C>
Issuance of stock, January 1988,
(2,205,762 shares at $.08
per share) $ 2,206 $ 178,094 $ $ 180,300
Net loss (290,483) (290,483)
------------ ---------------- --------- ---------
Balance (deficit),
September 30, 1988 2,206 178,094 (290,483) (110,183)
Conversion of $412,000 of
debentures and accrued
interest, September 1989
(306,335 shares) 306 456,695 457,001
Net loss (338,985) (338,985)
----------- ---------------- ---------- ---------
Balance (deficit),
September 30, 1989 2,512 634,789 (629,468) 7,833
Net loss (255,036) (255,036)
----------- --------------- ---------- ---------
Balance (deficit),
September 30, 1990 2,512 634,789 (884,504) (247,203)
Conversion of $63,000 of
unsecured debentures and
accrued interest at 10%,
March 1991, (44,286 shares) 44 70,813 70,857
Issuance of stock, May - June
1991, (387,880 shares:
366,630 at $1.60 per share;
21,250 shares at $.80 per
share) 388 603,219 603,607
Issuance of stock for interest,
June 1991, (1,375 shares at
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<PAGE>
$1.60 per share) 1 2,199 2,200
</TABLE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through September 30, 1997
<TABLE>
<CAPTION>
Deficit
Series Accumulated
B Additional During the
Common Paid-in Development
Stock Capital Stage Total
<S> <C> <C> <C> <C>
Issuance of stock for
expenses incurred by
stockholders, July 1991
(5,081 shares at $1.60 per share) $ 5 $ 8,124 $ $ 8,129
Net loss (670,179) (670,179)
----------- --------------- ----------- ---------
Balance (deficit), September 30,
1991 2,950 1,319,144 (1,554,683) (232,589)
Issuance of stock, October -
December 1991 (150,925
shares at $1.60 per share) 151 241,329 241,480
Shares purchased in rescission
offer (10,562 shares) (11) (16,888) (16,899)
Issuance of stock, public
offering, August - September
1992 (344 shares at $16.00 per
share) 1 5,499 5,500
Net loss (562,751) (562,751)
---------- ---------------- ----------- ---------
Balance (deficit), September 30,
1992 3,091 1,549,084 (2,117,434) (565,259)
Issuance of stock, public offering
October 1992 - September 1993
(92,785 shares at $16.00 per
share) 93 1,484,457 1,484,550
Issuance of stock for exercise
of stock options, May 1993
(2,500 shares at $1.60 per share) 3 3,997 4,000
</TABLE>
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<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through September 30, 1997
<TABLE>
<CAPTION>
Deficit
Series Accumulated
B Additional During the
Common Paid-in Development
Stock Capital Stage Total
<S> <C> <C> <C> <C>
Issuance of warrants to
stockholder $ $ 6,333 $ $ 6,333
Conversion of $103,000 of
notes payable to stockholders
and accrued interest, December
1992 (6,438 shares) 6 102,994 103,000
Issuance of stock for
consulting services, June
1993 (9,375 shares at
$16.00 per share) 9 149,991 150,000
Net loss (1,207,921) (1,207,921)
----------- --------------- ----------- ----------
Balance (deficit), September 30,
1993 3,202 3,296,856 (3,325,355) (25,297)
Issuance of warrants to
stockholders 226,000 226,000
Issuance of stock for exercise
of stock options, March 1994
(3,750 shares at $1.60 per share) 4 5,996 6,000
Issuance of stock for exercise
of warrants by stockholder,
August 1994 (3,677 shares at
$13.60 per share) 4 49,997 50,001
Net loss (767,427) (767,427)
----------- ---------------- ------------ -----------
Balance (deficit), September 30,
1994 3,210 3,578,849 (4,092,782) (510,723)
</TABLE>
14
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through September 30, 1997
<TABLE>
<CAPTION>
Deficit
Series Accumulated
B Additional During the
Common Paid-in Development
Stock Capital Stage Total
<S> <C> <C> <C> <C>
Issuance of warrants to
stockholders $ $ 9,760 $ $ 9,760
Issuance of stock, May 1995
(6,250 shares at $8.00 per
share) 6 49,994 50,000
Issuance of stock for
exercise of warrants by
stockholder, June 1995
(6,250 shares at $8.00 per
share) 6 49,994 50,000
Issuance of stock for expenses,
July 1995 (18,750 shares
at $8.00 per share) 19 149,981 150,000
Net loss (896,998) (896,998)
------------ ----------------- ------------- -------------
Balance (deficit),
September 30, 1995 3,241 3,838,578 (4,989,780) (1,147,961)
Issuance of warrants to
stockholders 5,340 5,340
Net loss (551,621) (551,621)
------------ ----------------- ------------- -------------
Balance (deficit),
September 30, 1996 3,241 3,843,918 (5,541,401) (1,694,242)
Issuance of stock, July 1997
(50,000 shares at $2.00 per
share) 50 99,950 100,000
