SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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 30,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-23900
IDM ENVIRONMENTAL CORP.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2194790
- -------------------------------------- -----------------------------------
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
396 Whitehead Avenue, South River, New Jersey 08882
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(Address of principal executive offices)
(908) 390-9550
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(Registrant's Telephone Number, Including Area Code)
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(Former name, former address and formal fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of November 14, 1996, 9,419,550 shares of Common Stock of the issuer
were outstanding.
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995............................................1
Consolidated Statements of Operations - For the
nine months ended September 30, 1996 and
September 30, 1995...............................................2
Consolidated Statements of Operations - For the
three months ended September 30, 1996 and
September 30, 1995...............................................3
Consolidated Statements of Cash Flows - For the nine
months ended September 30, 1996 and September 30, 1995..........4
Notes to Consolidated Financial Statements.......................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................11
SIGNATURES...............................................................12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,972,899 $ 83,286
Accounts receivable, net of allowance
for doubtful accounts of $200,000 5,273,664 6,616,130
Notes receivable - current 1,876,428 1,596,559
Inventory 1,482,517 1,482,517
Costs and estimated earnings in excess
of billings 465,360 3,634,052
Prepaid expenses 607,362 710,706
Bonding deposits - 883,163
Deferred income taxes 1,816,992 652,600
Recoverable income taxes 154,983 1,114,442
Due from officers 139,190 548,488
Other current assets 70,980 55,238
---------- ----------
Total Current Assets 14,860,375 17,377,181
---------- ----------
Notes Receivable - long term 1,596,559 1,596,559
Deferred Issuance Costs, net 40,415 506,586
Property, Plant and Equipment, net 2,923,774 2,547,406
Other Assets 1,768,160 -
---------- ----------
$21,189,283 $22,027,732
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 368,155 $ 327,974
Accounts payable and accrued expenses 4,034,484 5,836,510
Billings in excess of costs and
estimated earnings 154,517 919,575
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Total Current Liabilities 4,557,156 7,084,059
----------- -----------
Long-Term Debt 712,901 4,004,142
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Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 20,000,000
shares $.001 par value, issued and
outstanding 9,229,167 in 1996 and
5,783,334 in 1995 9,229 6,200
Additional paid-in capital 24,561,622 13,693,895
Retained earnings (deficit) (8,651,625) (2,760,564)
---------- ----------
15,919,226 10,939,531
---------- ----------
$21,189,283 $22,027,732
=========== ===========
The accompanying notes are an integral part of these financial statements
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IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30,
1996 1995
------------ -------------
Revenue:
Sale of equipment $ 196,805 $ 5,089,903
Contract income 15,055,754 27,725,016
---------- ----------
15,252,559 32,814,919
---------- ----------
Cost of Sales:
Cost of equipment sales 81,933 3,063,176
Direct job costs 15,768,793 25,043,163
---------- ----------
15,850,726 28,106,339
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Gross Profit (loss) (598,167) 4,708,580
---------- ----------
Operating Expenses:
General and administrative expenses 5,945,932 5,746,753
Depreciation and amortization 560,057 391,876
---------- ----------
6,505,989 6,138,629
---------- ----------
Loss from Operations (7,104,156) (1,430,049)
Other Income (Expense):
Interest income(expense) 23,095 223,493
---------- ----------
Loss before Credit for Income Taxes (7,081,061) (1,206,556)
Credit for Income Taxes (1,190,000) (480,000)
---------- ----------
Net Loss $(5,891,061) $ (726,556)
========== ==========
Loss per Share:
Primary loss per share ($0.77) ($0.13)
========== ==========
Fully diluted loss per share ($0.77) ($0.13)
========== ==========
Primary common shares outstanding 7,635,416 5,779,310
========== ==========
Fully diluted common shares outstanding 7,635,416 5,779,310
========== ==========
The accompanying notes are an integral part of these financial statements
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<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30,
1996 1995
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Revenue:
