SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
(Mark one)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2194790
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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)
--------------------------------------------------------------------------
(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 May 1, 1997, 9,602,730 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 - March 31, 1997 and
December 31, 1996............................................ 1
Consolidated Statements of Operations - For the three
months ended March 31, 1997 and March 31, 1996................ 2
Consolidated Statements of Cash Flows - For the three
months ended March 31, 1997 and March 31, 1996................ 3
Notes to Consolidated Financial Statements.................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 10
SIGNATURES.............................................................. 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
=========== ===========
Current Assets:
Cash and cash equivalents $2,402,260 $ 1,001,254
Accounts receivable, net of allowance
for doubtful accounts of $200,000 2,733,475 5,626,208
Stock subscription receivable 784,483 775,862
Notes receivable - current 1,261,660 1,274,773
Inventory 1,182,517 1,182,517
Costs and estimated earnings in
excess of billings 2,790,863 2,595,107
Bonding deposits 8,998 55,472
Deferred income taxes 3,059,000 2,609,000
Due from officers 255,477 208,676
Prepaid expenses and other
current assets 805,872 945,624
------------ -----------
Total Current Assets 15,284,605 16,274,493
Investment in Affiliate, at cost 1,300,000 1,300,000
Notes Receivable - long term 1,579,958 1,572,238
Deferred Issuance Costs, net 210,833 -
Property, Plant and Equipment, net 2,627,746 2,742,650
Other Assets 486,393 313,246
------------ -----------
$ 21,489,535 $22,202,627
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $364,647 $ 351,127
Accounts payable and accrued expenses 5,633,237 7,105,827
Billings in excess of costs and
estimated earnings 157,846 86,496
------------ -----------
Total Current Liabilities 6,155,730 7,543,450
Long-Term Debt 164,034
Minority Interest 1,034,483 1,034,483
------------ -----------
Total Liabilities 7,190,213 8,741,967
------------ -----------
Commitments and Contingencies
Stockholders' Equity:
Convertible preferred stock, authorized
1,000,000 shares $1.00 par value,
issued and outstanding 300 shares in
1997 stated at conversion value of
$10,000 per share 3,000,000
Less unamortized beneficial
beneficial conversion feature (819,863)
-----------
2,180,137
Common stock, authorized 20,000,000
shares $.001 par value, issued
and outstanding 9,602,370 9,603 9,603
Additional paid-in capital 26,469,054 25,359,465
Retained earnings (deficit) (14,359,472) (11,908,408)
------------ -----------
14,299,322 13,460,660
------------ -----------
$ 21,489,535 $22,202,627
============ ===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1997 1996
---------- ----------
Revenue:
Contract income $3,661,164 $5,466,796
Sale of equipment 31,800 -
---------- ----------
3,692,964 5,466,796
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Cost of Sales:
Direct job costs 3,989,508 6,247,505
Cost of equipment sales 21,284 -
---------- ----------
4,010,792 6,247,505
---------- ----------
Gross Profit (loss) (317,828) (780,709)
---------- ----------
Operating Expenses:
General and administrative expenses 2,167,654 1,652,783
Depreciation and amortization 156,059 211,161
---------- ----------
2,323,713 1,863,944
---------- ----------
Income (loss)from Operations (2,641,541) (2,644,653)
Other Income (Expense):
Interest income(expense) 57,244 2,825
---------- ----------
Income (loss) before Provision for
Income Taxes (2,584,297) (2,641,828)
Provision (credit) for Income Taxes (450,000) (440,000)
---------- ----------
Net Income (loss) (2,134,297) (2,201,828)
Preferred Stock Dividends including
$289,726 amortization of beneficial
conversion feature. Total amount of
$1,109,589 being amortized over 180 days 316,767 -
---------- ----------
Net Income (loss) on Common Stock $(2,451,064) $(2,201,828)
========== ===========
Earnings (loss) per Share:
Primary earnings (loss) per share $ (0.26) $ (0.33)
========== ==========
Fully diluted earnings (loss) per share $ (0.26) $ (0.33)
========== ==========
Primary common shares outstanding 9,602,730 6,640,934
========== ==========
Fully diluted common shares outstanding 9,602,730 6,640,934
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three months Ended March 31,
1997 1996
---------- ------------
Cash Flows from Operating Activities:
Net Income (loss) $(2,134,297) $(2,201,828)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred Taxes (credit) (450,000) (440,000)
Depreciation and amortization 138,351 211,161
Write-down of surplus inventory
Decrease (Increase) In:
Accounts receivable 2,892,733 (1,397,106)
Inventory - -
Notes receivable (3,228) 68,080
Costs and estimated earnings
in excess of billings (195,756) 2,219,021
Bonding deposits 46,474 50,000
Recoverable income taxes - 19,275
Prepaid expenses and other
current assets 139,752 238,850
Increase (Decrease) In:
Accounts payable and accrued
expenses (1,472,590) 1,570,046
Billings in excess of costs and
estimated earnings 71,350 352,670
---------- -----------
