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 SEPTEMBER 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 September 30, 2000:
3,870,068 shares of Common Stock, par value $.001 per share
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
September 30, December 31,
2000 1999
---- ----
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
Cash - Total Current Assets $ 72,555 $ 101,091
Advances to officers (Note 7) 76,000 598,015
Accrued interest receivable - officers (Note 7) 1,090 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)
-------------- --------------
- -
-------------- --------------
$ 149,645 $ 798,036
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 287,642 $ 661,176
Accrued interest payable - primarily to related parties 775,433 414,425
Deferred compensation (Note 7) 186,973 1,660,695
Notes payable to stockholders (Note 5) 55,835 178,735
-------------- --------------
Total Current Liabilities 1,305,883 2,915,031
Convertible Debentures (Notes 2, 4 and 7) 4,326,722 2,199,379
-------------- --------------
Total Liabilities 5,632,605 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:
Authorized - 75,000,000
September 30, 2000; issued - 3,953,897;
outstanding - 3,870,068
December 31, 1999: issued - 3,883,618;
outstanding - 3,799,789 3,954 3,884
Additional paid-in capital 4,799,285 4,658,797
Deficit accumulated during the development stage (10,286,199) (8,979,055)
-------------- ------------
(5,482,960) (4,316,374)
-------------- ------------
$ 149,645 $ 798,036
============== ============
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Nine Months Ended Three Months Ended
September 30, September 30, September 30,
-------------- -------------
2000 2000 1999 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Expenses:
General and administrative $ 7,496,732 $ 735,942 $ 725,828 $ 287,547 $ 190,186
License and royalties fees 864,766 67,500 83,750 22,500 16,250
Travel and entertainment ------------ ------------ ------------ ------------ ------------
1,334,076 155,746 128,789 61,437 53,695
------------ ------------ ------------ ------------ ------------
9,695,574 959,188 938,367 371,484 260,131
------------ ------------ ------------ ------------ ------------
Loss From Operations (9,695,574) (959,188) (938,367) (371,484) (260,131)
------------ ------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 186,676 24,983 32,692 2,106 13,901
Gain on settlement of lawsuit
(Note 6) 317,423 23,644 243,779
Other 49,550 49,550
Interest expense
(1,144,207) (396,583) (215,400) (190,120) (94,552)
------------ ------------ ------------ ------------ ------------
(590,558) (347,956) 110,621 (188,014) (80,651)
------------ ------------ ------------ ------------ ------------
Net Loss $(10,286,132) $ (1,307,144) $ (827,746) $ (559,498) $ (340,782)
============ ============ ============ ============ ============
Basic and Diluted
Per Common Share (Note 4)
Loss From Operations $ (2.54) $ (0.21) $ (0.23) $ (0.08) $ (0.06)
Net Loss $ (2.70) $ (0.29) $ (0.20) $ (0.12) $ (0.08)
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) Periods Ended September 30, 1988 Through December
31, 1999 and the Nine Months Ended
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
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>
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 Nine Months Ended
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
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>
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 Nine Months Ended
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
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>
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 Nine Months Ended
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
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 $102,900 of notes payable
to stockholders and accrued interest,
various months during 2000 (67,779 shares) 68 135,490 135,558
Net loss
(1,307,144) (1,307,144)
------------ ------------ ------------ ------------
Balance (deficit), September 30, 2000 $ 3,954 $ 4,799,285 $(10,286,199) $ (5,482,960)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Nine Months Ended September 30,
September 30, 2000 2000 1999
------------------ ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net loss $(10,286,132) $ (1,307,144) $ (827,746)
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 (935,998) (139,000) (133,000)
Other receivables (122,042) (23,112) (28,568)
Accounts payable 844,691 53,892 170,312
Accrued expenses 996,803 396,583 215,403
Deferred compensation 2,167,922 308,245 281,374
------------ ------------ ------------
Net cash used in
operating activities (7,003,691) (734,180) (541,004)
------------ ------------ ------------
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 2,437,000 677,000 469,000
Payments on notes payable (154,609)
Other 108,410
------------ ------------ ------------
Net cash provided by
financing activities 6,781,972 682,000 469,000
------------ ------------ ------------
Increase (decrease) in cash 72,555 (28,536) 146,775
Cash, beginning of period 0 101,091 113,220
------------ ------------ ------------
Cash, end of period $ 72,555 $ 72,555 $ 259,995
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 2000
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial 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, statements do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the financial statements include all adjustments
(consisting of normal recurring accruals) considered necessary for their fair
presentation. Operating results for the nine-month period ended September 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 $2,127,343 of such Debentures ($677,000 for cash, $427,427 in
satisfaction of accounts payable balances, $22,916 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 nine months ended
September 30, 2000. (See Note 8.)
