<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
                    ANNUAL REPORT PURSUANT TO SECTION 13 OF
                      THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended                        Commission File No. 0-20404
December 31, 1999

                                ENVIROGEN, INC.
                                 (Registrant)

       Delaware                                      22-2899415
------------------------                 ---------------------------------
(State of incorporation)                 (IRS Employer Identification No.)

   4100 Quakerbridge Road
     Lawrenceville, NJ                                  08648
---------------------------------                 -----------------
(Address of principal executive                       (Zip code)
 offices)

Registrant's telephone number, including area code:  (609) 936-9300

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
--------------------------------------
        (Title of class)

     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 _______
      -------

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
           -------
     The aggregate market value of the registrant's Common Stock (its only
voting stock) held by non-affiliates of the registrant as of February 25, 2000
was approximately $9,830,518.  (Reference is made to p. 15 herein for a
statement of the assumptions upon which this calculation is based.)

     The number of shares of the registrant's Common Stock outstanding as of
February 25, 2000 was 3,966,670.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant's definitive proxy statement relating to
its scheduled May 18, 2000 Annual Meeting of Stockholders (which proxy statement
is expected to be filed with the Commission not later than 120 days after the
end of the registrant's last fiscal year) are incorporated by reference in Part
III of this report.
<PAGE>

                                    PART I

ITEM 1.  BUSINESS

Envirogen, Inc. ("Envirogen" or the "Company") is organized primarily on the
basis of products and services being broken down into commercial operations and
research and development services. The Company provides systems and services to
remove pollutants from the air, water and soil. Many of its system and service
offerings rely on advanced biological techniques that have been developed or
refined by the Company. Envirogen's approach is to utilize the appropriate
technology to provide its clients with the most efficient, safe and cost-
effective solutions to hazardous waste cleanup and treatment needs. The
developmental efforts at Envirogen focus on the isolation of naturally occurring
organisms, enhancement of their performance and the design of advanced systems
to optimize their activity for the biodegradation of various compounds in soil,
air and water.

While the activities of the Company are principally commercial remediation, a
portion of the activities of the Company to date have been related to research
funded by corporate and governmental sponsors to determine when advanced
biological treatment systems are appropriate to treat hazardous or noxious
waste.

Growth Strategy

Envirogen's growth model incorporates both an internal and external growth
strategy. The internal growth strategy centers on increasing sales of the
Company's core products and services through the continued commercialization of
its technologies in concert with focused marketing and sales efforts. To
supplement its internal growth, Envirogen has extended its product and service
lines and geographical presence through selective acquisitions of companies with
complementary capabilities aimed at producing synergistic results. The external
growth strategy also includes entering into joint ventures and collaborative
marketing agreements with firms that are interested in exploring and developing
alternative remediation and pollution control technologies.

In connection with this strategy, in 1998 Envirogen entered into a collaborative
marketing agreement with the Envirex Division of United States Filter
Corporation ("US Filter") to jointly pursue opportunities in the treatment of
ammonium perchlorate, a component in rocket fuel, and methyl-tert-butyl-ether
("MTBE"), a gasoline additive. In February 1999, Envirogen expanded its
relationship with the Davis Process Division of US Filter in the biofilter
market to treat noxious odors in municipal waste water applications. Under the
agreement, US Filter will be responsible for sales, marketing and manufacturing,
while Envirogen will continue product development.

Business Areas

Envirogen's core competency is the application of biotechnology and
biocomplementary technologies combined with expertise in traditional remediation
technology for both the remediation of contaminated waste sites and for the
treatment of contaminated waste streams. The evolution of the Company, catalyzed
by acquisitions which have added synergistic technologies and capabilities onto
its core base of expertise, is demonstrated by its increased scope of services
and products offered to the marketplace and the expansion of its geographic
presence. Increasingly, the Company is identifying and focusing its marketing
efforts on markets that are distinguished by specific compounds such as MTBE or
ammonium perchlorate. In these markets, the Company has technological solutions
that offer advantages over competitive technologies. Envirogen's primary
business areas are described as follows.

                                       2
<PAGE>

Soil Treatment
--------------

The majority of environmental problems are the result of the release into the
environment of contaminants ranging from simple hydrocarbons to complex
chlorinated compounds. Generally, the less complex molecular make-up of a
contaminant, the more easily and quickly it will be degraded by bacteria that
use the contaminant as a "food source." For instance, when hydrocarbon-based
compounds such as gasoline or heating oil are spilled onto the ground, depending
on various factors, indigenous soil bacteria are likely to be present to begin
the biodegradation process to break down the contaminant into its core
components of carbon dioxide and water. Contaminants with more complex molecular
structures generally are more difficult to degrade. As molecular complexity
increases, the presence of indigenous bacteria that are capable of degrading the
compound is less likely, resulting in the need for intervention to enhance the
degradation process. The extent of intervention ranges from the relatively
subtle, such as biostimulation (stimulating indigenous bacteria) and
bioaugmentation (injecting bacteria isolated in a laboratory into the
subsurface), to the more conspicuous, such as excavation and transport to
another location. With an understanding of the direct relationship between cost
and intervention, whereby costs generally increase with added degrees of
intervention, Envirogen designs solutions that employ the least amount of
intervention necessary in each given case to achieve an environmentally
effective and cost-efficient solution.

Depending on the specific circumstances, the remediation of contaminated soils
and groundwater may be undertaken with the contamination remaining in place, or
in situ, or it may require removal of material from the contaminated area(s) for
ex situ destruction. In the latter case, additional costs associated with the
removal process, as well as the costs associated with increased handling,
treatment or storage and transport of contaminated matter, are incurred.

Accordingly, Envirogen's process of designing solutions to maximize cost savings
for its clients employs a hierarchical model of increasingly aggressive cleanup
techniques. In situations where the cleanup can be performed in situ, the most
"passive" form of biodegradation, known as intrinsic remediation, is first
considered by Envirogen. Intrinsic remediation is the approach that allows
contamination to be biodegraded through microbial degradation processes that
have developed naturally at a contaminated site, and thereby occurs without any
intervention. Based on the increased regulatory acceptance of intrinsic
remediation in recent years, Envirogen has accelerated its efforts with this
approach by developing intrinsic remediation protocols for a wide range of
target contaminants from petroleum hydrocarbons to chlorinated solvents.

Envirogen's full range of in situ technologies include: traditional approaches,
such as soil vapor extraction and air sparging; innovative biological-based
techniques, such as biostimulation and bioaugmentation; and approaches combining
the two, such as biosparging and bioventing, both of which stimulate degradative
microbial activity through the addition of oxygen to the subsurface. Envirogen
has steadily increased its in situ capabilities both through its internal
developmental efforts as well as through acquisitions of companies with
technologies in this category. Envirogen's acquisition of Massachusetts-based
Vapex Environmental Technologies, Inc. ("Vapex") in 1991 and Michigan-based MWR
in 1996 provided it with a portfolio of proprietary in situ capabilities. The
Company has recently developed commercial in situ capabilities for destruction
of MTBE and trichloroethylene ("TCE"). The scope of Envirogen's economical in
situ capabilities has been a major factor in Envirogen's success in receiving
several contract awards from groups of prestigious Fortune 100 clients for the
cleanup of Superfund sites.

Envirogen acquired Wisconsin-based Fluid Management, Inc. ("FMI") in 1997. The
acquisition significantly  enhanced Envirogen's remediation capabilities and
provided Envirogen with greater technical resources, broader geographical
presence and broader client coverage.  As a result of its acquisition of FMI,

                                       3
<PAGE>

Envirogen provides specialized remediation services, including all aspects of
underground and aboveground storage tank management, a broad range of
engineering and construction services, air permitting, compliance management,
storm water management, complete solid waste services, landfill engineering and
waste characterization.

Envirogen's ex situ capabilities for soil treatment include both traditional and
innovative approaches. Envirogen is a provider of reactor-based biosystems for
the on-site destruction of vapor streams as a final remediation step that
follows initial processes such as vapor extraction. Other ex situ technologies
used by Envirogen include advanced landfarming, which involves the periodic
mixing of contaminated soil with a solid sludge or aqueous slurry surface layer
that contains degradative bacteria, and soil pile treatment, which uses soil
mounded in rows and periodic tilling of the rows to stimulate biological
degradation of contaminants.

Water Treatment
---------------

The enforcement of more rigorous water quality regulations has created a need
for cost-effective systems to degrade contaminants in groundwater and plant
effluent streams.  The biological treatment of contaminated water streams is
generally recognized as a cost-effective alternative to more traditional
physical and chemical methods such as thermal, UV-based and adsorption
processes.

The biological treatment of contaminated water streams relies on the destruction
of chemicals by microorganisms, attached to a filter media or otherwise
contained in a reactor, to catalyze chemical reactions that break down
contaminants into less harmful compounds. Utilizing its knowledge of
biocatalysis and advanced reactor design, the Company is able to combine
efficient microorganisms with the optimum bioreactor design to achieve the
destruction of a given contaminant. Envirogen's research and development has led
to full-scale reactor systems for the treatment of contaminants ranging in
complexity from simple hydrocarbons to complex compounds, such as MTBE, which
are difficult to degrade. The Company has developed the following reactor
designs:

   .  Fluidized Bed Reactor - The fluidized bed reactor ("FBR") consists of a
      columnar reactor containing media that serves as an attachment surface for
      microorganisms. The contaminated liquid flows through the reactor where
      microorganisms degrade the contaminants. The reactor maintains high
      concentrations of biomass under high flow rate conditions. The optimal use
      of this system is for the treatment of high flow, medium concentration
      waste streams containing contaminants such as hydrocarbons, aromatics,
      solvents, ammonia or nitrates.

      Envirogen's efforts in its water program include the installation in 1998
      of an FBR system at an industrial site for the removal of aniline and
      nitrobenzene from groundwater. As evidence of the cost-effectiveness of
      the technology, the client estimated that the FBR system would save at
      least $1.8 million in capital and operating costs over the life of the
      remediation project when compared to conventional technologies. In
      addition, during 1998 Envirogen designed and installed an FBR at an
      industrial site for the removal of ammonium perchlorate from groundwater.
      Ammonium perchlorate is associated with a number of industries and has
      been identified as a groundwater contaminant in 46 states. During 1999,
      the Company was awarded a contract to provide an FBR system to treat
      groundwater leachate on the site of a former manufactured gas plant for an
      electric utility. The Company believes these systems have applications in
      a number of industries including petrochemicals, pharmaceuticals, pulp and
      paper, and industries using paints or solvents.

                                       4
<PAGE>

   .  Membrane Bioreactor - The membrane bioreactor ("MBR") consists of a
      liquid-phase bioreactor coupled with a membrane clarification unit.
      Following the biological treatment of the contaminated stream, the
      contents of the bioreactor are pumped to the membrane unit where the
      solids and liquids are separated with clean effluent being discharged and
      biomass being recycled back into the bioreactor. During 1999, the Company
      developed and began offering a line of modular transportable membrane
      biological reactor ("TIMBR") systems. These systems incorporate
      proprietary designs and certain features for which a patent application
      has been filed. The first TIMBR unit was delivered in 1999 to an
      industrial/municipal wastewater treatment facility. Also, the Company
      designed an MBR system to treat landfill leachate and other wastewaters as
      part of a 13-acre pretreatment facility under construction by a
      municipality. The optimal use of this system is for high concentration,
      moderate flow-rate streams with complex or difficult to degrade compounds,
      such as MTBE, 1,4-dioxane and pesticides.

Air Treatment
-------------

Motivated by the 1990 Clean Air Act Amendments ("CAAA"), which have increasingly
regulated the release of toxic compounds into the atmosphere, Envirogen embarked
upon a program in the early 1990's to commercialize biotechnology to treat both
odor-causing chemicals and volatile organic compounds. Referred to as
biofiltration technology, the biological treatment of contaminated air streams
is generally recognized as a cost effective alternative to physical and chemical
treatment methods such as incineration, adsorption and chemical scrubbing.
Envirogen's advancements in biofiltration include the development of systems for
the cost-effective treatment of odors and contaminants such as hydrogen sulfide,
carbon disulfide, styrene, terpenes, alcohols, aldehydes, mixed solvents
associated with the printing and surface coating industry and hydrocarbons
associated with remediation.

A biofiltration system consists of a large containment vessel ("reactor"),
within which microorganisms are attached to either an organic or inorganic
filter media and are used to catalyze chemical reactions that break down
airborne contaminants into less harmful compounds. As a contaminated vapor
stream passes through the filter bed, contaminants are transferred from the
vapor to the biofilm layer and are consumed by the microorganisms.  Research and
numerous field trials done by Envirogen resulted in the following bioreactor
technologies:

   .  Biofilter - A biofilter utilizes an organic filter media as the support
      for the biofilm layer containing the microorganisms.  The system, which is
      optimized for dilute waste streams, provides destruction efficiencies of
      up to 99% and typically provides substantial operating cost savings and
      equivalent or lower capital costs when compared to the more traditional
      chemical or physical removal technologies.

   .  Biotrickling Filter - A biotrickling filter operates on the same principle
      as a biofilter but utilizes a synthetic packing material instead of the
      organic filter media used in the biofilter. The biotrickling filter
      operates with a recirculating liquid flow over the packing material. This
      recirculating liquid flow is initially inoculated with microorganisms
      which form a biofilm layer on the packing.  The contaminants are
      transferred to, and degraded by, microorganisms present within both the
      recirculating liquid and the biofilm layer.  The biotrickling filter is an
      attractive alternative for the treatment of more difficult-to-degrade
      compounds with the advantage of reduced system footprint and reduced
      operating costs as compared to more traditional technologies.