Conversion of $338,100 of notes
payable to stockholders and accrued
interest, July 1997 (195,596 shares) 196 390,996 391,192
15
<PAGE>
Net loss (1,196,036) (1,196,036)
------------ ----------------- ----------- -----------
Balance (deficit), September 30, 1997 $3,487 $4,334,864 $(6,737,437) $(2,399,086)
====== ========== =========== ===========
</TABLE>
See notes to financial statements
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Year ended September 30,
September 30, 1997 1997 1996 1995
---------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(6,737,437) $(1,196,036) $(551,621) $(896,998)
Items not requiring
(providing) cash:
Depreciation 16,978 2,831 2,633 3,038
Expenses funded by Common
Stock issuance 596,279 150,000
Other 3,341 53,092
Changes in:
Advances to officers (457,348) (162,165) (34,000) (50,200)
Other receivables (23,669) (14,531) (6,942) (2,196)
Accounts payable 778,712 283,814 73,417 137,683
Accrued expenses 683,869 261,652 242,793 135,864
Deferred compensation 432,498 18,056 16,554 16,000
------------- ------------- ----------- -----------
Net cash used in
operating activities (4,706,777) (753,287) (257,166) (506,809)
------------ ------------ ---------- ----------
Investing activities:
Purchases of fixed assets (19,808)
Other (3,341)
Net cash used in
investing activities (23,149)
Financing activities:
Proceeds from issuance of
Common Stock and warrants 2,720,562 100,000 5,340 109,760
Proceeds from notes payable 1,645,609 656,000 261,635 473,365
Proceeds from convertible debentures 475,000
Payments on notes payable (154,609)
Other 108,410 (50,000)
------------- ----------------- --------------- -----------
Net cash provided by
financing activities 4,794,972 756,000 266,975 533,125
------------ ---------- ---------- ----------
Increase in cash 65,046 2,713 9,809 26,316
Cash, beginning of period 0 62,333 52,524 26,208
----------------- ----------- ----------- -----------
Cash, end of period $ 65,046 $ 65,046 $ 62,333 $ 52,524
============= ========== ========== ==========
</TABLE>
16
<PAGE>
See notes to financial statements.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 1: Organization and summary of significant accounting policies
Nature of business
ThermoEnergy Corporation ("the Company"), formerly Innotek Corporation (see
Note 7), was incorporated in January 1988, for the purpose of marketing and
developing certain environmental technologies. These technologies include two
chemical processes known as Sludge-to-Oil Reactor System, or STORS, and Nitrogen
Removal, or NitRem, both of which were developed through a research project at
Battelle Memorial Institute Pacific Northwest Laboratories (Battelle) in
Richland, Washington. A third technology, a dual-shell pressure balance vessel,
known as the Dual Shell Reactor ("DSR"), is the unique reactor equipment in
which the STORS and NitRem chemistries are conducted. STORS, NitRem and DSR are
referred to collectively as the "Technologies".
The Company was formed for the transfer of technology from American Fuel
and Power Corporation ("AFP") in 1988 to continue development of the STORS
technology under assignment of the license from AFP, the original licensee.
Management of the AFP division developing the STORS technology became management
of the Company concurrent with the terms of the transfer. The license was
assigned to the Company under an agreement requiring that 70 percent of the
Company's initial outstanding Common Stock, approximately 1,543,750 shares (as
restated for the two reverse stock splits discussed in Note 7), be issued to AFP
for distribution to AFP stockholders.
The Company is totally dependent upon the engineering, laboratory, research
and development skills and expertise of Battelle to supervise the design and
implementation of a STORS or NitRem demonstration facility, for the conducting
of laboratory analysis and characterization of various waste streams to be
processed through a STORS or NitRem unit, to collect and analyze process
equipment and performance data generated during a STORS and/or NitRem
demonstration test, and for on-going research and development of the STORS and
NitRem processes. The Company owns the worldwide licensing rights to both STORS
and NitRem, except for STORS in Japan, pursuant to exclusive license agreements
with Battelle. The Technologies are currently in the demonstration phase. No
commercial contracts have been awarded to the Company.
