<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11871
COMMODORE APPLIED TECHNOLOGIES, INC.
------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3312952
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
150 EAST 58TH STREET
NEW YORK, NEW YORK 10155
------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 308-5800
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
The number of shares the common stock outstanding at November 5, 1999 was
23,702,263.
- ----------
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COMMODORE APPLIED TECHNOLOGIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION ............................................................... 3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998 ................................... 3
Condensed Consolidated Statement of Operations -
Three months ended September 30, 1999 and 1998 ............................. 5
Nine months ended September 30, 1999 and 1998 .............................. 5
Condensed Consolidated Statement of Cash Flows Nine months
ended September 30, 1999 and
September 30, 1998 ......................................................... 6
Notes to Condensed Consolidated Financial Statements ................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................................ 14
PART II. OTHER INFORMATION ................................................................... 20
SIGNATURES ..................................................................................... 21
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 562 $ 1,798
Accounts receivable, net 3,208 3,142
Notes and advances to related parties 72 130
Prepaid assets and other current receivables 231 271
-------- --------
Total Current Assets 4,073 5,341
Property and equipment, net 2,331 2,202
Patents and completed technology, net of accumulated amortization
of $440 and $349, respectively 886 977
Goodwill, net of accumulated amortization of $767 and $575,
respectively. 6,905 7,097
Other 153 --
-------- --------
Total Assets $ 14,348 $ 15,617
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Accounts payable $ 781 $ 975
Notes payables/related parties
Current portion of long term debt 202 5
Line of credit 1,231 361
Other accrued liabilities 1,624 2,183
--------- ---------
Total Current Liabilities 3,838 3,524
Long Term Debt 767
Notes payable to related parties 185 185
--------- ---------
Total Liabilities 4,790 3,709
--------- ---------
STOCKHOLDERS' EQUITY
Convertible Preferred Stock-Series B,C, and,
D, par value $0.001 per share, 6%
non-cumulative dividends 65,000
shares authorized, 51,489 shares
outstanding. -- --
Common Stock, par value $0.001 per share,
75,000,000 shares authorized, 23,702,263
issued and outstanding. 24 24
Additional paid-in capital 43,382 43,382
Accumulated deficit (37,795) (35,445)
Accumulated Other Comprehensive Income 3,947 3,947
--------- ---------
Total Stockholders' Equity 9,558 11,908
--------- ---------
Total Liabilities and Stockholders' Equity $ 14,348 $ 15,617
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues $ 4,851 $ 4,604 $ 13,401 $ 13,212
Costs and expenses:
Cost of sales 4,358 4,234 11,726 12,229
Research and development 276 547 838 1,781
General and administrative 905 1,692 2,559 6,026
Depreciation and amortization 176 327 540 934
Minority interest -- -- -- 300
-------- -------- -------- --------
Total costs and expenses 5,715 6,800 15 ,663 21,270
-------- -------- -------- --------
Loss from operations (864) (2,196) (2,262) (8,058)
-------- -------- -------- --------
Other income (expense):
Interest income 7 74 29 296
Interest expense (87) (685) (117) (1,296)
-------- -------- -------- --------
Net other income (expense) (80) (611) (88) (1,000)
-------- -------- -------- --------
Loss before income taxes and affiliate losses (944) (2,807) (2,350) (9,058)
Income taxes -- -- -- --
-------- -------- -------- --------
Loss before affiliate losses (944) (2,807) (2,350) (9,058)
Equity in losses of unconsolidated subsidiaries -- (473) -- (1,403)
-------- -------- -------- --------
Net loss $ (944) $ (3,280) $ (2,350) $(10,461)
======== ======== ======== ========
Loss per share $ (0.04) $ (0.14) $ (0.10) $ (0.45)
======== ======== ======== ========
Number of weighted average shares outstanding (000's) 23,702 23,103 23,702 23,042
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
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COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,350) $ (10,461)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 540 934
Undistributed losses of unconsolidated subsidiary -- 1,403
Minority interest in subsidiary -- 300
Non-cash interest expense -- 860
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (66) (320)
Prepaid assets 40 77
Inventory -- (271)
Other assets (151) --
Accounts payable (194) (1,157)
Payables to related parties -- 81
Other liabilities (559) 182
-------- ---------
Net cash provided/(used) in operating activities (2,740) (8,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (386) (1,953)
Acquisition of patents -- (174)
Investments -- (1,750)
Advances to related parties 57 1,416
Decrease (increase) in restricted cash 31
Other investments -- 257
Other receivables -- 15
-------- ---------
Net cash provided/(used) in investing activities (329) (2,158)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing from principal stockholder -- 2,622
Increase in (repayment of) line of credit 870 (347)
Proceeds from subsidiary's sale of stock -- 26
Increase (decrease) in notes and loans payable 963 (33)
Preferred stock dividend paid by subsidiary -- (300)
-------- ---------
Net cash provided/(used) in financing activities 1,833 1,968
Increase (decrease) in cash (1,236) (8,562)
Cash, beginning of period 1,798 13,151
-------- ---------
Cash, end of period $ 562 $ 4,589
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 1999
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
for Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or
"Applied") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The financial statement information was
derived from unaudited financial statements unless indicated otherwise.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 1998.