                                       5
<PAGE>

Envirogen offers a line of patented modular biofiltration systems and other
technologies for the treatment of odors, air toxics and volatile organic
compounds for specific segments of the air pollution control market. These
technologies, combined with the customized biofilter and biotrickling filter
designs of Envirogen, underscore Envirogen's goal to attain a leadership
position in the biological air pollution control market. These products have
applications in a number of industries which include municipal waste treatment
facilities, composting plants and the forest products industries.

Envirogen is distinguished in this market by having completed work on numerous
full-scale air system installations ranging in contract size from approximately
$35,000 to $1.8 million. In prior years, the Company designed and built
biofilters for a decorative hardwood panel manufacturer and for a synthetic
sponge manufacturer. During 1998 and 1999, Envirogen designed and built a large
flow capacity system, under a contract with Waste Management of New York
("WMNY"). The contract with WMNY called for Envirogen to provide a turn-key
biofiltration odor control system to treat exhaust air from a municipal
waste/biosolids composting facility that WMNY constructed and operates for the
Municipal Authority of Rockland County in New York.

In February 1999, Envirogen expanded its relationship with the Davis Process
Division of US Filter in the biofilter market to treat noxious odors in
municipal waste water applications. Under the agreement, US Filter will be
responsible for sales, marketing and manufacturing, while Envirogen will
continue product development.

Technology

Envirogen conducts research and development aimed at developing new, more
efficient environmental technologies for the remediation of hazardous waste and
for pollution control. Envirogen's technology is based on two elements:
microorganisms (biocatalysts) with exceptional degradative abilities; and
engineered systems, including proprietary bioreactors and processes. Envirogen
has conducted extensive testing of microorganisms and bioreactors and has
assembled a staff of scientists, engineers and consultants with expertise in
biochemistry, molecular biology, microbiology, hydrology, chemical and
mechanical engineering and systems design. During 1999, Envirogen spent
approximately $3.0 million on research and development projects, approximately
$2.9 million of which was funded by third parties or government agencies.

Microorganisms
--------------

Envirogen's biodegradation processes are based on naturally occurring
microorganisms that are either indigenous to a hazardous waste site or are
introduced to the site for controlled usage by Envirogen. The microorganisms
under development are primarily bacteria, which are microscopic, single-cell
organisms that under defined conditions can break down contaminants into less
complex substances. For example, if the contaminant is benzene, the byproducts
from its complete degradation are carbon dioxide and water.

There are naturally occurring bacteria capable of degrading nearly all natural
organic compounds under appropriate conditions.  However, highly effective
naturally occurring bacteria capable of degrading many synthetic compounds (such
as polychlorinated biphenyls ("PCB's") and TCE) are not as common and can be
difficult to utilize.  These synthetic compounds were designed to be chemically
stable, which means that it may take many years before they are naturally
degraded.

Envirogen has isolated natural strains of bacteria that partially or completely
degrade or accelerate the degradation of a number of recalcitrant hazardous
wastes, including MTBE, PCBs, TCE, chloroform and other chlorinated solvents,
hydrochlorofluorocarbons ("HCFCs," ozone-depleting refrigerants) and

                                       6
<PAGE>

polycyclic aromatic hydrocarbons ("PAHs"). These bacteria have been isolated
using specialized enrichment techniques that allow Envirogen to select, isolate
and optimize the superior strains from the general population of bacteria found
at contaminated sites. Envirogen is also designing and testing genetically-
modified bacteria that can have several advantages over naturally occurring
bacteria. These advantages include the ability to degrade wastes faster,
reducing the overall cost of remediation or waste stream treatment.

Envirogen's commitment to developing leading-edge technologies not only serves
to provide new business opportunities for Envirogen, but has also helped
establish Envirogen as a leader in environmental biotechnology. As mentioned
earlier, one of the major areas of focus for Envirogen has been the development
and testing of advanced in situ bioremediation technologies such as
bioaugmentation, whereby highly efficient microorganisms are injected directly
into a contaminated aquifer.

Engineered Systems
------------------

Envirogen has designed and constructed several different engineered systems
using bioreactors to enhance the biodegradative capabilities of the
microorganisms when they make contact with the contaminated air, water or soil.
By using a bioreactor, variables such as temperature and pH (acid or base) can
be controlled, and measured amounts of oxygen and nutrients can be added to the
mixture of microorganisms and contaminated materials, thereby optimizing the
degradative environment.

Envirogen believes that the engineering and design of a variety of bioreactors
is an important factor in its ability to develop and sell commercially viable
systems for the biodegradation of hazardous chemicals. The design of a
bioreactor to be used at a particular site or in a particular waste stream
depends on the types of wastes to be degraded, the media (e.g., soil, water or
air) in which the wastes are located, the concentration of the targeted waste
and the combination of other chemical wastes associated with the targeted waste.
Envirogen continues to develop and test bench-scale and pilot-scale bioreactor
designs utilizing naturally occurring and genetically-modified bacteria for the
degradation of PCE, TCE, MTBE, air toxics, industrial wastewater effluents, and
groundwater contaminants.

In 1998, Envirogen was awarded a patent on its process for the biodegradation of
MTBE. The invention utilizes a class of microorganisms that use propane and
propanol as their growth substrate while also biodegrading MTBE and other ether-
base fuel additives. Envirogen successfully completed a field demonstration of
its MTBE bioremediation technology and believes that the technology provides a
mechanism to remove MTBE from contaminated groundwater on a cost-effective
basis.

Externally Funded Research
--------------------------

As discussed earlier, strict regulations and the prohibitive cost of traditional
treatment methods have forced business and government to seek lower-cost
alternatives to their hazardous waste problems. In particular, various agencies
of the Federal government have been early and strong supporters of innovative
technologies aimed at achieving this goal. This support is evident through the
government's Small Business Innovation Research ("SBIR") program, which awards
grants of various sums to companies for specific areas of research and
development. Throughout it's history the Company has been awarded numerous Phase
I and Phase II SBIRs for the development of advanced technologies. In 1999, the
Company performed a project for the Department of Defense ("DOD"), to develop
and field test a biotrickling filter for treating air containing paint and
paint-stripping solvents. Another SBIR was awarded in 1998, also for the DOD, to
continue development of an in situ biotreatment process for chlorinated solvents
using biostimulation.

                                       7
<PAGE>

The Company contracts with major corporations and government entities to conduct
feasability studies, sponsored research and development and to remediate
contamination problems. Pursuant to the Company's contracts, the work is
generally conducted in phases beginning with feasability studies to demonstrate
that the Company's bacteria will degrade the targeted waste. Each sponsoring
corporation or governmental entity may terminate the work being conducted by the
Company upon the completion of each phase and each additional phase generally is
separately contracted for by the sponsoring corporation or governmental entity.
With limited exceptions, the Company is not subject to any royalty or exclusive
license agreements arising from its research and development contracts. See Note
14 to the Company's Consolidated Financial Statements for a description of
existing license agreements.

Envirogen's research and development efforts with microorganisms and engineered
systems, along with many other existing products and systems still under
development, lay the scientific groundwork for safer, more responsive commercial
applications.  The result is a cleaner environment achieved at a cost which is
reasonable for government and industry.

Marketing

The Company's products and services are marketed to customers by both a
dedicated sales staff and by the Company's technical staff.  Once a potential
client or project opportunity is identified, the Company uses its expertise in a
variety of disciplines as appropriate to provide specific solutions to meet an
individual client's needs.

Governmental Regulation

The federal and state environmental laws regulating Envirogen's current and
proposed biodegradation systems are complex, subject to varying interpretations
and continually evolving. Compliance with these laws, rules and regulations is
expected to be time consuming and costly. Failure to comply with these
requirements, even if unintentional, could give rise to liabilities, penalties
or fines that could materially adversely affect Envirogen's financial condition
and its reputation.

Under the Toxic Substances Control Act ("TSCA"), the EPA has the authority to
regulate the use of chemicals for commercial purposes. A premanufacture notice
("PMN") is required to be filed with the EPA 90 days in advance of the
manufacture for commercial purposes of any "new" chemical substance. To date,
the EPA has not asserted that isolated strains of naturally-occurring
microorganisms are chemical substances under TSCA. Since 1986, however,
genetically-modified microorganisms, with certain limited exceptions, have been
considered "new" chemical substances by the EPA. As a result, any manufacture of
genetically-modified microorganisms that Envirogen may consider in the future
for commercial use or the release of genetically-modified microorganisms into
the environment will require the filing of a PMN, subject Envirogen to the EPA's
premanufacturing review process and require the development of risk assessment
information. Depending on the nature of the microorganism, this process may be
time-consuming and costly. Envirogen has been advised by the EPA that
Envirogen's proposed use of genetically-modified microorganisms in a bioreactor
is a "contained" use for purposes of research and development. In April 1997,
the EPA adopted regulations for its TSCA biotechnology program that define the
criteria under which the use of genetically-modified microorganisms in a
bioreactor will be considered "contained." Envirogen believes the time and cost
of obtaining EPA approval for its commercial systems may be reduced as a result
of the EPA's regulations for its TSCA biotechnology program. Envirogen continues
to monitor regulatory approvals required by the EPA under TSCA and by various
state and local authorities related to Envirogen's intended use of genetically-
modified bacteria.

                                       8
<PAGE>

Recombinant DNA research conducted with grants from the National Institute of
Health ("NIH") must comply with NIH's Guidelines for Research Involving
Recombinant DNA Molecules (the "Guidelines"). Although compliance with the
Guidelines is not currently mandated for entities that do not receive any NIH
funding, Envirogen has conducted its research involving genetically-modified
microorganisms in compliance with the Guidelines. The Guidelines prohibit or
restrict certain recombinant DNA experiments, set forth levels of biological and
physical containment of recombinant DNA molecules for various types of research
and require that institutional biosafety committees, composed of representatives
of Envirogen and the public, approve certain experiments before they are
initiated.

Envirogen's research and development activities on PCBs currently require a
permit under TSCA, and certain of its other research activities on other
hazardous substances require state permits. These permits have been obtained.
Additionally, other permits may be required from the EPA and various state and
local agencies in connection with the installation, use or operation of
Envirogen's biodegradation systems.

Envirogen's biodegradation systems, whether used at a hazardous waste
generator's facility or at a hazardous waste site, also may be subject to
permitting under the Resource Conservation and Recovery Act ("RCRA") as a
Treatment, Storage or Disposal Facility ("TSD facility"). The field
demonstration of a bioreactor system may also require a permit under RCRA.
Obtaining a TSD facility permit can be a time consuming and expensive process,
requiring considerable documentation, including process information, waste
specifications and information regarding compliance assessments, security
procedures, emergency plans and insurance, as well as local public hearings.
Local public opposition may delay the issuance of a TSD facility permit for a
number of years or even cause the EPA to deny the permit.

Envirogen's systems may also be subject to other environmental regulations
including mandatory destruction levels and prohibitions on the release of
significant levels of hazardous wastes into the environment.

Envirogen's vapor extraction technology is subject to strict enforcement of
various EPA and state environmental regulations and various site specific
permitting requirements. EPA or state regulatory agency review of the remedial
action plan is a prerequisite to installation of a full-scale vapor extraction
system. In addition, the vapor extraction system must comply with federal and
state air and water pollution control standards and an air emissions permit is
often required. In some instances, the system will require a permit in order to
discharge the treated waste stream into ground or surface waters.

Federal and state safety and health regulations require Envirogen to train its
employees for work at hazardous waste sites and require the preparation of
health and safety plans for each individual project.

Management believes that Envirogen is in material compliance with all material
regulatory requirements.

Competition

The environmental remediation industry is highly fragmented and competitive. The
Company competes primarily on the basis of price by using its technologies to
provide remediation solutions which are more cost effective than alternative
approaches. Competitors include engineering and construction firms,
environmental management service firms and specialized technology companies,
including companies focusing on developing advanced biological remediation
technologies similar to Envirogen's technologies. As technological advances are
made and become more widely known, the larger environmental firms may acquire
these companies and technologies and offer such technologies as part of an
overall solution to a hazardous waste remediation project. Because these
companies have significantly greater financial

                                       9
<PAGE>

resources than Envirogen and can offer a wider range of services, Envirogen may
be at a competitive disadvantage.

In general, competition in the hazardous waste management industry is based
primarily upon the cost of the volume of waste treated, contained or removed.
Where the waste is removed, customers are typically charged based on tons of
contaminated soil excavated and transported to a hazardous waste landfill.
Additional competitive factors include corporate presence in a geographic area,
regulatory support, performance standards and technical reliability and
competence. Envirogen's competitive position is premised upon the lower-cost
treatment approach traditionally associated with biodegradation techniques, with
particular focus upon Envirogen's distinctive approach to degrading recalcitrant
hazardous waste.

Envirogen and many other environmental companies offer full-service, turn-key
approaches that are capable of providing an overall solution to a hazardous
waste remediation project. Where appropriate, Envirogen teams with larger
environmental service firms to offer consulting, engineering, project
management, materials handling and other complementary techniques that are
provided by other firms in conjunction with Envirogen's biodegradation
technology. To date, Envirogen has been able to establish acceptable levels of
such teaming arrangements on satisfactory terms.

In response to the search for alternatives to incineration, deep-well injection
and hazardous waste landfills, various developmental chemical and physical
treatment technologies are being explored by sources within industry, university
research centers and the EPA. Any of these alternative technologies, if found to
be effective and cost efficient, may directly or indirectly compete with
Envirogen's technologies. Certain present remediation alternatives are under
regulatory review and, as in the case of incineration, their availability may be
limited or restricted in the future, thereby increasing the need to develop
acceptable alternatives.

