<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[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.
[ ] 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
0-20819
THERMATRIX INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2958515
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
308 N. Peters Road, Suite 100
Knoxville, Tennessee 37922
(Address of principal executive offices)
(865) 539-9603
(Registrant's telephone number, including area code)
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 at least the past 90 days:
Yes X No
--------- _________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 14, 2000
---------------------------- --------------------------------
Common stock, $.001par value 7,821,425
<PAGE>
THERMATRIX INC.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Certain Business Considerations" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
-----
<S> <C> <C>
Item 1. Financial Statements....................................................... 3-6
Condensed Consolidated Balance Sheets...................................... 3
Condensed Consolidated Statements of Operations............................ 4
Condensed Consolidated Statements of Cash Flows............................ 5
Condensed Consolidated Statement of Stockholders' Equity................... 6
Notes to Condensed Consolidated Financial Statements....................... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................. 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 13
Item 2. Changes in Securities...................................................... 13
Item 3. Defaults Upon Senior Securities............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders........................ 13
Item 5. Other Information.......................................................... 13
Item 6. Exhibits and Reports on Form 8-K........................................... 13
SIGNATURE.................................................................. 14
</TABLE>
2
<PAGE>
Thermatrix Inc. and Subsidiaries
(Debtors-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
ASSETS 2000 1999
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,609 $ 922
Accounts receivable, net 5,007 6,528
Costs and earnings in excess of billings 699 -
Inventories 941 1,198
Other current assets 2,035 832
-------- --------
Total current assets 15,291 9,480
PROPERTY AND EQUIPMENT, net 2,100 2,495
OTHER ASSETS
Patents and other 752 1,021
Assets of discontinued operations held for disposition 1,160 2,229
-------- --------
Total other assets 1,912 3,250
TOTAL ASSETS $ 19,303 $ 15,225
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 4,398 $ 597
Advance on Contract 5,111 -
Billings on uncompleted contracts in excess
of costs and revenue recognized 1,172 2,880
Accrued liabilities 1,401 1,679
-------- --------
Total current liabilities 12,082 5,156
LIABILITIES SUBJECT TO COMPROMISE 16,076 16,789
REDEEMABLE PREFERRED STOCK 4,200 4,020
-------- --------
Total liabilities and redeemable preferred stock 32,358 25,965
STOCKHOLDERS' EQUITY
Convertible preferred stock, at liquidation preference value;
$0.001 par value; authorized, 5,000,000 shares; outstanding, 6,000 4,200 4,020
on both September 30, 2000 and December 31, 1999
Common stock; $0.001 par value authorized, 25,000,000 shares;
outstanding, 7,821,425 on both September. 30, 2000
and December 31, 1999 8 8
Additional paid-in capital 46,940 47,300
Accumulated other comprehensive income - -
Accumulated deficit (64,203) (62,068)
-------- --------
Total stockholders' equity (13,055) (10,740)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,303 $ 15,225
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Thermatrix Inc. and
Subsidiaries
(Debtors-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
2000 1999 2000 1999
------ ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES $7,495 $ 5,491 $22,642 $15,515
COST OF REVENUES 5,810 4,924 16,798 12,878
------ ------- ------- -------
Gross margin 1,685 567 5,844 2,637
OPERATING EXPENSES
Research and development 1 353 77 751
Selling, general and administrative 1,553 1,688 4,768 5,882
Impairment loss - - - -
------ ------- ------- -------
Total operating expenses 1,554 2,041 4,845 6,633
------ ------- ------- -------
Income/(loss) from operations 131 (1,474) 999 (3,996)
OTHER INCOME/(EXPENSES)
Interest expense and other financing costs (97) (557) (566) (1,085)
Other 47 260 251 719
------ ------- ------- -------
Total other income/(expense) (50) (297) (315) (366)
------ ------- ------- -------
Earnings before reorganization items and
provision for income taxes 81 (1,771) 684 (4,362)
REORGANIZATION ITEMS 241 - 2,793 -
------ ------- ------- -------
Loss before provision for income taxes and
discontinued operations (160) (1,771) (2,109) (4,362)
BENEFIT (PROVISION) FOR INCOME TAXES (7) (17) (26) (51)
------ ------- ------- -------
Loss before discontinued operations (167) (1,788) (2,135) (4,413)