Sale of equipment $ 44,005 $ 4,110,355
Contract income 3,976,763 10,119,627
--------- ----------
4,020,768 14,229,982
--------- ----------
Cost of Sales:
Cost of equipment sales 9,089 2,675,122
Direct job costs 4,393,869 9,394,904
--------- ----------
4,402,958 12,070,026
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Gross Profit (Loss) (382,190) 2,159,956
--------- ----------
Operating Expenses:
General and administrative expenses 2,355,922 2,010,268
Depreciation and amortization 177,812 165,952
--------- ----------
2,533,734 2,176,220
--------- ----------
Loss from Operations (2,915,924) (16,264)
Other Income (Expense):
Interest income(expense) 7,224 45,244
--------- ----------
Income (Loss) before Provision (Credit)
for Income Taxes (2,908,700) 28,980
Provision (Credit) for Income Taxes (490,000) 10,000
--------- ----------
Net Income (Loss) $(2,418,700) $ 18,980
========== ==========
Loss per Share:
Primary loss per share ($0.27) $0.00
========== ==========
Fully diluted loss per share ($0.27) $0.00
========== ==========
Primary common shares outstanding 8,879,023 5,771,392
========== ==========
Fully diluted common shares outstanding 8,879,023 5,771,392
========== ==========
The accompanying notes are an integral part of these financial statements
-3-
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The
Nine Months Ended September 30,
1996 1995
------------- --------------
Cash Flows from Operating Activities:
Net loss $(5,891,061) $ (726,556)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Deferred Taxes (1,164,392) -
Depreciation and amortization 560,058 391,876
Decrease (Increase) In:
Accounts receivable 1,342,466 (5,530,440)
Inventory - 2,972,875
Notes receivable (279,869) -
Costs and estimated earnings in
excess of billings 3,168,692 (2,297,267)
Prepaid expenses 103,344 235,514
Bonding deposits 883,163 478,625
Recoverable income taxes 959,459 24,037
Other current assets (15,742) (25,102)
Increase (Decrease) In:
Accounts payable and accrued expenses (1,734,714) (1,187,852)
Billings in excess of costs and estimated
earnings (765,058) 245,635
Income taxes payable - (477,600)
---------- ----------
Net cash (used in) operating activities (2,833,654) (5,869,255)
---------- ----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (687,592) (937,052)
Acquisition of other assets (1,768,160) -
Increase (decrease) of officers loans (261,282) (244,668)
---------- ----------
Net cash (used in) investing activities (2,717,034) (1,181,720)
---------- ----------
Cash Flows from Financing Activities:
Net proceeds from convertible bond issuance - 4,185,000
Principal payments and current maturities of
long-term debt (272,998) (127,885)
Issuance of common stock upon exercise
of stock options and warrants 8,713,299 -
---------- ----------
Net cash provided by financing activities 8,440,301 4,057,115
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 2,889,613 (3,020,860)
Cash and Cash Equivalents, beginning of period 83,286 5,068,325
---------- ----------
Cash and Cash Equivalents, end of period $2,972,899 $2,047,465
========== ==========
Supplementary Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest expense $ 42,911 $ 38,215
========== ==========
Income taxes - -
========== ==========
Supplemental Disclosure of Noncash Investing
and Financing Activities:
Property, plant and equipment financing $ 163,605 $ -
========== ==========
Conversion of convertible promissory
notes to common stock $2,828,037 -
========== ==========
The accompanying notes are an integral part of these financial statements
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<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These statements include the
accounts of IDM Environmental Corp. and its majority owned subsidiary
companies. The December 31, 1995 balance sheet data was derived from
audited financial statements but does not include all disclosures required
by generally accepted accounting principles. The interim financial
statements and notes thereto should be read in conjunction with the
financial statements and notes included in the Company's Form 10-K for the
year ended December 31, 1995. In the opinion of management, the interim
financial statements reflect all adjustments of a normal recurring nature
necessary for a fair statement of the results for the interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full year
ending December 31, 1996.
2. On June 28, 1996 IDM granted to Arle L. Pierro a non qualified option for
50,000 shares of its Common Stock at $3.23125 per share pursuant to a
consulting agreement that expires on June 30,1997. Since the market value of
the stock at June 28, 1996 was $7.4375, the market price less the exercise
price (3.23125) times the 50,000 shares results in $210,312 of compensation
expense that is being expensed over four quarters at $52,578 per quarter
beginning with the quarter ended September 30, 1996.