Envirogen is aware of a number of potential competitors seeking to develop
commercial systems employing biological degradation technology, many of which
have considerably greater financial resources than Envirogen. Some of these
companies are focusing directly on the enhancement of the degradative activities
of indigenous microorganisms, and some have isolated strains of microorganisms
that alone or in combination with other isolated strains of bacteria will
degrade certain hazardous wastes. Envirogen does not expect that other entities
seeking solely to enhance conventional biological treatment systems will be able
to demonstrate these systems' effectiveness in degrading the more recalcitrant
hazardous chemicals targeted by Envirogen. There are, however, a number of
companies attempting to develop advanced biological treatment techniques similar
to those of Envirogen for treatment of these recalcitrant chemicals. The less
stable hydrocarbon wastes are not particularly difficult to degrade using
conventional biological methods, and Envirogen expects greater competition in
that market sector.

Envirogen is aware of other companies that have targeted the biodegradation of
MTBE and/or TCE and have performed various degrees of testing. Envirogen is not
aware of any competitor that has had substantial positive results in the
biodegradation of PCB wastes, although Envirogen believes that various companies
have targeted the PCB biodegradation market. Envirogen is aware of and expects
continued competition in the areas of remediation of industrial air toxics,
industrial wastewaters, groundwater and soils.

In addition, there are a significant number of companies that offer soil vapor
extraction and related remediation services. The EPA has rated soil vapor
extraction as one of the top innovative technologies. Changes in governmental
regulations, the enforcement of regulations or advances in technology may result
in a decrease in the demand for vapor extraction services or affect the
competitive environment in which Envirogen operates.

                                      10
<PAGE>

Employees

As of December 31, 1999, Envirogen had 161 full-time employees, including 94 in
engineering, 23 in research and development, 32 in administration and finance
and 12 in marketing. Doctoral degrees are held by 11 employees and encompass the
disciplines of biochemistry, molecular biology, chemical engineering, civil
engineering, environmental engineering, hydrologic science, microbiology and
microbial physiology. Each of Envirogen's key employees is subject to a
confidentiality agreement with Envirogen covering Envirogen's processes and
plans relating to its business and activities. Envirogen is not subject to any
collective bargaining agreements and believes that its relationship with its
employees is excellent.

Environmental Liability and Insurance

Envirogen could be held strictly liable under various laws and regulations if
microorganisms or hazardous wastes cause harm to humans or the environment, even
if Envirogen were not negligent. Although Envirogen has a combined professional
liability and contractor's pollution liability insurance program that also
provides limited product liability coverage, there can be no assurance that
environmental liabilities that may be incurred by Envirogen will be covered by
its insurance or that the dollar amount of covered liabilities will not exceed
policy limits. Accordingly, a partially or completely uninsured judgment against
Envirogen could have a materially adverse effect on Envirogen. Liability
insurance market conditions may make it impossible or uneconomical for Envirogen
to obtain combined professional and contractor's pollution liability or product
liability insurance, which may adversely affect its ability to market its
products and services. Although Envirogen attempts to mitigate some of the
uninsured risks by typically not taking title to its customers' waste or
transporting such waste, such measures may not be sufficient to avoid all
potential liability.

Envirogen may be required to indemnify its customers against losses and fines
associated with work under certain of its contracts in the event that
Envirogen's, and under certain circumstances, its subcontractors performance
under such contract or contracts is faulty or not conducted in compliance with
deadlines. Although Envirogen will make every effort to mitigate losses under
indemnification clauses contained in its contracts, a claim, if successful and
of sufficient magnitude, could have a materially adverse effect on the business
or financial condition of Envirogen.

ITEM 2.  PROPERTIES

The Company's headquarters is located in Lawrenceville, New Jersey, where it
leases 40,200 square feet of office space for its administrative, research and
pilot facilities and for its commercial operations. The Company also leases an
aggregate of approximately 48,100 square feet of office and warehouse space for
its administrative and commercial operations in Illinois, Massachusetts,
Michigan, Texas and Wisconsin. Management believes that the Company's facilities
are adequate and suitable for its current and proposed operations for the
immediately foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

The Company is currently 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.  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.

                                      11
<PAGE>

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 consolidated financial
condition of the Company.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                      12
<PAGE>

                            Additional Information

The following information is furnished in this Part I pursuant to Instruction 3
to Item 401(b) of Regulation S-K:

Executive Officers of the Company

The executive officers of the Company serve at the discretion of the Board of
Directors.  There are no family relationships between any of the executive
officers of the Company.  The following information indicates the position and
age of the Company's executive officers as of the date of this report and their
previous business experience.

<TABLE>
<CAPTION>

     Name                   Age                           Position
     ----                   ---                           --------
<S>                         <C>              <C>
Robert S. Hillas             51              President, Chief Executive Officer and
                                                Chairman of the Board
Ronald Unterman, Ph.D.       54              Senior Vice President and Chief
                                                Scientific Officer
Mark J. Maten                42              Vice President, Finance and Chief
                                                Financial Officer
David N. Enegess             53              Vice President Systems Sales and Services

Richard W. Schowengerdt      44              Vice President Wisconsin Operations
</TABLE>

Robert S. Hillas, President, Chief Executive Officer and Chairman of the Board,
joined the Company in April 1998.  Mr. Hillas served as a Managing Director and
a member of E.M. Warburg, Pincus & Co., L.L.C. ("Warburg"), an investment
banking firm, and its predecessors from 1993 until April 1998.  Mr. Hillas
served as Warburg's nominee director to the Company from April 1997 to April
1998.  Mr. Hillas is also a director of ATMI, Inc.  Mr. Hillas received his
undergraduate degree from Dartmouth College and a Masters in Business
Administration from Stanford University.

Ronald Unterman, Ph.D., Senior Vice President and Chief Scientific Officer, is a
founder of the Company and has been with the Company since August 1988.  From
1981 until he joined the Company, Dr. Unterman served as a staff scientist (from
November 1981 to December 1987) and as a manager (from January 1988 to July
1988) of the Environmental Technology Program at General Electric Company.  His
primary area of research expertise is in the development of methods for
biodegrading PCBs.  Dr. Unterman is also a director of About.com, Inc.  Dr.
Unterman received a B.A. in biology from Haverford College, studied under a
Molecular Biology Fellowship at Rockefeller University and holds a Ph.D. in
biochemistry from Columbia University.

Mark J. Maten joined the Company in January 1998 as Vice President, Finance and
Chief Financial Officer.  From February 1997 until December 1997, Mr. Maten
served as a business and financial advisor in a consulting capacity to a number
of companies.  From June 1992 until January 1997, Mr. Maten was Senior Vice
President and Chief Financial Officer of Enviroplan, Inc., a leading provider of
continuous emission monitoring systems to the electric utility industry.  Mr.
Maten also served as a member of the Board of Directors for Enviroplan, Inc.
Mr. Maten is a member of the American Institute of Certified Public Accountants.
Mr. Maten received his undergraduate degree from the University of Michigan and
a Masters in Business Administration from Indiana University.

                                       13
<PAGE>

David N. Enegess was appointed Vice President Systems Sales and Services in
January 1999.  Mr. Enegess is a founder of the Company and has served as Vice
President of Marketing and Commercial Development (June 1988 until March 1997)
as well as Vice President of Product Development (April 1997 until December
1998).  From 1982 until he joined the Company in June 1988, he served in various
capacities, most recently as Vice President of Corporate Development, for
American NuKEM Corporation (formerly known as WasteChem Corporation), a company
which sells equipment, systems and services for the treatment of hazardous
wastes.  Mr. Enegess received his undergraduate and masters degrees in chemical
engineering from Tufts University.

Richard W. Schowengerdt joined the Company when Fluid Management, Inc. ("FMI"),
a full-service environmental consulting and engineering firm of which he was a
founder, was acquired by the Company in April 1997, and served as Vice President
of Design Engineering until May 1999. Mr. Schowengerdt was named Vice President
Wisconsin Operations in May 1999. He served as Vice President of Technical
Development at FMI since 1990. Mr. Schowengerdt's background includes management
and technical expertise in construction, engineering, geology and hydrogeology.
Mr. Schowengerdt received a B.S. in hydrology from Michigan Technological
University.

                                       14
<PAGE>

                                    PART II


ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Envirogen's Common Stock is traded in the Nasdaq SmallCap Market under the
symbol "ENVG." The Common Stock prices are inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions.  The following table sets forth for the periods indicated the high
and low closing prices for Envirogen's Common Stock as reported by Nasdaq.  The
stock prices have been adjusted to reflect the one-for-six reverse split of the
Company's common stock on November 24, 1998 on a retroactive basis.


               1999                  HIGH            LOW
               ----                  ----            ---
          1st Quarter               $ 1.88          $1.09
          2nd Quarter               $ 1.75          $0.88
          3rd Quarter               $ 1.66          $0.75
          4th Quarter               $ 1.69          $0.81

               1998
               ----
          1st Quarter               $ 9.75          $6.19
          2nd Quarter               $12.19          $6.57
          3rd Quarter               $ 7.88          $2.25
          4th Quarter               $ 3.00          $1.00


The closing price for the Common Stock on February 25, 2000 was $4.19. For
purposes of calculating the aggregate market value of the shares of Common Stock
of the Company held by nonaffiliates, as shown on the cover page of this report,
it has been assumed that all the outstanding shares were held by nonaffiliates
except for the shares held by directors and executive officers of the Company
and stockholders owning 10% or more of outstanding shares. However, this should
not be deemed to constitute an admission that all such persons are, in fact,
affiliates of the Company, or that there are not other persons who may be deemed
to be affiliates of the Company. Further information concerning ownership of the
Company's securities by executive officers, directors and principal stockholders
will be included in the Company's definitive proxy statement to be filed with
the Securities and Exchange Commission.

The number of stockholders of record as of February 7, 2000 was 219, which
includes stockholders whose shares were held in nominee name.  The number of
beneficial stockholders at that date was over 1,600.

Envirogen has never declared or paid cash or other dividends on its Common
Stock.  The payment of dividends, if any, in the future is within the discretion
of the Board of Directors and will depend upon Envirogen's earnings, capital
requirements, financial condition and other relevant factors.  Envirogen
presently intends to retain all earnings, if any, for future use in its business
and does not anticipate paying dividends in the foreseeable future.

                                      15
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

The following table contains selected financial data for each of the Company's
last five fiscal years.  This data should be read in conjunction with the
Company's consolidated financial statements and related notes appearing
elsewhere in this report and with Item 7 of this report.

<TABLE>
<CAPTION>
Summary of Operations
                                                                    Years Ended December 31,
                                     -----------------------------------------------------------------------------------
                                          1999             1998/(1)/        1997/(2)/         1996/(3)/         1995
                                        --------           ---------        ---------         ---------       --------
<S>                                  <C>                <C>              <C>               <C>             <C>
 Revenues                             $24,049,968         $26,220,877      $25,769,509       $12,919,594     $ 8,033,698
 Costs and expenses                    25,601,135          52,541,064       28,885,818        15,689,306      10,279,694
 Interest, net                            134,765             159,277          210,573           170,783         169,972
 Equity in (loss) income
   of joint ventures                         (393)             13,688         (210,497)          (52,629)        (93,437)
 Other, net                                (7,604)             (3,804)          26,047             7,601          16,961
                                     ------------       -------------    -------------     -------------   -------------
 Net loss                              (1,424,399)        (26,151,026)      (3,090,186)       (2,643,957)     (2,152,500)
 Preferred stock
   dividends                                    -                   -                -           (36,458)       (233,333)
                                     ------------       -------------    -------------     -------------   -------------
 Net loss applicable to
   Common Stock                      ($ 1,424,399)       ($26,151,026)    ($ 3,090,186)     ($ 2,680,415)   ($ 2,385,833)
                                     ============       =============    =============     =============   =============

 Basic and diluted net
   loss per share
    applicable
   to Common Stock(4)                      ($0.36)             ($6.64)          ($0.93)           ($1.41)         ($1.87)
                                     ============       =============    =============     =============   =============

<CAPTION>
Summary of Financial Position
                                                                     December 31,
                                     -----------------------------------------------------------------------------------
                                          1999               1998           1997/(2)/         1996/(3)/         1995
                                        --------           ---------        ---------         ---------       --------
<S>                                  <C>                <C>              <C>               <C>             <C>
Total assets                         $ 16,370,865       $  17,945,879    $  42,727,012     $  12,716,624   $   8,585,233
Working capital                         4,786,503           5,151,482        8,099,057         7,094,266       4,934,700
Long-term obligations                           -               4,644           12,671            42,176          60,951
Redeemable convertible
  Preferred Stock                               -                   -                -                 -       1,728,621
Stockholders' equity                    7,093,390           8,461,789       33,992,254        10,047,233       4,863,357
</TABLE>

_____________

(1)  Costs and expenses for 1998 includes a non-cash charge of $21,670,028
     representing the impairment of goodwill associated with the FMI
     acquisition.
(2)  The financial data for 1997 includes the results of operations of FMI
     (acquired April 10, 1997) from  the date of acquisition.
(3)  The financial data for 1996 includes the results of operations of MWR
     (acquired February 9, 1996) from the date of acquisition.
(4)  The per share amounts have been adjusted to reflect the one-for-six reverse
     stock split of the Company's common stock on November 24, 1998 on a
     retroactive basis.

                                      16
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following information should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in this report.

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 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
revenues from sales of full-scale biological degradation systems for the
treatment of contaminated air and water. Although full-scale commercial systems
have been installed for each current reactor type, additional expenditures will
be required for continued research and development and additional marketing
activities for the further commercialization of the Company's biodegradation
systems is planned. 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.