Certain prior-year amounts have been reclassified to conform with the
current year presentation.
The accompanying financial statements have been prepared under the
assumption that Applied will continue as a going concern. Such assumption
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. For the years ended December 31, 1998, 1997, and
1996, Applied incurred losses exclusive of their gains on the sale of an
affiliate and extraordinary item of $13,353, $15,694 and $5,643 respectively.
Applied has also experienced net cash outflows from operating activities of
$9,155, $8,220 and $7,159 for the years ended December 31, 1998, 1997 and 1996,
respectively. The financial statements do not include any adjustments that might
be necessary should Applied be unable to continue as a going concern. Applied's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing as may be required, and ultimately to attain profitability.
Potential sources of cash include new contracts, external debt, and the sale of
new shares of company stock or alternative methods such as mergers or sale
transactions. No assurances can be given, however, that Applied will be able to
obtain any of these potential sources of cash.
Anticipated losses on contracts are provided for by a charge to income
during the period such losses are identified. Changes in job performance, job
conditions, estimated profitability
7
<PAGE> 8
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to cost and income and are recognized in the
period in which the revisions are determined. Allowances for anticipated losses
totaled $132 at December 31, 1998 and $118 at September 30, 1999.
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The investment in
Teledyne-Commodore, LLC, a 50% owned joint venture with Teledyne Environmental,
Inc., has been accounted for under the equity method as the Company does not
have a controlling interest in the venture. This investment is carried at $0 at
December 31, 1998 and September 30, 1999.
Until September 1998, Applied was engaged in the separation of
hazardous waste through its 87% owned subsidiary, Commodore Separation
Technologies, Inc. ("Separation"). Effective September 28, 1998, Applied sold
its investments in Separation to Commodore Environmental Services, Inc.
The preparation of consolidated 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
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
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Note B - Stockholders' Equity
In 1997, Applied amended its Certificate of Incorporation authorizing
up to 10,000,000 shares of Preferred Stock, $.001 par value and increasing
authorized shares of Common Stock from 50,000,000 to 75,000,000.
Convertible Preferred Stock
Effective September 28, 1998, Applied authorized and issued three new
series of Preferred Stock. Series B, C and D Preferred Stock were authorized up
to 25,000, 15,000, and 25,000 shares, respectively, all at $.001 par value. The
Company issued 20,909 shares of Series B, 10,189 shares of Series C and 20,391
shares of Series D effective September 28, 1998.
Each of the Series B, C and D Preferred Stock is convertible into
common shares of Applied; each has a par value of $.001 and a stated value of
$100 per share; each carries a dividend rate of $6.00 per share per annum from
the date of issuance, payable quarterly commencing December 31, 1998, when, and
if declared by the Board of Directors; and each has non-cumulative dividends.
Applied did not declare any dividend payment through September 30, 1999.
The Series B, C and D Convertible Preferred Stock is convertible into
Common Stock at any time prior to redemption at a conversion rate of 142.9
shares of Common Stock for each share of Series B and D Convertible Preferred
Stock and 133.3 shares of Common Stock for each share of Series C Convertible
Preferred Stock (and effective conversion price of $.70 and $.75 per share of
Common Stock, respectively). The conversion price is subject to adjustment under
certain circumstances, including Applied taking action to change the number of
Common Shares outstanding, such as declaring a stock dividend.
The holders of Convertible Preferred Stock have the right, voting as a
class, to approve or disapprove of the issuance of any class or series of stock
ranking senior to or on a parity with the Convertible Preferred Stock with
respect to declaration and payment of dividends or the distribution of assets on
liquidation, dissolution or winding-up. Upon liquidation, dissolution or
winding-up of Applied, holders of Convertible Preferred Stock are entitled to
receive liquidation distributions equivalent to $100.00 per share before any
distribution to holders of the Common Stock or any capital stock ranking junior
to the Convertible Preferred Stock.
