0001021408-01-509416.txt : 20011119
0001021408-01-509416.hdr.sgml : 20011119
ACCESSION NUMBER: 0001021408-01-509416
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011106
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENVIROGEN INC
CENTRAL INDEX KEY: 0000863815
STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955]
IRS NUMBER: 222899415
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20404
FILM NUMBER: 1775879
BUSINESS ADDRESS:
STREET 1: 4100 QUAKERBRIDGE RD
STREET 2: PRINCETON RESEARCH CENTER
CITY: LAWRENCEVILLE
STATE: NJ
ZIP: 08648
BUSINESS PHONE: 6099369300
MAIL ADDRESS:
STREET 1: PRINCETON RESEARCH CENTER
STREET 2: 4100 QUAKERBRIDGE RD
CITY: LAWRENCEVILLE
STATE: NJ
ZIP: 08648
10-Q
1
d10q.txt
QUARTER ENDED SEPTEMBER 30, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2001 Commission File Number 0-20404
ENVIROGEN, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 22-2899415
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4100 Quakerbridge Road
Princeton Research Center
Lawrenceville, NJ 08648
-----------------------
(Address of principal executive offices)
(609) 936-9300
--------------
(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 the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of October 31, 2001 was 4,005,608.
1
ENVIROGEN, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September, 2001 and 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General 9
Results of Operations 9
Liquidity and Capital Resources 11
Other Matters 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 12
2
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
(Unaudited) (Audited)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,278,253 $ 3,826,006
Accounts receivable, net 5,495,579 4,058,523
Unbilled revenue 1,614,108 2,170,510
Prepaid expenses and other current assets 434,499 300,908
------------- ------------
Total current assets 9,822,439 10,355,947
Property and equipment, net 821,108 957,335
Intangible assets, net 654,981 768,141
Other assets 163,444 184,873
------------- ------------
Total assets $ 11,461,972 $ 12,266,296
============= ============
LIABILITIES
Current liabilities:
Accounts payable $ 2,413,968 $ 2,508,738
Accrued expenses and other liabilities 914,728 1,064,653
Reserve for claim adjustments and warranties 3,002,267 3,210,622
Deferred revenue 390,737 354,222
Current portion of long-term note payable 5,226 5,038
------------- ------------
Total current liabilities 6,726,926 7,143,273
Long-term note payable, net of current portion 7,443 11,800
------------- ------------
Total liabilities 6,734,369 7,155,073
------------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value (50,000,000 shares
authorized; 4,015,525 and 3,982,353 issued at
September 30, 2001 and December 31, 2000, respectively) 40,155 39,824
Additional paid-in capital 59,848,287 59,796,118
Accumulated deficit (55,154,889) (54,718,769)
Less: Treasury stock, at cost (9,917 shares at
September 30, 2001 and December 31, 2000) (5,950) (5,950)
------------- ------------
Total stockholders' equity 4,727,603 5,111,223
------------- ------------
Total liabilities and stockholders' equity $ 11,461,972 $ 12,266,296
============= ============
The accompanying notes are an integral part of these consolidated
financial statements.
3
ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Revenues:
Commercial operations $4,978,616 $4,539,493 $14,247,979 $13,335,902
Research and development services 402,431 318,035 1,007,088 1,338,149
---------- ---------- ----------- -----------
Total revenues 5,381,047 4,857,528 15,255,067 14,674,051
---------- ---------- ----------- -----------
Cost of commercial operations 3,909,955 3,991,329 11,111,416 11,302,409
Research and development costs 395,275 455,575 1,259,157 1,569,385
Marketing, general and administrative expenses 1,243,962 1,233,304 3,607,990 3,724,121
---------- ---------- ----------- -----------
Total costs and expenses 5,549,192 5,680,208 15,978,563 16,595,915
---------- ---------- ----------- -----------
Other income (expense):
Interest income 19,653 53,976 84,636 153,051
Interest expense (3,842) (3,026) (8,050) (9,426)
Other, net - 1,900 - 1,966
---------- ---------- ----------- -----------
Other income, net 15,811 52,850 76,586 145,591
---------- ---------- ----------- -----------
Loss before income taxes (152,334) (769,830) (646,910) (1,776,273)
Income tax benefit - - 210,790 -
---------- ---------- ----------- -----------
Net loss ($152,334) ($769,830) ($436,120) ($1,776,273)
========== ========== =========== ===========
Basic and diluted net loss per share ($0.04) ($0.19) ($0.11) ($0.45)
========== ========== =========== ===========
Weighted average number of shares of