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 and Illinois Divisions. Remediation services and
installation of traditional remediation systems are the Divisions' core business
and generate the greatest portion of the Divisions' 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
Wisconsin Division's clients (or their lending banks) are entitled to seek
reimbursement for a majority of the remediation costs paid to the Wisconsin
Division. 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 Wisconsin
Division'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 Wisconsin Division has historically reimbursed its
clients (or their lending banks) for the remediation costs for services provided
by the Wisconsin Division which ultimately were determined by DCOM to be
ineligible for reimbursement under PECFA. Since the Company acquired FMI, the
Company has reimbursed its clients and their lending banks an aggregate of
$1,343,311. At December 31, 1999, the Company had $3,328,034 in reserves with
respect to potential ineligible claims related to approximately $56 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.

                                      17
<PAGE>

On April 17, 1998, the State of Wisconsin adopted emergency rules ("Emergency
Rules") with regard to PECFA which effectively reduced the expected revenue per
site that the Wisconsin Division 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, because 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 have been 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 Division.

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 Division 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
---------------------

1999 Compared to 1998
---------------------

For the year ended December 31, 1999, the Company's total revenues decreased 8%
to $24,049,968 from $26,220,877 in 1998. The net loss decreased 95% to
$1,424,399 from $26,151,026 in 1998, while the basic and diluted net loss per
share was $0.36 compared to $6.64 in 1998. The 1998 net loss included a goodwill
impairment charge of $21,670,028, or approximately $5.50 per share.

Commercial revenues (net of reserves for ineligible PECFA claims) decreased 11%
in 1999 to $21,114,503 from $23,648,398 in 1998. The decreased commercial
revenues are due primarily to reduced revenue under the PECFA program related to
the adoption of the Emergency Rules in April 1998.

Revenues from corporate research and development contracts increased in 1999 by
14% to $2,935,465 from $2,572,479 in 1998. Revenues increased primarily due to
the timing of work associated with Phase II government projects on which the
Company worked in 1999.

Total costs and expenses decreased to $25,601,135 in 1999 from $52,541,064 in
1998. The 1998 costs included the impairment charge of $21,670,028. Exclusive of
the impairment charge, total costs and expenses decreased 17% for 1999. The cost
of commercial operations decreased 14% to $17,973,543 during 1999 from
$20,944,137 in 1998 due primarily to decreased revenue levels. Research and
development expenses decreased 1% to $2,981,959 during 1999 from $2,998,628 in
1998. Marketing, general and administrative expenses decreased 33% to $4,645,633
from $6,928,628 due primarily to ongoing cost reduction programs, continuing
headcount reductions and purchasing efficiencies. As discussed above, in 1998
the Company recorded a charge of $21,670,028 for impairment of goodwill due to
significant changes in the PECFA

                                      18
<PAGE>

program that occurred in April 1998 and that have negatively impacted the
performance of the Wisconsin Division.

Interest income decreased 18% to $148,531 in 1999 from $180,545 in 1998, due
primarily to the decreased average cash available for investment.

1998 Compared to 1997
---------------------

The Company reported revenues in 1998 of $26,220,877 as compared to $25,769,509
for 1997, an increase of 2%. The net loss applicable to common stock in 1998
increased to $26,151,026 from $3,090,186 in 1997, while the basic and diluted
net loss per share was $6.64 compared to $0.93 in 1997. The 1998 net loss
includes the goodwill impairment charge of $21,670,028 ($5.50 per share) taken
in the second quarter.

Commercial revenues (net of reserves for ineligible PECFA claims) increased 3%
to $23,648,398 from $23,044,622 in 1997 while revenues from corporate and
government research and development contracts decreased 6% to $2,572,479 from
$2,724,887 in 1997. The increased commercial revenues are due primarily to
increased sales of the Company's services and products related to biological
degradation systems, offset in part by decreases in service and conventional
systems related revenues generated under the PECFA program at the Wisconsin
Division. An analysis of trends indicated an increase in the claims that DCOM
was declaring ineligible for reimbursement, which resulted in an additional
$1,650,000 charge against revenue in the fourth quarter of 1998.

Revenues from corporate and government research and development contracts
decreased primarily due to the decreased volume of Phase II Small Business
Innovative Research Grants ("SBIR") the Company was actively working on. In
1998, the Company recorded initial revenues under two Phase I SBIRs from the
National Science Foundation, two Phase II SBIRs from the Department of Defense,
as well as a Phase II SBIR and a grant from the Department of Energy.

Total costs and expenses increased 82% to $52,541,064 (or 7% to $30,871,036
exclusive of the $21,670,028 goodwill impairment charge discussed above) in 1998
from $28,885,818 in 1997. The cost of commercial operations increased 25% to
$20,994,137 in 1998 due to the inclusion of expenses of the Wisconsin Division
for the entire year. Research and development expenses increased 10% to
$2,998,271 in 1998 due to an increase in internal development projects to
develop new commercial products. Marketing, general and administrative expenses
decreased 26% to $6,928,628 in 1998 from $9,356,153 in 1997 due primarily to
headcount reductions, other overhead expense reduction efforts and reduced
amortization of goodwill associated with the FMI acquisition after recording the
goodwill impairment charge in the second quarter of 1998.

Interest income decreased 26% to $180,545 in 1998 due primarily to the lower
level of cash available for investment in 1998. Equity in income of joint
ventures amounted to $13,688 in 1998 compared to a loss of $210,497 in 1997 due
primarily to the Company's participation in the losses of the CVT America joint
venture in 1997. On August 10, 1997, the Company acquired the remaining 50% of
the venture, dissolved the venture and thereafter continued its business as part
of the Company's commercial operations.

                                      19
<PAGE>

Liquidity and Capital Resources
-------------------------------

The Company has funded its operations to date primarily through revenues from
commercial services, sales of 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
December 31, 1999, the Company had cash and cash equivalents of $4,527,979 and
working capital of $4,786,503. Cash and cash equivalents increased $1,120,069
from December 31, 1998 to December 31, 1999 due primarily to cash provided by
operations of $1,182,285 and proceeds from the dissolution of the Company's
interest in Miller Environmental Technologies L.L.C. ("MET") of $174,653, offset
by capital expenditures of $245,485.

From December 31, 1998 to December 31, 1999, accounts receivable decreased by
$421,518 primarily as a result of reduced revenues and improved collections. In
the same period, accounts payable increased by $750,909 due to shifts in the
timing of project expenses and related subcontractor charges. Accrued expenses
and other liabilities decreased by $179,654 from December 31, 1998 to December
31, 1999 primarily due to the payment in the first quarter of 1999 of certain
deferred compensation related to prior years, the payment of accrued severance
and the timing of professional fees, which were partially offset by an accrual
for payments associated with the dissolution of the MET joint venture. At
December 31, 1999, the Company had $3,596,136 in reserve for claim adjustments
and warranties, $3,328,034 of which is available with respect to potential PECFA
claim adjustments related to approximately $56 million in unsettled PECFA
submittals and $268,102 of which is available with respect to potential systems
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, 1999, the Company had a net operating loss carry forward of
approximately $25 million for federal income tax reporting purposes available to
offset future taxable income, if any, through 2019. 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.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is, as amended, effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1,
2001 for the Company). 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 is not expected to have a material impact on the
Company's consolidated results of operations, financial position or cash flows.

                                      20
<PAGE>

Impact of Year 2000
-------------------

During 1999, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company spent
approximately $50,000 during 1999 in connection with remediating its systems.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has limited exposure to financial market risks, including changes in
interest rates. At December 31, 1999, all available excess funds are cash or
cash equivalents whose value is not subject to changes in interest rates. The
Company currently holds no derivative instruments and does not earn foreign-
source income.

                                      21
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                ENVIROGEN, INC.
                          CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                               December 31,
                                                                  ----------------------------------
                                                                     1999                   1998
                                                                  ------------          ------------
<S>                                                               <C>                   <C>
ASSETS
Current assets:
  Cash and cash equivalents                                       $  4,527,979          $  3,407,910
  Accounts receivable, net of allowance for doubtful
       accounts of $740,522 in 1999 and $539,544 in 1998             5,906,081             6,327,599
  Unbilled revenue                                                   3,128,747             4,028,183
  Inventory                                                             43,415               185,553
  Prepaid expenses and other current assets                            457,756               681,683
                                                                  ------------          ------------
       Total current assets                                         14,063,978            14,630,928

Property and equipment, net                                          1,128,562             1,478,003
Restricted cash                                                                              309,300
Investment in and advances to joint venture                                                  101,336
Intangible assets, net                                                 957,716             1,183,024
Other assets                                                           220,609               243,288
                                                                  ------------          ------------
       Total assets                                               $ 16,370,865          $ 17,945,879
                                                                  ============          ============

LIABILITIES
Current liabilities:
  Accounts payable                                                $  4,192,023          $  3,441,114
  Accrued expenses and other liabilities                               942,263             1,121,917
  Reserve for claim adjustments and warranties                       3,596,136             4,150,133
  Deferred revenue                                                     542,409               759,060
  Current portion of capital lease obligations                           4,644                 7,222
                                                                  ------------          ------------
       Total current liabilities                                     9,277,475             9,479,446

Capital lease obligations, net of current portion                                              4,644
                                                                  ------------          ------------
       Total liabilities                                             9,277,475             9,484,090
                                                                  ------------          ------------

Commitments and contingencies (see Note 14)

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value (2,000,000 shares
     authorized; none issued)
Common stock, $.01 par value (50,000,000 shares
     authorized; 3,975,868 issued at December 31,
     1999 and 1998)                                                     39,759                39,759
Additional paid-in capital                                          59,727,189            59,671,189
Accumulated deficit                                                (52,667,608)          (51,243,209)
Less: Treasury stock, at cost (9,917 shares at
     December 31, 1999 and 1998)                                        (5,950)               (5,950)
                                                                  ------------          ------------
       Total stockholders' equity                                    7,093,390             8,461,789
                                                                  ------------          ------------

       Total liabilities and stockholders' equity                 $ 16,370,865          $ 17,945,879
                                                                  ============          ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       22
<PAGE>

                                ENVIROGEN, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                      ---------------------------------------------------------------
                                                            1999                      1998                  1997
                                                      -----------------          ---------------       --------------
<S>                                                   <C>                        <C>                   <C>
Revenues:
    Commercial operations                                 $ 21,114,503             $ 23,648,398         $ 23,044,622
    Research and development services                        2,935,465                2,572,479            2,724,887
                                                      ----------------           --------------        -------------

      Total revenues                                        24,049,968               26,220,877           25,769,509
                                                      ----------------           --------------        -------------

Cost of commercial operations                               17,973,543               20,944,137           16,799,454
Research and development costs                               2,981,959                2,998,271            2,730,211
Marketing, general and administrative expenses               4,645,633                6,928,628            9,356,153
Impairment of long-lived assets                                                      21,670,028
                                                      ----------------           --------------        -------------

      Total costs and expenses                              25,601,135               52,541,064           28,885,818
                                                      ----------------           --------------        -------------

Other income (expense):
    Interest income                                            148,531                  180,545              242,373
    Interest expense                                           (13,766)                 (21,268)             (31,800)
    Equity in (loss) income of joint ventures                     (393)                  13,688             (210,497)
    Other, net                                                  (7,604)                  (3,804)              26,047
                                                      ----------------           --------------        -------------
        Other income, net                                      126,768                  169,161               26,123
                                                      ----------------           --------------        -------------

Net loss                                                  $ (1,424,399)            $(26,151,026)        $ (3,090,186)
                                                      ================           ==============        =============


Basic and diluted net loss per share                      $      (0.36)            $      (6.64)        $      (0.93)
                                                      ================           ==============        =============

Weighted average number of shares of
    Common Stock used in computing basic
    and diluted net loss per share                           3,965,951                3,940,269            3,340,336
                                                      ================           ==============        =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      23
<PAGE>

                                ENVIROGEN, INC.
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             For the years ended December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                                                     Additional
                                             Common Stock              Paid-in         Accumulated          Treasury Stock
                                      ---------------------------                                     ---------------------------
                                          Shares        Amount         Capital           Deficit         Shares          Amount
                                      -------------  ------------  ----------------  ---------------  -------------   -----------
<S>                                   <C>            <C>           <C>               <C>              <C>             <C>
Balance at December 31, 1996             2,155,331       $21,553       $32,033,627    $ (22,001,997)        (9,917)    $  (5,950)

Net loss                                                                                 (3,090,186)
Issuance of Common Stock to
  Warburg, Pincus Ventures, L.P.
  for cash                               1,015,873        10,159        15,703,217
Issuance of Common Stock to
  acquire Fluid Management, Inc.           698,413         6,984        10,993,018
Issuance of Common Stock to
  acquire remaining interest in
  joint venture                             16,667           167           265,433
Exercise of stock options                    6,116            61            56,168
                                      -------------  ------------  ----------------  --------------   ------------    ----------
Balance at December 31, 1997             3,892,400       $38,924       $59,051,463    $ (25,092,183)        (9,917)    $  (5,950)

Net loss                                                                                (26,151,026)
Issuance of Common Stock for cash           83,334           833           619,167
Exercise of stock options                      134             2               559
                                      -------------  ------------  ----------------  --------------   ------------    ----------
Balance at December 31, 1998             3,975,868       $39,759       $59,671,189    $ (51,243,209)        (9,917)    $  (5,950)

Net loss                                                                                 (1,424,399)
Deferred fees                                                               56,000
                                      -------------  ------------  ----------------  --------------   ------------    ----------
Balance at December 31, 1999             3,975,868       $39,759       $59,727,189    $ (52,667,608)        (9,917)    $  (5,950)
                                      =============  ============  ================  ==============   ============    ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      24
<PAGE>