Net cash provided by (used in)
operating activities (967,211) 690,169
---------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and
equipment (31,987) (476,101)
Proceeds from disposal of property,
plant and equipment 17,707 -
Aquisition of other assets (173,147) -
Loans and advances to officers (46,801) (122,092)
---------- -----------
Net cash (used in) investing
activities (234,228) (598,193)
---------- -----------
Cash Flows from Financing Activities:
Net proceeds from convertible preferred
stock issuance 2,780,000 (85,880)
Principal payments on long-term debt (150,514) -
Issuance of common stock upon exercise
of stock options - 14,659
Dividends on preferred stock (27,041) -
---------- -----------
Net cash provided by (used in)
financing activities 2,602,445 (71,221)
---------- -----------
Increase (Decrease) in Cash and Cash
Equivalents 1,401,006 20,755
Cash and Cash Equivalents, beginning of
period 1,001,254 83,286
---------- -----------
Cash and Cash Equivalents, end of period $ 2,402,260 $ 104,041
========== ===========
Supplementary Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest expense $ 47,118 $ 8,909
========== ===========
Income taxes - -
========== ===========
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Conversion of convertible promissory
notes to common stock $2,828,037 $ 1,668,628
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM PRESENTATION
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 all of its wholly owned and
majority owned subsidiary companies. The December 31, 1996 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, 1996. 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, 1997.
2. CONTINGENCIES
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration ("OSHA") issued a willful citation and notification
of penalty in the amount of $147,000 on the Company in connection with the
accidental death of an employee of one of the Company's subcontractors on
the United Illuminating Steel Point Project job site in Bridgeport,
Connecticut. A complaint was filed against the Company by the Secretary of
Labor, United States Department of Labor on September 30, 1996. The Company
is contesting the Citations and Notification of Penalty.
In November of 1996, a shareholder filed a class action lawsuit against the
Company and certain directors and officers of the Company. The suit, filed
in the Superior Court of New Jersey, Middlesex County, alleges that the
Company disseminated false and misleading financial information to the
investing public between March 27, 1996 and November 18, 1996 and seeks
damages in an unspecified amount to compensate investors who purchased the
Company's common stock between the indicated dates as well as the
disgorgement of profits allegedly received by the individual defendants
from sales of common stock during that period. The Company believes this
action is without merit and intends to vigorously contest this matter.
On February 11, 1997 the Company was served with a lawsuit naming the
Company as a co-defendant in a wrongful death cause of action arising out
of the accidental death of an employee of a subcontractor. The suit, filed
in the Federal District Court for the Northern District of Indiana, is
based on the same facts as gave rise to the aforementioned administrative
proceeding instituted by OSHA. Management believes that the suit, as it
relates to the Company, is without merit, and intends to vigorously contest
this claim. In addition the Company has insurance in place to protect
against such events.
4
<PAGE>
On April 1, 1997 Continental Waste Conversion, Inc. ("CWC") commenced
litigation against the Company and two of its subsidiaries, Global Waste &
Energy, Inc., Delaware, and Global Waste & Energy, Inc., Alberta, and the
two principal officers of Global Alberta. CWC alleges that the agreements
entered into whereby CWC granted to Global Delaware the exclusive world
wide rights (excluding Canada) to the proprietary Kocee Gas Generator waste
treatment technology in exchange for a 10% interest in Global Delaware
should be voided because amongst other claims CWC did not obtain proper
approvals and the transaction was not consummated on an arms length basis.
Their claim alleges the loss of revenues estimated at $30 million. Prior to
the closing, the Company obtained the legal opinion of CWC's counsel that
states "CWC has full power, without limitation in any way, to enter into
the agreements, and all necessary corporate steps and proceedings have been
taken so that the agreements are properly granted and executed and
delivered as binding obligations of CWC". The Company believes this claim
is without merit and intends to vigorously contest this claim.
3. EARNINGS PER SHARE
The Company has amended the previously reported earnings per share to
comply with the recent SEC staff position on accounting for securities
issued with beneficial conversion features. This accounting requires that
the Company reflect the difference between the market price of the
company's common stock and the applicable conversion rate on the
convertible preferred stock as a dividend at the issue date (the beneficial
conversion feature totaling $1,109,589) and is amortizing the dividend over
a 180 day period from February 12, 1997, the issue date of the convertible
preferred stock.