NOTE 3: COMMON STOCK
During 2000, a stockholder exercised warrants to purchase 2,500 shares of 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 2000 the Board of
Directors awarded Dennis Cossey, Alex Fassbender, P. L. Montesi, and Waring Cox,
PLC a total of 720,000 non-qualified stock options to purchase shares of Common
Stock exercisable at $2.00 per share. On September 18, 2000 the Board of
Directors awarded two other individuals a total of 20,000 stock options to
purchase shares of Common Stock exercisable at $2.00 per share. In October of
2000 the Board of Directors awarded certain officers, directors and consultants
a total of 440,000 non-qualified stock options exercisable at $7.00 per share,
the market price on the date of grant, October 11, 2000. All of these options
expire five years from the date of grant. (See Note 8.) 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 (formerly designated as
Series A and Series B) to a single class of Common Stock.
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 3,816,384 shares
for the period cumulative since inception through September 30, 2000, 4,466,434
and 4,148,389 shares for the nine-month periods ended September 30, 2000 and
1999, respectively, and 4,500,924 and 4,178,131 shares for the three-month
periods ended September 30, 2000 and 1999, respectively.
Warrants to purchase approximately 671,000 shares of Common Stock, stock options
awarded to officers and other related parties for 1,480,000 shares of Common
Stock and stock options for up to 750,000 shares of 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 September 30, 2000, the Company
had issued $4,326,722 of 15% Convertible Debentures, due January 15, 2003. The
holders of the Debentures can convert the principal amount and accrued interest
into shares of Common Stock at the conversion price of $2.00 per share at any
time prior to the maturity date. (See Note 8.)
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 described
in Item 2 below. 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 (see Note 8) and to issue Common
Stock to the holders of the remaining 6.63% notes payable to stockholders
($55,835 at September 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
will 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.
During October 2000, the Company received a Notice of Allowance from the Patent
and Trademark Office for the ThermoEnergy Corporation Integrated Power Systems
("TIPS") technology, a clean energy process for converting fossil fuels to
energy without air emissions. The Company has limited resources for this purpose
but anticipates that it will be able to rely on the resources of its strategic
partners, its fossil fuel burning customers, and its strategic partners' fossil
fuel burning customers. Management has applied to the U.S. department of Energy
("DOE") for a $3 million grant to develop and demonstrate the TIPS technology.
If the Company is unable to secure the necessary funding from these sources it
will be required either to incur further debt or to sell stock to secure
funding; moreover, there is no assurance that it will be successful in pursuing
either course of action.
The Company has successfully completed demonstrations of each of its
technologies except TIPS, and has used those demonstrations to expand its
visibility in each of the markets in which it is pursuing customers.
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: CONTINGENCIES
During January 2000 the Company realized a gain of $23,644 on the sale of stock
that it received in settlement of the law suit that it had filed in 1998 against
the broker-dealer involved in the Company's 1997 failed public offering. This is
the final amount that the Company will receive in that matter.
NOTE 7: DEFERRED 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
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.
NOTE 8: SUBSEQUENT EVENT
On October 4, 2000, the Company entered into an agreement with an individual, an
officer of the Georgia corporation with which the Company has a marketing
agreement, which provides for the purchase of $375,000 of the Company's Series
98, 15% Convertible Debentures and the issuance of warrants to purchase
1,000,000 shares of the Company's Common Stock at $2.00 per share. The warrants
are exercisable beginning on the date of issuance and ending on September 1,
2002, but the right to purchase portions of the shares expires in 125,000 share
increments beginning December 1, 2000 and approximately every 3 months
thereafter through September 1, 2002.