                                ENVIROGEN, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                   --------------------------------------------------------
                                                                       1999                 1998                 1997
                                                                   --------------      ---------------      ---------------
<S>                                                                <C>                 <C>                  <C>
Cash flows from operating activities:
  Net loss                                                           ($1,424,399)        ($26,151,026)         ($3,090,186)
  Adjustments to reconcile net loss to cash used in operating
   activities:
    Depreciation and amortization                                        796,792            1,336,935            1,826,595
    Provision for claim adjustments and warranties                       393,148            2,324,823              930,783
    Provision for doubtful accounts                                      312,280               73,533              512,225
    Deferred fees                                                         56,000
    Equity in loss (income) of loss of joint ventures                        393              (13,688)             210,497
    Impairment of long-lived assets                                                        21,670,028
    Other                                                                  7,604                3,811                3,707

  Changes in operating assets and liabilities, net of the effect of
    acquisitions and dissolutions:
       Accounts receivable                                               109,238              576,029              (71,951)
       Unbilled revenue                                                  899,436              185,470             (696,417)
       Inventory                                                         142,138               63,159                7,817
       Prepaid expenses and other current assets                         253,159             (163,723)            (184,631)
       Restricted cash                                                   309,300
       Other assets                                                       22,679               19,448              (76,824)
       Accounts payable                                                  750,909               (8,398)            (941,189)
       Accrued expenses and other liabilities                           (282,596)            (826,298)             422,812
       Reserve for claim adjustments and warranties                     (947,145)            (751,908)            (334,383)
       Deferred revenue                                                 (216,651)              28,695              405,460
                                                                   -------------       --------------       --------------
       Net cash provided by (used in) operating activities             1,182,285           (1,633,110)          (1,075,685)
                                                                   -------------       --------------       --------------

Cash flows from investing activities:
   Capital expenditures                                                 (245,485)            (453,307)            (557,635)
   Investment in and advances to joint venture                                                                    (304,770)
   Direct costs relating to purchase of remaining 50% interest
       in joint venture                                                                                             (6,629)
   Acquisition of Fluid Management, Inc.                                                                       (13,574,197)
   Proceeds from the dissolution of joint venture                        174,653
   Proceeds from sale of property and equipment                           15,838               27,690               22,004
                                                                   -------------       --------------       --------------
       Net cash used in investing activities                             (54,994)            (425,617)         (14,421,227)
                                                                   -------------       --------------       --------------

Cash flows from financing activities:
  Debt repayment                                                                                                    (4,287)
  Capital lease principal repayments                                      (7,222)             (17,582)             (18,810)
  Net proceeds from exercise of stock options                                                     561               56,229
  Net proceeds from issuance of Common Stock                                                  620,000           15,713,376
                                                                   -------------       --------------       --------------
       Net cash (used in) provided by financing activities                (7,222)             602,979           15,746,508
                                                                   -------------       --------------       --------------

Net increase (decrease) in cash and cash equivalents                   1,120,069           (1,455,748)             249,596

Cash and cash equivalents at beginning of year                         3,407,910            4,863,658            4,614,062
                                                                   -------------       --------------       --------------

Cash and cash equivalents at end of year                              $4,527,979           $3,407,910           $4,863,658
                                                                   =============       ==============       ==============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      25
<PAGE>

                                ENVIROGEN, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                   --------------------------------------------------------
                                                                       1999                 1998                 1997
                                                                   --------------      ---------------      ---------------
<S>                                                                <C>                 <C>                  <C>
Supplemental disclosures of cash flow information:
-------------------------------------------------

  Cash paid for interest                                                 $20,925              $29,251             $ 21,304
                                                                   =============       ==============       ==============

  Cash (refunded) paid for income taxes                                 ($ 7,264)            ($94,152)            $112,354
                                                                   =============       ==============       ==============
</TABLE>

Supplemental disclosures of non-cash investing and financing activities:
-----------------------------------------------------------------------

-In April 1997, the Company acquired Fluid Management, Inc. for $12,187,531 in
cash and 698,413 shares of Common Stock valued at $11,000,002. In connection
with the acquisition, the Company also paid $1,386,666 of FMI's outstanding
debt.


The accompanying notes are an integral part of these consolidated financial
statements.

                                      26
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

1.  Business and Organization
    -------------------------

    Envirogen, Inc. ("Envirogen" or the "Company") offers systems and services
    to remove pollutants from the air, water and soil. Many of its system and
    service offerings rely on advanced biological techniques, developed or
    refined by the Company. To supplement its internal growth, Envirogen has
    expanded its capabilities and geographical presence through acquisitions.
    The most recent of these acquisitions was Wisconsin-based Fluid Management,
    Inc. ("FMI") that was acquired by the Company on April 10, 1997 and is now
    known as the "Wisconsin and Illinois Divisions". On August 8, 1997, the
    Company purchased the 50% interest held by nv VAM ("VAM") in CVT America
    L.L.C., a 50/50 joint venture between VAM and the Company. CVT America was
    dissolved upon the closing of the transaction and the Company continued its
    operations thereafter (see Note 3).

    While the activities of the Company are principally commercial remediation,
    a substantial portion of the activities of Envirogen to date have been
    related to research with corporate and governmental sponsors and the
    determination of the feasibility of designed and advanced biological systems
    to treat and degrade hazardous or noxious wastes. While the Company has
    realized 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 revenues from sales of full-scale
    biological degradation systems for the treatment of contaminated air and
    water. Although full-scale commercial systems have been installed for each
    current reactor type, additional expenditures will be required for continued
    research and development and additional marketing activities for the further
    commercialization of the Company's biodegradation systems is planned. The
    Company is subject to a number of other risks similar to those of other
    companies in similar stages of development, including but not limited to
    short operating history, losses to date, future capital needs, dependence on
    key personnel, competition, risk of technological obsolescence, governmental
    regulations and approvals and limited manufacturing and marketing
    capabilities.

2.  Summary of Significant Accounting Policies
    ------------------------------------------

    Principles of Consolidation

    The consolidated financial statements include the accounts of Envirogen and
    its wholly-owned subsidiary, MWR, Inc. ("MWR"). Investments in companies in
    which ownership interests range from 20 to 50 percent are accounted for
    using the equity method. All material intercompany balances and transactions
    are eliminated in consolidation.

    Use of Estimates in the Preparation of Financial Statements

    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 and
    disclosure of contingent assets and liabilities at the dates of the
    financial statements and the reported amounts of revenues and expenses
    during the reporting periods. Actual results could differ from those
    estimates. Significant estimates in the preparation of these financial
    statements include provisions made for doubtful accounts, reserve for claim
    adjustments and warranties and amortization periods for intangibles.

                                      27
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     Cash Equivalents

     The Company considers all highly liquid investments with original
     maturities of three months or less when purchased to be cash equivalents.

     Inventory

     Inventories, which consist of components used to assemble a variety of
     systems offered for sale by the Company, are stated at the lower of cost or
     market. Cost is determined on a first-in, first-out basis.

     Property and Equipment

     Property and equipment is recorded at cost and consists primarily of
     office, laboratory and field equipment and leasehold improvements.
     Leasehold improvements are amortized over the shorter of the terms of the
     related leases or the estimated useful lives of the assets. Depreciation
     and amortization is calculated on the straight-line method over the
     estimated useful lives of the assets which range from three to seven years.
     Gains and losses on disposals are recognized in the year of disposal.
     Repair and maintenance expenditures are expensed as incurred; significant
     renewals and betterments are capitalized. Property and equipment leased
     under capital leases are capitalized at the lower of the present value of
     minimum lease payments or the fair value of the leased property.

     Intangible Assets

     Intangible assets are recorded at cost and are amortized using the
     straight-line method over their estimated useful lives, ranging from 5 to
     20 years. It is the Company's policy to periodically review and evaluate
     whether there has been a permanent impairment in the value of intangibles.
     Factors considered in the valuation include current operating results,
     trends, prospects and anticipated undiscounted future cash flows.

     Reserves for Claim Adjustments and Warranties

     The Company provides for potential amounts it could repay to customers
     related to remediation performed by the Company under the State of
     Wisconsin Petroleum Environmental Cleanup Fund Act ("PECFA"). On each PECFA
     related revenue dollar a reserve is established to cover amounts which may
     be declared ineligible. 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 Company'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 Company
     has historically reimbursed its clients (or their lending banks) for the
     remediation costs for services provided by the Company which ultimately
     were determined by DCOM to be ineligible for reimbursement under PECFA. At
     December 31, 1999, the Company had $3,328,034 in reserves with respect to
     potential ineligible claims related to approximately $56 million in claims
     that had not yet been fully reviewed by DCOM. There can be

                                      28
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     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.

     The Company also had $268,102 in reserves at December 31, 1999 with respect
     to potential systems warranty claims and other contract issues. Estimated
     warranty reserves are related to specific projects and are provided for by
     charges to operations in the period in which the related revenue is
     recognized or at such time as a potential claim arises.

     Revenue Recognition

     Revenue from certain contracts is recognized as services are provided and
     costs are incurred. For fixed-price contracts, revenue is recognized on the
     percentage-of-completion method, measured by the percentage of costs
     incurred over the estimated total costs for each contract. This method is
     used because management considers expended costs to be the best available
     measure of progress on these contracts. Contract costs include all direct
     material and labor costs and those indirect costs related to contract
     performance. Selling, general and administrative costs are charged to
     expense as incurred. Provisions for estimated losses on uncompleted
     contracts are made in the period in which such losses are determined.

     The asset "unbilled revenue" represents revenues recognized in excess of
     amounts billed. Unbilled revenue generally represents work currently
     billable and such work is usually billed through the normal billing
     process. Correspondingly, the liability "deferred revenue" represents
     billings in excess of revenues recognized.

     Balances billed but not paid by customers pursuant to retainage provisions
     in contracts will be due upon completion of the contracts and acceptance by
     the owner. The retainage balance at December 31, 1999 of $55,766 is
     expected to be collected within the next 12 months.

     An allowance for doubtful accounts has been established based on
     management's assessment of the collectibility of all amounts billed and
     unbilled (including amounts subject to retainage) as of December 31, 1999.

     Research and Development

     All costs relating to research and development activities are expensed as
     incurred.

     Per Share Data

     Basic per share amounts are computed by dividing net loss applicable to
     common stock by the weighted average number of common shares outstanding
     during the period. Diluted per share amounts are computed by dividing net
     loss applicable to common stock by the weighted average number of common
     shares outstanding plus the dilutive effect of common share equivalents.
     Since the Company incurred net losses for all periods presented, both basic
     and diluted per share calculations are the same. Accordingly, options,
     warrants and other rights to purchase 499,719, 501,739 and 631,911 shares
     of common stock that were outstanding at December 31, 1999, 1998

                                      29
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     and 1997, respectively, were not included in diluted per share
     calculations, as their effect would be antidilutive.

     On October 28, 1998, the Company's Board of Directors authorized a one-for-
     six reverse split of the Company's common stock. Effective November 24,
     1998, the stockholders approved the reverse split. All prior period
     references to number of shares, per share amounts, stock option data,
     warrants and market prices of the Company's common stock have been adjusted
     to reflect the reverse stock split on a retroactive basis.

     Segment Information

     In 1998, the Company adopted Statement of Financial Accounting Standards
     No. 131, "Disclosures about Segments of an Enterprise and Related
     Information" ("SFAS 131"). SFAS 131 supersedes Statement of Financial
     Accounting Standards No. 14, "Financial Reporting for Segments of a
     Business Enterprise," replacing the "industry segment" approach with the
     "management" approach. The management approach designates the internal
     organization that is used by management for making operating decisions and
     assessing performance as the source of the Company's reportable segments.
     SFAS 131 also requires disclosures about products and services, geographic
     areas and major customers. The adoption of SFAS 131 did not affect the
     Company's results of operations or financial position but did affect the
     disclosure on segment information (see Note 18).

     Impact of the Future Adoption of Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 133, "Accounting for Derivative
     Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, is
     effective for all fiscal quarters of all fiscal years beginning after June
     15, 2000 (January 1, 2001 for the Company). 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 is not
     expected to have a material impact on the Company's consolidated results of
     operations, financial position or cash flows.

     Income Taxes

     The Company accounts for income taxes under the liability method in
     accordance with Statement of Financial Accounting Standards No. 109,
     "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition
     of deferred tax liabilities and assets for the expected future tax
     consequences of events that have been included in the financial statements
     or tax returns. Under this method, deferred tax liabilities and assets are
     determined based on the difference between the financial statement and tax
     bases of assets and liabilities using enacted tax rates in effect for the
     year in which the differences are expected to reverse (see Note 10).

                                      30
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

3.   Business Acquisitions
     ---------------------

     On April 10, 1997, the Company acquired Fluid Management, Inc. ("FMI") for
     approximately $12.2 million in cash and 698,413 shares of the Company's
     common stock valued at $11,000,002. In connection with the acquisition, the
     Company also paid approximately $1.4 million of FMI's outstanding debt.
     FMI, a full-service environmental consulting and engineering firm with
     offices in Pewaukee, Onalaska, Ashwaubenon and Mosinee, Wisconsin and St.
     Charles, Illinois, is now operated as the Wisconsin and Illinois Divisions.
     The acquisition has been accounted for under the purchase method of
     accounting and the excess of the aggregate purchase price over the fair
     market value of net assets acquired resulted in goodwill of $22,877,482.
     The goodwill was to be amortized over 20 years. In April 1998 a regulatory
     change caused the Company to review the carrying value of long-lived assets
     associated with the FMI acquisition. Based upon this evaluation, the
     Company concluded that the long-lived assets related to FMI were impaired
     and the remaining goodwill was written-off (see Note 4).