3. On July 11, 1996, effective June 30, 1996, IDM entered into an exclusive
license agreement with LIFE INTERNATIONAL PRODUCTS (Life) pursuant to which
IDM shall market and employ Life's patented environmental remediation
technology for long term bio remediation of contaminated groundwater
throughout North America. IDM also acquired a ten percent interest in Life
for $1,250,000.
4. On July 19, 1996 IDM, through a newly formed 90% owned subsidiary, Global
Waste & Energy International, Inc. ("International"), entered into an
agreement with Continental Waste Conversion, Inc. ("CWC") pursuant to which
International acquired, in exchange for a 10% interest in International,
the exclusive worldwide rights (excluding Canada) to the proprietary Kocee
Gas Generator waste treatment technology that converts municipal solid
waste, including tires and plastics into electrical energy. IDM has
committed to loan up to $1,350,000 over a four month period to
International to carry on its waste-to-energy business. At closing IDM made
an initial loan of $600,000 to International repayable upon demand with
interest at 9.25%. On August 15, 1996 and October 4, 1996 IDM made
additional loans of $250,000 (on each date) repayable upon demand with
interest at 9.25%. In addition, IDM, through a wholly-owned subsidiary of
International loaned $160,000 (Canadian) to CWC repayable in 18 consecutive
installments commencing January 1, 1997 with interest at 7.5% per annum.
5. The consolidated financial statements have been prepared on the basis of
the percentage of completion method of accounting. Under this method
contract revenue is determined by applying to the total estimated income on
each contract, a percentage which is equal to the ratio of contract costs
incurred to date to the most recent estimate of total costs which will have
been incurred upon the completion of the contract. Costs and estimated
earnings in excess of billings represents additional earnings over
billings, based upon percentage completed, as outlined above. Similarly,
billings in excess of costs and estimated earnings represent excess of
amounts billed over income recognized. Actual results can differ from the
estimates especially on government contracts because of the uncertainties
inherent in the estimation process as it relates to long term contracts.
Losses anticipated on government contracts and commercial contracts,
excluding period costs, should be charged to operations as soon as they are
evident. Starting in the first quarter of 1996 the Company recognized
revenues equivalent to its costs incurred on two government contracts in
Los Alamos, New Mexico and Oak Ridge, Tennessee, based on unapproved change
orders. In the case of the Los Alamos contract with the Los Alamos National
Laboratory, the Company submitted 28 individual change orders (of which 7
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<PAGE>
were subsequently approved). A final comprehensive change order in the
amount of $2,798,000 was submitted in November of 1996. Lab personnel
informally rejected our request and the Company reversed all revenues based
on the unapproved change orders in the fourth quarter of 1996. The Company
is aggressively pursuing its claims. Future revenues will be recognized
when these claims are finally settled. The Company also experienced
significant cost overruns on several contracts which were originally
recognized in the third and fourth quarters based on a change in an
accounting estimate principal. Based on the Company's discussions with the
SEC accounting staff, the Company has agreed to restate its quarterly
financial statements for the year "because recognizing change orders as
revenues was tantamount to recognizing gain contingencies which is
expressly prohibited by SFAS 5"; and, "because the cost overruns should
have been foreseeable and accrued in prior quarters." The amount for the
year has not changed, just the allocation to each quarter. The disclosure
requirements of the APB opinion number 20 of earnings (loss) per share, net
income (loss), and income tax (credit) are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Income (Loss) before Provision
(Credit) for Income Taxes 1,056,585 9,324 (4,370,625) (7,693,128) (10,997,844)
Change (3,698,413) (1,539,857) 1,461,925 3,776,345 -
---------- ---------- ---------- ---------- -----------
Amount Restated (2,641,828) (1,530,533) (2,908,700) (3,916,783) (10,997,844)
Provision (Credit) for Income Taxes 210,000 2,000 (772,000) (1,290,000) (1,850,000)
Change (650,000) (262,000) 282,000 630,000 -
---------- --------- ---------- ---------- -----------
Amount Restated (440,000) (260,000) (490,000) (660,000) (1,850,000)
Net Income (Loss) 846,585 7,324 (3,598,625) (6,403,128) (9,147,844)
Change (3,048,413) (1,277,857) 1,179,925 3,146,345 -
---------- ---------- ---------- ---------- -----------
Amount Restated (2,201,828) (1,270,533) (2,418,700) (3,256,783) (9,147,844)
Earning (Loss) Per Share 0.13 - (0.41) (0.85) (1.13)
Change (0.46) (0.17) 0.14 0.49 -
---------- ---------- ---------- ---------- -----------
Amount Restated (0.33) (0.17) (0.27) (0.36) (1.13)
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report.
