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 March 31, 1996
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 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
---------------------------------------------------
(Address of principal executive offices)
(908) 390-9550
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former 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, 1996, 6,797,966 shares of Common Stock of the issuer were
outstanding.
<PAGE>
IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
------
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995......................................... 1
Consolidated Statements of Operations - For the three
months ended March 31, 1996 and March 31, 1995............ 2
Consolidated Statements of Cash Flows - For the three
months ended March 31, 1996 and March 31, 1995............ 3
Notes to Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 5
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 9
SIGNATURES.......................................................... 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 104,041 $ 83,286
Accounts receivable, net of allowance for doubtful accounts
of $200,000 8,013,236 6,616,130
Notes receivable - current 1,528,479 1,596,559
Inventory 1,482,517 1,482,517
Costs and estimated earnings in excess of billings 1,415,031 3,634,052
Prepaid expenses 471,761 710,706
Bonding deposits 833,163 883,163
Deferred income taxes 1,092,600 652,600
Recoverable income taxes 1,095,167 1,114,442
Due from officers 670,580 548,488
Other current assets 55,333 55,238
Total current assets 16,761,908 17,377,181
--------------- ---------------
Notes receivable - long term 1,596,559 1,596,559
Deferred issuance costs, net 207,881 506,586
Property, plant and equipment, net 2,859,112 2,547,406
--------------- ---------------
$21,425,460 $22,027,732
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 322,184 $ 327,974
Accounts payable and accrued expenses 7,377,656 5,836,510
Billings in excess of costs and estimated earnings 1,272,245 919,575
Income taxes payable - -
--------------- ---------------
Total current liabilities 8,972,085 7,084,059
--------------- ---------------
Long-term debt 2,032,385 4,004,142
--------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 20,000,000 shares $.001 par
value, issued and outstanding 6,797,359 in 1996
and 6,200,079 in 1995 6,797 6,200
Additional paid-in capital 15,376,585 13,693,895
Retained earnings (deficit) (4,962,392) (2,760,564)
--------------- ---------------
10,420,990 10,939,531
--------------- ---------------
$21,425,460 $22,027,732
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------
1996 1995
----------------- ---------------
<S> <C> <C>
Revenue:
Sale of equipment $ - $ 513,791
Contract income 5,401,749 5,433,198
Sale of scrap 65,047 62,240
Miscellaneous - -
----------------- ---------------
5,466,796 6,009,229
----------------- ---------------
Cost of Sales:
Cost of equipment sales - 220,287
Direct job costs 6,247,505 5,542,172
----------------- ---------------
6,247,505 5,762,459
----------------- ---------------
Gross Profit (loss) (780,709) 246,770
----------------- ---------------
Operating Expenses:
General and administrative expenses 1,652,783 1,903,651
Depreciation and amortization 211,161 96,627
----------------- ---------------
1,863,944 2,000,278
----------------- ---------------
Income (loss) from operations (2,644,653) (1,753,508)
Other income (expense):
Interest income (expense) 2,825 96,946
----------------- ---------------
Income (loss) before provision (credit)
for income taxes (2,641,828) (1,656,562)
Provision (credit) for income taxes (440,000) (660,000)
----------------- ---------------
Net income (loss) $(2,201,828) $(996,562)
================= ===============
Earnings (loss) per share:
Primary earnings (loss) per share $ (0.33) $ (0.14)
Fully diluted earnings (loss) per share $ (0.33) $ (0.14)
================= ===============
Primary common shares outstanding 6,640,934 6,979,430
Fully diluted common shares outstanding 6,640,934 6,979,430
================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------------
1996 1995
-------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,201,828) $ (996,562)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Deferred taxes (440,000) -
Depreciation and amortization 211,161 96,627
Decrease (increase) in:
Accounts receivable (1,397,106) (2,967,115)
Inventory - (347)
Notes receivable 68,080 -
Costs and estimated earnings in excess of billings 2,219,021 1,298,053
Prepaid expenses and other current assets 238,945 161,158
Bonding deposits 50,000 215,304
Recoverable income taxes 19,275 (155,963)
Due from officers (122,092) -
Other current assets (95) -
Increase (decrease) in:
Accounts payable and accrued expenses 1,570,046 (1,877,132)
Billings in excess of costs and estimated earnings 352,670 239,680
Income taxes payable - (477,600)
-------------- ---------------
Net cash (used in) operating activities 568,077 (4,463,897)
-------------- ----------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (476,101) (299,886)
Increase (decrease) of officers loans - (50,872)
-------------- ---------------
Net cash (used in) investing activities (476,101) (350,758)
-------------- ----------------
Cash flows from financing activities:
Principal payments and current maturities of long-term debt (85,880) (39,806)
Issuance of common stock upon exercise of stock options 14,659 -
-------------- ---------------
Net cash provided by financing activities (71,221) (39,806)
-------------- ----------------
Increase (decrease) in cash and cash equivalents 20,755 (4,854,461)
Cash and cash equivalents, beginning of period 83,286 5,068,325
-------------- ----------------
Cash and cash equivalents, end of year $ 104,041 $ 213,864
============== ================
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 8,909 $ 3,239
============== ================
Income taxes - -
Supplemental disclosure of noncash investing and financing
activities:
Property, plant and equipment financing - $ 15,456
============== ================
Conversion of convertible promissory notes to common
stock $1,668,628 -
============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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-KSB 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 April 1, 1996, Frank Falco, the Chairman of the Board of Directors and
Chief Operating Officer of the Company, surrendered 92,214 shares of his
common stock in repayment of his officer's loan in the amount of $670,580.