Common Stock used in computing basic
and diluted net loss per share 4,005,608 3,972,436 3,992,089 3,968,990
========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss ($436,120) ($1,776,273)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 447,434 528,806
Provision for claim adjustments and warranties 117,355 169,127
Provision for doubtful accounts 2,744 130,142
Deferred fees 52,500 45,000
Other 738 (1,966)
Changes in operating assets and liabilities:
Accounts receivable (1,439,800) 1,605,506
Unbilled revenue 556,402 964,873
Prepaid expenses and other current assets (133,591) 100,843
Other assets 21,429 21,363
Accounts payable (94,770) (1,765,595)
Accrued expenses and other liabilities (149,925) 10,501
Reserve for claim adjustments and warranties (325,710) (447,374)
Deferred revenue 36,515 69,193
------------ ------------
Net cash used in operating activities (1,344,799) (345,854)
------------ ------------
Cash flows from investing activities:
Capital expenditures (198,785) (295,277)
Proceeds from sale of property and equipment - 1,966
------------ ------------
Net cash used in investing activities (198,785) (293,311)
------------ ------------
Cash flows from financing activities:
Debt repayment (4,169) (3,155)
Capital lease principal repayments - (4,644)
Net proceeds from exercise of stock options - 2,994
------------ ------------
Net cash used in financing activities (4,169) (4,805)
------------ ------------
Net decrease in cash and cash equivalents (1,547,753) (643,970)
Cash and cash equivalents at beginning of period 3,826,006 4,527,979
------------ ------------
Cash and cash equivalents at end of period $ 2,278,253 $ 3,884,009
============ ============
Supplemental disclosures of cash flow information:
-------------------------------------------------
Cash paid for interest $ 7,943 $ 9,407
============ ============
Cash paid (refunded) for income taxes $ 1,480 ($1,955)
============ ============
Supplemental disclosures of non-cash investing and financing activities:
------------------------------------------------------------------------
The Company financed a capital expenditure through a note payable amounting to
$20,809 in the first quarter of 2000.
The accompanying notes are an integral part of these consolidated financial
statements.
5
ENVIROGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial reporting, 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.
The financial information presented reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary for
a fair statement of the results for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be expected for
the entire year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the fiscal year ended December 31, 2000.
Because the Company incurred net losses for the nine months ended September 30,
2001 and 2000, both basic and diluted per share calculations are the same. The
inclusion of additional shares assuming the exercise of options, warrants and
stock credits would be antidilutive. There were options, warrants and other
rights to purchase 703,921 and 591,356 shares of common stock outstanding at
September 30, 2001 and 2000, respectively.
2. LITIGATION
----------
The Company was involved in litigation relating to services previously provided
at a customer site where remediation work was performed. This customer filed a
claim against the Company for professional malpractice, breach of warranty of
professional services contract and misrepresentation. The matter was resolved
in the Company's favor in May 2001.
The Company is subject to claims and lawsuits in the ordinary course of its
business. In the opinion of management, such claims are either adequately
covered by insurance or, if not insured, will not individually or in the
aggregate result in a material adverse effect on the Company's results of
operations, cash flows or financial position.
3. ADOPTION OF ACCOUNTING STANDARD
-------------------------------
In 2001, the Company adopted Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities " ("SFAS
133"). SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of the derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The implementation of SFAS 133
did not have any impact on the Company's consolidated results of operations,
financial position or cash flows.
6
4. INCOME TAXES
------------
In January 2001, under a program in place in the State of New Jersey, the
Company sold a portion of its available New Jersey net operating loss tax
benefits related to losses incurred in prior years. The net amount received by
the Company was $210,790 and is presented as an income tax benefit on the
statement of operations for the period ended September 30, 2001.