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Note C - Segment Information
Using the guidelines set forth in SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," Applied has identified three
reportable segments in which it operates based on the services it provides. The
reportable segments are as follows: Commodore Advanced Sciences ("CASI"), which
primarily provides various engineering, legal, sampling and public relations
services to Government agencies on a cost plus basis; Solution, which is
developing and constructing equipment to treat mixed and hazardous waste through
a patented process using sodium and anhydrous ammonia; and through September 28,
1998, Separation, which provides water and contaminant separation by use of a
patented process. Common overhead costs are allocated between segments based on
a record of time spent by executives. Applied evaluates segment performance
based on the segment's net income (loss). Applied's foreign and export sales and
assets located outside of the United States are not significant. Summarized
financial information concerning Applied's reportable segments is shown in the
following table. Effective September 28, 1998, Applied sold its investment in
Separation to Commodore, and accordingly, the summarized information for
Separation is not included in the nine months ended September 30, 1999.
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Corporate
Overhead
Total CASI Solution and Other
<S> <C> <C> <C> <C>
Contract Revenues $ 4,851 $ 4,851 $ -- $ --
Costs and expenses
Cost of Sales 4,358 4,358 -- --
Research and Development 276 -- 276 --
General and Administrative 905 167 114 624
Depreciation and Amortization 176 52 55 69
Minority Interest
-------- -------- -------- --------
Total costs and expenses 5,715 4,577 445 693
-------- -------- -------- --------
Income (Loss) from Operations (864) 274 (445) (693)
Interest Income 7 -- -- 7
Interest Expense (87) (87) -- --
Equity in losses of
Unconsolidated subsidiary -- -- -- --
-------- -------- -------- --------
Net Income (Loss) $ (944) $ 187 $ (445) $ (686)
======== ======== ======== ========
Total Assets $ 14,348 $ 2,862 $ 2,496 $ 8,990
Expenditures for long-lived assets $ 21 $ -- $ 21 $ --
</TABLE>
10
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NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Corporate
Overhead
Total CASI Solution and Other
<S> <C> <C> <C> <C>
Contract Revenues $ 13,401 $ 13,401 $ -- $ --
Costs and expenses
Cost of Sales 11,726 11,726 -- --
Research and Development 838 -- 838 0
General and Administrative 2,559 868 146 1,545
Depreciation and Amortization 540 110 216 214
-------- -------- -------- --------
Total costs and expenses 15,663 12,704 1,200 1,759
-------- -------- -------- --------
Income (Loss) from Operations (2,262) 697 (1,200) (1,759)
Interest Income 29 -- -- 29
Interest Expense (117) (117) -- --
Equity in losses of
Unconsolidated subsidiary -- -- -- --
-------- -------- -------- --------
Net Income (Loss) $ (2,350) $ 580 $ (1,200) $ (1,730)
======== ======== ======== ========
Total Assets $ 14,348 $ 2,862 $ 2,496 $ 8,990
Expenditures for long-lived assets $ 386 $ -- $ 386 $ --
</TABLE>
11
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THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Corporate
Overhead
Total CASI CST Solution and Other
<S> <C> <C> <C> <C> <C>
Contract Revenues $ 4,604 $ 4,561 $ -- $ -- $ 43
Costs and expenses
Cost of Sales 4,234 3,909 147 160 18
Research and Development 547 132 392 23
General and Administrative 1,692 620 507 17 548
Depreciation and Amortization 327 23 110 115 79
--------- ------- ------- ------- ---------
Total costs and expenses 6,800 4,552 896 684 668
--------- ------- ------- ------- ---------
Income (Loss) from Operations (2,196) 9 (896) (684) (625)
Interest Income 74 12 62
Interest Expense (685) (33) (652)
Equity in losses of
Unconsolidated subsidiary (473) (473)
--------- ------- ------- ------- ---------
Net Income (Loss) $ (3,280) $ (24) $ (884) $ (684) $ (1,688)
========= ======= ======= ======= =========
Total Assets $ 22,113 $ 3,558 $ 3,237 $ 3,756 $ 11,562
Expenditures for long-lived assets $ 688 $ 0 $ 288 $ 363 $ 37
</TABLE>
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NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Corporate
Overhead
Total CASI Separation Solution and Other
<S> <C> <C> <C> <C> <C>
Contract Revenues $ 13,212 $ 13,106 $ -- $ -- $ 106
Costs and expenses
Cost of Sales 12,229 11,154 648 367 60
Research and Development 1,781 501 1,046 234
General and Administrative 6,026 1,112 1,896 58 2,960
Depreciation and Amortization 934 70 287 336 241
Minority Interest 300 300
--------- -------- --------- --------- --------
Total costs and expenses 21,270 12,336 3,332 1,807 3,795
--------- -------- --------- --------- --------
Income (Loss) from Operations (8,058) 770 (3,332) (1,807) (3,689)
Interest Income 296 94 202
Interest Expense (1,296) (99) (1,197)
Equity in losses of
Unconsolidated subsidiary (1,403) (1,403)
--------- -------- --------- --------- --------
Net Income (Loss) $ (10,461) $ 671 $ (3,238) $ (1,807) $ (6,087)
========= ======== ========= ========= ========
Total Assets $ 22,113 $ 3,558 $ 3,237 $ 3,756 $ 11,562
Expenditures for long-lived assets $ 2,127 $ 81 $ 763 $ 1,109 $ 174
</TABLE>
Note D - Contingencies
Applied has matters of litigation arising in the ordinary course of
business which in the opinion of management will not have a material adverse
effect on its financial condition or results of operations.