     On August 8, 1997, the Company issued 16,667 shares of common stock valued
     at $265,600 to nv VAM in exchange for the transfer by VAM to the Company of
     (i) VAM's 50% ownership interest in CVT America L.L.C. (a joint venture
     between the Company and VAM) and (ii) certain patents and proprietary
     technology related to the biological treatment of chemical contaminants in
     air streams. The Company also incurred $6,629 in direct costs associated
     with the acquisition. The acquisition, which has been accounted for under
     the purchase method of accounting, resulted in goodwill of $323,340 which
     is being amortized over ten years. CVT America was dissolved upon the
     closing of the transaction and the Company continued its operations
     thereafter.

4.   Impairment of Long-Lived Assets
     -------------------------------

     In April 1997, the Company acquired FMI, now known as the Wisconsin and
     Illinois Divisions. The majority of the Wisconsin Division work is eligible
     for reimbursement to its clients under the Wisconsin Petroleum
     Environmental Cleanup Fund Act ("PECFA"), the program funded by the State
     of Wisconsin for cleaning up leaking underground storage tanks.  On April
     17, 1998, the State of Wisconsin adopted new emergency rules with regard to
     PECFA which effectively reduced, and is expected to continue to reduce, the
     revenue per site that the Wisconsin Division can capture under the program.
     The State of Wisconsin's stated intent for issuance of the new emergency
     rules is to reduce the amount of funds being paid for cleanup efforts under
     the PECFA program. Pursuant to the emergency rules, lower cost natural
     attenuation is mandated unless certain conditions exist which would
     indicate that active remediation is necessary.

     As a result of this event, the Company reviewed the carrying value of 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 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 Division discounted at a
     rate commensurate with the risk involved. The impairment charge fully
     eliminated the remaining carrying value of the goodwill associated with the
     acquisition.

                                      31
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

5.   Significant Fourth Quarter Adjustments
     --------------------------------------

     During the fourth quarter of 1998, the Company recorded a $1,650,000 charge
     to increase the reserve for ineligible PECFA claims. On each PECFA related
     revenue dollar a reserve is set up to cover amounts which may be declared
     ineligible (see Note 2). 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 Company's client (or
     its bank). An analysis of trends at that time indicated an increase in the
     claims the State is declaring ineligible for reimbursement, which resulted
     in an increase in the reserve and the additional charge to earnings in
     1998.

     During the fourth quarter of 1997, the Company recorded approximately $1.2
     million of adjustments which had a negative impact on the Company's
     operations, including warranty reserves associated with systems of $490,000
     and severance-related expenses of $369,000.

6.   Property and Equipment
     ----------------------

     Property and equipment, net at December 31, 1999 and 1998 consisted of the
     following:

<TABLE>
<CAPTION>

                                                            1999                1998
                                                         -----------        -----------
     <S>                                                 <C>                <C>
     Computer equipment                                   $  681,101        $  610,678
     Acquired computer software                              556,006           550,385
     Vehicles                                                 42,300            42,300
     Laboratory and field equipment                        2,582,717         2,566,452
     Equipment and vehicles under
      capital leases                                         598,975           598,975
     Furniture and office equipment                          630,299           569,319
     Leasehold improvements                                  583,204           568,203
     Construction in progress                                  4,850            14,659
                                                           ---------         ---------
                                                           5,679,452         5,520,971
     Less:  Accumulated depreciation and
      amortization                                         4,550,890         4,042,968
                                                          ----------        ----------
                                                          $1,128,562        $1,478,003
                                                          ==========        ==========
</TABLE>

     Accumulated amortization on equipment under capital leases amounted to
     $594,544 and $584,173 at December 31, 1999 and 1998, respectively.
     Depreciation expense amounted to $553,480, $641,957 and $647,569 for the
     years ended December 31, 1999, 1998 and 1997, respectively. Amortization
     expense on equipment under capital leases and leasehold improvements
     amounted to $18,004, $59,423 and $118,134 for the years ended December 31,
     1999, 1998 and 1997, respectively. No interest has been capitalized in
     1999, 1998 or 1997.

                                      32
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

7.   Restricted Cash
     ---------------

     At December 31, 1998, the Company had $309,300 of restricted cash
     classified as a non-current asset.  These funds served as collateral on a
     performance bond for a major contract.  In 1999 the project was completed
     and the restriction on the collateral was lifted.

8.   Intangible Assets
     -----------------

     Intangible assets, net at December 31, 1999 and 1998 consisted of the
     following:

                                             1999         1998
                                         ----------   ----------

     Goodwill                            $1,431,700   $1,431,700
     Patents                                222,611      222,611
     Covenant not to compete                232,000      232,000
                                         ----------   ----------
                                          1,886,311    1,886,311
     Less:  Accumulated amortization        928,595      703,287
                                         ----------   ----------
                                         $  957,716   $1,183,024
                                         ==========   ==========

     Amortization expense for intangible assets amounted to $225,308, $635,555
     and $1,060,891 for the years ended December 31, 1999, 1998 and 1997,
     respectively.

9.   Accrued Expenses and Other Liabilities
     --------------------------------------

     Accrued expenses and other liabilities at December 31, 1999 and 1998
     consisted of the following:


                                                  1999           1998
                                              -----------     ----------
     Salaries, benefits and payroll taxes     $  521,987      $  642,536
     Taxes                                       223,684         199,589
     Joint venture distribution                  100,942               -
     Professional fees                            60,269         148,500
     Severance                                         -          75,477
     Other                                        35,381          55,815
                                              ----------      ----------
                                              $  942,263      $1,121,917
                                              ==========      ==========

10.  Income Taxes
     ------------

     The Company has provided a full valuation allowance against the net
     deferred tax debits due to the uncertainty of realization.  The change in
     the valuation allowance for the year ended December 31, 1999 was a decrease
     of $757,595.

                                      33
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     Temporary differences and carryforwards which give rise to deferred tax
     assets and liabilities at December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>

                                              1999                  1998
                                          Deferred Tax          Deferred Tax
                                      Assets (Liabilities)  Assets (Liabilities)
                                     --------------------  --------------------
<S>                                   <C>                   <C>
     Accrued liabilities                     $  1,277,428           $ 1,405,010
     Contract reserve                              78,880               147,046
     Depreciation                                 154,695               (29,183)
     Amortization                                 100,555                48,010
     Bad debts                                    251,777               183,445
     Net operating loss - federal               8,555,880             7,914,308
     State taxes                                1,990,212             3,498,386
     Tax credits                                  297,187               297,187
                                             ------------           -----------
                       Total                   12,706,614            13,464,209
     Valuation allowance - federal            (10,716,402)           (9,965,823)
     Valuation allowance - state               (1,990,212)           (3,498,386)
                                             ------------           -----------
     Total net deferred taxes                $          0           $         0
                                             ============           ===========
</TABLE>

     As of December 31, 1999, the Company had a net operating loss carryforward
     of approximately $25,000,000 for Federal income tax purposes which is
     available to offset future taxable income, if any, between the years 2000
     and 2019. The timing and manner in which these losses may be utilized are
     limited to approximately $1,700,000 per year based on preliminary
     calculations of ownership changes to date under Internal Revenue Code
     Section 382.

11.  Capital Stock
     -------------

     Common Stock

     On April 10, 1997, the Company issued 1,015,873 shares of common stock to
     Warburg, Pincus Ventures, L.P. ("Warburg Pincus") resulting in net proceeds
     of $15,713,376. The net proceeds from the financing were used to fund the
     cash portion of the FMI acquisition and to supplement the working capital
     of the combined enterprise. An officer of Warburg Pincus is also a director
     of the Company.

     In May 1999, the Company adopted the "Deferred Fee Plan for Non-Employee
     Directors" ("Deferred Fee Plan"). Under the terms of the Deferred Fee Plan,
     non-employee directors of the Company can defer receipt of all quarterly
     and meeting fees and permit such deferred fees to be credited to stock
     accounts. These stock accounts accumulate shares of the Company's Common
     Stock at the fair market price of the Common Stock for each deferral date
     equivalent to the value of fees earned. At December 31, 1999 there were
     deferred fees of $56,000 for 42,083 shares of common stock.

                                      34
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

12.  Options and Warrants
     --------------------

     In April 1990, the Company adopted the 1990 Incentive Stock Option and Non-
     Qualified Stock Option Plan (the "Plan") which expires in March 2000. Under
     the amended terms of the Plan, the Company's Stock Option Committee is
     authorized to grant incentive stock options ("ISOs") to officers and other
     key employees, as well as non-qualified stock options ("NQSOs") to key
     employees, directors, scientific advisory board members and consultants to
     purchase an aggregate of 583,334 shares of Common Stock. Standard
     provisions of the Plan, which may vary with Board and stockholder approval,
     require that the term of each grant not exceed ten years. At December 31,
     1999, there were 167,915 additional options available for grant under the
     Plan.

     In May 1993, the Company adopted the 1993 Directors' Non-Qualified Stock
     Option Plan (the "1993 Plan") which expires in May 2003. Under the amended
     terms of the 1993 Plan, an option to purchase 2,500 shares of Common Stock
     shall be automatically granted to each new Non-Employee Director on the day
     the Non-Employee Director is first elected as a member of the Board of
     Directors. Thereafter, an option to purchase 834 shares of Common Stock
     shall be granted on June 1 of each year to each Non-Employee Director who
     is elected at subsequent annual meetings of stockholders, except that a
     Non-Employee Chairman of the Board shall be granted an option to purchase
     1,250 instead of 834 shares of Common Stock. Non-Employee Directors who are
     not initially elected at an Annual Meeting of Stockholders will receive a
     pro rata portion of 834 shares (or 1,250 shares with respect to a Non-
     Employee Chairman of the Board) of Common Stock based on the number of full
     months remaining from the date of election until the next Annual Meeting of
     Stockholders divided by twelve. Any fractional shares resulting from such
     calculation shall be rounded up to the nearest whole number. Standard
     provisions of the Plan, which may vary with Board and stockholder approval,
     require that the term of each grant not exceed ten years. At December 31,
     1999, there were 16,958 additional options available for grant under the
     1993 Plan.

     In 1998, the Board of Directors approved a program allowing employees to
     exchange all options held for an equal number of replacement options at the
     greater of (i) the then-current market price or (ii) $2.40 per share.
     Participating employees received new stock options with an exercise price
     of $2.40 per share and agreed to a new five-year vesting schedule (20% per
     year) commencing on December 7, 1998. As a result, options for 296,495
     shares were forfeited in exchange for new options to purchase the same
     number of shares. The President of the Company excluded himself from
     participating in the option exchange program.

     Generally, options granted become exercisable at a rate of 20% per annum
     from the date of grant, and the option price may not be less than 100% and
     75% of the fair market value on the date of grant for ISOs and NQSOs,
     respectively. The annual Non-Employee Director grants vest at the end of
     the first year of grant.



                                      35
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     Following is a summary of the stock option transactions for 1997, 1998 and
     1999:

<TABLE>
<CAPTION>
                                                                                     Weighted                         Weighted
                                                                                      Average                          Average
                                                                       Number of     Exercise                        Fair Value
                                                                        Shares       Price Per      Option           per Option
                                                                      Outstanding      Share      Price Range          Granted
                                                                     ------------    ---------  ---------------     ------------
     <S>                                                             <C>             <C>        <C>                 <C>
     Balance December 31, 1996                                             255,335     $ 16.96   $1.20 - $43.50
     Granted                                                               229,255     $ 15.65                        $  8.04
     Forfeited                                                             (94,077)    $ 17.97
     Exercised                                                              (6,116)    $  9.20
                                                                         ---------
     Balance December 31, 1997                                             384,397     $ 16.06   $1.20 - $43.50
                                                                         ---------
     Granted                                                               404,000     $  3.69                        $  1.60
     Forfeited                                                            (343,192)    $ 15.67
     Exercised                                                                (134)    $  4.20
                                                                         ---------
     Balance December 31, 1998                                             445,071     $  5.16   $1.20 - $35.28
                                                                         ---------
     Granted                                                                49,954     $  1.28                        $  0.84
     Forfeited                                                             (94,056)    $  4.42
     Exercised                                                                   -           -   $1.20 - $35.28
                                                                         ---------
     Balance December 31, 1999                                             400,969     $  4.82
                                                                         =========

     Exercisable at December 31, 1997                                       93,018     $ 16.77
     Exercisable at December 31, 1998                                       45,751     $ 16.68
     Exercisable at December 31, 1999                                      105,572     $  8.79
</TABLE>

     The following table summarizes the information about stock options
outstanding at December 31, 1999:


<TABLE>
<CAPTION>
                                               Options Outstanding                          Options Exercisable
                                   --------------------------------------------     ---------------------------------
                                                       Weighted
                                       Number           Average        Weighted          Number           Weighted
                                   Outstanding at      Remaining        Average       Exercisable at       Average
        Range of                    December 31,      Contractual      Exercise        December 31,       Exercise
      Exercise Prices                  1999           Life (Years)       Price             1999            Price
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>              <C>            <C>                 <C>
     $  1.20 to $  2.40               270,259             8.90          $  2.22           47,572           $  2.35
     $  6.54 to $ 14.28                99,952             7.97          $  7.36           28,875           $  8.55
     $ 16.80 to $ 23.28                27,174             6.44          $ 17.80           25,541           $ 17.86
     $ 30.00 to $ 35.28                 3,584             2.56          $ 31.51            3,584           $ 31.51
--------------------------------------------------------------------------------------------------------------------
     $  1.20 to $ 35.28               400,969             8.45          $  4.82          105,572           $  8.79
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      36
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     The Company applies the provisions of APB 25 and related interpretations in
     accounting for its stock-based compensation plans.  Accordingly, no
     compensation has been recognized in the financial statements in respect to
     the above plans as all options have been granted at or greater than fair
     market value.  Had compensation costs for the above plans been determined
     based on the fair value at the grant dates for awards under those plans
     consistent with the method of Statement of Financial Accounting Standards
     No. 123 "Accounting for Stock Based Compensation", the Company's net loss
     and net loss per share would have been increased to the pro forma amounts
     below:

<TABLE>
<CAPTION>
                                                    1999          1998           1997
                                                 -----------   ------------   -----------
     <S>                                         <C>           <C>            <C>
     Pro forma net loss applicable to
        Common Stock                             ($1,630,168)  ($26,777,247)  ($3,561,695)
     Pro forma basic and diluted net loss per
        share applicable to Common Stock              ($0.41)        ($6.80)       ($1.07)
</TABLE>

     As options vest over a varying number of years, and awards are generally
     made each year, the pro forma impacts shown here are likely to increase
     given the same level of activity in the future.

