COMMODORE APPLIED TECHNOLOGIES INC, 10-Q, 2000-08-14

COMMODORE APPLIED TECHNOLOGIES INC
10-Q, 2000-08-14
HAZARDOUS WASTE MANAGEMENT

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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 June 30, 2000
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 (State or other jurisdiction of incorporation or organization)	11-3312952 (I.R.S. Employer Identification No.)

150 East 58^th Street New York, New York (Address of principal executive office)	10155 (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 August 4, 2000 was 32,361,822.

COMMODORE APPLIED TECHNOLOGIES, INC.

FORM 10-Q

INDEX


		Page No.

PART I	FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheet - June 30, 2000 and December 31, 1999		1

	Condensed Consolidated Statement of Operations - Three and Six months ended June 30, 2000 and June 30, 1999		3

	Condensed Consolidated Statement of Cash Flows - Six months ended June 30, 2000 and June 30, 1999		4

	Notes to Condensed Consolidated Financial Statements		5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		12

PART II	OTHER INFORMATION		16

SIGNATURES			17

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)

ASSETS	June 30, 2000		December 31, 1999

	(unaudited)
Current Assets:
Cash and cash equivalents	$	1,133	$	1,797
Accounts receivable, net		3,115		3,552
Notes and advances to related parties		310		265
Restricted cash and equivalents		22		21
Prepaid assets and other current receivables		500		366

Total Current Assets		5,080		6,001
Investments and advances		325		—
Property and equipment, net		2,143		2,244
Other assets
Patents and completed technology, net of accumulated amortization
of $547 and $478, respectively		929		961
Goodwill, net of accumulated amortization of $959 and $831, respectively		6,713		6,841

Total Assets	$	15,190	$	16,047

See notes to condensed consolidated financial statements.

COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share data)

LIABILITIES AND STOCKHOLDERS' EQUITY	June 30, 2000			December 31, 1999

	(unaudited)

Current Liabilities:
Accounts payable	$	1,289		$	1,792
Current portion of long term debt		953			200
Line of credit		823			948
Other accrued liabilities		1,661			2,255

Total Current Liabilities		4,726			5,195

Long term debt		162			716
Notes payable to related parties		185			185

Total Liabilities		5,073			6,096

Commitments and contingencies		—			—

Stockholders’ Equity
Convertible Preferred Stock, Series E & F
Par value $0.001 per share,
5% to 12% cumulative dividends,
601,700 and 335,000 shares authorized,
issued and outstanding as of June 30,
2000 and December 31, 1999, respectively.
The shares had an aggregate liquidation
value of $7,022,000 and $4,355,000 at
June 30, 2000 and December 31, 1999
respectively		—			—
Common Stock, par value $0.001 per share,
100,000,000 shares authorized, 32,319,542
and 30,962,938 issued and outstanding,
at June 30, 2000 and December 31, 1999,
respectively		32			31
Additional paid-in capital		59,209			57,168
Accumulated deficit		(49,124	)		(47,248	)

Total Stockholders’ Equity		10,117			9,951

Total Liabilities and Stockholders’ Equity	$	15,190		$	16,047

See notes to condensed consolidated financial statements.

COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited - Dollars in Thousands, except per share data)

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
	2000			1999			2000			1999


Contract revenues	$	4,538		$	4,754		$	8,870		$	8,550
Costs and expenses:
Cost of sales		3,927			3,914			7,858			7,368
Research and development		354			277			600			562
General and administrative		1,065			903			1,845			1,655
Depreciation and amortization		217			177			379			364


Total costs and expenses		5,563			5,271			10,682			9,949

Loss from operations		(1,025	)		(517	)		(1,812)			(1,399	)

Other income (expense):
Interest income		23			6			39			23
Interest expense		(55	)		(15	)		(103	)		(30	)


Net other income (expense)		(32	)		(9	)		(64	)		(7	)


Loss before income taxes		(1,057	)		(526	)		(1,876	)		(1,406	)
Income taxes		—			—			—			—


Net loss	$	(1,057	)	$	(526	)	$	(1,876	)	$	(1,406	)

Loss per share	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.06	)

Number of weighted average shares outstanding (000’s)		31,911			23,702			31,525			23,702

See notes to condensed consolidated financial statements.

COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Dollars in Thousands, except per share data)

	Six months ended
	June 30,			June 30,
	2000			1999

Cash flows from operating activities:
Net loss	$	(1,876	)	$	(1,406	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		380			364
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		437			(1,132	)
Prepaid assets		(134	)		(88	)
Other assets		(1	)		(28	)
Accounts payable		(503	)		281
Payables to related parties		—			—
Other liabilities		(594	)		(132	)

Net cash provided/(used) in operating activities		(2,291	)		(1,965	)

Cash flows from investing activities:
Purchase of equipment		(82	)		(587	)
Acquisition of patents		(37	)		—
Advances to related parties		(45	)		50
Other investments		(325	)		—

Net cash provided/(used) in investing activities		(489	)		(537	)

Cash flows from financing activities:
Increase in (repayment of) line of credit		(125	)		1,119
Decrease in notes and loans payable		199			(3	)
Preferred stock dividends		(295	)		—
Proceeds from sale of preferred stock and warrants		1,770			—
Proceeds from sale of common stock		567			—

Net cash provided/(used) in financing activities		2,116			1,116

Increase (decrease) in cash		(664	)		(1,386	)
Cash, beginning of period		1,797			1,798

Cash, end of period	$	1,133		$	412

See notes to condensed consolidated financial statements.

COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2000

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 three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

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/A for the year ended December 31, 1999.

Certain prior-year amounts have been reclassified to conform to the current year presentation.

For the years ended December 31, 1999, 1998, and 1997, Applied incurred losses of $3,985,000, $13,353,000 and $15,694,000, respectively and $1,876,000 for the six months ended June 30, 2000. Applied has also experienced net cash outflows from operating activities of $2,888,000, $9,155,000 and $8,220,000 for the years ended December 31, 1999, 1998 and 1997, respectively and $2,291,000 for the six months ended June 30, 2000. Applied’s continuation as a company 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, 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.

As explained in Note B, in March 2000, Applied completed a $2.0 million financing through a private placement. Net proceeds to the Company were $1.77 million.

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 (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 $118,000 at December 31, 1999 and June 30, 2000.

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, 1999 and $325,000 at June 30, 2000. The Company will continue to monitor the carrying value of its investment. The LLC repaid advances totaling $143,000 in the first quarter of

2000. The Company had previously charged off these advances. This recovery was recorded as an offset to Research and Development Costs.

Equity in losses of unconsolidated subsidiary for the six months ended June 30, 2000 and June 30, 1999 was $0. The LLC joint venture reported the following results for the first six months of 2000:

	(Unaudited)
Revenues	$	6,362,000
Net Income		375,000
Total Assets		6,281,000
Members Capital		1,589,000

These results are based on the LLC being successful in negotiating certain “change orders” with the Department of Army. Due to the uncertainty of collection of the change orders, Applied has not recorded its interest in this reported net income for the six months ending June 30, 2000.

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.

Note B - Stockholders’ Equity

The certificate of Incorporation was amended in 1999, increasing authorized shares of common stock from 75,000,000 to 100,000,000.

Convertible Preferred Stock

In March 2000, Applied completed $2 million in financing through private placement. The Company issued 266,700 shares of a new Series F convertible preferred stock, convertible into the Company’s common stock at any time on or after September 30, 2000. On conversion the investor will receive for each converted preferred share the greater number of Company common shares as determined by (1) the face per share ($10) plus accrued dividend divided by the average of the closing prices over a ten consecutive trading day period ending on the Trading day immediately preceding the Conversion date or (2) $7.50 (the cash invested for each preferred share) divided by $1.93875.

The Series F convertible preferred stock has a liquidation preference of $10, per share. In addition, the Company issued warrants to purchase 363,475 shares of common stock at $1.93875 per share. These warrants expire on March 16, 2005.