17
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 1: Organization and summary of significant accounting policies (continued)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Property and equipment
Property and equipment are depreciated over the estimated useful life of
each asset. Depreciation is computed primarily using accelerated methods.
Loss per common share
Loss per common share is computed by dividing the net loss for the period
by the weighted average number of shares outstanding during the period after
giving effect to the reverse stock splits described in Note 7. Stock options and
warrants issued within twelve months of the initial public offering filing date
(February 27, 1992,) have been treated as outstanding for all periods presented
in accordance with SAB 83 Topic 4D.
The weighted average number of common shares used in the loss per share
computations were 3,844,636, 3,799,555, 3,776,113, and 3,713,784 shares for the
years ended September 30, 1997, 1996 and 1995 and cumulative since inception
through September 30, 1997, respectively.
Future application of accounting standards
During 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", Statement No. 130, "Reporting Comprehensive Income",
and Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Statement No. 128, which is effective during the year ending
September 30, 1998, simplifies the calculation of earnings per share and
requires that all prior period earnings per share data be restated to conform
with the provisions of the Statement. Since the Company must use the
computational guidance contained in SAB 83 Topic 4D, adoption of this Statement
should have no effect on prior period
18
<PAGE>
loss per share data. Statement No. 130, which is effective during the year
ending September 30, 1999, establishes new rules for the reporting and display
of comprehensive income and its components. Application of Statement No. 130
will not impact amounts previously reported for net income or affect the
comparability of previously issued financial statements. Statement No. 131,
which is effective during the year ending September 30, 1999,
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 1: Organization and summary of significant accounting policies (continued)
Future application of accounting standards (continued)
changes the requirements for reporting segment information in annual and interim
financial statements. The industry segment approach under Statement No. 14 will
be replaced with a management approach of reporting financial and descriptive
information about operating segments.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the reporting format used for the 1997 financial
statements.
Note 2: Government contract
A cost reimbursement Letter Subcontract was awarded to the Company in
connection with a red water waste project with the Department of Defense. The
terms of the contract provided for the reimbursement of certain direct costs,
including labor, associated with the Company's participation in the project.
During the years ended September 30, 1997, 1996 and 1995, the Company was
reimbursed for approximately $8,200, $4,000, and $20,000, respectively, of
general and administrative expenses incurred in each year in connection with the
project. The reimbursements are accounted for as reductions of the related
expenses in the Statements of Operations.
Note 3: License and marketing agreements
The license agreements with Battelle permit the Company to commercialize
the Technologies with respect to municipal and hazardous waste disposal.
Payments under the terms of the license agreements have been charged to
operations.
19
<PAGE>
The license agreements provide for payment of royalties to Battelle from
revenues generated using the Technologies. The Company has not been required to
make royalty payments to Battelle under the agreements since no revenues have
been generated from the use of the Technologies.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 3: License and marketing agreements (continued)
The Company entered into a memorandum of understanding with Foster Wheeler
and Mitsui & Co. (U.S.A.) Inc. in September 1996 to pursue various water and
waste water projects in Brazil, Mexico and Peru. In April 1996, the Company
entered into a teaming agreement with Roy F. Weston, Inc. to jointly pursue both
municipal and governmental projects using the Technologies. In March 1996, the
Company executed a marketing agreement with a Georgia corporation for the
purpose of marketing the Technologies in Georgia and Florida (see Note 7). The
Company entered into a ten-year worldwide marketing agreement with Foster
Wheeler USA Corporation in September 1994, for the purpose of marketing,
developing and commercializing the Technologies. The agreement provides for
three-year extensions after the initial period and conditions for changing or
terminating the arrangement.
The Company entered into the agreements referred to above as part of its
business strategy of creating collaborative working relationships with
established engineering and environmental companies. Management believes that
such relationships will limit the Company's participation in future projects to
providing the Technologies and technical support relevant to the design of
STORS, NitRem and/or the DSR portion of such projects. The Company may be
required to bear a portion of the operational costs of such collaborative
efforts. Accordingly, the profitability of future projects and the Company's
financial success may be largely dependent upon the abilities and financial
resources of the parties collaborating with the Company.