Note E -Subsequent Event
In November 1999, Applied completed $2.5 million in financing through
private placement. The Company issued 335,000 shares, with a liquidation value
of $10 per share, of a new Series E convertible preferred stock, convertible
into the Company's common stock at the market price, after April 30, 2000 and up
through April 30, 2003 at which time it automatically converts to the Company's
common stock. The Series E convertible preferred stock has a variable rate
dividend averaging 8.15% over the term of the securities. The Company reserved
the right to redeem all of the Series E preferred stock on or before April 30,
2000 by payment of $2,800,000 plus any accrued dividends. Depending upon the
share price at the time of conversion, the issuance of the common shares
relating to the conversion may be subject to shareholder approval.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Overview
Commodore Applied Technologies, Inc. and subsidiaries ("Applied"), is
engaged in the destruction and neutralization of hazardous waste from other
materials. Applied owns technologies related to the separation and destruction
of polychlorinated biphenyls (PCBs) and chlorofluorocarbons (CFCs). Until
September, 1998, Applied was engaged in the Separation of hazardous waste
through its 87% owned subsidiary, Commodore Separation Technologies, Inc.
("Separation"). Effective September 28, 1998, Applied sold its investments in
Separation which has caused significant variations in results for the periods
presented.
Applied is currently working on the commercialization of these
technologies through development efforts, licensing arrangements and joint
ventures. Through Commodore Advanced Sciences, Inc. ("CASI"), formerly Advanced
Sciences, Inc., a subsidiary acquired on October 1, 1996, Applied has contracts
with various government agencies and private companies in the United States. As
some government contracts are funded in one-year increments, there is a
possibility for cutbacks as these contracts constitute a major portion of CASI's
revenues, and such a reduction would materially affect the operations. However,
management believes the subsidiary's existing client relationships will allow
Applied to obtain new contracts in the future.
RESULTS OF OPERATIONS
Three and nine months ended September 30, 1999 compared to three and nine months
ended September 30, 1998
Revenues were $4,851,000 and $13,401,000 for the three and nine months
ended September 30, 1999, as compared to $4,604,000 and $13,212,000 for the
three and nine months ended September 30, 1998. Such revenues were primarily
from the Company's ASI subsidiary, and consisted of engineering and scientific
services performed for the United States government under a variety of
contracts, most of which provide for reimbursement of cost plus fixed fees.
Revenue under cost-reimbursement contracts is recorded under the percentage of
completion method as costs incurred and include estimated fees in the proportion
that costs to date bear to total estimated costs. Costs of sales were $4,358,000
and $11,726,000 for the three and nine months ended September 30, 1999, as
compared to $4,234,000 and $12,229,000 for the three and nine month periods
ended September 30, 1998. Variations arise from the changes in subcontract
activities in relations to total revenue. The sale of Separation was also a
major factor in the variation of cost of sales numbers.
For the three and nine months ended September 30, 1999, the Company
incurred research and development costs of $276,000 and $838,000 as compared to
$547,000 and $1,781,000 for the three and nine months ended September 30, 1998.
In 1999, research and development costs were reduced in accordance with the
Company's cost saving program initiated in late 1998. Research and development
costs include salaries, wages, and other related costs of personnel engaged in
research and development activities, contract services and materials, test
equipment and rent for facilities involved in research and development
activities. Research and development costs are expensed when incurred, except
that those costs related to the design or construction of an asset having an
economic useful life are capitalized, and then depreciated over the estimated
useful life
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<PAGE> 15
of the asset. Commodore Separation Technologies, Inc. ("Separation"), a former
subsidiary, had research and development costs of $501,000 for the nine months
ended September 30, 1998.
