-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CZsAe4WFy85hx/wGsWYOa0vMxjRDnDCpDc7b0oD3NDcsCCsWF2C4rPPLWH1+gTvA QzoDek6Ymwlw+lp2gosVHA== 0001036050-99-001074.txt : 19990517 0001036050-99-001074.hdr.sgml : 19990517 ACCESSION NUMBER: 0001036050-99-001074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: SEC FILE NUMBER: 000-20404 FILM NUMBER: 99621528 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 FORM 10-Q 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 March 31, 1999 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 March 31, 1999 was 3,965,951. 1 ENVIROGEN, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ITEM 1. CONDENSED FINANCIAL STATEMENTS Consolidated Balance Sheets at March 31, 1999 (Unaudited) and December 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998 (Unaudited) 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (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 8 Results of Operations 9 Liquidity and Capital Resources 10 Other Matters 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 SIGNATURE PAGE 15 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENVIROGEN, INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 (Unaudited) (Audited) ------------ ------------ ASSETS Current assets: Cash and cash equivalents $3,064,525 $3,407,910 Accounts receivable, net 5,147,084 6,327,599 Unbilled revenue 3,545,607 4,028,183 Inventory 148,878 185,553 Prepaid expenses and other current assets 522,186 681,683 ------------ ------------ Total current assets 12,428,280 14,630,928 Property and equipment, net 1,378,470 1,478,003 Restricted cash 309,300 309,300 Investment in and advances to joint venture 102,865 101,336 Intangible assets, net 1,119,457 1,183,024 Other assets 234,930 243,288 ------------ ------------ Total assets $15,573,302 $17,945,879 ============ ============ LIABILITIES Current liabilities: Accounts payable $2,228,755 $3,441,114 Accrued expenses and other liabilities 593,266 1,121,917 Reserve for claim adjustments and warranties 3,980,384 4,150,133 Deferred revenue 915,012 759,060 Current portion of capital lease obligations 7,372 7,222 ------------ ------------ Total current liabilities 7,724,789 9,479,446 Capital lease obligations, net of current portion 2,771 4,644 ------------ ------------ Total liabilities 7,727,560 9,484,090 ------------ ------------ Commitments and contingencies STOCKHOLDERS' EQUITY Common stock 39,759 39,759 Additional paid-in capital 59,671,189 59,671,189 Accumulated deficit (51,859,256) (51,243,209) Less: Treasury stock, at cost (5,950) (5,950) ------------ ------------ Total stockholders' equity 7,845,742 8,461,789 ------------ ------------ Total liabilities and stockholders' equity $15,573,302 $17,945,879 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 ENVIROGEN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, ---------------------------- 1999 1998 ----------- ----------- Revenues: Commercial operations $4,380,514 $5,809,926 Research and development services 686,610 714,520 ----------- ----------- Total revenues 5,067,124 6,524,446 ----------- ----------- Cost of commercial operations 3,777,620 4,416,238 Research and development costs 695,692 720,500 Marketing, general and administrative expenses 1,237,640 1,985,833 ----------- ----------- Total costs and expenses 5,710,952 7,122,571 ----------- ----------- Other income (expense): Interest income 37,026 51,447 Interest expense (2,649) (6,943) Equity in income (loss) of joint venture 1,529 (2,203) Other, net (8,125) ----------- ----------- Other income, net 27,781 42,301 ----------- ----------- Net loss ($616,047) ($555,824) =========== =========== Basic and diluted net loss per share ($0.16) ($0.14) =========== =========== Weighted average number of shares of Common Stock used in computing basic and diluted net loss per share 3,965,951 3,882,483 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 ENVIROGEN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net loss ($616,047) ($555,824) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 203,712 508,454 Provision for claim adjustments and warranties 157,301 109,329 Provision for doubtful accounts 76,708 41,071 Equity in (income) loss of joint venture (1,529) 2,203 Other 8,125 Changes in operating assets and liabilities: Accounts receivable 1,103,807 846,444 Unbilled revenue 482,576 (367,069) Inventory 36,675 12,998 Prepaid expenses and other current assets 159,497 1,495 Other assets 8,358 7,142 Accounts payable (1,212,359) (1,185,142) Accrued expenses and other liabilities (528,651) (500,982) Reserve for claim adjustments and warranties (327,050) (303,059) Deferred revenue 155,952 261,484 ----------- ----------- Net cash used in operating activities (292,925) (1,121,456) ----------- ----------- Cash flows from investing activities: Capital expenditures (52,107) (46,403) Proceeds from sale of property and equipment 3,370 ----------- ----------- Net cash used in investing activities (48,737) (46,403) ----------- ----------- Cash flows from financing activities: Capital lease principal repayments (1,723) (4,212) ----------- ----------- Net cash used in financing activities (1,723) (4,212) ----------- ----------- Net decrease in cash and cash equivalents (343,385) (1,172,071) Cash and cash equivalents at beginning of period 3,407,910 4,863,658 ----------- ----------- Cash and cash equivalents at end of period $3,064,525 $3,691,587 =========== =========== Supplemental disclosures of cash flow information: Cash paid for interest $9,945 $19,567 =========== =========== Cash refunded for income taxes ($9,764) $0 =========== ===========