5. SEGMENT INFORMATION
-------------------
Information about reported segments for the three and nine months ended
September 30, 2001 and 2000 is as follows:
Research and
Commercial Development
Operations Services Other Total
---------- ------------ ----------- -----------
Three Months Ended September 30,
2001
----
Revenues $ 4,978,616 $ 402,431 $ - $ 5,381,047
Segment profit (loss) 1,068,661 7,156 (1,228,151) (152,334)
2000
----
Revenues $ 4,539,493 $ 318,035 $ - $ 4,857,528
Segment profit (loss) 548,164 (137,540) (1,180,454) (769,830)
Nine Months Ended September 30,
2001
----
Revenues $14,247,979 $1,007,088 $ - $15,255,067
Segment profit (loss) 3,136,563 (252,069) (3,320,614) (436,120)
2000
----
Revenues $13,335,902 $1,338,149 $ - $14,674,051
Segment profit (loss) 2,033,493 (231,236) (3,578,530) (1,776,273)
The following table presents the details of the "Other" segment for the three
and nine months ended September 30, 2001 and 2000:
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ----------- ------------
Marketing, general and
administrative expenses ($ 1,243,962) ($ 1,233,304) ($3,607,990) ($ 3,724,121)
Interest income 19,653 53,976 84,636 153,051
Interest expense (3,842) (3,026) (8,050) (9,426)
Other, net - 1,900 - 1,966
Benefit from income tax - - 210,790 -
------------ ------------ ----------- ------------
($ 1,228,151) ($ 1,180,454) ($3,320,614) ($ 3,578,530)
============ ============ =========== ============
7
6. IMPACT OF THE FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
---------------------------------------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 141, "Business Combinations" ("SFAS 141"),
and 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and establishes specific criteria for the
recognition of goodwill separate from other intangible assets. Under the
provisions of SFAS 142, which will be effective for fiscal years beginning after
December 15, 2001, the cost of certain of the Company's intangible assets will
no longer be subject to amortization. Management has not made a final
determination as to the impact of this new pronouncement on its consolidated
results of operations or financial position.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). This statement will be effective
for fiscal years beginning after December 15, 2001. SFAS 144 establishes a
single accounting model, based upon the framework established in SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", for long-lived assets to be disposed of by sale and to address
significant implementation issues. The Company is in the process of assessing
the impact of the adoption of this statement on its consolidated results of
operations, financial position and cash flows.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included in this
Quarterly Report and the consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K for the fiscal year ended December 31,
2000.
Certain statements made herein are forward-looking and are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties which may cause results to differ
materially from those set forth in these statements. In particular,
unanticipated changes in the economic, competitive, governmental, technological,
marketing or other factors identified herein or in the Company's other filings
with the Securities and Exchange Commission could affect such results.
General
-------
The Company has received most of its revenue from commercial remediation
services and systems, which includes, primarily, revenue attributable to
traditional remediation services such as soil vapor extraction and air sparging.
In addition, a portion of the Company's revenue to date has been derived from
research funded largely by corporate and governmental sponsors to develop cost
effective advanced biological treatment systems. Revenues from these advanced
treatment technologies are still in the early stages of commercial development,
and additional expenditures by the Company will be required for continued
research and development and expanded marketing activities. The amount and
timing of such expenditures cannot be predicted and will vary depending on
several factors, including the progress of development and testing, funding from
third parties, the level of enforcement of environmental regulations by federal
and state agencies, technological advances, changing competitive conditions and
determinations with respect to the commercial potential of the Company's
systems.
Results of Operations
---------------------
Nine Months Ended September 30, 2001 Compared to
------------------------------------------------
Nine Months Ended September 30, 2000
------------------------------------
For the nine months ended September 30, 2001, the Company's total revenues
increased 4% to $15,255,067 from $14,674,051 in the same period in 2000. The
net loss for the current nine month period decreased 75% to $436,120 in 2001
from $1,776,273 in the same period in 2000. The basic and diluted net loss per
share was $0.11 for the first nine months of 2001 compared to $0.45 in the same
period in 2000. The Company's net loss in the first nine months of 2001
declined from the same period in 2000 primarily due to increased revenues and
improved margins in its commercial operations segment and the sale of a portion
of the Company's State of New Jersey net operating loss carryforwards under a
state tax benefit program, which resulted in a net tax benefit recognized by the
Company of $210,790.
Commercial revenues in the nine months ended September 30, 2001 increased 7% to
$14,247,979 from $13,335,902 in the same period in 2000. The increased
commercial revenues are due primarily to more rapid growth of revenues from
commercial systems offset by a reduction in revenue on work passed through to
subcontractors and continued reduction of revenue under the PECFA program, which
is funded by the State of Wisconsin for cleaning up underground storage tanks.
Revenues from corporate research and development contracts decreased in the
nine-month period ended September 30, 2001 by 25% to $1,007,088 from $1,338,149
in the same period in 2000. Revenues decreased primarily due to a reduced
number of government projects in process in 2001.
9
Total costs and expenses decreased 4% to $15,978,563 in the nine-month period
ended September 30, 2001 from $16,595,915 in the same period in 2000. The cost
of commercial operations decreased 2% to $11,111,416 during the first nine
months of 2001 from $11,302,409 in the same period in 2000 despite a 7% increase
in revenue levels. As a result, the Company's gross profit margin for its
commercial operations segment increased from 15% for the nine month period ended
September 30, 2000 to 22% for the same period in 2001, which was primarily due
to product mix, better absorption of fixed costs and a reduction in work passed
through to subcontractors. Research and development expenses decreased 20% to
$1,259,157 during the first nine months of 2001 from $1,569,385 in the same
period in 2000 due primarily to a decrease in the corporate and government
research and development projects in progress. Marketing, general and
administrative expenses decreased 3% to $3,607,990 from $3,724,121 due primarily
to a reduction in business development and administrative costs due to ongoing
cost reduction programs.