THIRD QUARTER OF 1996 COMPARED WITH THIRD QUARTER OF 1995
The Company's total revenues decreased by approximately 71.8% from $14,230,000
for the quarter ended September 30, 1995 to $4,021,000 for the quarter ended
September 30, 1996. Contract service income decreased during the quarter by
60.7% from $10,120,000 in 1995 to $3,977,000 in 1996. The decrease in contract
service income and total revenues is attributable to expected revenues being
delayed into future quarters at our Oak Ridge, Los Alamos, and Boston offices.
Also during the third quarter of 1995 the Company recorded approximately $5.4
million in revenues attributable to a major relocation project. The Company had
no relocation revenues in the third quarter of 1996. Surplus equipment and scrap
sales revenues decreased by 98.9% from $4,110,000 in 1995 to $44,000 in 1996.
The decrease in surplus equipment and scrap sales revenues was attributable to
the sale of the Company's entire inventory of glass lined and process equipment,
for $4 million, to Universal Process Equipment, Inc. and the Bethlehem
Corporation, ("UPE"), during the third quarter of 1995. The gross margin on this
sale was $1,370,000. This represented 12.2% of the total revenues reported
through the first nine months of 1995 and 29.1% of the total gross profit
reported. The purchase price of such equipment is payable from one third of the
net sales proceeds of such equipment received by UPE. Amounts not paid under the
agreement shall be payable in full on September 29, 2000 including interest at
the LIBOR base rate. Management does not believe there is a major risk of
inventory obsolescence due to the fact that the design and technology of the
major inventory items has not changed much over the years. To the extent any
amounts are not repaid from the ultimate sale of the inventory by September 29,
2000, repayment will be dependent on the financial resources of UPE. Management
is not aware of any adverse factors which could adversely impact the ability of
UPE to satisfy the notes. Through September 30, 1996 UPE has paid $1,031,000 on
the note.
Direct job costs decreased by approximately 53.2% from $9,395,000 for the
quarter ended September 30, 1995 to $4,394,000 for the same period in 1996. The
primary elements of such decrease in job costs were job salaries and material
and supplies. The decrease in job costs was attributable to the decrease in
contract service revenues during the quarter. The reason why contract revenues
decreased 60.7% and direct job costs only 53.2% during the quarter is primarily
attributable to accruing the expected loss of approximately $300,000 on the PECO
contract. This contract started during the current quarter and will be completed
in the next quarter. In accordance with revenue recognition principles of the
percentage of completion method of accounting, provision for estimated losses on
incomplete contracts are made in the period in which such losses are first
determined. Cost of equipment sales decreased from $2,675,000 in 1995 to $9,000
in 1996. The decrease in cost of equipment sales was attributable to the UPE
sale mentioned above.
While total revenues decreased by 71.8% for the quarter, general and
administrative expenses increased 14.7 % from $2,010,000 during the quarter
ended September 30, 1995 to $2,356,000 during the same period in 1996. The
increase in general and administrative expense was primarily attributable to
$208,000 in expenses recorded by the Company's 90% owned subsidiary, Global
Waste & Energy Inc.
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<PAGE>
In addition to its operating income and expenses, the Company reported net
interest income of $7,000 for the quarter ended September 30, 1996 as compared
to net interest income of $45,000 for the same period in 1995. The decrease in
net interest income/expense was attributable to $10,000 in interest expense
which accrued on $500,000 of indebtedness which remained outstanding during the
quarter out of the $5,000,000 of convertible notes issued in the third quarter
of 1995 and an increase in interest expense due to the additional $850,000 in
equipment financing compared to the same period last year.