4. REVENUE RECOGNITION AND USE OF ESTIMATES
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. Losses anticipated on contracts, excluding period costs, should
be charged to operations as soon as they are evident. In the first quarter
of 1997, the Company recognized revenues equivalent to its costs incurred
on its Davy contract based on approximately one million dollars in
unapproved change orders. The Company reversed these revenues in the second
quarter when it became aware that the change orders had not been approved.
The Company is aggressively pursuing its claims. Future revenues will be
recognized when this claim is finally settled. Also, in the first quarter
the Company recorded revenue of $3.5 million dollars for the sale of four
generators on a sale agreement dated March 28, 1997. 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
revenue on the sale of the four generators should not be recognized until
the period they are shipped." The disclosure requirements of the APB
opinion number 20 of earnings (loss) per share, net income (loss), and
income tax (credit) are as follows:
5
<PAGE>
<TABLE>
<CAPTION>
1997
-------------------------------------------
First Second Six
Quarter Quarter Months
----------- ----------- -----------
<S> <C> <C> <C>
Income (Loss) before Provision (Credit) for Income Taxes 1,722,311 (1,936,487) (214,176)
Change (4,306,608) 1,072,000 (3,234,608)
Amount Restated (2,584,297) (864,487) (3,448,784)
Provision (Credit) for Income Taxes 300,000 (340,000) (40,000)
Change (750,000) 190,000 (560,000)
Amount Restated (450,000) (150,000) (600,000)
Net Income (Loss) 1,422,311 (1,596,487) (174,176)
Change (3,556,608) 882,000 (2,674,608)
Amount Restated (2,134,297) (714,487) (2,848,784)
Net Income (Loss) on Common Stock 1,105,544 (2,203,782) (1,098,238)
Change (3,556,608) 882,000 (2,674,608)
Amount Restated (2,451,064) (1,321,782) (3,772,846)
Earning (Loss) Per Share 0.12 (0.23) (0.11)
Change (0.38) 0.09 (0.28)
Amount Restated (0.26) (0.14) (0.39)
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis Of Financial Condition And 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.
Material Changes in Results Of Operations
The Company's total revenues decreased by approximately 32.4% from $5,467,000
for the quarter ended March 31, 1996 to $3,693,000 for the quarter ended March
31, 1997. Contract service income decreased during the quarter by 33% from
$5,467,000 in 1996 to $3,661,000 in 1997. The decrease in contract service
income is attributable to expected revenues being delayed into the second
quarter at our Oak Ridge and Boston offices. We signed two contracts late in
1996 and were expecting to commence work on both contracts in January 1997. The
work was delayed due to harsh winter conditions in both Boston and Buffalo, New
York (the site of the two jobs) and also due to the fact that the city of Boston
delayed the assignment of city employed electricians to this project (total
contract amount of $5.7 million). The Buffalo contract (total contract amount of
$5.8 million) was also delayed due to the tremendous amount of submittals that
had to be commented on and revised before we started actual hands-on field work
in mid February. We expected to recognize a total of $2.3 million in contract
revenues in the first quarter on both contracts. We actualy recognized only $.7
million.
Direct job costs decreased by approximately 36.1% from $6,248,000 for the
quarter ended March 31, 1996 to $3,990,000 for the same period in 1997. 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.
While total revenues decreased by 32.4% for the quarter, general and
administrative expenses increased 31.2 % from $1,653,000 during the quarter
ended March 31, 1996 to $2,168,000 during the same period in 1997. The increase
in general and administrative expense was attributable to $144,000 in expenses
recorded by the Company's 90% owned subsidiary, Global Waste & Energy Inc. and
increases in professional fees and insurance expense (due to additional premium
as a result of an audit on the prior year premium) of $242,000 and $98,000,
respectively.
In addition to its operating income and expenses, the Company reported net
interest income of $57,000 for the quarter ended March 31, 1997 as compared to
net interest income of $3,000 for the same period in 1996. The increase in net
interest income/expense was attributable to $40,000 in interest expense which
accrued on indebtedness which remained outstanding during the first quarter of
1996 out of the $5,000,000 of convertible notes issued in the third quarter of
1995 versus no corresponding expense in the first quarter of 1997, as all the
notes had been converted as of December 31, 1996.
As a result of the foregoing, the Company reported a loss before taxes of
$2,584,000 and a net loss of $2,134,000 for the quarter ended March 31, 1997 as
compared to a loss before taxes of $2,642,000 and a net loss of $2,202,000 for
the same quarter in 1996.