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. In October 2000, the Company received a Notice of Allowance
from 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. The Company intends to continue its
collaborative working relationships with established engineering and
environmental companies for specified industries or markets. On September 11,
1998, the Company agreed to form ThermoEnergy Environmental Corporation ("TENC")
with Foster Wheeler Environmental Corporation ("FWENC") of Livingston, New
Jersey to pursue clean water projects worldwide. This new entity will combine
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 thereafter 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 a marketing agreement with Dan Cowart, Inc. ("DCI"),
of Atlanta, GA, to market the Company's wastewater treatment technologies within
in the City of Atlanta (GA) and State of Florida. The Company has entered into
two separate Memorandums of Understanding (MOU). The first MOU with Mitsui & Co.
(USA), Inc. and Foster Wheeler Environmental Corporation is to pursue wastewater
treatment opportunities in Mexico, Brazil and Peru, pending the success of the
STORS demonstration project in Colton, CA as detailed in the projects final
report to be issued by the US EPA's Environmental Technology Evaluation Center.
The report is currently scheduled for release in January 2001. The second MOU is
with the Tennessee Valley Authority (TVA). TVA will market the Company's
wastewater treatment technologies to its client base and ThermoEnergy will
market TVA's patented constructed wetlands technology to municipal and
industrial clients.
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 and an over the counter Bulletin Board application was filed with the
NASD. The Company's Common Stock began trading on September 20, 2000.
STORS
During third quarter of 2000 the Company, with Foster Wheeler Environmental
Corporation as a contractor, successfully completed a full scale STORS/ARP
demonstration project at the wastewater treatment facility of the city of
Colton, California. This demonstration project was funded by $3 million federal
grant, and all of the test equipment became the property of the U.S.
Environmental Protection Agency at the conclusion of the project. In the opinion
of Foster Wheeler Environmental Corporation the demonstration was a success, and
based on those results the Company has agreed to design, build, operate and
certify the performance of any STORS facility for which the joint venture is
able to secure a contract. Representatives of various municipalities and
engineering consulting firms visited the Colton demonstration project and Foster
Wheeler Environmental Corporation is actively pursuing project sales with this
group.
New York City ARP Demonstration
The Company and Foster Wheeler Environmental Corporation conducted a
commercial scale nitrogen removal demonstration to demonstrate ARP and to
design, fabricate and operate an ARP pilot plant at New York City's Staten
Island wastewater treatment facility. The demonstration was successfully
completed during December 1998, and since that time the Company has actively
sought a privatized contract to process all of New York City's centrate.
TIPS
TIPS converts biomass including fossil fuels, into electricity while
eliminating virtually all air emissions of NOx, SOx, Mercury, or particulate
matter (greater than 2.5-3.0 microns). In addition, TIPS simultaneously captures
carbon dioxide (CO2) in liquid form for sequestration or beneficial reuse. When
used as a gasifier, TIPS is a cost-effective method of generating hydrogen for
fuel cells. Alex Fassbender, Executive Vice President of the Company, is the
inventor of this process. An application for a patent for TIPS was filed and in
October 2000, the U.S. Patent and Trademark Office informed the Company that all
twenty-seven claims, which had been made in the patent application, had been
granted. In order for a patent to issue, technical drawings demonstrating the
patent must be delivered to the Patent and Trademark Office and a fee paid. Work
on the drawings is in process, and the Company intends to pay the fee and
complete the process expeditiously. Mr. Fassbender has assigned all of his
right, title and interest in TIPS to ThermoEnergy Power Systems, LLC in exchange
for a fifteen percent interest in that entity. ThermoEnergy Power Systems, LLC
is recently formed and will be 85% owned by the Company when it is capitalized.
The Company has applied to the U.S. Department of Energy ("DOE") for a $3
million grant to demonstrate TIPS. 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 problems such as
smog, acid rain and global warming. It is further believed that the TIPS
technology can be used to economically retrofit existing fossil fuel power
plants as well as in the construction of new power generation facilities.
Additionally, there are commercial uses for liquid CO2, provided a low cost,
long-term source for liquid CO2 can be developed. Should the Company be able to
obtain a grant in an amount sufficient to successfully demonstrate the TIPS
technology, it is possible that TIPS may (1) be instrumental in providing a low
cost long term source of liquid CO2, and (2) replace relatively inefficient
existing conventional coal, gas, and heavy oil combustion technologies that
create substantial air pollution.