Note 4: Notes payable to stockholders
Notes payable to stockholders consisted of the following at September 30:
1997 1996
---- ----
6.63% unsecured notes $ 396,900 $735,000
10% unsecured notes 656,000
------------ -----------
20
<PAGE>
$1,052,900 $735,000
========== ========
The 6.63% notes mature four years from the date of issuance. The notes
provide that the principal balances and accrued interest will become immediately
due and payable at the closing of the next public offering of securities of the
Company should that event occur prior to the stated maturity dates. In addition,
if the Company obtains financing from a third party on terms more favorable to
the third party than the terms of the notes to the stockholders, the Company and
the stockholders may agree to modify the notes to the stockholders to reflect
the more favorable terms. The notes payable have been classified as current
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 4: Notes payable to stockholders (continued)
liabilities since management anticipates that they will be paid off within
one year. During 1997, the Company converted $338,100 of the 6.63% notes and
related accrued interest of $53,092 to 195,576 shares of Series B Common Stock
(see Note 7).
During the year ended September 30, 1997, the Board of Directors authorized
the Company to borrow from stockholders up to $700,000 to fund operations
through the completion of a proposed public offering (see Note 7). The terms of
the 10% notes provided for maturities six months from the date of execution or
the closing of the proposed public offering, whichever was sooner. The maturity
dates of $516,000 of the outstanding notes payable were extended to June 1,
1998. The notes also provide for the issuance of shares of Series B Common Stock
to holders of the notes in the ratio of one share for each $10 loaned to the
Company within six months from the date of execution of the notes or extensions
thereof or the closing of the proposed public offering, whichever is sooner (see
Note 7).
Notes payable of $30,000, $60,000 and $50,000 matured on October 25, 1997,
December 1, 1997 and February 1, 1998, respectively. The holders of these 10%
notes did not execute modification agreements extending the maturity of the
notes past those dates. During February 1998, the stockholders agreed to accept
Series 98, 15% Convertible Debentures (see Note 12) in exchange for the amounts
owed to them by the Company.
Interest expense on notes payable to stockholders amounted to $88,082,
$38,199 and $19,704 for the years ended September 30, 1997, 1996 and 1995,
respectively. Interest paid during the year ended September 30, 1995 amounted to
$344 . No interest was paid during the years ended September 30, 1997 and 1996.
Based on the borrowing rates currently available to the Company for loans
with similar terms, the fair value of notes payable approximated the book value
of such borrowings at September 30, 1997.
21
<PAGE>
Note 5: Income taxes
The Company uses the liability method of accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109. The Statement
provides that the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes are reflected in deferred taxes. A
valuation allowance equal to the total of the Company's deferred tax assets has
been recognized for financial reporting purposes. The net changes in the
valuation allowance during the years ended September 30, 1997 and 1996 were
increases of approximately $447,000 and $206,000, respectively. The Company's
deferred tax liabilities are not significant.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 5: Income taxes
Significant components of the Company's deferred tax assets as of September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 2,125,000 $ 1,685,000
Deferred compensation 122,000 115,000
Capitalized costs for income tax purposes 78,000 78,000
Other 35,000 35,000
------------- -------------
2,360,000 1,913,000
Valuation allowance for deferred tax assets (2,360,000) (1,913,000)
----------- -----------
$ 0 $ 0
================= ================
</TABLE>
A reconciliation of income tax expense (credit) at the statutory rate to income
tax expense at the Company's effective rate is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed at the statutory
rate (34%) $(406,652) $(187,551) $(304,979)
Increase in taxes resulting from
net operating loss benefit
not recognized 406,652 187,551 304,979
---------- ---------- ---------
Provision for income taxes $ 0 $ 0 $ 0
=============== ============== ==============
</TABLE>
22
<PAGE>
The Company has net operating loss carryforwards at September 30, 1997 of
approximately $5,500,000 which expire in 2003 through 2012.
Note 6: Related party transactions
During the years ended September 30, 1997, 1996 and 1995 the Company
advanced an aggregate of $162,165, $34,000 and $62,200 (net of $10,000 of
repayments), respectively, to its officers. The advances outstanding are due on
demand with interest at the average prime rate of a local bank. Interest income
on the advances amounted to $14,531, $6,942 and $2,196 for the years ended
September 30, 1997, 1996 and 1995, respectively.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 6: Related party transactions (continued)
During the year ended September 30, 1995, an officer advanced an aggregate
of $20,000 to the Company. The advances, which did not bear interest, were
repaid, prior to September 30, 1995. See Notes 4, 7 and 12 for information
concerning notes payable and other transactions with stockholders.