The net loss attributable to common stock was increased by the preferred stock
dividends ($29,000) and an accounting "deemed dividend" ($290,000) arising from
the amortization of the beneficial conversion feature of the Company's Series B
Preferred Stock. The Company is calculating earning per share to comply with the
recent SEC staff position on accounting for securities issued with beneficial
conversion features. This accounting requires that the Company reflect the
difference between the market price of the company's common stock and the
applicable conversion rate on the convertible preferred stock as a dividend at
the issue date (the beneficial conversion feature totaling $1,109,589) and is
amortizing the dividend over a 180 day period from February 12, 1997, the issue
date of the convertible preferred stock.
7
<PAGE>
Material Changes in Financial Condition, Liquidity and Capital Resources.
At March 31, 1997, the Company had a backlog totaling approximately $47 million
compared to a backlog of approximately $50 million at March 31, 1996. The
largest component of the Company's backlog at March 31, 1997 was $15 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 1997 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 $9,129,000, including cash and cash
equivalents balances of $2,402,000 at March 31, 1997. This compares to working
capital of $8,731,000 and a cash balance of $1,001,000 at December 31, 1996. The
increase in working capital and cash is primarily attributable to the sale in
February of 1997 of $3 million of Series B Convertible Preferred Stock less the
approximately $2.6 million dollars pre-tax loss for the period.
Quarter-end receivables as a percentage of first quarter income was 53.6% in
1997 compared to 146.6% in the same period of 1996. The percentage excluding
equipment sales (which is a note receivable) would be a more comparable 92%.
Year-end receivables as a percentage of fourth quarter income increased
substantially from 53.0% in 1994 to 103.5% in 1995 and 157% in 1996. 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 a major contract on December
23, 1994. If this payment had been received after year end, the ratio would have
been a more comparable 98.4%.
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, and to 27% at December 31, 1996 and 76% at March 31, 1997. Also, accounts
payable have constantly decreased since 1994 where as accounts receivable and
unbilled revenues have increased substantially during this period.
8
<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).
Inventory of $1,183,000 at March 31, 1997 remained unchanged from the amount at
year-end. This inventory consists of nineteen (19) generator sets with a total
electrical capacity of 242,500 kilowatts per hour (KWH). The estimated market
price of the Company's generator inventory is twelve million dollars. 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 Company's pending El Salvador waste to energy project. In
future projects, the Company will try to use the balance of the 15,000 KW
generator sets and the 12,500 KW and 33,000 KW sets.
The Company has available at December 31, 1996 approximately $11,575,000
operating loss carry-forwards that may be applied against future taxable income.
$2,350,000 of losses expire in the year 2010 and the balance the following
years. Based on the reported loss to date it will take $9 million dollars in
future taxable income to recover the reported deferred tax asset.
At March 31, 1997, the Company had no long term debt. Long term debt at December
31, 1996 totaled $164,034, consisting of installment debt secured by job
equipment.
9
<PAGE>
During the quarter ended March 31, 1997, the Company made additional loans of
$325,000 repayable upon demand with interest at 9.25% to its ninety percent
owned subsidiary, Global Waste & Energy, Inc. ("Global Delaware"). In addition,
IDM, through a wholly-owned subsidiary of Global Delaware loaned $160,000
(Canadian) to Continental Waste Conversion, Inc. ("CWC") repayable in 18
consecutive installments commencing January 1, 1997 with interest at 7.5% per
annum. As of the date of this report CWC has made no payment and the loan is
delinquent. On April 1, 1997, CWC commenced litigation against the Company and
two of its subsidiaries, Global Delaware and Global Alberta, and the two
principal officers of Global Alberta. CWC alleges that the agreements entered
into whereby CWC granted to Global Delaware the exclusive world wide rights
(excluding Canada) to the proprietary Kocee Gas Generator waste treatment
technology in exchange for a 10% interest in Global Delaware should be voided
because amongst other claims CWC did not obtain proper approvals and the
transaction was not consummated on an arms length basis. Their claim alleges the
loss of revenues estimated at $30 million. Prior to the closing, the Company
obtained the legal opinion of CWC's counsel that states "CWC has full power,
without limitation in any way, to enter into the agreements, and all necessary
corporate steps and proceedings have been taken so that the agreements are
properly granted and executed and delivered as binding obligations of CWC". The
Company believes this claim is without merit and intends to vigorously contest
this claim.
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 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 by the end of the year should 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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(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.
Dated: September 30, 1997 By: /s/ Joel Freedman
----------------------------------
Joel Freedman, President
Dated: September 30, 1997 By: /s/ Michael B. Killeen
----------------------------------
Michael B. Killeen, Principal
Financial and Accounting Officer
12
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<PERIOD-START> JAN-01-1997
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0
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