     The pro forma compensation expense of $205,769, $626,221 and $471,509 for
     1999, 1998 and 1997, respectively, was calculated based on the fair value
     of each option grant using the Black-Scholes model with the following
     weighted-average assumptions used for grants:

<TABLE>
<CAPTION>
                                          1999            1998            1997
                                        ---------       --------        --------
     <S>                             <C>                <C>             <C>
     Dividend yield                           0               0               0
     Expected volatility                   63.8%           51.2%           40.6%
     Risk free interest rate         4.71%-5.88%           4.99%           6.39%
     Expected option lives                  6.5 years       6.5 years       6.5 years
</TABLE>

     In May 1996, the Company issued warrants to purchase an aggregate of 33,334
     shares of the Company's Common Stock at an exercise price of $15.00 per
     share, including warrants to purchase 25,000 shares to a principal
     stockholder.  The warrants expire seven years from the date of issuance.

13.  Research and Development Contracts
     ----------------------------------

     The Company contracts with major corporations and government entities to
     conduct feasibility studies, sponsored research and development and to
     remediate contamination problems. Pursuant to the Company's contracts, the
     work is generally conducted in phases beginning with feasibility studies to
     demonstrate that the Company's bacteria will degrade the targeted waste.
     Each sponsoring corporation or governmental entity may terminate the work
     being conducted by the Company upon the completion of each phase and each
     additional phase generally is separately contracted for by the sponsoring
     corporation or governmental entity. Generally, the Company is not subject
     to any royalty or exclusive license agreements arising from its research
     and development contracts, except as described in Note 14.

                                      37
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

14.  Commitments and Contingencies
     -----------------------------

     Leases

     The Company is party to various operating leases relating to office,
     laboratory and pilot plant facilities, as well as vehicles and office
     equipment.  All leases expire prior to 2005.  The leases include escalation
     clauses and require that the Company pay for certain operating costs.  It
     is expected that in the normal course of business the majority of the
     leases will be renewed or replaced by other leases.  The Company also has
     capitalized leases consisting principally of leases for office equipment.

     Future minimum payments under capital and noncancelable operating leases
     consisted of the following at December 31, 1999:

<TABLE>
<CAPTION>
                                                   Capital      Operating
                                                    Leases       Leases
                                                   --------    ----------
          <S>                                      <C>         <C>
          2000                                     $  4,837    $1,154,158
          2001                                            -       866,513
          2002                                            -       830,525
          2003                                            -       694,670
          2004                                            -       283,107
          Thereafter                                      -             -
                                                   --------    ----------
          Total minimum lease payments                4,837    $3,828,973
                                                               ==========
          Less amount representing interest            (193)
                                                   --------
          Present value of net minimum capital
           lease payments                          $  4,644
                                                   ========
</TABLE>

     Rent expense for operating leases was $1,408,315, $1,655,676 and $1,389,345
     for the years ended December 31, 1999, 1998 and 1997, respectively.

     Licenses

     Pursuant to a license agreement with Amgen, Inc. ("Amgen") dated February
     27, 1990, the Company was granted an exclusive license to use naturally
     occurring and genetically-modified TCE-degrading bacteria and a non-
     exclusive license to use and sell naturally occurring and genetically-
     modified pesticide-degrading bacteria. The licenses are royalty-free and
     cover use of the bacteria in the United States and Canada. The Company
     issued Amgen 5,834 shares of Common Stock valued at $3,500 as consideration
     for the licenses. The licenses terminate in each country upon the later of
     the expiration of the last remaining licensed patent or ten years following
     the first commercial use of the technology in such country.

     The Company has granted a customer, exclusively for its own operations, an
     irrevocable, non-exclusive, nontransferable license to use all presently
     existing and any future technology that the Company may own relating to PCB
     remediation and that is not otherwise subject to restrictions imposed by
     third parties.  With certain limited exceptions, the Company is required to
     pay the

                                      38
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     customer a royalty based on gross revenues received by the Company
     from the utilization of any jointly-owned technology or any PCB-related
     remediation technology owned, developed or obtained by the Company.  The
     maximum aggregate royalty payable to the customer by the Company under the
     technology agreement may not exceed the development funding received by the
     Company from the customer.  The customer provided no additional funding
     since 1996.  At December 31, 1999, the Company had no obligations under the
     royalty agreement and had received development funding from the inception
     of the development work in 1990 of approximately $3,523,000.

     Litigation

     The Company is currently 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.  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 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.

     Environmental Liability and Insurance

     The Company could be held liable under various laws and regulations if
     microorganisms or hazardous wastes cause harm to humans or the environment,
     even if the Company were not negligent.  Although the Company has
     contractor's pollution liability insurance, there can be no assurance that
     environmental liabilities that may be incurred by the Company will be
     covered by its insurance or that the dollar amount of covered liabilities
     will not exceed policy limits.

15.  Related Party Transactions
     --------------------------

     In April 1995, a principal stockholder of the Company acted as the
     placement agent for the Company's private placement of 280,000 shares of
     Series C Convertible Preferred Stock.  An officer of the placement agent is
     also a director of the Company.  The placement agent received warrants to
     purchase 23,334 shares of Common Stock at an exercise price of $7.50 per
     share.  The warrants expire five years from the date of issuance.  In April
     1995, the Company entered into a two-year financial advisory agreement with
     the placement agent and agreed to pay an annual fee of $100,000.

     In May 1996, a principal stockholder of the Company acted as the placement
     agent for the Company's private placement of 333,334 shares of Common
     Stock.  An officer of the placement agent is also a director of the
     Company.  The placement agent received a placement fee of $300,000, was
     reimbursed for certain legal fees and other expenses and received warrants
     to purchase 25,000

                                      39
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     shares of the Company's Common Stock at an exercise price of $15.00 per
     share. The warrants expire seven years from the date of issuance.

     In December 1996, the Company engaged a principal stockholder to provide
     financial advisory services, including the preparation and delivery of an
     opinion to the Company's Board of Directors regarding the fairness, from a
     financial point of view, of the terms of the acquisition of FMI and related
     private placement to Warburg Pincus (see Notes 3 and 11). The Company
     agreed to pay the stockholder $250,000.  A partner of the stockholder is
     also a director of the Company.

     In April 1998, Robert S. Hillas, the Company's newly-appointed Chairman,
     President and Chief Executive Officer, purchased 83,334 shares of Common
     Stock from the Company at $7.50 per share in connection with the execution
     of his employment agreement.  The shares were registered in 1999.

16.  Employee Benefits
     -----------------

     The Company sponsors a combined 401(k) employee savings and retirement plan
     and profit sharing plan covering all employees, who are at least 21 years
     of age, including those employed by the Wisconsin and Illinois Divisions
     beginning January 1, 1999.  The Company's contribution expense related to
     the 401(k) savings plan was $142,247, $77,573 and $83,488 for the years
     ended December 31, 1999, 1998 and 1997, respectively.  There was no
     contribution expense related to the profit sharing plan.

     In 1998 and 1997 the Wisconsin and Illinois Divisions had a 401(k) plan
     which provided for employee salary deferral contributions.  Substantially
     all  Wisconsin and Illinois employees were eligible to participate in this
     Plan.  No Company contributions were made to this plan.  The Company's
     401(k) plans were merged on December 31, 1998.  The Company does not
     maintain other pension or postretirement benefit plans.

17.  Concentration of Credit Risk/Other
     ----------------------------------

     The Company provides credit to customers on an unsecured basis after
     evaluating customer credit worthiness.  The Company also provides a reserve
     for bad debts for accounts receivable where there is a probability of loss.

     The Company maintains demand deposits with two major banks and money market
     accounts with two financial institutions. At December 31, 1999 and 1998,
     substantially all of the Company's cash and cash equivalents were held in
     these money market accounts.

     The Company earns revenues under contracts for various federal government
     agencies. Revenue recognized under these contracts for the years ended
     December 31, 1999, 1998 and 1997 was $2,673,745, $2,248,509 and $2,103,243,
     respectively.  These revenues are primarily from research and development
     contracts.

                                      40
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

18.  Segment Information
     -------------------

     The Company is organized primarily on the basis of products and services
     being broken down into two reportable segments (i) commercial operations
     and (ii) research and development services.  The commercial operations
     segment is comprised of a number of business units in various locations
     which offer similar products and services to address the hazardous waste
     clean-up and treatment needs of a variety of customers throughout the
     United States.  The Company offers products and services to provide its
     customers with solutions across all types of matter (soil, water and air).
     Usually, environmental problems affect more than one form of matter.  As an
     example, a clean-up project at an industrial facility may include the
     following: 1) consulting services to define the problem and develop a
     clean-up strategy; 2) design, installation and operation of a soil vapor
     extraction system to remove contaminants from the soil; 3) design and
     installation of air treatment systems to prevent atmospheric contamination;
     and 4) design and installation of a ground water treatment system to treat
     pollutants which have passed through the contaminated soil and into the
     ground-water.

     The research and development services segment identifies and develops
     innovative techniques to address pollution problems.  The primary source of
     revenue for this segment consists of funding provided by third parties and
     government agencies to perform contract research to identify the techniques
     and technologies to address the problem, as opposed to commercial
     utilization of those techniques.  This segment includes a core group based
     in the Company's Lawrenceville, New Jersey headquarters.

     The accounting policies of the segments are the same as those described in
     the "Summary of Significant Accounting Policies" (see Note 2).  The Company
     evaluates the performance of its segments on income before marketing,
     general and administrative expenses, income taxes, interest and other non-
     operating income and expense items.  Intersegment sales and transfers are
     not significant.

                                      41
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     Information about reported segments for the years ended December 31, 1999,
     1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                             Research and
                                            Commercial       Development
                                            Operations        Services         Other            Total
                                           ------------      -----------    -----------      ------------
     <S>                                   <C>               <C>             <C>             <C>
     1999
     ----
     Revenues                              $ 21,114,503      $ 2,935,465              -      $ 24,049,968
     Segment profit (loss)                    3,140,960          (46,494)    (4,518,865)       (1,424,399)
     Depreciation and amortization              423,032           87,668         60,784           571,484

     1998
     ----
     Revenues                              $ 23,648,398      $ 2,572,479              -      $ 26,220,877
     Segment profit (loss)                    2,704,261         (425,792)   (28,429,495)      (26,151,026)
     Depreciation and amortization              278,293          159,434        263,653           701,380

     1997
     ----
     Revenues                              $ 23,044,622      $ 2,724,887              -      $ 25,769,509
     Segment profit (loss)                    6,245,168           (5,324)    (9,330,030)       (3,090,186)
     Depreciation and amortization              305,744          233,994        225,965           765,703
 </TABLE>

     The following table presents the details of "Other" segment for the years
     ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                    1999             1998            1997
                                                -------------   --------------   -------------
     <S>                                        <C>             <C>              <C>
     Marketing, general and
      administrative expenses                    ($ 4,645,633)    ($ 6,928,628)   ($ 9,356,153)
     Impairment of long-lived assets                        -      (21,670,028)              -
     Interest income                                  148,531          180,545         242,373
     Interest expense                                 (13,766)         (21,268)        (31,800)
     Equity in (loss) income of joint-venture            (393)          13,688        (210,497)
     Other, net                                        (7,604)          (3,804)         26,047
                                                -------------   --------------   -------------
                                                 ($ 4,518,865)    ($28,429,495)   ($ 9,330,030)
                                                =============   ==============   =============
</TABLE>

     No customer accounted for more than 10% of the Company's revenues in 1999,
     1998 or 1997.

     The Company's business is conducted principally in the United States.
     Foreign revenues are not material.  Asset information by reportable segment
     is not reported as the Company does not produce such information
     internally.

19.  Joint Ventures
     --------------

     On May 5, 1995, the Company and nv VAM of the Netherlands formed a joint
     venture, CVT America, L.L.C. ("CVT America"), to supply advanced
     biofiltration systems and services for the treatment of odors, air toxics
     and volatile organic contaminants to the air pollution control market in
     North and South America.  Under the terms of the transaction, VAM
     transferred to CVT America

                                      42
<PAGE>

                                ENVIROGEN, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ---------------

     substantially all of the assets, including a license agreement for the
     technology related to the biological treatment of chemical contaminants in
     air streams, of its wholly-owned subsidiary, CVT Air Technologies. For its
     50% interest in CVT America, the Company paid $48,250 in cash and issued
     9,690 shares of Envirogen common stock (valued at $125,000) to VAM and made
     an initial capital contribution to CVT America of $3,500. Additional
     capital contributions totaling $98,250 were made in the second half of
     1995. In April 1996, the Company made an interest bearing loan of $100,000
     to CVT America. The Company also entered into a sublicense agreement with
     CVT America for the technology licensed from VAM. The joint venture had an
     initial term of three years, subject to renewal. The difference between the
     carrying value and the underlying equity in the net assets was $87,687 at
     the inception of the joint venture. This difference was to be amortized
     over the initial three year term of the joint venture. During 1997 the
     Company advanced an additional $304,770 to CVT America. On August 8, 1997,
     the Company purchased VAM's 50% interest in CVT America for 16,667 shares
     of common stock valued at $265,600. CVT America was dissolved upon the
     closing of the transaction and the Company continued its operations
     thereafter (see Note 3).