As a result of the foregoing, the Company reported a loss before taxes of
$2,909,000 and net loss of $2,419,000 for the quarter ended September 30, 1996
as compared to income before taxes of $29,000 and net income of $19,000 for the
same quarter in 1995.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Total revenues decreased by approximately 53.5% from $32,815,000 for the nine
months ended September 30, 1995 to $15,253,000 for the same period in 1996.
Contract service income decreased during the period by 45.7% from $27,725,000 in
1995 to $15,056,000 in 1996.
The Company, in a news release dated April 1996, stated that its expectation to
receive an additional $2 to $3 million in revenue in March was not realized due
to an administrative delay. The Company further stated that it expected to
accrue such revenues largely in the second quarter of this year. These
statements relate to the Company's previously announced paper plant project in
the People's Republic of China.
The Company has entered a Chinese-Foreign Equity Joint Venture Contract with
China National Packaging and Materials Co. Xuzhou General Paper Mill ( a leading
Chinese paper manufacturer located in the People's Republic of China) to
acquire, own, and operate a paper mill to produce liner board and other paper
products. IDM has also received a Letter of Intent from China National Packaging
to supply, relocate, construct, and start-up the paper mill plant. At the time
of the news release, the Chinese Design Institute was reviewing the technical
aspects of the plant to be relocated. Subsequent to that time a series of
discussions have taken place which have led to the current status of the
project. During the fourth quarter of 1996, a group of European businessmen
(Temple Inland executives) are traveling to China to meet with the Chinese joint
venture partner to discuss the project. It is currently anticipated that Temple
Inland will purchase a portion of the Company's interest in the joint venture so
that the company will supply the equipment and remain a minority equity
participant. The Company's management did not consider recognizing any revenue
on the project in the second or third quarter as the project has not yet been
consummated.
Surplus equipment revenues decreased 96.1% from $5,090,000 in 1995 to $197,000
in 1996. See the quarterly comparison for discussion of the factors contributing
to the decrease in surplus equipment and scrap sales revenues.
Direct job costs decreased by approximately 27% from $25,043,000 for the nine
months ended September 30, 1995 to $15,769,000 for the same period in 1996. See
the quarterly comparison for a discussion of the factors contributing to the
decrease in direct job costs.
Cost of equipment sales decreased from $3,063,000 in 1995 to $82,000 in 1996.
The decrease in cost of equipment sales was attributable to the UPE sale.
General and administrative expenses increased 3.5% from $5,747,000 during the
nine months ended September 30, 1995 to $5,946,000 during the same period in
1996. The increase was primarily attributable to the $208,000 in expenses of
Global Waste & Energy Inc. mentioned earlier.
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<PAGE>
The Company reported a decrease in net interest income/(expense) from $223,000
for the nine months ended September 30, 1995 to $23,000 for the same period in
1995. See the quarterly comparison for a discussion of the factors contributing
to the decrease in net interest income/(expense).
As a result of the foregoing, the Company reported a loss before taxes of
$7,081,000 and a net loss after tax of $5,891,000 for the nine months ended
September 30, 1996 as compared to a loss before taxes of $1,207,000 and a net
loss after taxes of $727,000 for the same period in 1995.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
At November 17, 1996, the Company had a backlog totaling approximately $42
million compared to a backlog of approximately $58 million at September 30,
1995. The largest component of the Company's backlog at November 17, 1996 was
$20 million for the East Dam project.
In addition to its existing backlog, the Company is presently bidding on, and
intends to bid on numerous projects to replace revenues from projects which will
be completed during 1996 and to increase the total dollar volume of projects
under contract. Management anticipates that the Company's efforts to bid on and
secure new contracts will focus on projects which can be readily serviced from
the three regional offices opened by the Company during 1994 and 1995. In
addition, the Company has submitted proposals on several large international
plant relocation projects. The Company's regional offices, particularly the Oak
Ridge, Tennessee, Los Alamos, New Mexico, and Boston, Massachusetts offices are
strategically located in areas having a high concentration of prospective public
and private remediation sites. While bidding to perform services at such sites
is expected to be highly competitive, management believes that the Company's
existing presence on projects at these locations combined with its proven
expertise and resources will enhance the Company's chances of successfully
bidding on substantial new projects.