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 generally accepted accounting principles 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, 1998. Certain reclassifications have been made to conform prior year's presentation with the 1999 financial statement presentation. Since the Company incurred net losses for the three months ended March 31, 1999 and 1998, both basic and diluted per share calculations are the same. The inclusion of additional shares assuming the exercise of stock options and warrants would have been antidilutive. There were options and warrants to purchase 516,658 and 645,877 shares of common stock outstanding at March 31, 1999 and 1998, respectively. 2. LITIGATION The Company is currently involved in litigation relating to remediation services previously provided at a customer site. This customer filed a claim against the Company for professional malpractice, breach of warranty of professional services contract and misrepresentation. No specific damages have been claimed by this customer and, at the present time, management of the Company is unable to predict the outcome of this matter or to determine whether the outcome of this matter will materially affect the Company's results of operations, cash flows or financial position. The Company is also subject to other claims and lawsuits in the ordinary course of its business. In the opinion of management, such other claims are either covered by insurance or, if not insured, will not individually or in the aggregate result in a material adverse effect on the consolidated financial condition of the Company. 6 3. SEGMENT INFORMATION Information about reported segments for the three months ended March 31, 1999 and 1998 are as follows:
Research and Commercial Development Operations Services Other Total ------------ ------------ ------------ ------------ 1999 Revenues $4,380,514 $686,610 -- $5,067,124 Segment profit (loss) 602,894 (9,082) (1,209,859) (616,047) 1998 Revenues $5,809,926 $714,520 -- $6,524,446 Segment profit (loss) 1,393,688 (5,980) (1,943,532) (555,824)
The following table presents the details of "Other" segment for the three months ended March 31, 1999 and 1998: 1999 1998 ----------- ----------- Marketing, general and administrative expenses ($1,237,640) ($1,985,833) Interest income 37,026 51,447 Interest expense (2,649) (6,943) Equity in income (loss) of joint venture 1,529 (2,203) Other, net (8,125) -- ----------- ----------- ($1,209,859) ($1,943,532) =========== =========== 7 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, 1998. 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 and other factors identified herein and in the Company's other filings with the Securities and Exchange Commission could affect such results. General The Company's revenues to date have been from (i) commercial operations, consisting of revenue from remediation services, conventional treatment systems and soil vapor extraction systems and the Company's biological degradation systems (including both in situ and ex situ bioremediation), and (ii) funds received from third parties and government agencies to conduct specific research and development programs. While the Company has realized significant commercial revenues for several years from remediation services and from traditional remediation systems such as soil vapor extraction systems, it has only recently seen the first substantial revenues from sales of full-scale biological degradation systems for the treatment of contaminated air and water. Although great strides have been made in the commercialization of these systems, significant expenditures will be required for continued research and development, additional marketing activities and ultimately the development of manufacturing capabilities for the further commercialization of the Company's biodegradation systems. The amount and timing of such expenditures 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. The amount and timing of such expenditures cannot be predicted. On April 10, 1997, the Company acquired Fluid Management, Inc. ("FMI"), a full-service environmental consulting and engineering firm that is now operated as the Company's Wisconsin Operations Group (the "Group"). Remediation services and installation of traditional remediation systems are the Group's core business and generate the greatest portion of the Group's revenues. Pursuant to the Wisconsin Petroleum Environmental Cleanup Fund Act ("PECFA"), a program funded by the State of Wisconsin for cleaning up underground storage tanks, the Group's clients (or their lending banks) are entitled to seek reimbursement for a majority of the remediation costs paid to the Group. The Wisconsin Department of Commerce ("DCOM") reviews claims for reimbursement under PECFA to determine the extent to which submitted claims will be reimbursed. Typically the DCOM review process is not completed until one to three years after the expense has been incurred and paid by the Group's client (or its bank). This exposes the client to the risk that remediation expenses it incurred and paid ultimately may be disallowed for PECFA reimbursement by DCOM. The Group has historically reimbursed its clients (or their lending banks) for the remediation costs for services provided by the Group which ultimately were determined by DCOM to be 8 ineligible for reimbursement under PECFA. In certain instances, the Company has written guarantees to banks which, under certain conditions, could obligate the Company to reimburse the bank for items disallowed under the