During the years ended September 30, 1997, 1996 and 1995, the Company
incurred expenses for support services by Battelle of approximately $72,000,
$5,000 and $59,000, respectively. See Note 7 for information concerning the
issuance of the Company's Common Stock to Battelle during 1995.
During 1991, the Board of Directors adopted a resolution specifying amounts
of deferred compensation for the two officers of the Company for services
rendered prior to September 30, 1991. This resolution provides that amounts due
from officers may be offset against accrued deferred compensation. Management
anticipates that the outstanding balance of advances to officers will be offset
against accrued deferred compensation upon completion of a public offering or
private placement of securities as more fully described in Note 9. The Board of
Directors also approved employment agreements with the officers effective
January 1, 1992 specifying minimum levels of compensation and terms of
employment. The agreements provide a minimum annual salary of $72,000 to each of
the individuals with 10% annual increases until the salary for each individual
reaches $175,000. The agreements provide for incentive compensation in addition
to the above described salary, not to exceed 50% of such salary determined in
accordance with a formula to be established annually in good faith by a
committee of the Board of Directors. Any amounts earned as salary and incentive
compensation but not paid by the Company will accrue interest until payment.
Deferred incentive compensation
23
<PAGE>
aggregating $50,000 has been approved by the Board of Directors. No incentive
compensation was earned during the years ended September 30, 1997, 1996 and
1995. Compensation expense aggregating $18,056, $16,678 and $16,000 was accrued
during the years ended September 30, 1997, 1996 and 1995, respectively, pursuant
to the interest provisions of the compensation arrangements.
In addition to the compensation described above, the agreements specify
that the Company will provide $250,000 of life insurance, financial planning and
tax preparation, annual medical examinations and membership dues in a social or
business club. Also, should the individuals' employment terminate within one
year of a change in control, the agreements require a payment of 2.99 times
annual salary.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 7: Common Stock
During 1994 and 1996, the Company's stockholders approved four-to-one
reverse stock splits of the Company's Common Stock. These reverse stock splits
were implemented on March 5, 1997. All numbers of Common Stock shares and per
share data have been restated to reflect the reverse stock splits.
During October 1996, the Board of Directors of the Company approved the
execution of a nonbinding letter of intent with a NASD member broker-dealer to
act as managing underwriter in connection with a proposed public offering. In
order to comply with the pre-conditions set forth in the letter of intent, the
Board of Directors approved a resolution for a four-to-one reverse stock split
of the Company's Common Stock in addition to the four-to-one reverse stock split
approved in 1994. The Board of Directors also approved amendments to the
Company's Articles of Incorporation as follows: (1) To authorize the designation
of 10,000,000 shares as Series A Common Stock and 65,000,000 shares as Series B
Common Stock, which are convertible to Series A Common Stock commencing 12
months after the effective date of a registration statement for the proposed
offering subject to certain conditions, from the 75,000,000 shares of $0.001 par
value Common Stock authorized originally under the Company's Articles of
Incorporation; (2) To authorize the designation of and reclassification of all
shares of Common Stock issued prior to the adoption of the proposed amendments
to the Articles of Incorporation to Series B Common Stock; and (3) To change the
name of the Company from Innotek Corporation to ThermoEnergy Corporation.
Stockholders' approval of these matters was obtained on December 12, 1996 during
a special stockholders' meeting.
24
<PAGE>
During October 1997, the broker-dealer informed the Company that it would
be unable to complete the proposed public offering. The Company terminated its
relationship with the broker-dealer and filed a complaint with NASD against the
firm. Deferred public offering expenses of approximately $282,000 were expensed
as of September 30, 1997 as a result of the failure of the public offering.
During May 1995, a stockholder purchased 6,250 shares of Common Stock at
$8.00 per share and warrants for 6,250 shares of Common Stock (exercise price of
$8.00 per share) at a price equal to the par value of the Company's Common
Stock. The stockholder exercised these warrants during June 1995.