DISCONTINUED OPERATIONS
Income/(Loss) from operations - 1,138 - 535
Loss on disposal - - - -
------ ------- ------- -------
- 1,138 - 535
------ ------- ------- -------
Net loss (167) (650) (2,135) (3,878)
Accretion of redeemable preferred warrants and
costs - (463) - (463)
Accretion of Series E Stock liquidation
premium and dividend requirements (120) (60) (360) (60)
------ ------- ------- -------
Net loss attributable to common stock $ (287) $(1,173) $(2,495) $(4,401)
====== ======= ======= =======
BASIC NET LOSS PER SHARE OF COMMON STOCK
Continuing operations $(0.04) $(0.30) $(0.32) $(0.64)
Discontinued operations (0.00) 0.15 (0.00) 0.07
------ ------- ------- -------
$(0.04) $(0.15) $(0.32) $(0.57)
====== ======= ======= =======
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
7,821 7,786 7,821 7,748
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
Thermatrix Inc. and Subsidiaries
(Debtors-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the nine months ended September 30,
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,135) $(3,878)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization 364 1,770
Provision for doubtful accounts - 245
Interest and costs attributed to warrants - 350
Changes in assets and liabilities
Accounts receivable 1,521 658
Costs and earnings in excess of billings (699) 552
Inventories 257 965
Prepaid expenses and other (1,203) (330)
Accounts payable and accrued expenses 4,188 (4,801)
Billings in excess of costs and revenues 3,403 (1,631)
------- -------
Net cash provided by operating activities 5,696 (6,100)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals 1,374 -
Sale of short-term investments - 1,670
Purchases of property and equipment (27) (121)
Purchase of Wahlco Environmental Systems, Inc., net of cash acquired 36 (310)
Increase in patents and other assets - (1,740)
------- -------
Net cash provided by (used in) investing activities 1,383 (501)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on secured debt from proceeds of disposals (1,332) -
Approved payments for prepetition debt (60) -
Net proceeds from issuance of preferred stock - 5,592
Net proceeds from issuance of common stock - 413
------- -------
Net cash provided by (used in) financing activities (1,392) 6,005
------- -------
INCREASE IN CASH & CASH EQUIVALENTS 5,687 (596)
------- -------
CUMULATIVE EFFECT OF FOREIGN EXCHANGE RATES ON CASH - 127
CASH & CASH EQUIVALENTS BEGINNING OF PERIOD 922 1,544
------- -------
CASH & CASH EQUIVALENTS END OF PERIOD $ 6,609 $ 1,075
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest 434 535
Cash paid for income taxes - 40
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Thermatrix Inc. and Subsidiaries
(Debtors-in-Possession)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
For the nine months ended September 30, 2000
<TABLE>
<CAPTION>
Common Stock Convertible Preferred Stock
------------ ---------------------------
Shares Amount Shares Amount Additional Accumulated Total
------ ------ ------ ------ ---------- ----------- -----
Paid-in Deficit
------- -------
Capital
-------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 7,821 $8 6 $4,020 $47,300 $(62,068) $(10,740)
Accrued preferred stock dividends - - - 180 (360) - (180)
Net loss for the period - - - - - (2,135) (2,135)
----- ------ ------ ------ ------- -------- --------
Balance, September 30, 2000 7,821 $8 6 $4,200 $46,940 $(64,203) $(13,055)
===== ====== ====== ====== ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Thermatrix Inc. and Subsidiaries
(Debtors-in-possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The condensed
consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments which are, in the opinion of management, necessary to
state fairly the results for the periods presented. All such adjustments are of
a normal recurring nature. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results for the nine months ended September 30, 2000 are not necessarily
indicative of the results expected for the full fiscal year.
On December 29, 1999 (the "petition date"), the Company and its operating
domestic subsidiaries filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy
Court, Central District of California ("Bankruptcy Court"). Since the petition
date, the Company has been operating as a debtor-in-possession. As a debtor-in-
possession, the Company is authorized to operate its business, but may not
engage in transactions outside of the normal course of business without approval
of the Bankruptcy Court. The Company intends to file a plan, or plans, of
reorganization, which must be voted upon by certain classes of interests and
approved by the Bankruptcy Court. An Official Committee of Unsecured Creditors
was formed which has the right to review and object to business transactions
outside the ordinary course and participate in any plan or plans of
reorganization.
