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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -- AND 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 AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22291
COMMODORE SEPARATION TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 11-3299195
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3240 TOWN POINT DRIVE, SUITE 200
KENNESAW, GEORGIA 30144
-------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 422-1518
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 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
----- ----
Number of shares of common stock outstanding at October 20, 1999 (latest
practicable date):
Issued and Outstanding: 11,515,575
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<PAGE>
COMMODORE SEPARATION TECHNOLOGIES,INC
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheet -
September 30, 1999 and December 31, 1998...................... 3
Condensed Statement of Operations -
Three months ended September 30, 1999 and 1998 and
Nine months ended September 30, 1999 and 1998................. 5
Condensed Statement of Cash Flows -
Nine months ended September 30, 1999 and
September 30, 1998............................................ 6
Notes to Condensed Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
PART II. OTHER INFORMATION .............................................. 13
- -------- -----------------
SIGNATURES .................................................................. 14
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
--------------------
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 4 $ 209
Restricted cash 210 210
Accounts receivable, net 11 --
Inventory, net 533 685
Prepaid assets and other current assets -- 1
----- -----
TOTAL CURRENT ASSETS 758 1,105
Property and equipment ,net 1,045 1,378
Intangible assets, net 181 182
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TOTAL ASSETS $ 1,984 $ 2,665
======= =======
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................. $ 298 $ 23
Accrued expenses ................................. 14 56
Unearned revenue ................................. 263 450
Due to related parties ........................... 580 27
-------- --------
TOTAL CURRENT LIABILITIES ............. 1,155 556
Capital lease obligation ........................... 4
-------- --------
TOTAL LIABILITIES ..................... 1,155 560
Commitments and contingencies ...................... -- --
Stockholders' Equity:
Preferred stock, Series A, $.001 par
value, authorized 750,000, issued and
outstanding 600,000 ............................ 1 1
Preferred stock, Series B, $.001 par
value, authorized 4,000, issued and
outstanding 3,570 .............................. -- --
Common stock, par value $.01 per share
authorized 50,000,000 and shares
issued and outstanding 11,515,575 .............. 11 11
Additional paid in capital ....................... 11,720 11,720
(Deficit) ........................................ (10,903) (9,627)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ............ 829 2,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 1,984 $ 2,665
======== ========
See notes to condensed financial statements.
4
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 1998 1999 1998
-------- ------- ------- ---------
(UNAUDITED) (UNAUDITED)
REVENUES
Contract revenues ........... $ 45 $ 19 $ 329 $ 19
COSTS AND EXPENSES
Cost of sales ............... 38 148 407 649
Research and development .... 81 151 281 520
General and administrative .. 179 261 546 997
Depreciation and amortization 115 110 373 287
Corporate overhead expense .. 141 529
Sales and marketing expense . 1 105 6 370
------- ------- ------- -------
414 916 1,613 3,352
------- ------- ------- -------
(369) (897) (1,284) (3,333)
Interest income ............... 12 8 94
------- ------- ------- -------
NET LOSS ...................... $( 369) $ (885) $(1,276) $(3,239)
======= ======= ======= =======
NET LOSS PER SHARE (Based on
weighted average shares in
1999 and 1998 of 11,516,000
and 11,516,000)* $ (.03) $ (.08) $ (.11) $ (.28)
* Common stock equivalents are not included in the net loss per share
calculation since they are antidilutive.
See notes to condensed financial statements.
5
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
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(UNAUDITED)
OPERATING ACTIVITIES
Net (loss) ........................................ $(1,276) $(3,239)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization ................. 373 287
Issuance of common stock ..................... 25
Changes in assets and liabilities:
Accounts payable .............................. 275 (312)
Accrued liabilities ........................... (42) (144)
Deposits -- contracts in progress ............. 450
Unearned revenue .............................. (187)
Restricted cash ............................... (122)
Inventory ..................................... 152 (271)
Accounts receivable ........................... (11) --
Receivables from related party ................ 15
Other assets .................................. 1 40
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NET CASH USED IN OPERATING ACTIVITIES .. (715) (3,271)
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INVESTING ACTIVITIES
Purchase and construction of equipment .......... (31) (735)
Acquisition of intangible assets ................ (8) (28)
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NET CASH USED IN INVESTING ACTIVITIES (39) (763)
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FINANCING ACTIVITIES
Preferred stock dividend ........................ -- (300)
Borrowings from related parties ................. 553 105
Decrease in capital lease obligation ............ (4) (7)
------- -------
NET CASH USED IN FINANCING ACTIVITIES .... 549 (202)
------- -------
INCREASE (DECREASE) IN CASH ....................... (205) (4,236)
Cash at beginning of period ..................... 209 4,951
------- -------
CASH AT END OF PERIOD ............................. $ 4 $ 715
======= =======
See notes to condensed financial statements.
