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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
- ------------------------------- -------------------------------
(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 April 19, 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 Sheets -
March 31, 1999 and December 31, 1998...................... 4
Condensed Statement of Operations -
Three months ended March 31, 1999 and 1998................ 5
Condensed Statement of Cash Flows -
Three months ended March 31, 1999 and
March 31, 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 28 $ 209
Restricted cash 210 210
Accounts receivable, net 15 --
Inventory, net 418 685
Prepaid assets and other current assets -- 1
------ ------
TOTAL CURRENT ASSETS 671 1,105
Property and equipment, net 1,252 1,378
Intangible assets, net 186 182
------ ------
TOTAL ASSETS $2,109 $2,665
====== ======
3
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31,
1999 1998
------------ -----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 115 $ 23
Accrued expenses 16 56
Unearned revenue 263 450
Due to related parties 27 27
-------- --------
TOTAL CURRENT LIABILITIES 421 556
Capital lease obligation 2 4
-------- --------
TOTAL LIABILITIES 423 560
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) (10,046) (9,627)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 1,686 2,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,109 $ 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
MARCH 31,
-----------------------
1999 1998
-------- --------
(UNAUDITED)
REVENUES
Contract revenues $ 264 $ --
COSTS AND EXPENSES
Cost of sales 319 309
Research and development 90 130
General and administrative 149 391
Depreciation and amortization 129 80
Corporate overhead expense 229
Sales and marketing expense 4 117
-------- --------
691 1,256
-------- --------
(427) (1,256)
Interest income 8 53
-------- --------
NET LOSS $ (419) $ (1,203)
======== ========
NET LOSS PER SHARE (Based on
weighted average shares in 1999 and
1998 of 11,516,000 and 11,512,000)* $ (.04) $ (.10)
* 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)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
(UNAUDITED)
OPERATING ACTIVITIES
Net (loss) $ (419) $ (1,203)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 129 80
issuance of common stock 25
Changes in assets and liabilities:
Accounts payable 92 (55)
Accrued liabilities (40) (122)
Unearned revenue (187)
Restricted cash (122)
Inventory 267 (266)
Accounts receivable (15) -
Receivables from related party 12
Other assets 1 13
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (172) (1,638)
-------- --------
INVESTING ACTIVITIES
Purchase and construction of equipment - (106)
Acquisition of intangible assets (7)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7) (106)
-------- --------
FINANCING ACTIVITIES
Preferred stock dividend - (150)
Borrowings from stockholder - 13
Decrease in capital lease obligation (2) (2)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (2) (139)
-------- --------
INCREASE (DECREASE) IN CASH (181) (1,883)
Cash at beginning of period 209 4,951
-------- --------
CASH AT END OF PERIOD $ 28 $ 3,068
======== ========
See notes to condensed financial statements.
6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 three month period ended March 31, 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 continue commercializing 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 has
been 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 May 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.
NOTE B - CONTINGENCIES
The Company has no outstanding matters of litigation as of April 19, 1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
General
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 March 31, 1999, the Company has incurred a net loss of
$10,046,000 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 $264,000 for the three months ended March 31, 1999 compared
to $0 for the three months ended March 31, 1998. Such revenues for 1997 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 ended March 31, 1999, the Company had incurred
$319,000 primarily relating to cost of sales 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 months ended March 31, 1998, there were no cost of sales as operations had
not commenced.
For the three months ended March 31, 1999, the Company incurred research
and development costs of $90,000, as compared to $439,000 for the three months
ended March 31, 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
8
<PAGE>
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 months ended March 31, 1999 as compared to the three months ended
March 31, 1998 primarily due to cutbacks in order to preserve capital.
General and administrative expenses for the three months ended March 31,
1999 were $148,000 as compared to $391,000 for the three months ended March 31,
1998. The decrease is primarily due to the termination of executives and staff
in order to conserve capital for the foreseeable future.
Depreciation and amortization increased from $80,000 for the three months
ended March 31, 1998 to $129,000 for the three months ended March 31, 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 months
ended March 31, 1999 as compared to $229,000 of overhead charges for the three
months ended March 31, 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. 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.
Sales and marketing costs have decreased from $117,000 for the three months
ended March 31, 1998 as compared to $4,000 for the three months ended March 31,
1999. The Company has shifted its focus to commencing operations at its
commercial installations.
Interest income was $8,000 for the three months ended March 31, 1999 as
compared to $53,000 for the three months ended March 31, 1998. The decrease
resulted from a reduction in the amount of temporary investments.
The Company had a net loss of $419,000 for the three-month period ended
March 31, 1999 as compared to a net loss of $1,203,000 for the three-month
period ended March 31, 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 working capital of $250,000 on March 31, 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
first quarter of 1999 less depreciation and amortization expenses.
While the Company believes its capital requirements for the remainder of
1999 will be met through the development of its business, the Company will be
required to obtain 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
interim financing from Environmental. There can be no assurances, however, that
the Company will be able to obtain any 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 March 31, 1999, the Company had tax loss carryforwards of approximately
$10,046,000. 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 2011. 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 mainframe 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 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 June 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 March 31, 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 intends to create a contingency plan by July 1999 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 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 -
On January 5, 1999, the Company filed with the Securities and Exchange
Commission Form 8-K, dated December 25, 1998, with respect to a change in
ownership control from Commodore Applied Technologies, Inc. ("Applied") to
Commodore Environmental Services LLC, a wholly-owned subsidiary of Commodore
Environmental Services, Inc. ("Environmental"). The change in control resulted
from a debt restructuring agreement between Applied and Environmental.
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 thereunto 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: April 27, 1999
14
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