program. Since the Company acquired FMI, the Company has reimbursed its clients and their lending banks an aggregate of $977,161. At March 31, 1999, the Company had $3,611,803 in reserves with respect to potential ineligible claims related to approximately $55 million in claims that had not yet been fully reviewed by DCOM. There can be no assurance that the amount of such reserve, which was determined by management based on historic reimbursement disallowance rates under the PECFA program, will be adequate. On April 17, 1998, the State of Wisconsin adopted new emergency rules ("Emergency Rules") with regard to PECFA which effectively reduced the expected revenue per site that the Wisconsin Operations Group can capture under the program for the foreseeable future. The State of Wisconsin's stated intent for issuance of the Emergency Rules was to reduce the amount of funds being paid for cleanup efforts under the PECFA program. Until the issuance of the Emergency Rules, the Wisconsin Department of Natural Resources ("DNR") determined the appropriate remedial activity for each site under the program in every instance. Per the Emergency Rules, DNR's authority extends only to sites where groundwater contamination is evident. Where contamination of soil exists without groundwater contamination, DCOM administers the remedial program with no DNR involvement. Under the Emergency Rules, lower-cost natural attenuation is mandated unless certain conditions exist which would indicate that active remediation is necessary. This is a significant change, since natural attenuation was previously not an approved option and virtually all sites were actively remediated. Based upon the Company's experience, it is estimated that the active remediation approach under PECFA resulted in revenues ranging from $50,000 to $1,000,000 per site. Since the adoption of the Emergency Rules, the Company's revenues from a typical site were reduced to approximately $40,000 to $100,000. This regulatory event has resulted, and is expected to continue to result, in a dramatic decrease in revenue, net income and cash flow from the Wisconsin Operations Group. The Company is not aware of any proposed or pending changes to the PECFA program that would have a materially favorable impact on the business of the Wisconsin Operations Group. As a result of this event, the Company reviewed the carrying value of the long-lived assets associated with its acquisition of FMI and recorded a non-cash charge of $21,670,028 in the second quarter of 1998 representing the impairment of the goodwill. This charge is based on the amount by which the book value exceeded the current estimated fair market value of the goodwill. The current estimated fair market value was determined primarily using the anticipated cash flows of the Wisconsin Operations Group discounted at a rate commensurate with the risk involved. The impairment charge fully eliminated the remaining carrying value of the goodwill associated with the FMI acquisition. Results of Operations Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 For the three months ended March 31, 1999, revenues decreased 22% to $5,067,124 from $6,524,446 from the same period in 1998. The net loss in the period increased 11% to $616,047 from $555,824, while the basic and diluted net loss per share was $0.16 compared to $0.14 in the same period in 1998. 9 Commercial revenues decreased 25% to $4,380,514 in the first quarter of 1999 from $5,809,926 in the same period in 1998, while revenues from corporate research and development contracts decreased 4% to $686,610 from $714,520 in the same period in 1998. The decreased commercial revenues are due primarily to reduced revenues under the PECFA program related to the adoption of the Emergency Rules in April 1998. Revenues from corporate and government research and development contracts decreased primarily due to the timing of work associated with the Phase II government projects that the Company is actively working on. Total costs and expenses decreased 20% to $5,710,952 in the first quarter of 1999 from $7,122,571 in the same period in 1998. The cost of commercial operations decreased 14% to $3,777,620 from $4,416,238 due to the decreased revenue levels. Research and development expenses decreased 3% to $695,692 from $720,500 due primarily to the decrease in research and development funding from third parties and government agencies. Marketing, general and administrative expenses decreased 38% to $1,237,640 from $1,985,833 due primarily to headcount reductions, purchasing efficiencies from the integration of FMI and the elimination of the amortization of goodwill associated with the FMI acquisition after taking an impairment charge in the second quarter of 1998. Liquidity and Capital Resources The Company has funded its operations to date primarily through revenues from commercial operations, research grants from government agencies, research and development agreements with major industrial companies and public offerings and private placements of equity securities. At March 31, 1999, the Company had cash and cash equivalents of $3,064,525 and working capital of $4,703,491. Additionally, the Company had restricted cash of $309,300 that was being used to collateralize a bond for a large commercial project. Cash and cash equivalents decreased $343,385 from December 31, 1998 to March 31, 1999 primarily a result of cash used by operations of $292,925 and capital expenditures of $52,107. The Company expects to incur additional capital expenditures in connection with the continued development and