The Company is considering various alternatives for the reorganization of the
Company, including disposition of certain consolidated subsidiaries.
Segregation and disposition of all or a portion of assets of a subsidiary could
affect the rights of various classes of creditors. Any such plan for
disposition is subject to the approval process described in the previous
paragraph. The accompanying condensed consolidated financial statements do not
include the effects, if any, which might result from disposition of all or a
portion of assets belonging to a consolidated subsidiary.
2. LIQUIDITY AND CONTINUING OPERATIONS
The accompanying consolidated financial statements of the Company have been
prepared on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. However, as a result of the Chapter 11 filing and circumstances
relating to this event, including the Company's recurring losses from operations
and inability to service its debt, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. Further, the Company's
ability to continue as a going concern is dependent upon the confirmation of a
plan of reorganization by the Bankruptcy Court, achievement of profitable
operations and the ability to generate sufficient cash from operations and
financing sources to meet the restructured obligations. Except as otherwise
disclosed, the consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern.
7
<PAGE>
Through a reorganization under Chapter 11, management intends to implement a
program to restructure the operations and capitalization of the Company in order
to strengthen the Company's financial position and operating performance.
3. BASIC NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding. No diluted loss per share information has been
presented in the accompanying statements of operations since potential common
shares from conversion of stock options and warrants are antidilutive.
4. INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out method, and consist of the following (in
thousands):
September 30, December 31,
2000 1999
----- -----
Raw materials $ 597 $ 584
Work in process 279 538
Finished goods 65 76
----- ------
$ 941 $1,198
===== ======
5. COMPREHENSIVE INCOME
The following table presents comprehensive income under the provisions of SFAS
No. 130, "Reporting Comprehensive Income," for the three months and nine months
ended September 30, 2000 and 1999 (in thousands):
For the Three Months Ended
September 30,
--------------------------
2000 1999
---- ----
Net Loss $(167) $(650)
Other Comprehensive Income(Loss), net of tax
Unrealized Currency Gain (Loss) - 863
------ ------
Comprehensive Income (Loss) $(167) $ 213
====== ======
For the Nine Months Ended
September 30,
-------------------------
2000 1999
------- -------
Net Loss $(2,135) $(3,878)
Other Comprehensive Income, net of tax
Unrealized Currency Gain $ - $ 146
-------- -------
Comprehensive (Loss) $(2,135) $(3,732)
======= =======
8
<PAGE>
6. SIGNIFICANT CONTRACT
During the second fiscal quarter of 2000 the U.S. Bankruptcy Court approved the
Purchase and Service Agreement between Thermatrix Inc. and The Dow Chemical
Company. The Agreement establishes the terms and conditions for designing and
supplying multiple Flameless Thermal Oxidizer Systems to various Dow plant sites
over the next several years. The first two of these projects, which have a
combined contract value of over $20 million for Thermatrix Inc., are already
underway.
As part of the Agreement Dow has advanced to the Company, on June 8, 2000, $6
million, which will be treated as a loan to be repaid based upon the progress on
one of the two projects underway. As long as the loan remains outstanding Dow
has a first-priority lien on the Intellectual Property of Thermatrix Inc. In
the event of a default, as defined by the Agreement (which would include, but is
not limited to, the Chapter 11 case being converted to a Chapter 7 by Court
order, Thermatrix Inc. failing to supply milestone deliverable within 30 days of
the due date, etc.), the ownership of the Intellectual Property may become the
property of Dow.