6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements for Commodore
Separation Technologies, Inc. (the "Company") 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
ended 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 10-K annual report dated December 31, 1998.
The Company was incorporated on November 15, 1995, under the laws of the
State of Delaware. The Company is a process technology company which has
developed and continues commercialize its separation technology and recovery
system, known as SLiM (TM). The Company believes SLiM (TM) is capable of
effectively separating and extracting solubilized materials. The Company was
awarded its first commercial contracts in November 1997 and February 1998 and
has commenced operations on one contract in March 1999 and plans to commence
operations on the second contract in November 1999.
On September 29, 1998, Commodore Applied Technologies, Inc. ("Applied")
transferred its 87% ownership in the Company to Commodore Environmental
Services, LLC ("LLC"), a wholly-owned subsidiary of Commodore Environmental
Services, Inc. ("Environmental") in connection with a debt restructuring
agreement between Applied and Environmental.
B - CONTINGENCIES
The Company has no outstanding matters of litigation as of October 20,
1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
General
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The Company organized in November 1995, has since its inception developed a
strategic operating plan, hired personnel to implement its operating plan,
engineered and built commercial scale supported liquid membrane processing
units, conducted on-site demonstrations for potential customers and commenced
operations at its first installations.
The Company is beginning to develop an operating history, but operations
have been limited to the commencement of its first commercial contracts. Until
the operating history matures, the Company is subject to all of the business
risks associated with a new enterprise, such as the risks of unforeseen capital
requirements, market acceptance, and competitive disadvantages against larger
and more established companies. During the period from November 15, 1995 (date
of inception) to September 30, 1999, the Company has incurred a net loss of
$10,903,000 and anticipates that it may continue to incur significant losses for
the foreseeable future. There is no assurance as to whether or when the Company
will generate material revenues or profits.
Results from Operations
- -----------------------
Revenues were $45,000 for the three months ended September 30, 1999 and
$329,000 for the nine months ended September 30, 1999, respectively, as compared
to $19,000 for the three and nine months ended September 30, 1998. Approximately
all of the revenues for 1999 were primarily due to the Company's commencement of
operations at the Port of Baltimore Hawkins Point project. Revenue under such
contract was recorded as the contract has commenced operations.
For the three months and nine months ended September 30, 1999, the Company
had incurred cost of sales of $38,000 and $407,000, respectively, primarily
relating to the Port of Baltimore contracts. These costs include labor, fringes,
subcontractor costs, travel costs, material purchases and cost of equipment sold
to the customer. For the three and nine months ended September 30, 1998, cost of
sales amounted to $148,000 and $649,000, respectively, relating to the Port of
Baltimore projects.
For the three and nine months ended September 30, 1999, the Company incurred
research and development costs of $81,000 and $281,000, respectively, as
compared to $151,000 and $520,000 for the three and nine months ended September
30, 1998. Research and development costs include salaries, wages, and other
related costs of personnel engaged in research and development activities,
contract
8
<PAGE>
services and materials, test equipment and rent for facilities involved in
research and development activities. Research and development costs are expensed
when incurred, except those costs related to the design or construction of an
asset having an economic useful life, which are capitalized, and then
depreciated over the estimated useful life of the asset. Research and
development decreased for the three and nine months ended September 30, 1999 as
compared to the three and nine months ended September 30, 1998 primarily due to
cutbacks in research in order to preserve capital.
General and administrative expenses for the three and nine months ended
September 30, 1999 were $179,000 and $546,000, respectively, as compared to
$261,000 and $997,000 for the three and nine months ended September 30, 1998.
The decrease is primarily due to the termination of staff in order to conserve
capital.
Depreciation and amortization increased from $110,000 and $287,000 for the
three and nine months ended September 30, 1998 to $115,000 and $373,000 for the
three and nine months ended September 30, 1999. This is a direct result of the
Company purchasing more equipment required for the research and
commercialization of its technology.
