FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_____________
COMMISSION FILE NUMBER 33-46104-FW
THERMOENERGY CORPORATION
(Exact name of registrant 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) (Zip Code)
(501) 376-6477
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 each of the issuer's classes of common
stock, as of June 30, 2000:
3,811,791 shares of Common Stock, par value $.001 per share
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Report of Independent Accountants
Stockholders and Board of Directors
ThermoEnergy Corporation
We have reviewed the accompanying condensed balance sheet of ThermoEnergy
Corporation as of June 30, 2000, and the related condensed statements of
operations and cash flows for the six-month and three-month periods ended June
30, 2000 and 1999, and for the period cumulative during development stage
through June 30, 2000, and the related condensed statements of changes in
stockholders' equity (deficit) for the periods ended September 30, 1988 through
June 30, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed for the full
year with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of ThermoEnergy Corporation as of December 31,
1999, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended and for the period cumulative during development
stage through December 31, 1999, not presented herein, and in our report dated
March 3, 2000, we expressed an opinion on those financial statements which
contained an explanatory paragraph relating to the Company's ability to continue
as a going concern. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1999, is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
/s/ Kemp & Company
Little Rock, Arkansas
August 3, 2000
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
June 30, December 31,
2000 1999
---- ----
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
Cash - Total Current Assets $ 202,735 $ 101,091
Advances to officers (Note 7) 21,000 598,015
Accrued interest receivable - officers (Note 7) 80 98,930
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (19,809) (19,809)
----------- -----------
- -
----------- -----------
$ 223,815 $ 798,036
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 258,334 $ 661,176
Accrued interest payable - primarily to related parties 613,667 414,425
Deferred compensation (Note 7) 108,072 1,660,695
Notes payable to stockholders (Note 5) 144,035 178,735
----------- -----------
Total Current Liabilities 1,124,108 2,915,031
Convertible Debentures (Notes 2, 4 and 7) 4,139,723 2,199,379
----------- -----------
Total Liabilities 5,263,831 5,114,410
Stockholders' equity (deficit) (Notes 3, 4 and 6):
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; June 30, 2000: issued - 3,895,620 shares; outstanding -
3,811,791 shares; December 31, 1999: issued - 3,883,618
shares; outstanding - 3,799,789 shares 3,896 3,884
Additional paid-in capital 4,682,789 4,658,797
Deficit accumulated during the development stage (9,726,701) (8,979,055)
----------- -----------
(5,040,016) (4,316,374)
----------- -----------
$ 223,815 $ 798,036
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
During
Development
Stage Through Six Months Ended Three Months Ended
June 30, June 30, June 30,
2000 2000 1999 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
Operating Expenses:
<S> <C> <C> <C> <C> <C>
General and administrative $ 7,209,185 $ 448,395 $ 535,642 $ 225,599 $ 356,471
License and royalties fees 842,266 45,000 67,500 22,500 32,500
Travel and entertainment 1,272,639 94,309 75,094 49,922 31,678
--------- ------ ------ ------ ------
9,324,090 587,704 678,236 298,021 420,649
--------- ------- ------- ------- -------
Loss From Operations (9,324,090) (587,704) (678,236) (298,021) (420,649)
---------- -------- -------- -------- --------
Other Income (Expense)
Interest income 184,570 22,877 18,791 8,860 10,035
Gain on settlement of lawsuit
(Note 6) 317,423 23,644 243,779 243,779
Other 49,550 49,550 49,550
Interest expense (954,087) (206,463) (120,848) (113,740) (56,452)
-------- -------- -------- -------- -------
(402,544) (159,942) 191,272 (104,880) 246,912
-------- -------- ------- -------- -------
Net Loss $(9,726,634) $ (747,646) $ (486,964) $ (402,901) $ (173,737)
=========== =========== =========== =========== ===========
Basic and Diluted
Per Common Share (Note 4)
Loss From Operations $ (2.45) $ (0.13) $ (0.16) $ (0.07) $ (0.10)
Net Loss $ (2.56) $ (0.17) $ (0.12) $ (0.09) $ (0.04)
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through December 31, 1999