     The Company obtained a 50% interest in Miller Environmental Technologies
     L.L.C. ("MET") when it acquired FMI on April 10, 1997.  In December 1999,
     the net assets of MET were liquidated and the venture dissolved.  MET was
     jointly-owned by the Company and a subsidiary of a Milwaukee, Wisconsin
     based scrap metal recycler. MET provided comprehensive environmental
     services to the scrap metal recycling industry throughout the United
     States.  The service areas addressed by MET included soil and groundwater
     remediation, compliance management, air sciences and engineering, storage
     tank services and wastewater and storm water management.  All of the
     consulting and engineering services delivered by MET were conducted by the
     Company through subcontracting arrangements.  The Company also received a
     monthly fee in the amount of $1,000 from MET for the provision of certain
     office and record keeping services.  Fees earned for providing services to
     MET amounted to $71,831 and $152,242 for the years ended December 31, 1999
     and 1998 and $116,690 from April 10, 1997 through December 31, 1997.

20.  Supplementary Statement of Operations Information
     -------------------------------------------------

     Maintenance and repairs expense for the years ended December 31, 1999, 1998
     and 1997 was $109,600, $179,473 and $225,248, respectively.

                                      43
<PAGE>

                                                                     Schedule II

                                Envirogen, Inc.
                       Valuation and Qualifying Accounts
                 Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                          Balance at     Charged to      Charged to                          Balance
                                          beginning       costs and    other accounts      Deductions       at end of
            Description                   of period       expenses           (a)              (b)            period
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>           <C>                 <C>             <C>
Year ended December 31, 1999:

     Allowance for doubtful accounts      $   539,544    $  312,280                          $111,302      $   740,522
     Tax valuation allowance               13,464,209      (757,595)                                        12,706,614
     Reserve for claim adjustments
         and warranties                     4,150,133       393,148                           947,145        3,596,136

Year ended December 31, 1998:

     Allowance for doubtful accounts      $   605,963    $   73,533                          $139,952      $   539,544
     Tax valuation allowance               12,052,397     1,411,812                                         13,464,209
     Reserve for claim adjustments
         and warranties                     2,577,218     2,324,823                           751,908        4,150,133

Year ended December 31, 1997:

     Allowance for doubtful accounts      $   245,138    $  512,225      $  120,000          $271,400      $   605,963
     Tax valuation allowance                8,865,771     3,186,626                                         12,052,397
     Reserve for claim adjustments
         and warranties                       178,075       930,783       1,802,743           334,383        2,577,218
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  Balance in the financial statements of FMI, Inc. at acquisition
(b)  Actual write-offs

                                      44
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS



The Board of Directors
Envirogen, Inc.


We have audited the accompanying consolidated balance sheet of Envirogen, Inc.
as of December 31, 1999, and the related consolidated statements of operations,
stockholder's equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Envirogen, Inc. at
December 31, 1999, and the consolidated results of their operations and their
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.



                                         Ernst & Young LLP



MetroPark, New Jersey
February 15, 2000

                                      45
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
of Envirogen, Inc.:


In our opinion, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1998 (listed in
the index appearing under Item 14(a)(1) on page 48) present fairly, in all
material respects, the financial position, results of operations and cash flows
of Envirogen, Inc. at December 31, 1998 and for each of the two years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States. In addition, in our opinion, the financial
statement schedule for each of the two years in the period ended December 31,
1998 (listed in the index appearing under Item 14(a)(2) on page 48) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements or financial
statement schedule of Envirogen, Inc. for any period subsequent to December 31,
1998.


PricewaterhouseCoopers LLP



Florham Park, New Jersey
February 17,1999

                                      46
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

Not applicable.



                                   PART III

INCORPORATED BY REFERENCE

The information called for by Item 10 "Directors and Executive Officers of the
Registrant" (other than the information concerning executive officers set forth
in Part I after Item 4 herein), Item 11 "Executive Compensation," Item 12
"Security Ownership of Certain Beneficial Owners and Management" and Item 13
"Certain Relationships and Related Transactions" is incorporated herein by
reference to the Company's definitive proxy statement for its Annual Meeting of
Stockholders scheduled to be held on May 18, 2000 which definitive proxy
statement is expected to be filed with the Commission not later than 120 days
after the end of the fiscal year to which this report relates.

                                      47
<PAGE>

                                    PART IV


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Documents filed as a part of this Report.


1.   Financial Statements:
     ---------------------

     Consolidated Balance Sheets as of December 31, 1999 and 1998........  22

     Consolidated Statements of Operations for the years ended
     December 31, 1999, 1998 and 1997....................................  23

     Consolidated Statements of Changes in Stockholders' Equity
     for the years ended December 31, 1999, 1998 and 1997................  24

     Consolidated Statements of Cash Flows for the years ended
     December 31, 1999, 1998 and 1997....................................  25

     Notes to Consolidated Financial Statements..........................  27

2.   Financial Statement Schedules:
     ------------------------------

     II.  Valuation and Qualifying Accounts..............................  44

     Report of Independent Auditors - 1999...............................  45

     Report of Independent Accountants - 1998 and 1997...................  46

     All other schedules not listed above have been omitted, since they are not
     applicable or are not required, or because the required information is
     included in the consolidated financial statements or notes thereto.

3.   Exhibits:
     --------

<TABLE>
<CAPTION>
     Exhibit No.                   Description                                                       Location
     ----------                    -----------                                                       --------
<S>           <C>                                                                                  <C>
     2.1      Agreement and Plan of Merger dated January 14, 1997 by and
              among Fluid Management, Inc., William C. Smith,
              Douglas W. Jacobson, Gary W. Hawk, Richard W. Schowengerdt
              and the Registrant..........................................................         (4) (Exh. 2.1)

     3.1(a)   Restated Certificate of Incorporation dated
              September 5, 1991...........................................................         (2) (Exh. 3.1(a))

     3.1(b)   Certificate of Amendment to Restated
              Certificate of Incorporation dated August 18, 1992..........................         (2) (Exh. 3.1(c))
</TABLE>

                                      48
<PAGE>

<TABLE>
<CAPTION>
     Exhibit No.                   Description                                                       Location
     ----------                    -----------                                                       --------
<S>              <C>                                                                                <C>
       3.1(c)    Certificate of Amendment to Amended and Restated Certificate
                 of Incorporation dated November 24, 1998....................................       (7) (Exh. 3)

       3.2       By-Laws, as amended.........................................................       (2) (Exh. 3.2)

       10.1      License Agreement dated February 27, 1990 between the
                 Company and Amgen, Inc., as amended March 4, 1992...........................       (2) (Exh. 10.12)

       10.2      Envirogen, Inc. 401(k) Plan.................................................       (2) (Exh. 10.18)

       10.3      Envirogen, Inc. 1990 Incentive Stock Option and Non-
                 Qualified Stock Option Plan, as amended*....................................       (5) (Exh. 10.22)

       10.4      Envirogen, Inc. 1993 Director's Non-Qualified Stock
                 Option Plan, as amended*....................................................       (3) (Exh. 10.27)

       10.5      Securities Purchase Agreement dated January 14, 1997 by
                 and between Warburg, Pincus Ventures, L.P. and the Company..................       (4) (Exh. 2.2)

       10.6      Employment Agreement dated April 16, 1998 between
                 the Company and Robert S. Hillas*...........................................       (6) (Exh. 10)

       10.7(a)   Employment Agreement dated April 10, 1997 between the Company
                 and Richard W. Schowengerdt*................................................       (1)

       10.7(b)   Amendment No. 1 dated November 3, 1998 to Schowengerdt Employment
                 Agreement*..................................................................       (1)

       21        Subsidiaries of the Company.................................................       (1)

       23.1      Consent of Ernst & Young LLP................................................       (1)

       23.2      Consent of PricewaterhouseCoopers LLP.......................................       (1)

       24        Powers of Attorney..........................................................       (1)

       27        Financial Data Schedule.....................................................       (1)
</TABLE>

                                      49
<PAGE>

----------------------
     (1)   Filed herewith.
     (2)   Incorporated by reference to the indicated exhibit to the Company's
           Registration Statement on Form S-1 (File No. 33-48576) which became
           effective on August 11, 1992.
     (3)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 10-K for the year ended December 31, 1995.
     (4)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form  8-K filed January 14, 1997.
     (5)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 10-K for the year ended December 31, 1996.
     (6)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 8-K filed April 16, 1998.
     (7)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 8-K filed November 24, 1998.

     *     Indicates a management contract or compensatory plan or arrangement.

     (b)   Reports on Form 8-K

           None

                                      50
<PAGE>

                                  SIGNATURES


Pursuant to the requirements of Section 13 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.

Dated:  March 28, 2000                   By:  /s/ Robert S. Hillas
                                            -------------------------
                                              Robert S. Hillas
                                                  President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on behalf of the registrant, in the capacities indicated,
on the 28th day of March, 2000.

<TABLE>
       Signature                                Title
       ---------                                -----
<S>                                     <C>
    Robert S. Hillas*                   President, Chief Executive Officer and Chairman of the Board
-----------------------------
    Robert S. Hillas                    (Principal Executive Officer)

    /s/ Mark J. Maten                   Vice President, Finance and Chief Financial Officer
-----------------------------
        Mark J. Maten                   (Principal Financial and Accounting Officer)

    Robert F. Hendrickson*              Director
-----------------------------
    Robert F. Hendrickson

    Robert F. Johnston*                 Director
-----------------------------
    Robert F. Johnston

    Nicholas J. Lowcock*                Director
-----------------------------
    Nicholas J. Lowcock

    Robert C. Miller*                   Director
-----------------------------
    Robert C. Miller

    Peter J. Neff*                      Director
-----------------------------
    Peter J. Neff

    William C. Smith*                   Director
-----------------------------
    William C. Smith
</TABLE>

------------------
*Robert S. Hillas, pursuant to a Power of Attorney executed by each of the
directors noted above and filed with the Securities and Exchange Commission as
Exhibit 24 to this Annual Report on Form 10-K, by signing his name hereto, does
hereby sign and execute this Annual Report on Form 10-K on behalf of each of the
persons noted above, in the capacities indicated, and does hereby sign and
execute this Annual Report on Form 10-K on his own behalf, in the capacities
indicated.

                                                   /s/ Robert S. Hillas
                                                -----------------------------
                                                       Robert S. Hillas


                                      51

<PAGE>

                                 EXHIBIT INDEX

Exhibit No.                          Description
-----------                          -----------



     2.1     Agreement and Plan of Merger dated January 14, 1997 by and among
             Fluid Management, Inc., William C. Smith, Douglas W. Jacobson, Gary
             W. Hawk, Richard W. Schowengerdt and the Registrant, (4) (Exh. 2.1)

     3.1(a)  Restated Certificate of Incorporation dated September 5, 1991, (2)
             (Exh. 3.1(a))

     3.1(b)  Certificate of Amendment to Restated Certificate of Incorporation
             dated August 18, 1992, (2) (Exh. 3.1(c))

     3.1(c)  Certificate of Amendment to Amended and Restated Certificate of
             Incorporation dated November 24, 1998, (7) (Exh. 3)

     3.2     By-Laws, as amended, (2) (Exh. 3.2)

     10.1    License Agreement dated February 27, 1990 between the Company and
             Amgen, Inc., as amended March 4, 1992, (2) (Exh. 10.12)

     10.2    Envirogen, Inc. 401(k) Plan, (2) (Exh. 10.18)

     10.3    Envirogen, Inc. 1990 Incentive Stock Option and Non-Qualified Stock
             Option Plan, as amended*, (5) (Exh. 10.22)

     10.4    Envirogen, Inc. 1993 Director's Non-Qualified Stock Option Plan, as
             amended*, (3) (Exh. 10.27)

     10.5    Securities Purchase Agreement dated January 14, 1997 by and between
             Warburg, Pincus Ventures, L.P. and the Company, (4) (Exh. 2.2)

     10.6    Employment Agreement dated April 16, 1998 between the Company and
             Robert S. Hillas*, (6) (Exh. 10)

     10.7(a) Employment Agreement dated April 10, 1997 between the Company and
             Richard W. Schowengerdt*, (1)

     10.7(b) Amendment No. 1 dated November 3, 1998 to Schowengerdt Employment
             Agreement*, (1)

     21      Subsidiaries of the Company, (1)

     23.1    Consent of Ernst & Young, LLP, (1)

     23.2    Consent of PricewaterhouseCoopers LLP, (1)

     24      Powers of Attorney, (1)

                                      52
<PAGE>

     Exhibit No.                             Description
     -----------                             -----------

     27    Financial Data Schedule (1)

---------------
     (1)   Filed herewith.
     (2)   Incorporated by reference to the indicated exhibit to the Company's
           Registration Statement on Form S-1 (File No. 33-48576) which became
           effective on August 11, 1992.
     (3)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 10-K for the year ended December 31, 1995.
     (4)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 8-K filed January 14, 1997.
     (5)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 10-K for the year ended December 31, 1996.
     (6)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 8-K filed April 16, 1998.
     (7)   Incorporated by reference to the indicated exhibit to the Company's
           Report on Form 8-K filed November 24, 1998.

     *     Indicates a management contract or compensatory plan or arrangement.

                                      53