General and administrative expenses for the three and nine months ended
September 30, 1999 were $905,000 and $2,559,000 as compared to $1,692,000 and
$6,026,000 for the three and nine months ended September 30, 1998. The savings
in 1999 are a result of restructuring steps taken during the last half of 1998.
Also, Separation had $1,896,000 in general and administrative costs through
September 1998.
Interest expense for the three and nine months ended September 30, 1999
was $87,000 and $117,000, as compared to $685,000 and $1,296,000 for the three
and nine months ended September 30, 1998. Interest changes in 1999 result from
favorable rate and terms on a line of credit put in place in April 1998 and the
elimination of non-cash interest expense that totaled $860,000 for the nine
months ended September 30, 1998.
Equity in losses of unconsolidated subsidiary for the three and nine
months ended September 30, 1999 was $0 and $0, as compared to $473,000 and
$1,403,000 for the three and nine months ended September 30, 1998. The Company's
Teledyne-Commodore, LLC joint venture commenced operations in October 1996. The
Company recorded its liability for all capital contributions at December 31,
1998. The Company currently has no obligation to contribute any further capital
to the LLC.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through the second quarter of 1996, the Company's
operations were financed principally by loans and investments from its
stockholders. In June 1996, the Company successfully completed its IPO from
which it received net proceeds of approximately $30,500,000. The Company
allocated approximately $12.0 million of the net proceeds for the funding of
proposed collaborative joint ventures, $2.0 million of which was allocated to
Teledyne-Commodore, LLC.
In July 1996, the Company utilized a portion of the net proceeds from
its IPO to repay an outstanding line of credit of $2.0 million, as well as a
$5,925,426 promissory note to its principal stockholder (the "Environmental
Funding Note"). The Company set aside $1.0 million cash collateral to support a
loan made by a commercial bank to the Company's principal stockholder in
December 1993. In September 1996, such cash collateral was released by the bank.
In August 1996, the Company loaned $1.5 million to Lanxide Performance
Materials, Inc. ("LPM"), a wholly owned subsidiary of Lanxide Corporation, a
Delaware Corporation ("Lanxide"). Lanxide is related to the Company by
significant common beneficial ownership. The LPM Note is collateralized by the
assets of LPM and guaranteed by Lanxide. The LPM Note became due on February 28,
1998. In March 1998, the Company transferred the LPM Note to Environmental,
together with $500,000 in cash, as partial prepayment of the $4.0 million
unsecured loan from Environmental to the Company in September 1997.
In December 1996, the Company acquired (i) all of the outstanding
capital stock of Separation and (ii) all of the outstanding capital stock of CFC
Technologies from Environmental, as part of a corporate restructuring of
Environmental to consolidate all of its current environmental technology
businesses with the Company. In addition, Environmental assigned to the Company
outstanding Separation notes aggregating $976,200 at December 2, 1996,
representing advances
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<PAGE> 16
previously made by Environmental to Separation, which the Company has
contributed to the equity of Separation. In consideration for the transfer of
all of the outstanding capital stock of Separation and CFC Technologies to the
Company, the Company paid Environmental $3.0 million in cash and issued to
Environmental a warrant expiring December 2, 2003 to purchase 7,500,000 shares
of Company Common Stock at an exercise price of $15.00 per share, valued at $2.4
million.
In April 1997, Separation completed an initial public offering of its
equity securities, from which it received net proceeds of approximately
$11,100,000. Such funds were used primarily to finance Separation's operations
through 1998.
In August 1997, the Company completed the August 1997 Private Placement
from which it received net proceeds of approximately $1.6 million. In connection
with the sale, the Company incurred cash transaction costs of approximately
$117,000 and issued warrants, expiring on August 15, 2002, to the placement
agent.
In October 1997, the Company completed the October 1997 Private
Placement from which it received aggregate net proceeds of approximately $2.4
million. In connection with the October 1997 Private Placement, the Company
incurred cash transaction costs of approximately $209,000 and issued warrants,
expiring on September 30, 2002, to the placement agent.
In September 1997, Environmental provided the Company with a $4.0
million unsecured loan, evidenced by the Convertible Note due August 31, 2002.