and the Six Months Ended June 30, 2000 (Unaudited)
Deficit
Accumulated
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 $1.60 per share) 1 2,199 2,200
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) CONTINUED Periods Ended September 30, 1988 Through
December 31, 1999 and the Six Months Ended
June 30, 2000 (Unaudited)
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) CONTINUED Periods Ended September 30, 1988 Through
December 31, 1999 and the Six Months Ended
June 30, 2000 (Unaudited)
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
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
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)
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)
----- --------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 1999
and the Six Months Ended June 30, 2000 (Unaudited)
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
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
Net loss (1,196,036) (1,196,036)
----- --------- ---------- ----------
Balance (deficit), September 30, 1997 3,487 4,334,864 (6,737,437) (2,399,086)
Net loss (797,099) (797,099)
----- --------- ---------- ----------
Balance (deficit), September 30, 1998 3,487 4,334,864 (7,534,536) (3,196,185)
Net loss (243,660) (243,660)
----- --------- ---------- ----------
Balance (deficit), December 31, 1998 3,487 4,334,864 (7,778,196) (3,439,845)
Issuance of stock in connection with 10%
notes payable to stockholders, January
1999 (67,600 shares at par value) 67 (67)
Conversion of $238,165 of notes payable to
stockholders and accrued interest, various
months during 1999 (147,602 shares) 148 295,056 295,204
Issuance of stock for expenses, August
1999 (181,619 shares at $.16 per share) 182 28,877 29,059
Net loss (1,200,792) (1,200,792)
----- --------- ---------- ----------
Balance (deficit), December 31, 1999 3,884 4,658,797 (8,979,055) (4,316,374)
Issuance of stock for exercise of warrants
by stockholder, February 2000
(2,500 shares at $2.00 per share) 2 4,998 5,000
Conversion of $14,700 of notes payable
to stockholders and accrued interest,
April 2000 (9,502 shares) 10 18,994 19,004
Net loss (747,646) (747,646)
----- --------- ---------- ----------
Balance (deficit), June 30, 2000 $ 3,896 $4,682,789 $(9,726,701) $(5,040,016)
======= ========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
During
Development
Stage Through Six Months Ended June 30,
June 30, 2000 2000 1999
------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net loss $(9,726,634) $(747,646) $(486,964)
Items not requiring
(providing) cash:
Depreciation 19,809
Expenses funded by Common
Stock issuance 625,338
Other (Note 6) (314,082) (23,644) (218,779)
Changes in:
Advances to officers (880,998) (84,000) (84,000)
Other receivables (121,032) (22,102) (17,984)
Accounts payable 815,384 24,585 211,359
Accrued expenses 806,683 206,463 120,849
Deferred compensation 2,089,021 229,344 185,795
--------- ------- -------
Net cash used in
operating activities (6,686,511) (417,000) (289,724)
--------- ------- -------
Investing activities:
Purchase of fixed assets (19,808)
Other 314,082 23,644 218,779
--------- ------- -------
Net cash provided by
investing activities 294,274 23,644 218,779
--------- ------- -------
Financing activities:
Proceeds from issuance of
Common Stock and warrants 2,725,562 5,000
Proceeds from notes payable 1,665,609
Proceeds from convertible debentures 2,250,000 490,000 369,000
Payments on notes payable (154,609)
Other 108,410
--------- -------
Net cash provided by
financing activities 6,594,972 495,000 369,000
--------- ------- -------
Increase in cash 202,735 101,644 298,055
Cash, beginning of period 0 101,091 113,220
--------- ------- -------
Cash, end of period $ 202,735 $ 202,735 $ 411,275
=========== ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 2000
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.
NOTE 2: CONVERTIBLE DEBENTURES
During February 2000, the Company's Board of Directors approved the issuance of
up to $7,500,000 (an increase of $5,000,000 from the amount previously
authorized) of the Series 98, 15% Convertible Debentures, due January 15, 2003.
The Company issued $1,940,344 of such Debentures ($490,000 for cash, $427,427 in
satisfaction of accounts payable balances, $22,917 in satisfaction of a 10% note
payable to a stockholder and $1,000,000 in satisfaction of deferred compensation
balances, as more fully described in Note 7) during the six months ended June
30, 2000.
