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, 2000
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.
----------------------------------------
(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)
150 East 58th Street, Suite 3238 10155
New York, New York -----
------------------- (Zip Code)
Address of Principal Executive Offices)
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 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 25, 2000 (latest
practicable date):
Issued and Outstanding: 11,596,908
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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 -
September 30, 2000 and December 31, 1999.............. 4
Condensed Statement of Operations -
Three and nine months ended
September 30, 2000 and 1999........................... 5
Condensed Statement of Cash Flows -
Nine months ended September 30, 2000 and
September 30, 1999.................................... 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 ............................. 12
-------- -----------------
SIGNATURES .......................................................... 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
--------------------
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6 $ 16
Restricted cash 220 220
Accounts receivable, net 16 10
Inventory, net - 519
--------- --------
TOTAL CURRENT ASSETS 242 765
Property and equipment ,net - 963
Intangible assets, net 178 180
--------- --------
TOTAL ASSETS $ 420 $ 1,908
========= ========
</TABLE>
3
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 259 $ 352
Accrued expenses 140 78
Accrued expenses - contract 263 263
Due to related parties 1,163 896
--------- --------
TOTAL CURRENT LIABILITIES 1,825 1,589
Accrued dividends 1,368 916
--------- --------
TOTAL LIABILITIES 3,193 2,505
Commitments and contingencies - -
Stockholders' Deficit:
Preferred stock, Series A, $.001 par
value, authorized 750,000, issued and
outstanding 569,500 and 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 11,596,908 and
11,515,575 11 11
Additional paid in capital 10,352 10,804
Accumulated (Deficit) (13,137) (11,413)
--------- --------
TOTAL STOCKHOLDERS' DEFICIT (2,773) (597)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 420 $ 1,908
========= ========
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES
Contract revenues $ - $ 45 $ 67 $ 329
COSTS AND EXPENSES
Cost of sales 13 38 107 407
Research and development 4 81 115 281
General and administrative 11 179 287 546
Reserve for inventory obsolesence - - 519 -
Impairment of long lived assets - - 428 -
Write off of leasehold
improvements - - 85 -
Depreciation and amortization 3 115 232 373
Sales and marketing expense 4 1 18 6
-------- -------- ------- -------
35 414 1,791 1,613
-------- -------- ------- -------
(35) (369) (1,724) (1,284)
Interest income - - - 8
-------- ------- ------- --------
NET LOSS $ (35) $ (369) $(1,724) $(1,276)
======== ======== ======== ========
NET LOSS PER SHARE (Based on
weighted average shares of
11,597,000 and 11,563,000 in
2000 and 11,516,000 in 1999)* $ ( - ) $ (.03) $ (.15) $ (.11)
</TABLE>
* 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)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
2000 1999
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (1,724) $ (1,276)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 232 373
Write off of leasehold improvements 85 -
Reserve for inventory obsolesence 519 -
Impairment of long lived assets 428 -
Changes in assets and liabilities:
Accounts payable (93) 275
Accrued liabilities 62 (42)
Unearned revenue - (187)
Inventory - 152
Accounts receivable (6) (11)
Other assets - 1
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (497) (715)
--------- --------
INVESTING ACTIVITIES
Purchase and construction of equipment - (31)
Acquisition of intangible assets (8) (8)
--------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (8) (39)
--------- --------
FINANCING ACTIVITIES
Borrowings from stockholder 495 553
Decrease in capital lease obligation - (4)
--------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 495 549
--------- --------
DECREASE IN CASH (10) (205)
Cash at beginning of period 16 209
--------- --------
CASH AT END OF PERIOD $ 6 $ 4
========= ========
</TABLE>
See notes to condensed financial statements.
6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
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 and nine month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended 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 10-K annual report dated December 31, 1999.
B - Contingencies
The Company is currently in negotiation with the bonding company which
issued a performance bond for the Port of Baltimore project. The outcome of this
negotiation cannot be determined at this time.
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 has developed a limited operating history with the commencement
of its first commercial contracts. During the period from November 15, 1995
(date of inception) to September 30, 2000, the Company has incurred a net loss
of $13,137,000 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.
In April 2000, the Company was notified by Maryland Environmental Services
("MES") requesting the removal of the SLiM equipment from the Port of Baltimore
Dundalk Marine Terminal and Hawkins Point facilities. MES cited the fact that
the Company had removed Chromium VI as per the requirements in the contract,
however there remained trace amounts of Chromium III in the leachate which
resulted in the total chromium consentrations to exceed contract specified
amounts. The Company has made several attempts to remove the trace amounts of
Chromium III, including the use of alternate technologies, however was unable to
satisfy MES requirements. It should be noted that the original samples tested
from the leachate solution did not have Chromium III present and therefore this
problem was not foreseen. As a result, the Company has withdrawn its equipment
from the Port of Baltimore and transferred it, along with its inventory, to a
storage facility in Albuquerque, New Mexico.