The Series F convertible preferred stock has an annual dividend rate of 12% through September 30, 2000 and 5% thereafter, paid quarterly. Transaction costs totaled $230,000 resulting in net proceeds to the Company of $1.77 million. The Company has paid $91,567 in dividends on this stock through June 30, 2000.

Common Stock

In March 2000, the Company settled a dispute over financing commissions, in part, by committing to issue 100,000 shares of the Company’s unregistered common stock, par value $0.001. This commitment was charged to Additional Paid in Capital as additional transaction costs upon stock issuance in April 2000.

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 and Solution, which is developing and constructing equipment to treat mixed and hazardous waste through a patented process using sodium and anhydrous ammonia. 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 concern ing Applied’s reportable segments is shown in the following table.

Three Months Ended June 30, 2000
(Dollars in Thousands)

										Corporate
										Overhead
	Total			CASI			Solution			and Other

Contract Revenues	$	4,538		$	4,488		$	50		$	—

Costs and expenses
Cost of sales		3,927			3,808			119			—
Research and development		354			—			354			—
General and administrative		1,065			416			20			629
Depreciation and amortization		217			21			96			100

Total costs and expenses		5,563			4,245			589			729

Income (loss) from operations		(1,025	)		243			(539	)		(729	)

Interest income		23			—			—			23
Interest expense		(55	)		(23	)		(32	)		—
Equity in losses of
unconsolidated subsidiary		—			—			—			—

Net income (loss)	$	(1,057	)	$	220		$	(571	)	$	(706	)


Total assets	$	15,190		$	2,941		$	2,624		$	9,625

Expenditures for long-lived assets	$	50		$	12		$	0		$	38


Six Months Ended June 30, 2000
(Dollars in Thousands)

										Corporate
										Overhead
	Total			CASI			Solution			and Other


Contract Revenues	$	8,870		$	8,775		$	70		$	25

Costs and expenses
Cost of sales		7,858			7,703			155			—
Research and development		600			—			743			(143	)
General and administrative		1,845			696			19			1,130
Depreciation and amortization		379			41			138			200

Total costs and expenses		10,682			8,440			1,055			1,187

Income (loss) from operations		(1,812	)		335			(985	)		(1,162	)

Interest income		39			—			—			39
Interest expense		(103	)		(56	)		(47	)		—
Equity in losses of
unconsolidated subsidiary		—			—			—			—

Net income (loss)		(1,876	)	$	279		$	(1,032	)	$	(1,123	)


Total assets	$	15,190		$	2,941		$	2,624		$	9,625

Expenditures for long-lived assets	$	119		$	14		$	67		$	38

Three Months Ended June 30, 1999
(Dollars in Thousands)

										Corporate
										Overhead
	Total			CASI			Solution			and Other


Contract Revenues	$	4,754		$	4,754		$	—		$	—

Costs and expenses
Cost of sales		3,914			3,914
Research and development		277			—			277
General and administrative		903			433			27			443
Depreciation and amortization		176			32			71			73

Total costs and expenses		5,270			4,379			375			516

Income (loss) from operations		(516	)		375			(375	)		(516	)

Interest income		6									6
Interest expense		(15	)		(15	)
Equity in losses of
unconsolidated subsidiary

Net income (loss)	$	(525	)	$	360		$	(375	)	$	(510	)


Total assets	$	15,476		$	5,015		$	2,094		$	8,365

Expenditures for long-lived assets	$	322		$	—		$	322		$	—

Six Months Ended June 30, 1999
(Dollars in Thousands)

										Corporate
										Overhead
	Total			CASI			Solution			and Other

Contract Revenues	$	8,550		$	8,550		$	—		$	—

Costs and expenses
Cost of sales		7,368			7,368
Research and development		562						562
General and administrative		1,655			700			33			922
Depreciation and amortization		364			59			160			145

Total costs and expenses		9,949			8,127			755			1,067

Income (loss) from operations		(1,399	)		423			(755	)		(1,067	)

Interest income		23									23
Interest expense		(30	)		(30	)
Equity in losses of
unconsolidated subsidiary

Net income (loss)	$	(1,406	)	$	393		$	(755	)	$	(1,044	)


Total assets	$	15,476		$	5,015		$	2,094		$	8,367

Expenditures for long-lived assets	$	587		$	—		$	587		$	—

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.