NOTE 3: COMMON STOCK
During 2000, a stockholder exercised warrants to purchase 2,500 shares of Series
B Common Stock at $2.00 per share and the Company issued 9,502 shares to holders
of 6.63% notes payable to stockholders which had matured. During February 2000,
the Board of Directors awarded 100,000 non-qualified stock options to purchase
Series B Common Stock to the Company's Executive President and Senior Vice
President of Corporate Technology. The options expire in five years and are
exercisable at $2.00 per share. During March 2000, the Board of Directors
awarded 250,000 non-qualified stock options to purchase Series B Common Stock to
both the Chief Executive Officer and the President of the Company. The options
expire in five years and are exercisable at $2.00 per share. (See Note 6.)
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 2000
NOTE 4: 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, adjusted for
stock options and warrants issued within twelve months of the Company's initial
public offering filing date (February 27, 1992) which are treated as outstanding
for all periods presented. The adjusted weighted average number of common shares
used in the basic and diluted loss per share computations were 3,806,179 shares
for the period cumulative since inception through June 30, 2000, 4,449,000 and
4,133,272 shares for the six-month periods ended June 30, 2000 and 1999,
respectively, and 4,454,276 and 4,159,110 shares for the three-month periods
ended June 30, 2000 and 1999, respectively.
Warrants to purchase approximately 671,000 shares of Series B Common Stock,
stock options awarded to officers for 300,000 shares of Series B Common Stock
and stock options for up to 750,000 shares of Series B Common Stock under the
1997 Stock Option Plan, were not included in the computation of diluted loss per
share since the effect would be antidilutive. At March 31, 2000, the Company had
issued $2,516,756 of 15% Convertible Debentures, due January 15, 2003. 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.
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
The Company has incurred net losses since inception and will likely require
substantial capital to continue commercialization of 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. The Company
is authorized to issue up to $7,500,000 of Series 98 Convertible Debentures and
to issue Series B Common Stock to the holders of the remaining 6.63% notes
payable to stockholders ($144,035 at June 30, 2000) upon maturity. The sale of
stock pursuant to private placement or public offerings and fees from projects
involving the Technologies are other alternatives management is pursuing.
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. 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.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 2000
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
(CONTINUED)
During January 2000, the Company filed a patent application for the ThermoEnergy
Corporation Integrated Power Systems ("TIPS") technology, a clean energy process
for converting fossil fuels to energy without air emissions. Management
anticipates that the Company will rely on its own resources and that of
strategic partners in the energy business to develop TIPS.
The overall goal of the Company is to successfully complete a demonstration
project for the Technologies. 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. The Company has entered into agreements with third parties in
order to pursue this business strategy.
NOTE 6: COMMITMENTS AND CONTINGENCIES
During 1998, the Company filed a lawsuit seeking compensatory and punitive
damages from the broker-dealer involved in the Company's 1997 failed public
offering. During 1999, the Company and the broker-dealer entered into a release
and settlement agreement. In connection with this agreement, the Company
received $75,000 in cash, 50,000 shares of common stock of the parent company of
the broker-dealer (the "Stock"), and 20,000 warrants to purchase shares of the
Stock at a price of $4.00 per share for a period of five years from the date of
the agreement. The Company sold all 50,000 shares of the Stock during 1999 and
exercised warrants for 5,000 shares of the Stock which were sold during 1999.
During January 2000, the Company exercised the remaining warrants for 15,000
shares of the Stock which were sold simultaneously upon the exercise of the
warrants. A gain of $23,644 was realized in connection with this transaction.
At the annual meeting of stockholders held on June 27, 2000, approval was
obtained to reclassify all of the authorized and outstanding shares of Common
Stock (currently designated as Series A and Series B) to a single class of
Common Stock. The transfer of the new shares to stockholders has not been
completed as of the date of this report.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 2000
NOTE 7: DEFFERED COMPENSATION
During 1991, the Board of Directors adopted a resolution specifying amounts of
deferred compensation for the Company's Chief Executive Officer and the
Company's President for services rendered prior to September 30, 1991. 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 that any amounts earned as salary and
incentive compensation but not paid by the Company are classified as deferred
compensation and accrue interest (which is added to the deferred compensation
balance) based on the prime rate of a local bank until payment. The Board
resolution also provides that amounts due from officers may be offset against
accrued deferred compensation.