7. DISCONTINUED OPERATIONS
The Company had operations located in the United States and the United Kingdom
until December 1999, at which time the United Kingdom operations were placed
under control of an administrative receiver and the Company currently only has
operations in the United States. Accordingly, 1999 operating results for the
United Kingdom subsidiaries have been reclassified and reported as discontinued
operations. Summary operating results of the discontinued operations are as
follows (in thousands):
For the Three Months Ended
September 30,
--------------------------
2000 1999
------ ------
Revenue $ -- $5,523
Costs and expenses -- 4,385
------ ------
Income from discontinued operations $ -- $1,138
====== ======
For the Nine Months Ended
September 30,
--------------------------
2000 1999
------ -------
Revenue $ -- $16,364
Costs and expenses -- 15,829
------ -------
Income from discontinued operations $ -- $ 535
====== =======
9
<PAGE>
The administrative receiver is proceeding with disposition of United Kingdom
assets and operations. During the quarter ended June 30, 2000, proceeds from
those dispositions totaling $1,184,000 were paid to the secured creditor. The
estimated net realizable value for the discontinued operations is included in
the balance sheet as follows (in thousands):
September 30, December 31,
2000 1999
------- -------
Assets of discontinued operations
held for disposition $1,160 $2,229
====== ======
8. SEGMENTS
The Company had operations located in the United States and the United Kingdom
until December 1999, at which time the United Kingdom operations were placed
under control of an administrative receiver. As a result, the United Kingdom
operations are reported as discontinued operations and the Company currently
only has operations in the United States.
The Company's export revenues accounted for 17% and 25% of total revenues for
the nine months ended September 30, 2000 and 1999, respectively.
9. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market
risks is included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 in Item 1-Description of Business, Item 7-Management's
Discussion and Analysis of Financial Condition and Results of Operations, and in
Note D to the Consolidated Financial Statements. Information regarding
quantitative and qualitative disclosures about market risks is also included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained herein.
10
<PAGE>
Thermatrix Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking information that involves
known and unknown risks and uncertainties which may cause the Company's actual
results in future periods to differ materially from those indicated herein as a
result of certain factors, including those set forth under "Certain Business
Considerations."
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1999, contained in the Company's Annual Report on Form 10-K.
General
-------
Thermatrix Inc. is a global technology company engaged in the development,
design, manufacture, installation, commissioning and sale of industrial process
and utility equipment and systems to industrial manufacturers, electric
utilities, independent power producers and co-generation plants. The core
component of the Company's technology is its proprietary flameless thermal
oxidizer ("FTO") for the destruction of volatile organic compounds and hazardous
air pollutants (collectively "VOCs").
Results of Operations
---------------------
Revenues were $7.5 million and $22.6 million, respectively, for the three and
nine months ended September 30, 2000 up from $5.5 million and $15.5 million,
respectively, for the three and nine months ended September 30, 1999. The
increase in revenues was due to increases in revenues at the Company's Wahlco
operation of $4.3 million for the nine months ended September 30, 2000, and
Thermatrix operation of $3.2 million for the same period. These increases were
due to increased bookings and partially due to the 2000 period reflecting an
entire three and nine months of Wahlco revenue versus a partial period (from the
acquisition date of January 13, 1999 forward) in the 1999 period.
The Company had a gross margin contribution of $1.7 million and $5.8 million,
respectively, for the three months and nine months ended September 30, 2000
compared to a gross margin contribution of $0.6 million and $2.6 million in the
comparable periods in 1999. These increases in gross margin were primarily
attributable to the Company's increased focus on bottom line results over top
line revenue growth. At the Company's Thermatrix operation this focus has been
driven through a movement to cost plus fee contracts versus the previous fixed
price contracts.
Research and development expenses were $1,000 and $77,000, respectively, for the
three months and nine months ended September 30, 2000 compared to $353,000 and
$751,000 for the comparable periods in 1999. The decrease in research and
development expense was primarily attributable to the Company reducing its
research and development efforts while concentrating on restructuring and
successfully emerging from Chapter 11.
Selling, general and administrative expenses decreased to $1.6 million and $4.8
million for the three months and nine months ended September 30, 2000,
respectively, from $1.7 million and $5.9 million in the comparable periods in
1999. The majority of the approximately $100,000 decrease for the three months
ended September 30, 2000 was caused by reduced selling expenses at the Company's
Thermatrix operation due to a restructuring of it's sales department. The
decrease for the nine month period was due mainly to reductions in the Company's
Thermatrix operation recruitment/relocation expenses of $139,000 due to less
recruitment activity occurring, $219,000 in reduced goodwill amortization as the
Company's goodwill was written off in December, 1999, and $157,000 in
professional fees along with $239,000 in legal fees both due mainly to the
acquisition of Wahlco in 1999. These reductions were partially offset by an
increase in accounting fees of $118,000 due to the acquisition of the Wahlco
companies. Additionally the Company's Thermatrix operation experienced a
reduction in selling expense of approximately $472,000 due to the previously
mentioned restructuring of that operation's sales department.