The Company previously reported notification by the Department of Labor that it was being assessed penalties totaling $100,000 for failure to file certain reports. The Company has settled this amount for $6,000.

In the normal course of business, the Company has loaned monies to, borrowed monies from and guaranteed performance bonds of affiliates.

Note E - Proposed Acquisition

The Company announced in May 2000 that it has entered into an agreement to acquire 81% of Dispute Resolution Management, Inc. ("DRM"), an international consulting firm specializing in the management and settlement of complex, latent and long-term tail insurance claims, including environmental, asbestos, products liability and other claims, for large corporate and government clients.

The purchase price of the DRM assets and business is approximately $15 million, plus 1 million shares of Company common stock and warrants to purchase an additional 1 million shares of Company common stock and warrants to purchase an additional 1 million shares of common stock at $2.00 per share. The DRM stockholders, who will continue to own a 19 percent interest in the business, are entitled to receive on-going payments over a five-year period based on a percentage of the profits generated by the existing DRM business. Consummation of this transaction is subject to a number of conditions, including a satisfactory due diligence investigation and financing.

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operation

Overview

Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or "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).

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 and abroad. 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 Six Months Ended June 30, 2000 Compared to Three and Six Months Ended June 30, 1999

Revenues were $4,538,000 and $8,870,000 for the three and six months ended June 30, 2000, compared to $4,754,000 and $8,550,000 for the three and six months ended June 30, 1999. 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. The Company has seen some increase in annualized sale volume as there was unusually high activity on a major contract in the first six months of 2000 that we expect to reduce to normal levels for the remainder of the year. The Company has two major customers, each of which represent more than 10% of total revenue. The combined revenue for these two customers was $7,681,000 or 87.5% of total revenues for the six months ending June 30, 2000.

Cost of sales were $3,927,000 and $7,858,000 for the three and six month periods ending June 30, 2000 compared to $3,914,000 and $7,386,000 for the three and six month periods ending June 30, 1999. These amounts reflect an increasing percentage of sales. CASI has certain fixed price contracts that limit cost recovery to certain maximum rates. The Company has experienced increases in salaries and benefit costs (especially health insurance) that could not be recovered, in full, under existing contracts.

For the three and six months ended June 30, 2000, the Company incurred research and development costs of $354,000 and $600,000 as compared to $277,000 and $562,000 for the three and six months ended June 30, 1999. Excluding the one time credit of $143,000 in 2000 (See Note A to the Condensed Consolidated Financial Statements), research and development costs would have been $743,000 for the first six months of 2000. This increase over 1999 is attributable to performing the successful U.S. Environmental Protection Agency tests that should result in a new permit for the S-10 machine in the second half of 2000. 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 of the asset.

General and administrative expenses for the three and six months ended June 30, 2000 were $1,065,000 and $1,845,000 as compared to $903,000 and $1,655,000 for the three and six months ended June 30, 1999. This difference is primarily related to professional fees incurred in 2000 to file a registration statement with the Securities and Exchange Commission as required by the Series F preferred stock agreement (see "Liquidity and Capital Resources") and professional fees and travel costs related to the negotiations and financing activities on the proposed acquisition of Dispute Resolution Management, Inc. (see Note E to Condensed Consolidated Financial Statements).

Interest income was $23,000 and $39,000 for the three and six months ended June 30, 2000, as compared to $6,000 and $23,000 for the three and six months ended June 30, 1999.

Interest expense for the three and six months ended June 30, 2000 was $55,000 and $103,000 as compared to $15,000 and $30,000 for the three and six months ended June 30, 1999. This is due to the increase in debt between periods, primarily the line of credit.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2000 and December 31, 1999, CASI had a $823,000 and $948,000 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 June 30, 2000). 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 June 30, 2000 and December 31, 1999. The Company expects to place this line of credit, at essentially the same terms, with a new lender in August or September 2000. The Company has verbal assurances from the current lender that the current line will be extended while the Company negotiates a final credit line with a new lender. These negotiations are currently ongoing.