The Company incurred no corporate overhead charges for the three and nine
months ended September 30, 1999 as compared to $141,000 and $529,000 of overhead
charges for the three and nine months ended September 30, 1998. This fee
represents the Company's pro-rata portion of expenses relating to wages and
salaries, rent, and other administrative expenses relating to its offices in New
York and Virginia. The Virginia office was closed in the fourth quarter of 1998.
Since the Company has reduced its dependence on administrative personnel from
its parent company, corporate charges have not been incurred for 1999.
Sales and marketing expense for the three and nine months ended September
30, 1999 was $1,000 and $6,000 as compared to $105,000 and $370,000 for the
three and nine months ended September 30, 1998. This decrease was a result of
the Company's decision to focus its efforts and limited resources on applied
research and the implementation of the Port of Baltimore contracts.
Interest income was $0 and $8,000 for the three and nine months ended
September 30, 1999 as compared to $12,000 and $94,000 for the three and nine
months ended September 30, 1998. The decrease resulted from a reduction in the
amount of temporary investments.
The Company had net losses of $369,000 and $1,276,000 for the three and
nine month period ended September 30, 1999 as compared to net losses of $885,000
and $3,239,000 for the three and nine month period ended September 30, 1998. The
decreased net loss is attributable to the various revenue and expense items in
the individual paragraphs above.
9
<PAGE>
Liquidity and Capital Resources
- --------------------------------
The Company has a working capital deficit of $397,000 on September 30, 1999
as compared to working capital of $549,000 at the beginning of the year. The
decrease in working capital is primarily attributable to the net loss incurred
during the nine months ended September 30, 1999 less depreciation and
amortization expenses.
The Company is continuing its pursuit of financing through outside sources.
There can be no assurance that such financing will be available or, if
available, that it will be on terms satisfactory to the Company. In the event
such external financing is not available on terms acceptable to the Company, the
Company may be able to obtain additional interim financing from Environmental.
As of September 30, 1999, Environmental has advanced the Company $458,000. There
can be no assurances, however, that the Company will be able to obtain
additional financing from Environmental.
The Company signed a non-binding letter of intent on February 2, 1999 to
merge with and into American Technologies Group, Inc. ("ATEG"). ATEG is engaged
in the development, commercialization and sale of products and systems using its
patented and proprietary technologies, concentrating in three core areas: (i) IE
(TM) technology, (ii) water purification and (iii) high-energy particle beams.
Net Operating Losses
- --------------------
At September 30, 1999, the Company had tax loss carryforwards of
approximately $10,900,000. The amount of and ultimate realization of benefit
from the net operating loss for income tax purposes is dependent, in part, upon
the tax laws in effect, future earnings of the Company, and other future events,
the effects of which cannot be determined. A change in ownership of the Company
may reduce the amount of loss allowable. These net operating carryforwards begin
to expire in 2018. A full valuation allowance has been established because of
the uncertainty about whether the Company will realize the benefit of 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 one year, computer
10
<PAGE>
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 year 2000.
The Company believes that its 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 or
after January 1, 2000. However 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 to be completed
by November 1999. The Company also relies, directly and indirectly, on external
systems of its customers (primarily state government agencies and customers,
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 to become year 2000
compliant, but does not expect that the cost of addressing any year 2000 issue
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 (less than $1,000). 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
plans to devote the necessary resources to becoming year 2000 compliant in a
timely manner and has created a contingency plan to handle any year 2000
problems.
11
<PAGE>
Forward-Looking Statements
- ---------------------------
Certain matters discussed in this Annual 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 objective 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. Furthermore, 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 revenue 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.
12
<PAGE>
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 proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits -
27 - Financial Data Schedule
Reports on Form 8-K - None
13
<PAGE>
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 there unto duly authorized.
COMMODORE SEPARATION TECHNOLOGIES, INC.
(Registrant)
By /s/ JAMES M. DeANGELIS
-------------------------
James M. DeAngelis - Vice President
(As both a duly authorized
Officer of the Registrant
and the Chief Accounting
Officer of the Registrant)
Date: October 26, 1999
14
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<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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<INVENTORY> 533
<CURRENT-ASSETS> 758
<PP&E> 2,055
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