11
<PAGE>
Earnings before reorganization items and provision for income taxes were $81,000
and $684,000 respectively, for the three months and nine months ended September
30, 2000 which compared favorably to the losses of $1.8 million and $4.4 million
for the comparable periods in 1999. This was mainly due to the previously
discussed increased gross margin and reduced operating expenses. During the
September, 2000 quarter the Company experienced $241,000 in costs related to the
Chapter 11 filing, which increased the nine months ended September 30, 2000
reorganization cost to $2.8 million. Reorganization items represent costs and
losses incurred in conjunction with the Chapter 11 proceedings initiated in
December 1999.
Liquidity and Capital Resources
-------------------------------
Total cash and cash equivalents was $6.6 million at September 30, 2000, an
increase of $5.7 million from $922,000 at December 31, 1999. Net cash generated
in operating activities was $5.7 million in the nine months ended September 30,
2000, due primarily to the receipt of the previously mentioned $6.0 million from
Dow, compared to the $6.1 million generated during the nine months ended
September 30, 1999 which was primarily due to the acquisition of Wahlco in
January 1999. There can be no guarantee that sufficient funds will be generated
to cover the negative cash flow position which would have existed without the
$6.0 million received from Dow. Failure to correct the situation will directly
impact the ability to secure new orders, the ability to attract and retain
quality staff and the ability to meet all existing obligations, all of which
will have serious negative consequences for the Company's business, results of
operations and financial condition.
Certain Business Considerations
-------------------------------
The Company's business is subject to the following risks and uncertainties, in
addition to those described elsewhere.
Outcome of Chapter 11 Process. The Company intends to file a plan, or plans, of
reorganization, which must be voted upon by certain classes of interests and
approved by the Bankruptcy Court. The Company is considering various
alternatives for the reorganization of the Company, including disposition of
certain consolidated subsidiaries. Segregation and disposition of all or a
portion of assets of a subsidiary could affect the rights of various classes of
creditors. Additionally, management is evaluating other alternatives to fund its
cash requirements. These plans must be voted upon by certain classes of
interests and approved by the Bankruptcy Court. There can be no assurances as
to the timing, approval and eventual outcome of such plans. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Performance under the Dow Agreement. As part of the Agreement Dow has advanced
to the Company, on June 8, 2000, $6 million, which will be treated as an advance
on the contract to be repaid based upon the progress on one of the two projects
underway. As long as the advance remains outstanding Dow has a first-priority
lien on the Intellectual Property of Thermatrix Inc. In the event of a default,
as defined by the Agreement (which would include, but is not limited to, the
Chapter 11 case being converted to a Chapter 7 by Court order, Thermatrix Inc.
failing to supply milestone deliverable within 30 days of the due date, etc.),
the ownership of the Intellectual Property may become the property of Dow. If
the Intellectual Property, which includes the FTO technology, were to become the
property of Dow there would be a material adverse effect on the Company's
business, results of operations and financial condition.
12
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company has been, or may become, involved in litigation
proceedings incidental to the conduct of its business. As a result of the
acquisition and restructuring of Wahlco Environmental Systems, Inc., a number of
claims have been filed. The Company does not believe that any single proceeding
presently pending will have a material adverse effect on the Company's financial
position or its results of operations.
On December 29, 1999 (the "petition date"), the Company and its operating
domestic subsidiaries filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy
Court, Central District of California ("Bankruptcy Court"). Since the petition
date, the Company and its operating subsidiaries have been operating as debtors-
in-possession. As a debtor-in-possession, each entity is authorized to operate
its business, but may not engage in transactions outside of the normal course of
business without approval of the Bankruptcy Court. The Company intends to file
a plan, or plans, of reorganization, which must be voted upon by certain classes
of interests and approved by the Bankruptcy Court. An Official Committee of
Unsecured Creditors was formed which has the right to review and object to
business transactions outside the ordinary course and participate in any plan or
plans of reorganization. There can be no assurances as to the timing, approval
and eventual outcome of such plans. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
Trademark Acknowledgments
Thermatrix and PADRE(R) are registered trademarks of the Company.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THERMATRIX INC.
Date: November 14, 2000 By: /s/ James E Fritz
--------------------
James E Fritz
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