The line of credit was amended July 15, 1999 to include a promissory note of $1,000,000 secured by substantially all the property and equipment of the Company. The term loan is payable at $16,667 per month plus interest.

For the six months ended June 30, 2000, the Company incurred a net loss of $1,876,000 as compared to a net loss of $1,406,000 for the six months ended June 30, 1999. For the years ended December 31, 1999, 1998 and 1997, the Company incurred losses and also experienced net cash outflows from operating activities. At June 30, 2000 the Company had working capital of $354,000 and shareholders' equity of $10,117,000.

The contract with one customer, representing $5,962,000, or 67.9% of the first six months of 2000 revenues is scheduled to end on September 30, 2000. The Company expects to be successful with its efforts to rebid this work, but at a significantly reduced level. The Company uses many subcontractors to service this account, and it is anticipated that much of this subcontract work will be reduced or eliminated with the anticipated work reduction. The negative impact on profits from this work reduction should be offset by increases in other areas of the Company's business.

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.

In March 2000, Applied completed $2 million in financing through private placement. The Company issued 266,700 shares of a new Series F convertible preferred stock, convertible into the Company's common stock at any time on or after September 30, 2000. On conversion the investor will receive for each converted preferred share the greater number of Company common shares as determined by (1) the face per share ($10) plus accrued dividend divided by the average of the closing prices over a ten consecutive trading day period ending on the Trading day immediately preceding the Conversion date or (2) $7.50 (the cash invested for each preferred share) divided by $1.93875.

NET OPERATING LOSS CARRYFORWARDS

The Company has net operating loss carryforwards of approximately $25,000,000. 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

Prior to January 1, 2000, there was a great deal of concern regarding the ability of computers to adequately recognize 21^st century dates from 20^th century dates due to the two-digit data field used by many systems. Most reports to date, however, are that computer systems are functioning normally and the compliance and remediation work accomplished during the years leading up to 2000 was effective to prevent any problems. As of June 30, 2000, the Company has not experienced and any such computer difficulty; however, computer experts have warned that there may still be residual consequences of the change in centuries and any such difficulties may, depending upon their pervasiveness and severity, have a material adverse effect on the Company's business, financial condition and results of operations. Any of the following could have a material adverse effect on the Company's business, financial condition and results of operations:

a failure to fully identify all year 2000 dependencies in the Company's system;
a failure to fully identify all year 2000 dependencies in the systems of third parties with whom the Company does business;
a failure of any third party with whom the Company does business to adequately address their year 2000 issues;
the failure of any contingency plans developed to protest the Company's business and operations from year 2000 related interruptions; and;

delays in the implementation of new systems resulting from 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 an d 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, t he 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.

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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

In March 2000, Applied completed $2 million in financing through private placement of 266,700 shares of a new Series F convertible preferred stock. In addition, the Company issued warrants to purchase 363,475 shares of common stock at $1.93875 per share. (See Note B to condensed consolidated financial statements).

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

Not applicable

ITEM 6. Exhibits and Reports on Form 8-K

	(a)	Exhibit
		27 Financial Data Schedule

	(b)	Reports on Form 8-K

		The Company filed a Current Report on Form 8-K, dated May 11, 2000, regarding: 1) Shelby T. Brewer, Ph.D. joining the management team of the Company; 2) An Agreement to acquire Dispute Resolution Management, Inc.; and 3) Treatment of contaminated soil at the Lualualei Naval Radio Transmitting facility in Oahu, Hawaii.

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: August 14, 2000	COMMODORE APPLIED TECHNOLOGIES, INC. (Registrant)

	By	/s/James M. De Angelis

			James M. De Angelis - Senior Vice President and Chief Financial Officer (as both a duly authorized officer of the registrant and the principal financial officer of the registrant)