commercialization of its technologies. The timing and amount of such expenditures will fluctuate depending on the timing of field tests, systems development activity, the rapidity with which the Company's biodegradation technology can be further commercialized and the availability of capital. Furthermore, future projects may require the Company to set aside additional capital to collateralize performance bonds. From December 31, 1998 to March 31, 1999, accounts receivable decreased by $1,180,515 and accounts payable decreased by $1,212,359 primarily due to the reduced revenue levels and related subcontractor charges as well as shifts in the timing of project expenses in the first quarter of 1999 as compared to the last quarter of 1998. Accrued expenses and other liabilities decreased by $528,651 from December 31, 1998 to March 31, 1999 primarily due to the payment in the first quarter of 1999 of bonuses related to prior years and the timing of payroll related accruals. On March 31, 1999, the Company had $3,980,384 in reserve for claim adjustments and warranties, $3,611,803 of which is attributable to potential PECFA claim adjustments related to approximately $55 million in unsettled PECFA submittals and $368,581 of which is attributable to potential systems warranty claims and other contract issues. It is anticipated that the Company's currently available cash and 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. 10 Other Matters As of December 31, 1998, the Company had a net operating loss carryforward of approximately $23,000,000 for federal income tax reporting purposes available to offset future taxable income, if any, through 2018. 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. The Year 2000 Issue - Readiness Disclosure The Year 2000 issue is the result of computer systems and other equipment with processors that identify a year with only two digits rather than four. If not corrected, many computer applications and date sensitive equipment could fail or create erroneous results before, during and after the Year 2000. The Company utilizes information technology ("IT") systems such as computer networking systems and non-IT devices such as building security equipment, that are subject to potential failure due to the Year 2000 issue. The Company has developed and implemented a plan to achieve year 2000 readiness (the "Y2K Program"). The Y2K Program is coordinated at the corporate level and is implemented by individuals in the Company's offices throughout the country. The Y2K Program has been implemented in the following phases: (1) identification and assessment of all critical IT systems and non-IT devices requiring modification or replacement; (2) remediation or replacement and testing of modifications to critical items; (3) evaluation of third parties; and (4) development of contingency and business continuity plans to mitigate the effect of any system or equipment failure to the Company's operations arising from the Year 2000 issue. Progress reports on the Y2K Program have been, and will continue to be, presented regularly to the Company's senior management and periodically to the Audit Committee of the Company's Board of Directors. The Company has identified its computer network in each of its offices as the Company's only significant IT systems. The Company has completed its assessment of its computer network and has identified certain areas of non-compliance that are being addressed by upgrading non-compliant operating software, network capabilities and hardware. Completion of the upgrade process is expected by June 1999. In addition, a standard compliance process is being used to certify that all hardware and software being purchased for the Company's computer network is Y2K compliant. The Company has identified its telephone and communications systems in each of its offices as its only significant non-IT system. The Company has completed its assessment of its telephone and communications systems and has discovered that the telephone systems in two of the Company's locations were non-compliant. The Company intends to modify or, if necessary, replace such non-compliant systems and expects to complete such modification or replacement by September 1999. The Company's projects are predominantly labor oriented with little IT content in what is provided to the Company's clients. With respect to completed projects, the Company does not believe that the systems and equipment provided to its customers (not considering any modification made to such systems and equipment by these customers, for which the Company is not responsible) are likely to fail as a result of the Year 2000 issue. With respect to current and ongoing projects, the Company relies directly and indirectly on external systems utilized by its suppliers and on equipment and materials provided by those suppliers 11 and used for the Company's business. In accordance with the Y2K Program, the Company has established a procedure for reviewing Year 2000 compliance by its suppliers. As part of that process, the Company has identified approximately 150 critical suppliers and is currently assessing the level of compliance for each. In those limited circumstances where equipment delivered to the Company or the Company's clients has some IT or non-IT components with potential Y2K exposure, the Company requires its suppliers to certify and guarantee Year 2000 compliance of their systems and equipment provided. Given the number of suppliers utilized by the Company, compliance assessment is ongoing. Although initial reviews indicate that Year 