In connection with the Convertible Note, the Company issued warrants to purchase
1,000,000 shares of Common Stock to Environmental valued at $660,000 and
provided a beneficial conversion privilege with an intrinsic value of $750,000
as of the date of the transaction. In March 1998, the Company prepaid $2.0
million of the Convertible Note by (i) paying Environmental the sum of $500,000
in cash and (ii) transferring to Environmental the LPM promissory note, dated
August 30, 1996, in the principal amount of $1.5 million. Lanxide, which
specializes in the manufacture of ceramic bonding and refractory materials, is
related to the Company by significant common beneficial ownership. To induce
Environmental to accept the Company's prepayment of $2.0 million of the
Convertible Note (and thereby give up the right to convert $2.0 million of the
Convertible Note into Common Stock), the Company issued to Environmental an
additional warrant to purchase up to 514,000 shares of Common Stock at an
exercise price of $4.50 per share. Such exercise price was fixed at
approximately 110% of the closing sale price of the Common Stock on February 20,
1998, the trading day immediately prior to the date the Board of Directors of
the Company approved such prepayment. The estimated fair value of such warrant
is approximately $340,000. The remaining balance of this Intercompany
Convertible Note was paid off by December 31, 1998.
At September, 30, 1999 and December 31,1998, CASI had a $1,231,000 and
$361,000 outstanding balance, respectively, on its revolving lines of credit. In
August 1998, CASI refinanced their line of credit. The line of credit is not to
exceed 75% of eligible receivable or $2,000,000 and is due August 4, 2000 with
interest payable monthly at prime plus 1.5 percent (9.25 percent as of
September, 30, 1999). The credit line is collateralized by the assets of CASI
and is guaranteed by Applied. This line of credit contains certain financial
covenants and restrictions including minimum ratios that CASI must satisfy. CASI
was in compliance with the covenants at September 30, 1999 and December 31,
1998.
In addition, the line of credit agreement stipulates that no payments
shall be made to the Company other than monthly scheduled payments of principal
with respect to $6,300,000 of subordinated indebtedness owed by ASI to the
company (which is eliminated in consolidation) and intercompany indebtedness not
to exceed $20,000 in any month. In addition, CASI shall not incur
16
<PAGE> 17
indebtedness in excess of $25,000, other than trade payables, the above
subordinated indebtedness and other contractual obligations to suppliers and
customers incurred in the ordinary course of business.
In February 1998, Environmental provided the Company with a $5,450,000
uncollateralized loan, evidenced by the Intercompany Note due on the earlier to
occur of (a) December 31, 1999, or (b) consummation of any public offering or
private placement of securities of the Company with net proceeds aggregating in
excess of $6.0 million, other than in respect of working capital financing or
secured financing of assets received by the Company in the ordinary course of
business from any bank or other lending institution, subject to certain
conditions. The Company has used the net proceeds of the loan solely for working
capital and general corporate purposes and not for the satisfaction of any
portion of Company debt or to redeem any Company equity or equity-equivalent
securities. During 1998, the Company repaid $828,000 of the principle balance on
this Note before the Note was paid off in its entirety through the September 28,
1998 transaction described below. In connection with the loan, the Company
amended and restated in its entirety a five-year warrant to purchase 7,500,000
shares of Common Stock issued to Environmental on December 2, 1996 to, among
other things, reduce the exercise price of the warrant from $15.00 per share to
$10.00 per share. In addition, the Company issued to Environmental an additional
five-year warrant to purchase 1,500,000 shares of Common Stock at an exercise
price of $10.00 per share.
Effective September 28, 1998, the Company repaid $6,756,000 of its debt
to Environmental (representing the balances on the September, 1997 Convertible
Note and the February, 1998 Intercompany Note) by exchanging the debt for (i)
10,000,000 shares of Separation Common Stock (as repayment of $1,250,000 of
debt; (ii) 20,909 shares of newly created 6% Series B Convertible Preferred
Stock of the Company (as repayment of $2,090,870 of debt); (iii) 10,189 shares
of newly created 6% Series C Convertible Preferred Stock of the Company (as
repayment of $1,018,864 of debt); (iv) 20,391 shares of newly created 6% Series
D Convertible Preferred Stock of the Company (as repayment of $2,039,100 of
debt); (v) assignment to Environmental of an account receivable due to the
Company from Separation in the amount of $357,000 (as repayment of $357,000 of
debt); and (vi) amendment of an existing warrant owned by Environmental to
purchase 1,500,000 shares of the Company's Common Stock at $10.00 per share,
reducing the exercise price to $1.50 per share. The terms of the debt
restructuring were determined as a result of arm's length negotiations between
representatives of both the Company and Environmental, and were supported by
fairness opinions by an independent, third-party appraiser. Environmental
currently owns approximately 35% of the outstanding shares of the Company's
common stock.