The Company had working capital of $10,303,000, including cash and cash
equivalents balances of $2,973,000 at September 30, 1996. This compares to
working capital of $10,293,000 and a cash balance of $83,000 at December 31,
1995. The small increase in working capital and cash is primarily attributable
to the exercise of warrants and options totaling $8,445,000 during the period,
less the pre tax loss of $7,081,000 during the period and the acquisition of a
10% interest in Life on July 11, 1996 for $1,250,000.
Year-end receivables as a percentage of fourth quarter income increased
substantially from 53.0% in 1994 to 103.5% in 1995. This ratio was 82% at
December 31, 1993. The ratio dropped to 53% at December 31, 1994 because the
Company received a $4,184,000 payment on its FJFC contract on December 23, 1994.
If this payment had been received after year end, the ratio would have been a
more comparable 98.4%.
Of the $6,816,000 in gross accounts receivable at December 31, 1995, $6,128,000
has been collected to date. $252,000 of the $688,000 balance is retention on
contracts that will be released when the contracts are completed. $291,000 is
due from three customers that management believes will be realized this year.
The $200,000 reserve for doubtful accounts covers the balance of $145,000.
Unbilled revenue as a percentage of quarterly contract income has increased from
0% at December 31, 1993, to 31% at December 31, 1994, to 56% at December 31,
1995. It decreased to 12% at September 30, 1996. Also, accounts payable have
constantly decreased since 1994 where as accounts receivable and unbilled
revenues have increased substantially during this period.
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<PAGE>
Prior to going public in April 1994, most of the Company's revenues were
generated in the private sector. Many of these contracts had substantial initial
mobilization payments and generated positive cash flow during the life of the
contract. Since then the company has been successful, as a result of its growth
strategy, in obtaining a number of government contracts at major Department of
Energy and Department of Defense sites. This work was obtained as a direct
result of opening three new regional offices. The experience with these
contracts has been negative cash flows until we near contract completion. This
is due to the requirement that we submit a schedule and a schedule of values at
the beginning of the job and bill according to the percent complete of each item
in the schedule of values - not the costs we have incurred. Our jobs of any size
are at a risk of being front end cost loaded when there is little progress to
report (i.e., we cannot bill until the structure is demolished). The Company is
aware of this problem and is trying to remedy it by maximizing mobilization
costs in the schedule of values, requiring subcontractors to bill on the same
basis and aggressively negotiating better (less front end cost loaded) schedule
of values.
Initially the Company tried to increase payment terms to vendors by paying them
after the Company received our payment. This method was unsuccessful. Many
vendors put the Company on a COD basis and its D&B rating weakened because D&B's
file showed "increased slowness in the company's payment record." This lower
rating hurt the Company in attempts to establish credit with new vendors.
Because IDM is a growing company and trying to establish good relationships with
its vendors, the company is now paying its vendors within terms to fifteen days
late and attempting to improve its D&B "paydex rating." The paydex rating of 60
is much worse than the average of the lower quartile for the industry of 68
(median for the industry is 75).
The inventory of $1,483,000 is unchanged from September 30, 1995. This inventory
consists of nineteen (19) generator sets with a total electrical capacity of
242,500 kilowatts per hour (KWH). The estimated selling price is fifteen million
seven hundred and seventy five thousand dollars ($15,775,000). Twelve (12) of
the generators are steam driven and range in size from 12,500 kilowatts to
33,000 kilowatts (KW). Seven (7) of the generators are diesel driven and range
in size from 1,000 to 9,000 kilowatts (KW). These generator sets should not be
considered as obsolete or outdated inventory since its design and technology has
not changed much over the years. They are very long lead items (15-18 months),
experience and project specific and as such they are not to be compared with
disposable items.
It is the Company's intent to incorporate two (2) 15,000 KW generator sets
(steam driven) in the El Salvador Global Energy's Waste to Energy Project. In
future projects, the Company will try to use the balance of 15,000 KW generator
sets and the 12,500 KW and 33,000 KW sets.