During the year ended September 30, 1995, the Board of Directors approved
the issuance of 18,750 shares of the Company's Common Stock, at $8.00 per share
(based on the price for the May 1995 sale of the Company's Common Stock), to
Battelle in lieu of a cash payment for $75,000 of license fees and $75,000 of
expenses.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 7: Common Stock (continued)
During the year ended September 30, 1994, the Company issued Common Stock
warrants, at prices ranging from $.40 to $3.20 per warrant, to stockholders for
289,375 shares of the Company's Common Stock. The Company issued Common Stock
warrants, at a price equal to par value of the Company's Common Stock, to a
stockholder for 395,845 shares during the year ended September 30, 1993. The
related Warrant Agreements provide for an exercise period of 10 years from the
date of issuance at prices ranging from $12.80 to $14.40 per share, subject to
adjustment in the event that the Company issues shares of Common Stock at a
price per share which is less than the warrant price or the current market value
of such shares. The exercise prices for the warrants were adjusted to prices
ranging from $2.00 to $8.00 during the year ended September 30, 1995 due to the
sale of Common Stock in May 1995 for $8.00 per share. During the year ended
September 30, 1997, a stockholder cancelled warrants for 195,596 shares of
Common Stock at an exercise price of $8.00 per share in connection with the
conversion of notes payable to Common Stock described below. During the year
ended September 30, 1994, a stockholder exercised warrants for 3,677 shares at
$13.60 per share.
In connection with the issuance of 6.63% notes payable to stockholders
described in Note 4, the Company sold warrants to stockholders for 187,500
shares of the Company's Common Stock. The related Warrant Agreements provide for
an exercise period of 4 years from the date of issuance at a price of $2.00 per
share, as adjusted per the terms of the Warrant Agreements.
25
<PAGE>
During the fourth quarter of fiscal 1997, the Company and a stockholder
agreed to convert $338,100 of 6.63% notes payable and related accrued interest
of $53,092 to 195,596 shares of Series B Common Stock. The stockholder also
purchased 50,000 shares of Series B Common Stock at $2.00 per share.
An agreement with Centerpoint Power Corporation (CPC) specifies
compensation at an hourly rate plus expenses for services rendered and grants
CPC stock warrants for 701,875 shares of Common Stock (which were registered in
connection with the Company's public offering), exercisable at $.16 cent per
share, if CPC obtains public funding for a demonstration facility or obtains
capital financing from an investor entity. The agreement expires in April 2001.
No payments have been made to CPC under the terms of the agreement and CPC has
not obtained funding which obligates the Company to compensate CPC under the
agreement.
The marketing agreement with a Georgia corporation discussed in Note 3
provides for the issuance to the corporation of 62,500 warrants for 62,500
shares of the Company's Common Stock exercisable within 10 years from the date
of granting the warrants at a price of $2.00 per share within 90 days upon the
signing of an agreement with a customer to purchase or utilize the Technologies.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 7: Common Stock (continued)
In connection with the assignment of the license for the STORS technology
from AFP, 1,543,750 shares of the Company's Common Stock were issued to AFP. The
shares were placed in a Voting Trust and distributed to the AFP stockholders.
The Company owns 83,829 shares of its Common Stock previously included in the
Voting Trust pursuant to a settlement agreement with a former AFP stockholder.
These treasury shares have a zero cost basis.
During September 1997, the stockholders approved the 1997 Stock Option Plan
(the "Plan") which provides for incentive and non-incentive stock options for an
aggregate of 750,000 shares of Series B Common Stock for key employees and
non-employee Directors of the Company. The Plan, which terminates in May 2007 or
sooner if all of the options granted under the Plan have been exercised,
provides that the exercise price of each option must be at least equal to 100%
of the fair market value of the Common Stock on the date of grant. The Plan
contains automatic grant provisions for non-employee Directors of the Company.
At September 30, 1997, the Company was committed to issue options under the
automatic grant provisions for 5,000 shares of Series B Common Stock.
26
<PAGE>
At September 30, 1997, approximately 2,254,000 shares of Series B Common
Stock were reserved for future issuance under warrant agreements, the 1997 Stock
Option Plan and the terms of the 10% notes payable to stockholders.
Note 8: Employee stock ownership plan
The Company has adopted an Employee Stock Ownership Plan. However, as of
September 30, 1997, the Plan had not been funded nor submitted to the Internal
Revenue Service for approval.
Note 9: Management's consideration of going concern matters
The Company has incurred net losses since inception. Additionally,
substantial capital will likely be required to commercialize the Technologies.