On May 23, 2000, the Company issued $1,000,000 of Series 98, 15% Convertible
Debentures to the officers described above in partial satisfaction of the the
outstanding net deferred compensation balance (deferred compensation amount of
$1,856,955 less $781,967 of advances to officers and related accrued interest in
accordance with the Board resolution) as of that date.
Deferred Compensation $1,856,955
Advances to Officers (781,967)
Debentures Issued (1,000,000)
----------
Deferred Compensation after credit
for advances and issuance of Debenture $ 74,988
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is the exclusive worldwide (except STORS in Japan) licensee for
clean water environmental technologies developed by Battelle Memorial Institute
("Battelle"), an independent research and development organization, and the
exclusive owner of a clean energy technology for which it has filed a patent.
The four Battelle licensed technologies are primarily aimed at solving
wastewater problems for broad-based markets. These technologies include three
chemical process technologies known as the Sludge To-Oil Reactor System
("STORS") (TM), Nitrogen Removal ("NitRem") and Ammonia Recovery Process ("ARP")
(TM). The fourth technology, a dual-shell pressure balance vessel, known as the
Dual-Shell Reactor ("DSR") (TM), is the unique reactor equipment in which the
STORS and NitRem chemistries are conducted (collectively, STORS, NitRem, ARP and
DSR are referred to as the "Water Technologies"). The Company's applications of
the Water Technologies eliminate damaging organic and nitrogenous contaminants
from waste streams. On January 14, 2000, the Company filed a patent application
with the US Patent and Trademark Office for the ThermoEnergy Integrated Power
Systems ("TIPS") technology. TIPS chemically converts the energy in fossil
fuels, such as coal, gas and oil without producing any air emissions while
simultaneously sequestering the mercury and capturing the CO2 (in liquid form)
by-products for beneficial reuse. This technology will be developed primarily to
compete with coal combustion electricity generation facilities that are
currently responsible for global air quality problems, acid rain and global
warming.
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. Another component of the Company's
business strategy is to enter 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 formed ThermoEnergy Environmental Corporation
("TENC") with Foster Wheeler Environmental Corporation ("FWENC") of Livingston,
New Jersey in September, 1998 to pursue clean water projects worldwide. TENC
combines the Company's state-of-the-art clean water technologies with FWENC's
engineering expertise and global presence to pursue industrial and municipal
water/wastewater projects around the world. It is anticipated that any
commercial business derived from the successful demonstration of ARP will be
engaged through TENC. At the option of the Company, projects utilizing NitRem,
DSR and STORS may also be engaged through TENC.
The Company also has joint marketing arrangements with Dan Cowart Inc., and
Mitusi & Co. (USA.) and plans to enter project specific working arrangements
when such projects are identified and funding is obtained. The Company does not
currently possess the technical, operational or financial resources necessary to
construct or operate STORS , NitRem or ARP facilities at either a demonstration
or commercial facility level and has relied on US Government grants and funding
from its strategic partners to fund its demonstration projects.
During the quarter ended June 30, 2000, the investment banking firm of
Morgan Keegan & Co., Inc. agreed to be a market maker for the Company's Common
Stock. The Company has filed an over the counter bulletin board application with
the NASD.
STORS Demonstration Project
In 1998, the San Bernardino Valley District selected the City of Colton,
California to host a full-scale STORS/NitRem demonstration project, which was to
be funded by a $3,000,000 federal grant. The Company, the general contractor for
the project, contracted with Foster Wheeler Environmental Corporation to
fabricate, install and operate the STORS demonstration unit. At the conclusion
of the demonstration project, all right, title and interest to the test
equipment will be vested in the Environmental Protection Agency, which was
authorized under the terms of the federal grant to administer the project.
The Company is not required to make capital contributions to this project.
The Company will not receive any revenues or earnings from the project, but will
be reimbursed for administrative and operating costs.
<PAGE>
New York City ARP Demonstration
The second commercial scale nitrogen removal demonstration project is a
team effort between ThermoEnergy, Foster Wheeler Environmental Corporation and
the City of New York to test the Company's capability to cost-effectively
eliminate the concentrated discharge, or centrate, from eight of New York City's
fourteen waste water treatment facilities. The City of New York and the Company
signed a No Cost Test Agreement during 1996 which allowed the Company to
demonstrate, on site, the Company's nitrogen removal processes. During 1998, the
Company signed an agreement with FWENC to provide up to $500,000 of the funding
necessary to demonstrate ARP and to design, fabricate and operate the ARP pilot
plant at the Staten Island wastewater treatment facility. The New York ARP
demonstration was successfully completed during December 1998. Based upon the
demonstration results, the Company is actively seeking a privatized contract to
process all of New York City's centrate through it's joint venture with FWENC.