Interest income decreased 45% to $84,636 in the nine-month period ended
September 30, 2001 from $153,051 in 2000, due primarily to the combination of
decreased average cash available for investment and lower interest rates.
Three Months Ended September 30, 2001 Compared to
-------------------------------------------------
Three Months Ended September 30, 2000
-------------------------------------
For the three months ended September 30, 2001, the Company's total revenues
increased 11% to $5,381,047 from $4,857,528 in the same period in 2000. The net
loss for the current period decreased 80% to $152,334 from $769,830 in the third
quarter of 2000. The basic and diluted net loss per share was $0.04 in the
third quarter of 2001 as compared to $0.19 in the same period in 2000. The
Company's net loss in the third quarter of 2001 declined from the same period in
2000 primarily due to increased revenue and improved margins in its commercial
operations segment.
Commercial revenues in the third quarter of 2001 increased 10% to $4,978,616
from $4,539,493 in the same period in 2000. The increase in commercial revenues
was due to increased revenue from commercial systems.
Revenues from corporate research and development contracts increased in the
three-month period ended September 30, 2001 by 27% to $402,431 from $318,035 in
2000. Revenues increased primarily due to an increased number of government
projects awarded in mid 2001 and in process during the third quarter of 2001.
Total costs and expenses decreased 2% to $5,549,192 in the three-month period
ended September 30, 2001 from $5,680,208 in the same period in 2000. The cost of
commercial operations decreased 2% to $3,909,955 during the third quarter of
2001 from $3,991,329 in the same period in 2000 due primarily to improved
margins. The Company's gross profit margin for its commercial operations
segment increased to 21% for the three month period ended September 30, 2001
from 12% for the same period in 2000, which was primarily due to product mix,
better absorption of fixed costs and a reduction in work passed through to
subcontractors. Research and development expenses decreased 13% to $395,275
during the third quarter of 2001 from $455,575 in the same period in 2000 due
primarily to a decrease in labor costs. Marketing, general and administrative
expenses increased 1% to $1,243,962 from $1,233,304 due primarily to an increase
in business development costs.
Interest income decreased 64% to $19,653 in the three-month period ended
September 30, 2001 from $53,976 in 2000, due primarily to the combination of
decreased average cash available for investment and lower interest rates.
10
Liquidity and Capital Resources
-------------------------------
The Company has funded its operations to date primarily through revenues from
commercial services and biodegradation systems, public offerings and private
placements of equity securities, research and development agreements with major
industrial companies and research grants from government agencies. At September
30, 2001, the Company had cash and cash equivalents of $2,278,253 and working
capital of $3,095,513. Cash and cash equivalents decreased $1,547,753 from
December 31, 2000 to September 30, 2001 due primarily to cash used in operations
of $1,344,799 and capital expenditures of $198,785.
From December 31, 2000 to September 30, 2001, accounts receivable increased by
$1,437,056 primarily due to clients paying at a slightly slower pace in 2001
than at the end of 2000. In the same period, accounts payable decreased by
$94,770 due to reduced expense levels as well as shifts in the timing of project
expenses. At September 30, 2001, the Company had $3,002,267 in reserve for
claim adjustments and warranties, $2,825,403 of which is available with respect
to potential PECFA claim adjustments related to approximately $36 million in
unsettled PECFA submittals and $176,864 of which is available with respect to
potential warranty claims and other contract issues.
It is anticipated that the Company's currently available cash, cash equivalents
and cash expected to be generated from operations will provide sufficient
operating capital for at least the next 18 to 24 months. The Company may seek
additional funds through equity or debt financing. However, there can be no
assurance that such additional funds will be available on terms favorable to the
Company, if at all.
Other Matters
-------------
As of December 31, 2000, the Company had a net operating loss carryforward of
approximately $27.5 million for federal income tax reporting purposes available
to offset future taxable income, if any, through 2020. The timing and manner in
which these losses may be utilized are limited under Section 382 of the Internal
Revenue Code of 1986 to approximately $1,700,000 per year based on preliminary
calculations of certain ownership changes to date and may be further limited in
the event of additional ownership changes.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIROGEN, INC.
(Registrant)
Date: November 6, 2001 By: /s/ Robert S. Hillas
--------------------
Robert S. Hillas
President and Chief Executive Officer
By: /s/ Mark J. Maten
-----------------
Mark J. Maten
Vice President, Finance
and Chief Financial Officer
12