2000 compliance by the Company's suppliers should not have a material adverse affect on the Company's operations, there can be no assurance that suppliers will resolve all Year 2000 issues with their systems and equipment in a timely manner. The Company has identified certain of its customers that are expected to be customers of the Company through the Year 2000. The Company is currently assessing whether such customers are Y2K compliant and whether any non-compliance by such customers would have an impact on the Company's business. No such customer accounted for more than 10% of the Company's revenues in 1998 or 1997. The Company intends to assess the Y2K readiness of any major new customer of the Company that is expected to be a customer of the Company through the Year 2000. The Company uses both internal and external resources in its Y2K Program. The Company has estimated that to date it has spent less than $10,000, primarily on software upgrades, on the Year 2000 issue. It anticipates spending an additional $50,000 to $100,000 for additional software upgrades, hardware modifications and administrative costs. The program will be funded out of working capital and expensed as incurred. The Y2K Program has not affected any other IT initiatives. This estimate was derived utilizing numerous assumptions, including the assumption that the Company has already identified its most significant Year 2000 issues and that the plans of its third party suppliers will be fulfilled in a timely manner without cost to the Company. These costs are the Company's best estimate given other ongoing systems initiatives. However, there can be no guarantee that these assumptions are accurate, and actual results could differ materially from those anticipated. The Company is developing contingency plans that narrow the focus on specific areas of significant concern and concentrate resources to address them. We currently believe that the most reasonably likely worst case scenario is that there will be some localized disruptions of systems that will affect individual business processes, facilities, customers or suppliers for a short time rather than systemic or long-term problems affecting our business operations as a whole. Our contingency planning will continue to identify systems or other aspects of our business or those of our suppliers that we believe would be most likely to experience Year 2000 problems as well as those business operations in which a localized disruption could have the potential for causing a wider problem by interrupting the flow of materials or data to customers or to other offices. Because there is uncertainty as to which activities may be affected and the exact nature of the problem that may arise, our contingency planning will focus on minimizing the scope and duration of any disruptions by having sufficient personnel and other resources in place to permit a flexible, real-time response to specific problems as they may arise at individual locations. Some of the actions may include the development of plans for the allocation, stockpiling or re-sourcing of components and materials that may be critical to our projects in process at December 31, 1999. Specific contingency plans and resources for permitting the necessary flexibility of response are expected to be identified and put into place commencing in late 1999 as projects in process may not be identified until that time. 12 The success of the Company's Y2K Program is subject to a variety of risks and uncertainties, some of which are beyond the Company's control. Those risks and uncertainties include, but are not limited to, availability of qualified computer personnel, the Year 2000 readiness of third parties, the Year 2000 compliance of systems and equipment provided by suppliers and the affects of the Year 2000 on the economy generally. No assurance can be given that the Company will achieve Year 2000 readiness or that the non-compliance by third parties or the affects of the Year 2000 on the economy generally will not have a material adverse effect on the Company's results from operations, liquidity or financial position. Further, there is the possibility that significant litigation may occur due to business and equipment failures caused by the Year 2000 issue. It is uncertain whether, or to what extent, the Company may be affected by such litigation. The failure of the Company, its clients (including governmental agencies), suppliers of computer systems and equipment, joint venture partners and other third parties upon whom the Company relies, to achieve Year 2000 readiness could materially and adversely affect the Company's results from operations, liquidity or financial position. 13 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 On March 31, 1999, the Company filed a Current Report on Form 8-K reporting an announcement that it had dismissed PricewaterhouseCoopers LLP and selected Ernst & Young LLP to serve as its independent accountants. 14 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: May 13, 1999 By: /s/ Robert S. Hillas ------------------------------- Robert S. Hillas President and Chief Executive Officer By: /s/ Mark J. Maten ------------------------------- Mark J. Maten Vice President of Finance and Chief Financial Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,064,525 0 5,735,007 (587,923) 148,878 12,428,280 5,532,035 (4,153,565) 15,573,302 7,724,789 0 0 0 39,759 7,805,983 15,573,302 0 5,067,124 0 5,710,952 0 0 2,649 (616,047) 0 (616,047) 0 0 0 (616,047) ($0.16) ($0.16)
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