ThermoEnergy Integrated Power Systems
TIPS converts a biomass, especially fossil fuels, such as coal, gas and oil
into electricity without producing any emissions while simultaneously
sequestering the mercury and capturing the carbon dioxide (CO2) by-products for
beneficial reuse. TIPS integrates the combustion of a biomass or fossil fuel and
the efficient production of electricity with the recovery of CO2 in liquid form
and the elimination of both acid gas and particulate emissions.
<PAGE>
TIPS is a novel approach to power production thermodynamics, mass transfer
and heat transfer. TIPS can use air, oxygen, and oxygen enriched air as the
oxidant, and any biomass or fossil fuel which can be pumped or injected, and
then combusted in a boiler. By changing the combustion and heat transfer process
parameters, TIPS recovers the latent heat vaporization from produced water,
scrubs out the acids and particulate matter, while its condenses and recovers
liquid CO2 as an integral part of the over-all process.
Liquid CO2 represents a form of stored energy. This stored energy can then
be used to generate power for peak demand periods. Additionally, the United
States Department of Energy ("DOE") has various programs identifying other end
uses for liquid CO2. The success of DOE's programs depends on the development of
a low cost, long-term source of liquid CO2. Management believes that TIPS may
potentially be that source. The TIPS technology can be used to economically
retrofit existing fossil fuel power plants or used in the construction of new
power generation facilities. Management believes that TIPS has the potential to
replace the current conventional coal, gas or heavy oil combustion technologies
which are primarily responsible for global air quality problem, acid rain and
global warming.
Strategic Corporate Relationships
In September 1994, the Company and Foster Wheeler USA Corporation executed
a non-binding Worldwide Marketing Agreement whereby both companies have agreed
to jointly market, develop and commercialize the Technologies on a non-exclusive
basis. The companies have agreed in principle to work together to develop
marketing strategies, identify potential projects and develop joint proposals.
The agreement contemplates that when a potential project is identified, the
Company will provide Foster Wheeler USA Corporation with the necessary process
and design information, and Foster Wheeler USA Corporation will design, procure
and construct the required processing facilities for any contracts awarded.
Under the agreement, each party is subject to confidentiality obligations. The
initial term of the agreement is ten years and the agreement will be
automatically extended in three-year periods thereafter. The agreement may be
terminated by the mutual agreement of the parties.
During 1998, the Company agreed to form TENC (the Company will own 49.9% of
TENC) with FWENC to pursue clean water projects worldwide. The main purpose of
the joint venture is to develop, market and utilize the ARP technology. During
August 1998, the Company signed an agreement with FWENC to provide up to
$500,000 of the funding necessary to demonstrate ARP and to design, fabricate
and operate the ARP pilot plant at the Staten Island wastewater treatment
facility (as more fully described above). The Company anticipates that any
commercial business derived from the successful demonstration of ARP will be
conducted through TENC. At the option of the Company, projects utilizing NitRem,
DSR and STORS may be conducted through TENC.
In March 1996, the Company entered into a Marketing Agreement with the
Atlanta based Dan Cowart, Inc. ("DCI") to market, develop and commercialize the
Technologies in Georgia and Florida. DCI is a multi-discipline construction and
development firm for large scale real estate projects. Under the agreement, the
Company has granted DCI the exclusive right to exploit any and all applications
of the Technologies for municipal, local governmental and real estate
development markets in Georgia and Florida, and the nonexclusive right to
exploit any and all applications of NitRem for industrial markets in Georgia and
Florida. The agreement contemplates the formation of a joint venture between the
companies to construct and operate future projects. The Company will provide
technical and administrative support to assist DCI in its efforts to obtain such
projects.
During the quarter ended June 30, 2000, the Company received a letter of
intent from the Tennessee Valley Authority ("TVA") to jointly market the
Company's technologies to the TVA client base.
