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 June 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)
SDELAWARE 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 July 25, 2000
(latest practicable date):
Issued and Outstanding: 11,583,575
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES,INC
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
June 30, 2000 and December 31, 1999................... 4
Condensed Statement of Operations -
Three and six months ended June 30, 2000 and 1999..... 5
Condensed Statement of Cash Flows -
Six months ended June 30, 2000 and
June 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>
June 30, December 31,
2000 1999
------- -------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2 $ 16
Restricted cash 220 220
Accounts receivable, net 59 10
Inventory, net - 519
------- -------
TOTAL CURRENT ASSETS 281 765
------- -------
Property and equipment ,net - 963
Intangible assets, net 181 180
------- -------
TOTAL ASSETS $ 462 $ 1,908
</TABLE>
3
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable $ 320 $ 352
Accrued expenses 108 78
Accrued expenses - contract 263 263
Due to related parties 1,141 896
------- -------
TOTAL CURRENT LIABILITIES 1,832 1,589
------- -------
Accrued dividends 1,224 916
------- -------
TOTAL LIABILITIES 3,056 2,505
------- -------
Commitments and contingencies - -
Stockholders' Deficit:
Preferred stock, Series A, $.001 par
value, authorized 750,000, issued and
outstanding 598,000 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 11,583,575 and
11,515,575 11 11
Additional paid in capital 10,496 10,804
Accumulated (Deficit) (13,102) (11,413)
------- -------
TOTAL STOCKHOLDERS' DEFICIT (2,594) (597)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 462 $ 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 Six months ended
June 30, June 30,
2000 1999 2000 1999
------- ------- ------- ------
(unaudited)
REVENUES
<S> <C> <C> <C> <C>
Contract revenues $ 59 $ 20 $ 67 $ 284
COSTS AND EXPENSES
Cost of sales 54 50 94 369
Research and development 46 110 111 200
General and administrative 130 218 276 367
Reserve for inventory obsolesence 519 - 519 -
Impairment of long lived assets 428 - 428 -
Write off of leasehold improvements 85 - 85 -
Depreciation and amortization 115 129 229 258
Sales and marketing expense 9 1 14 5
------- ------- ------- ------
1,386 508 1,756 1,199
------- ------- ------- ------
(1,327) (488) (1,689) (915)
Interest income - - - 8
------- ------- ------- ------
NET LOSS $(1,327) $ (488) $(1,689) $ (907)
------- ------- ------- ------
NET LOSS PER SHARE (Based on
weighted average shares of
11,580,000 and 11,550,000 in
2000 and 11,516,000in 1999)* $ (.11) $ (.04) $ (.15) $ (.08)
------- ------- ------- ------
* Common stock equivalents are not included in the net loss per
share calculation since they are antidilutive.
</TABLE>
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>
Six months ended
June 30,
2000 1999
------- ------
(unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (1,689) $ (907)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 229 258
Write off of leasehold improvements 85 -
Reserve for inventory obsolesence 519 -
Impairment of long lived assets 428 -
Changes in assets and liabilities:
Accounts payable (32) 265
Accrued liabilities 30 (42)
Unearned revenue - (187)
Inventory - 181
Accounts receivable (49) (21)
Other assets - 1
------- ------
NET CASH USED IN OPERATING ACTIVITIES (479) (452)
------- ------
INVESTING ACTIVITIES
Sale of equipment 228 -
Purchase and construction of equipment - (2)
Acquisition of intangible assets (8) (8)
------- ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 220 (10)
------- ------
FINANCING ACTIVITIES
Borrowings from stockholder 245 264
Decrease in capital lease obligation - (4)
------- ------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 245 260
------- ------
DECREASE IN CASH (14) (202)
Cash at beginning of period 16 209
------- ------
CASH AT END OF PERIOD $ 2 $ 7
------- ------
</TABLE>
See notes to condensed financial statements.
6
<PAGE>
COMMODORE SEPARATION TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six month periods ended June 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.
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 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 June 30, 2000, the Company has incurred a net loss of
$13,102,000 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 $59,000 for the three months ended June 30, 2000 compared to
$20,000 for the three months ended June 30, 1999. Revenues for the six months
ended June 30, 2000 were $67,000 as compared to $284,000 for the six months
ended June 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 June 30, 2000, the Company had incurred $54,000 in
cost of sales as compared to $50,000 for the three months ended June 30, 1999.
For the six month period ended June 30, 2000, cost of sales were $94,000 as
compared to $369,000 for the six month period ended June 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 June 30, 2000, the Company incurred research and
development costs of $46,000, as compared to $110,000 for the three months ended
June 30, 1999. For the six months ended June 30, 2000, the Company incurred
$111,000 as compared to $200,000 for the six month period ended June 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 six month periods ended June 30, 2000 as compared to the
three and six month periods ended June 30, 1999 primarily due to cutbacks in
order to preserve capital.
General and administrative expenses for the three months ended June 30, 2000
were $130,000 as compared to $218,000 for the three month period ended June 30,
1999. General and administrative expenses for the six month period ended June
30, 2000 were $276,000 as compared to $367,000 for the six months ended June 30,
1999. The results are comparable. General and administrative expenses decreased
for the three month and six month periods ended June 30, 2000 as compared to the
three and six month periods ended June 30, 1999 primarily due to cutbacks in
order to preserve capital.
9
<PAGE>
Depreciation and amortization decreased from $129,000 for the three months ended
June 30, 1999 to $115,000 for the three months ended June 30, 2000. This is a
direct result of some of the Company's equipment being fully depreciated in
1999.
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 $1,689,000 for the six month period ended June 30,
2000 as compared to a net loss of $907,000 for the six month period ended June
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 $1,551,000 on June 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 six months ended June 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 June 30, 2000, the Company had tax loss carryforwards of approximately
$11,700,000. 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 factsand
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
11
<PAGE>
protectionfor 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.
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: August 14, 2000
13