In June 2000, the Company closed its Kennesaw, Georgia facility. As a
result, the Company transferred approximately $228,000 of lab equipment and
furniture and fixtures to Commodore Environmental Services, Inc.
"Environmental", the owner of 87% of the issued and oustanding common stock of
the Company, in exchange for $228,000 of intercompany indebtedness. The
remainder of equipment and inventory was transferred to a storage facility in
Albuquerque, New Mexico. As a result of the closure, all of the employees in the
Georgia facility have found other employment or have been released.
As a result of the closure of the Kennesaw facility and the transfer of
equipment and inventory to a storage facility, the Company has recorded a
reserve for inventory obsolesence of $519,000, an impairment reserve on long
lived assets of $428,000 and a write off of leasehold improvements of $85,000 in
the period ended June 30, 2000. The Company plans to continue to search for
applications for its technology.
8
<PAGE>
Results from Operations
-----------------------
Revenues were $0 for the three months ended September 30, 2000 compared to
$45,000 for the three months ended September 30, 1999. Revenues for the nine
months ended September 30, 2000 were $67,000 as compared to $329,000 for the
nine months ended September 30, 1999. Such 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. At the request of the customer, in May 2000, the Company
had withdrawn its equipment from the Port of Baltimore.
For the three months ended September 30, 2000, the Company had incurred
$13,000 in cost of sales as compared to $38,000 for the three months ended
September 30, 1999. For the nine month period ended September 30, 2000, cost of
sales were $107,000 as compared to $407,000 for the nine month period ended
September 30, 1999. 1999 cost of sales relate primarily 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 September 30, 2000, the Company incurred
research and development costs of $4,000, as compared to $81,000 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
the Company incurred $115,000 as compared to $281,000 for the nine month period
ended September 30, 1999. 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 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 month and nine month periods
ended September 30, 2000 as compared to the three and nine month periods ended
September 30, 1999 primarily due to cutbacks in order to preserve capital.
General and administrative expenses for the three months ended September
30, 2000 were $11,000 as compared to $179,000 for the three month period ended
September 30, 1999. General and administrative expenses for the nine month
period ended September 30, 2000 were $287,000 as compared to $546,000 for the
nine months ended September 30, 1999. The results are comparable. General and
administrative expenses decreased for the three month and nine month periods
ended September 30, 2000 as compared to the three and nine month periods ended
September 30, 1999 primarily due to cutbacks in order to preserve capital.
9
<PAGE>
Depreciation and amortization decreased from $115,000 for the three months
ended September 30, 1999 to $3,000 for the three months ended September 30,
2000. This is a direct result of all of the Company's equipment being fully
reserved for in the second quarter of 2000.
In June 2000, the Company closed its Kennesaw, Georgia facility. As a
result, the Company transferred approximately $228,000 of lab equipment and
furniture and fixtures to Commodore Environmental Services, Inc. "Commodore" in
exchange for $228,000 of intercompany indebtedness. The remainder of equipment
and inventory was transferred to a storage facility in Albuquerque, New Mexico.
As a result of the closure, all of the employees in the Georgia facility have
found other employment or been released.
As a result of the closure of the Kennesaw facility and the transfer of
equipment and inventory to a storage facility, the Company has recorded a
reserve for inventory obsolesence of $519,000, an impairment reserve on long
lived assets of $428,000 and a write off of leasehold improvements of $85,000 in
the period ended June 30, 2000.
The Company had a net loss of $1,724,000 for the nine month period ended
September 30, 2000 as compared to a net loss of $1,276,000 for the nine month
period ended September 30, 1999. The increase in net loss is attributable to the
various revenue and expense items in the individual paragraphs above.
Liquidity and Capital Resources
-------------------------------
The Company has a working capital deficit of $1,583,000 on September 30,
2000 as compared to a working capital deficit of $824,000 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, 2000 less depreciation
and amortization expenses, the impairment writedown, the write down of leasehold
improvements and the transfer of fixed assets as partial payment for outstanding
indebtedness.
The Company continues to be dependent upon 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.
10
<PAGE>
Net Operating Losses
--------------------
At September 30, 2000, the Company had tax loss carryforwards of
approximately $13,100,000. The amount of and ultimate realization of benefit
from the net operating loss for income tax purposes is dependant, 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.
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.
11
<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 From 8-K
Exhibits -
27 - Financial Data Schedule
Reports on Form 8-K - None
12
<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/ Andrew P. Oddi
---------------------------------------
Andrew P. Oddi - Vice President
(As both a duly authorized
Officer of the Registrant
and the Chief Accounting
Officer of the Registrant)
Date: November 13, 2000
13