The Company has historically lacked the financial and other resources
necessary to market the Technologies or to build demonstration projects. The
Company believes that its joint venture (TENC) working arrangement with Foster
Wheeler Environmental Corporation will enable the Company to identify and fund
future projects. The Company believes that establishing such relationships is
the most efficient and effective way to commercialize the Technologies.
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 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.
Results of Operations
For the six months ended June 30, 2000, the Company incurred a net loss of
$747,646 as compared to $486,964 for the six months ended June 30, 1999. For the
three months ended June 30, 2000, the Company incurred a net loss of $402,901 as
compared to $173,737 for the three months ended June 30, 1999. The principal
factor for the increases in the net losses between the six and three-month
periods was the $243,779 gain on settlement of the lawsuit, more fully described
in Note 10 to the financial statements included in the Company's Annual Report
on Form 10-K, recorded by the Company during the second quarter of 1999.
Travel and entertainment expenses increased during the nine and three-month
periods ended June 30, 2000, compared to June 30, 1999, due to the Company's
efforts regarding the projects discussed above. Interest expense increased
significantly between the same two periods primarily due to the issuance of 15%
Convertible Debentures.
Liquidity and Capital Resources
During the six-month period ended June 30, 2000, the Company used $417,000
of cash in operations compared to $289,724 in the comparable period of 1999.
During 2000 and 1999, the Company met its liquidity needs primarily from
borrowings from stockholders. The Company converted all of its outstanding 10%
notes payable to stockholders to Series 98, 15% Convertible Debentures and plans
to convert the remaining 6.63% notes payable to stockholders ($144,035 at June
30, 2000) to shares Common Stock of the Company if sufficient funds are not
available to repay the notes at maturity. Management plans to meet the Company's
liquidity needs during the year ending December 31, 2000, through additional
borrowings principally from stockholders via the issuance of convertible
debentures or from a public or private placement offering 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 the
successful demonstrations of its Technologies, such as the New York City ARP
project and the Colton STORS/NitRem demonstration project.
Currently, there is no public market for the Company's Common Stock. As
previously discussed, the Company filed an over the counter bulletin board
application with the NASD during the quarter ended June 30, 2000.
Net Operating Losses
The Company had net operating loss carryforwards as of December 31, 1999 of
approximately $6,450,000 which expire in the years 2003 through 2019. 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
carryforward can be utilized. A valuation allowance of approximately $2,454,000
has been established to offset any benefit from the net operating loss
carryforwards as it cannot be determined when or if the Company will be able to
utilize the net operating losses.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information called for by this item, to the extent that it is
applicable to the Company, is provided under Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
At the annual meeting of stockholders held on June 27, 2000, approval was
obtained to reclassify all of the authorized and outstanding shares of Common
Stock (currently designated as Series A and Series B) to a single class of
Common Stock and to remove the temporary restriction on transfer of all
outstanding shares of Common Stock. The transfer of the new shares to
stockholders has not been completed as of the date of this report.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
(a) Date of meeting:
The Annual Meeting of stockholders of the Company was held on June 27, 2000
in Atlanta, Georgia.
(b) Election of Directors:
Directors Elected For Withheld
----------------- --- --------
P. L. Montesi 2,740,404 66,726
Jerald H. Sklar 2,740,404 66,726
Andrew T. Melton 2,740,404 66,726
Paul A. Loeffler 2,740,404 66,726
Other Directors continuing in office:
Dennis C. Cossey
Dr. Louis J. Ortmann
J. Donald Phillips
(c) Additional matters voted upon:
(1) Ratification of the appointment of Kemp & Company as independent
accountants of the Company for 2000.
For 2,743,611
Against 501
Abstain 62,625
(2) Reclassification of all authorized and outstanding shares of Common
Stock to a single class of stock and the removal of the temporary
restriction of transfer on all outstanding shares of Common Stock.
For 2,385,503
Against 1,187
Abstain 9,389
Item 5. Other Information
None
Item 6. Exhibits and Report on Form 8-K
(a) Financial Data Schedule on Exhibit 27.
(b) No reports on Form 8-K have been filed during the quarter ended June
30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 11, 2000
THERMOENERGY CORPORATION
BY:/s/ P.L. Montesi
-------------------
P. L. MONTESI
President, Treasurer and
Principal Financial Officer