As part of this restructuring plan, the Company consummated the
transfer of all 10,000,000 of its shares of Common Stock, par value $.001 per
share (the "Separation Stock"), of Separation, representing approximately 87% of
the issued and outstanding shares of capital stock of Separation to Commodore
Environmental Services LLC, a Delaware limited liability company wholly owned by
Commodore. The transfer is effective as of September 28, 1998. Accordingly, the
1998 consolidated financial statements of the Company, include the activity of
Separation only through September 28, 1998. As a result of this sale, the
Company recognized a gain of $4,664,000. The 1999 Condensed Consolidated
Financial Statements reflect no activity for Separation.
For the nine months ended September 30, 1999, the Company incurred a
net loss of $2,350,000 as compared to a net loss of $10,461,000 for the nine
months ended September 30, 1998. For the years ended December 31, 1998, 1997 and
1996, the Company incurred losses exclusive of their gain on the sale of
affiliate and extraordinary item of $13,353,000, $15,694,000 and
$5,643,000,respectively. The Company has also experienced net cash outflows from
operating activities of $9,155,000, $8,220,000 and $7,159,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, 1997
and 1996 the Company had working capital
17
<PAGE> 18
of $1,817,000, $11,170,000 and $8,838,000, respectively, and stockholders'
equity of $11,908,000, $11,654,000 and $20,076,000, respectively. The Company's
decrease in working capital and stockholders' equity from December 31, 1996 to
December 31, 1998 is principally due to the net loss for the period.
The Company is currently looking at various alternatives to fund its
cash needs until its operations generate an adequate positive cash flow. It is
the intent of the Company to have its subsidiary, Advanced Sciences, begin
repayment of an intercompany loan by borrowing funds through its line of credit
to maximize use of the funds available under the line of credit. Through
September 30, 1999, Advanced Sciences has repaid $420,000 to the Company and
increased its borrowings under the line of credit by that amount.
On August 20, 1999, CASI received $1,000,000 as a "new advance" under a
First Amendment to its existing revolving line of credit. This advance is
evidenced by a Secured Promissory Note (the "1999 Term Note"). The term note is
repayable in monthly installments in the principal amount of $16,666.67 plus
interest accrued and unpaid interest. The first payment was paid August 1, 1999.
Interest will be at prime plus 1 1/2%. Security for the note includes virtually
all property and equipment owned by CASI and CAT. This 1999 term note is shown
as long term debt in the consolidated balance sheet.
In November 1999, Applied completed $2.5 million in financing through
private placement. The Company issued 335,000 shares of a new Series E
convertible preferred stock, convertible into the Company's common stock at the
market price, after April 30, 2000 and up through April 30, 2003 at which time
it automatically converts to the Company's common stock. The Series E
convertible preferred stock has a variable rate dividend averaging 8.15% over
the term of the securities. The Company reserved the right to redeem all of the
Series E preferred stock on or before April 30, 2000 by payment of $2,800,000
plus any accrued dividends.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards of approximately
$31,000,000, which expire in the years 2000 through 2018. The amount of net
operating loss carryforward that can be used in any one year will be limited by
the applicable tax laws which are in effect at the time such carryforward can be
utilized. A full valuation allowance has been established to offset any benefit
from the net operating loss carryforwards. It cannot be determined when or if
the Company will be able to utilize the net operating losses.
YEAR 2000 CONSIDERATIONS
Many existing computer systems and software products are coded to
accept only two-digit entries in the date code field. As the year 2000
approaches, these code fields will need to accept four digit entries to
distinguish between years beginning with "19" from those beginning with "20." As
a result, in less than two years, computer systems and/or software products used
by many companies may need to be upgraded to comply with such year 2000
requirements. If uncorrected, many computer applications could fail or create
erroneous results by or at the year 2000.
The Company believes that its database and operating systems are year
2000 compliant, meaning that they may be able to operate without error in dates
and date-related data, including calculating, comparing, indexing and
sequencing, prior to on and after January 1, 2000. However,
18
<PAGE> 19
certain of the Company's software applications utilized to bill customers and
maintain finance and accounting records are coded using two digits rather than
four to define the applicable year. The Company is working with its major
software vendor to assure that proper modifications will be made to such
applications and anticipates such modifications will be completed by June 1999.
The Company also relies, directly and indirectly, on external systems of its
customers (primarily U.S. government agencies and contractors), suppliers,
creditors, financial organizations and governmental entities. Consequently, the
Company could be affected through the disruptions in the operations of the
enterprises with which the Company interacts. Furthermore, the purchasing
frequency and volume of customers or potential customers may be affected by year
2000 issues as companies expend significant resources to make their current
systems year 2000 compliant.