The Company has available at December 31, 1995 approximately $2,350,000 in
operating loss carry-forwards that may be applied against future taxable income.
They expire in the year 2010. Based on the reported loss to date it will take
approximately $5.3 million dollars in future taxable income to recover the
reported deferred tax asset.
At September 30, 1996, the Company's only long term debt other than $500,000 of
convertible notes was $581,000 in installment debt secured by job equipment.
On July 11, 1996, effective June 30, 1996, the Company acquired a ten percent
interest in Life International Products (Life) for $1,250,000. The Company also
entered into a license agreement with Life whereby IDM shall market and employ
Life's patented environmental remediation technology for long term bio
remediation of contaminated groundwater throughout North America.
On July 19, 1996 IDM, through a newly formed 90% owned subsidiary, Global Waste
& Energy International, Inc. ("International"), entered into an agreement with
Continental Waste Conversion, Inc. ("CWC") pursuant to which International
acquired, in exchange for a 10% interest in International, the exclusive
worldwide rights (excluding Canada) to the proprietary Kocee Gas Generator waste
treatment technology that converts municipal solid waste, including tires and
-10-
<PAGE>
plastics into electrical energy. IDM has committed to loan up to $1,350,000 over
a four month period to International to carry on its waste-to-energy business.
At closing IDM made an initial loan of $600,000 to International repayable upon
demand with interest at 9.25%. On August 15, 1996 and on October 4, 1996, the
Company made additional loans of $250,000 (on each date) repayable upon demand
with interest at 9.25%. In addition, IDM, through a wholly-owned subsidiary of
International loaned $160,000 (Canadian) to CWC repayable in 18 consecutive
installments commencing January 1, 1997 with interest at 7.5% per annum. Other
than funding the Company's bonding and other job costs the Company does not
anticipate any substantial demands on the liquidity or capital resources of the
Company during the following twelve months.
Since 1994 the Company has consistently generated negative operating cash flows.
The primary reason for this was due to the Company's policy of successfully
bidding new work at lower than normal margins in order to penetrate strategic
markets serviced by the Company's newly opened regional offices. Now that the
Company is established in these markets, the Company has been bidding work at
normal margins. Management of the Company believes, based on the current backlog
of work and expected work to be awarded based on bids outstanding, that future
operating cash flows will be positive.
Management believes that the Company's working capital is sufficient to meet the
Company's anticipated needs for at least the following twelve months, including
the performance of all existing contracts of the Company. However, as the
Company is presently pursuing bids on multiple large projects, the Company may
be required to seek new bank lines of credit or other financing in order to
facilitate the performance of jobs if the volume and size of projects being
performed by the Company increases substantially. While the Company is
conducting ongoing discussions with various potential lenders with a view to
establishing available bank lines of credit if and when needed to support future
growth, the Company presently has no commitments from any bank or other lender
to provide financing if such financing becomes necessary to support growth.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
-11-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IDM ENVIRONMENTAL CORP.
/s/ Joel Freedman
-------------------------------------------
Joel Freedman, President
September 30, 1997
/s/ Michael B. Killeen
-------------------------------------------
Michael B. Killeen, Principal Financial
and Accounting Officer
September 30, 1997
-12-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,972,899
<SECURITIES> 0
<RECEIVABLES> 5,473,664
<ALLOWANCES> 200,000
<INVENTORY> 1,482,517
<CURRENT-ASSETS> 14,860,375
<PP&E> 2,923,774
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,189,283
<CURRENT-LIABILITIES> 4,557,156
<BONDS> 712,901
0
0
<COMMON> 9,229
<OTHER-SE> 15,909,997
<TOTAL-LIABILITY-AND-EQUITY> 21,189,283
<SALES> 15,252,559
<TOTAL-REVENUES> 15,252,559
<CGS> 15,850,726
<TOTAL-COSTS> 15,850,726
<OTHER-EXPENSES> 6,505,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,081,061)
<INCOME-TAX> (1,190,000)
<INCOME-CONTINUING> (5,891,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,891,061)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