Strategic Corporate Relationships
Since 1994, the Company and Foster Wheeler USA Corporation ("Foster
Wheeler") have jointly marketed, developed and commercialized the technologies.
The Company provides Foster Wheeler with the necessary process and design
information, and Foster Wheeler designs, procures and constructs the required
facilities for. In 1998, the Foster Wheeler (through its wholly owned subsidiary
Foster Wheeler Environmental Corporation) and the Company d to form ThermoEnergy
Environmental Limited Liability Company ("TENC") to pursue clean water projects
utilizing the ARP technology. The Company will own 49.9% of TENC. Both Companies
continue to seek business opportunities for TENC, and this strategic corporate
relationship has been the source of technical and financial assistance to the
Company in its various demonstration projects. The Company intends to rely
heavily on the joint venture for its sales and marketing efforts with Alex
Fassbender, Executive Vice President and Dennis Cossey, Chief Executive Officer,
playing a leading role in those efforts. As yet the joint venture has not
successfully secured any commercial business using the companies various
technologies.
In March 1996, the Company entered into a Marketing Agreement with the
Atlanta based Dan Cowart, Inc. ("DCI") to market, develop and commercialize the
Company's wastewater treatment technologies. DCI is a multi-discipline
construction and development firm for large-scale real estate projects. This
Marketing Agreement has been amended and restated this quarter. Under the
amended and restated terms, the Company has granted DCI the exclusive right to
exploit any and all applications of the Company's wastewater treatment
technologies for municipal, local governmental, real estate development and
industrial markets in the City of Atlanta, Georgia and the State of Florida, and
the nonexclusive right to exploit any and all applications of NitRem for
industrial markets in the City of Atlanta, Georgia and the State of 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. If
DCI is successful in signing a customer, the Company will pay DCI a one time fee
of 62,500 warrants for shares of unregistered stock in the Company.
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. In addition, the Company will
market TVA's patented constructed wetlands process.
The Company has entered into a Memorandum of Understanding with Mitsui &
Co. (USA), Inc. and Foster Wheeler Environmental Corporation to pursue
wastewater treatment opportunities in Mexico, Brazil and Peru, pending the
success of the STORS demonstration project in Colton. An EPA final report is
scheduled for release in January 2001.
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. Despite
its successful demonstrations, the Company may still require additional
investment capital and/or debt financing to continue its operations.
Results of Operations
For the nine months ended September 30, 2000, the Company incurred a net
loss of $1,307,144 as compared to $827,746 for the nine months ended September
30, 1999. For the three months ended September 30, 2000, the Company incurred a
net loss of $559,498 as compared to $340,782 for the three months ended
September 30, 1999. The principal factors for the increases in the net losses
between the nine and three-month periods were 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 and the increase in interest expense discussed
in the following paragraph.
General and administrative expenses and travel and entertainment expenses
increased during the nine and three-month periods ended September 30, 2000,
compared to September 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
(see Note 2 of Notes to Financial Statements).
Liquidity and Capital Resources
During the nine-month period ended September 30, 2000, the Company used
$734,180 of cash in operations compared to $541,004 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 ($55,835 at
September 30, 2000) to shares Common Stock of the Company if sufficient funds
are not available to repay the notes at maturity. As more fully described in
Note 2 to Financial Statements, Management plans to meet the Company's liquidity
needs during the year ending December 31, 2000, through additional borrowings
principally from the issuance of the Company's 15 % Convertible Debentures. As
more fully described in Note 8 of Notes to Financial Statements, the Company
entered into an agreement with an individual on October 4, 2000 for the purchase
of $375,000 of the Company's 15% Convertible Debentures and the issuance of
warrants to purchase 1,000,000 shares of the Company's Common Stock at $2.00 per
share.
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.
As previously discussed, the Company filed an over the counter Bulletin
Board application with the NASD during the quarter ended June 30, 2000 and the
Company's Common Stock began trading on September 20, 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.
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 (previously 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
None
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
September 30, 2000.
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: November 14, 2000
THERMOENERGY CORPORATION
BY:/s/ P.L. Montesi
-------------------
P. L. MONTESI
President, Treasurer and
Principal Financial Officer