The financial statements have been prepared assuming the Company will continue
as a going concern, realizing assets and liquidating liabilities in the ordinary
course of business and do not reflect any adjustments that might result from the
outcome of the aforementioned uncertainties. Management is considering several
alternatives for mitigating these conditions during the next year, including,
the sale of stock pursuant to a public or private placement offering, sales of
warrants for Common Stock and convertible debentures and fees from projects
involving the Technologies. Additional funds may be necessary in the event the
Company takes on other projects or makes an acquisition of another company to
facilitate the Company's commercial demonstration of the Technologies.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 9: Management's consideration of going concern matters (continued)
If the Company is unable to enter into commercially attractive
collaborative working arrangements for one or more commercial or industrial
projects, the Company may sub-license the Technologies to third parties.
The overall goal of the Company is to successfully complete a demonstration
project for STORS and/or NitRem. Management plans to utilize any demonstration
facilities to expand the visibility of the Company in municipal, industrial,
Department of Defense and Department of Energy markets. A successful
demonstration project is the single most important business factor in
implementation of the Company's plan of operations.
Management has determined that the financial success of the Company may be
largely dependent upon the ability and financial resources of established third
parties collaborating with the Company with respect to projects involving the
Technologies. As described more fully in Note 3, the Company has entered into
marketing agreements with third parties in order to pursue this business
strategy.
27
<PAGE>
Note 10: Commitments
On July 26, 1996, the Company signed an agreement with the City of New York
which allows the Company to demonstrate certain services and equipment. The
Company agreed to provide the test equipment at no cost to the City of New York
for a period of not less than 150 consecutive calendar days nor more than 200
consecutive calendar days from the start-up of the demonstration. The Company
will provide the technology and, in conjunction with Battelle, assist in the
design, engineering and operation of the New York nitrogen removal demonstration
facility. Foster Wheeler will finance, design, build and manage the overall
demonstration project and will jointly participate in a large-scale commercial
nitrogen removal project in the event that New York City elects to use the
technology.
Note 11: Executive Bonus Plan
On January 3, 1997, the Company's Board of Directors established a
five-year Executive Bonus Plan (the "Bonus Plan") to reward executive officers
and other key employees based upon the Company achieving certain performance
levels. Under the Bonus Plan, commencing with the Company's 1997 fiscal year and
for each of the four fiscal years thereafter, the Company will have discretion
to award bonuses in an aggregate amount in each fiscal year equal to 1% of the
Company's net sales revenues for each fiscal year, provided and on condition
that the Company achieves a net profit before taxes of not less that 5% of net
sales but less that 15% of net sales.
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 11: Executive Bonus Plan (continued)
The Board of Directors approved bonus payment percentages for certain
individuals for fiscal 1997. In the future, the Compensation Committee of the
Board of Directors of the Company will determine the allocable amounts or
percentages of the bonus pool which may be paid annually to participants.
Note 12: Subsequent events
During November 1997, the Company executed a 10% note payable to a
stockholder for $20,000. The Company is committed to issued 2,000 shares of
Series B Common Stock to the holder of the note.
During January 1998, the Company's Board of Directors approved the issuance
of up to $1,000,000 of Series 98, 15% Convertible Debentures, due January 15,
2003. Debentures with
28
<PAGE>
an aggregate principal balance of $300,000 were sold for cash in January 1998.
Debentures with an aggregate principal balance of $156,000 were issued to
stockholders during February 1998 in exchange for the 10% notes and related
accrued interest due to them by the Company (see Note 4). The holders of the
Debentures can convert the principal amount and accrued interest into shares of
Series B Common Stock at the conversion price of $2.00 per share at any time
prior to the maturity date.
(a)(3) Exhibits.
Number assigned
in regulation
S-K, Item 601 Description of Exhibit
27.1 Financial Data Schedule (to be filed by amendment pursuant
to Rule 12b-25).
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) 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:
March 3, 1998 THERMOENERGY CORPORATION
By: /s/ P. L. Montesi
P. L. Montesi
President, Chief Operating Officer,
Director and Principal Financial Officer
29
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOR THERMOENERGY CORPORATION FOR THE YEAR
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000884504
<NAME> THERMOENERGY CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 65,046
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,046
<PP&E> 19,809
<DEPRECIATION> (16,978)
<TOTAL-ASSETS> 349,911
<CURRENT-LIABILITIES> 2,748,997
<BONDS> 0
0
0
<COMMON> 3,486,797
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 349,911
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,123,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,082
<INCOME-PRETAX> (1,196,036)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,196,036)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