3. 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
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:
6
<PAGE>
<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)
Earnings (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>
7
<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.
First Quarter of 1996 Compared with First Quarter of 1995
The Company's total revenues decreased approximately 9% from $6,009,000 for the
quarter ended March 31, 1995 to $5,467,000 for the quarter ended March 31, 1996.
Contract service income decreased during the quarter by 0.6% from $5,433,000 in
1995 to $5,402,000 in 1996. The decrease in total revenues is attributable to
the decrease in surplus equipment sales. Surplus equipment and scrap sales
revenues decreased by 88.7% from $576,000 in 1995 to $65,000 in 1996. The
decrease in surplus equipment and scrap sales revenues was attributable to the
sale in a single transaction of $4,000,000 worth of surplus equipment to UPE in
the third quarter of 1995.
Direct job costs increased by approximately 12.7% from $5,542,000 for the
quarter ended March 31, 1995 to $6,248,000 for the same period in 1996. The
primary elements of such increase in job costs were job salaries and material
and supplies. The increase is due to two factors. The first, representing a
decrease in job costs was attributable to the fact that the first quarter of
1995 included an adjustment for $1.3 million in additional shipping costs for
the FFC Jordan Fertilizer Company contract. The second factor was the accrual of
$2,813,000 in cost over runs on two government contracts in Oakridge, Tennessee
and Los Alamos, New Mexico. Cost of equipment sales decreased from $220,000 in
1995 to $0 in 1996. The decrease in cost of equipment sales was attributable to
the UPE sale mentioned previously.
While total revenues decreased by 9% for the quarter, general and administrative
expenses decreased 13.2% from $1,904,000 during the quarter ended March 31, 1995
to $1,653,000 during the same period in 1996. The decrease in general and
administrative expenses was primarily attributable to two refunds of insurance
premiums totaling $90,000 as a result of audits on prior years premiums. Also,
advertising and travel and entertainment expenses were $19,000 and $72,000 less
then for the same period in the prior year.
In addition to its operating income and expenses, the Company reported net
interest income of $3,000 for the quarter ended March 31, 1996 as compared to
net interest income of $97,000 for the same period in 1995. The decrease in net
interest income/expense was attributable to $31,000 in interest expense which
accrued on $1,750,000 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 $450,000 in
equipment financing compared to the same period last year.
As a result of the foregoing, the Company reported a loss before taxes of
$2,462,000 and net loss of $2,202,000 for the quarter ended March 31, 1996 as
compared to a loss before taxes of $1,656,000 and a net loss of $997,000 for the
same quarter in 1995.
Material Changes in Financial Condition, Liquidity and Capital Resources
At March 31, 1996, the Company had a backlog totaling approximately $50 million
compared to a backlog of approximately $47 million at March 31, 1995. The
largest component of the Company's backlog at March 31, 1996 was $25 million for
a paper plant relocation to the People's Republic of China.
8
<PAGE>
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 and Los Alamos, New Mexico 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 $7,790,000 including cash and cash
equivalents balances of $104,000 at March 31, 1996. This compares to working
capital of $10,293,000 and a cash balance of $83,000 at December 31, 1995. The
decrease in working capital is attributable to the loss for the quarter.
Approximately $833,000 of the Company's working capital at March 31, 1996
consisted of cash performance bonds and related refundable deposits which the
Company had posted in connection with the performance of various projects which
are expected to be completed within twelve months, at which time such deposits
are expected to be released to the Company.
Additionally, $1,483,000 of the Company's working capital at March 31, 1996
consisted of surplus equipment inventory. Such inventory level compares to the
same amount at December 31, 1995.
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 $3.2 million dollars in future taxable income to recover the
reported deferred tax asset.
At March 31, 1996, the Company's only long term debt other than the convertible
notes was $605,000 in installment debt secured by job equipment.
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.
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.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
10
<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
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 104,041
<SECURITIES> 0
<RECEIVABLES> 8,213,236
<ALLOWANCES> 200,000
<INVENTORY> 1,482,517
<CURRENT-ASSETS> 16,761,908
<PP&E> 2,859,112
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,425,460
<CURRENT-LIABILITIES> 8,972,085
<BONDS> 2,032,385
0
0
<COMMON> 6,797
<OTHER-SE> 10,414,193
<TOTAL-LIABILITY-AND-EQUITY> 21,425,460
<SALES> 5,466,796
<TOTAL-REVENUES> 5,466,796
<CGS> 6,247,505
<TOTAL-COSTS> 6,247,505
<OTHER-EXPENSES> 1,863,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,641,828)
<INCOME-TAX> (440,000)
<INCOME-CONTINUING> (2,201,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,201,828)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