The Company has not quantified the total costs required to become year
2000 compliant, but does not expect that the cost of addressing any year 2000
issues will be a material event or uncertainty that would cause its reported
financial information not to be necessarily indicative of future operating
results or future financial condition, or that the costs or consequences of
incomplete or untimely resolution of any year 2000 issue represent a known
material event or uncertainty that is reasonably likely to affect its future
financial results, or cause its reported financial information not to be
necessarily indicative of future operating results or future financial
condition. As of September 30, 1999, the total costs incurred to address the
Company's year 2000 issues have not been material (approximately $61,500).
However, if the Company, its customers or vendors encounter any unanticipated
delays in, or costs associated with, the resolution of any year 2000 issue, the
Company's business, financial condition and results of operations could be
materially adversely affected. Accordingly, the Company has devoted the
necessary resources to becoming year 2000 compliant and has a contingency plan
to handle any year 2000 problems.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report are "forward-looking
statements" intended to qualify for the safe harbors from liability established
by Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These forward-looking statements
can generally be identified as such because the context of the statement will
include words such as the Company "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements. Such statements
may address future events and conditions concerning, among other things, the
Company's results of operations and financial condition; the consummation of
acquisition and financing transactions and the effect thereof on the Company's
business; capital expenditures; litigation; regulatory matters; and the
Company's plans and objectives for future operations and expansion. Any such
forward-looking statements would be subject to the risks and uncertainties that
could cause actual results of operations, financial condition, acquisitions,
financing transactions, operations, expenditures, expansion and other events to
differ materially from those expressed or implied in such forward-looking
statements. Any such forward-looking statements would be subject to a number of
assumptions regarding, among other things, future economic, competitive and
market conditions generally. Such assumptions would be based on facts and
conditions as they exist at the time such statements are made as well as
predictions as to future facts and conditions, the accurate prediction of which
may be difficult and involve the assessment of events beyond the Company's
control. Further, the Company's business is subject to a number of risks that
would affect any such forward-looking statements. These risks and uncertainties
include, but are not limited to, the ability of the Company to commercialize its
technology; product demand and industry pricing; the ability of the Company to
obtain patent protection for its technology; developments in environmental
legislation and regulation; the ability of the company to obtain future
financing on favorable terms; and other circumstances affecting anticipated
revenues and costs. These risks and uncertainties could cause actual results of
the Company to differ materially from those projected or implied by such
forward-looking statements.
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<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings to which the
Company is a party which have not been disclosed in previous filings with the
Securities and Exchange Commission. There are no material developments to be
reported in any previously reported legal proceedings.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS AMONG SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER EVENTS
(a) The Company has notified holders of its publicly traded
warrants that the conversion price and conversion ratio have
changed in accordance with the original warrant agreement.
(b) In October 1999, Applied announced new terms for its
merger agreement with Global Energy Investors, Inc. ("GEI").
This Merger Agreement by and among the Company, GEI and its
stockholders expired by its terms on October 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
1) The Company filed a Current Report on Form
8-K, dated August 23, 1999, regarding the
change in auditors to Tanner+Co.
2) The Company filed a Current Report on Form
8-K, dated October 4, 1999, regarding the
new terms for its merger agreement with
Global Energy Investors, Inc.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: NOVEMBER 8, 1999 COMMODORE APPLIED TECHNOLOGIES, INC.
(REGISTRANT)
BY /S/ JAMES M. DE ANGELIS
------------------------------------------
JAMES M. DE ANGELIS-VICE PRESIDENT
AND TREASURER (AS BOTH A DULY
AUTHORIZED OFFICER OF THE REGISTRANT
AND THE PRINCIPAL FINANCIAL OFFICER
OF THE COMPANY)
21
<PAGE> 22
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1998
<CASH> 562
<SECURITIES> 0
<RECEIVABLES> 3,326
<ALLOWANCES> (118)
<INVENTORY> 0
<CURRENT-ASSETS> 4,073
<PP&E> 4,702
<DEPRECIATION> (2,371)
<TOTAL-ASSETS> 14,348
<CURRENT-LIABILITIES> 3,838
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 9,534
<TOTAL-LIABILITY-AND-EQUITY> 14,348
<SALES> 13,401
<TOTAL-REVENUES> 13,401
<CGS> 11,726
<TOTAL-COSTS> 15,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> (2,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,350)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
