<PAGE> 1
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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10054
COMMODORE ENVIRONMENTAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0275043
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 EAST 58TH STREET, 10155
NEW YORK, NEW YORK (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 308-5800
Not Applicable
(Former name, address and former fiscal year, if changed since last report)
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 August 11, 1995 (latest
practicable date):
Issued and Outstanding: 56,768,953
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000'S OMITTED)
JUNE 30, DECEMBER 31,
1995 1994
----------- -----------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash $ 140 $ 3,011
Certificate of deposit 50 50
Other receivable 40 40
Due from related parties 2 8
Restricted cash 525 292
------- -------
TOTAL CURRENT ASSETS 757 3,401
Mortgage notes and related receivables 4,784 4,683
Due from related party 125 125
Equipment (net of accumulated depreciation) 835 715
Other assets 25 26
Other investments 357 357
Deferred loan fees 336 384
Intangible assets 2,418 2,466
Non performing real estate loan 912 912
------- -------
TOTAL ASSETS $10,549 $13,069
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONT'D)
<TABLE>
<CAPTION>
(000'S OMITTED)
JUNE 30, DECEMBER 31,
1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 459 $ 1,020
Due to related parties 1,231 1,295
Current portion of long-term obligations 151 151
Insurance loss reserve 994 994
-------- --------
TOTAL CURRENT LIABILITIES 2,835 3,460
Long-term mortgage obligations 1,510 1,583
Bonds payable 4,000 4,000
Stockholders' Equity:
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 56,768,953
and 56,406,687 568 564
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 4,554,081 and 4,454,081 45 44
Additional paid in capital 19,376 19,406
(Deficit) (17,760) (15,963)
-------- --------
2,229 4,051
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 2,204 4,026
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,549 $ 13,069
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(000'S OMITTED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1995 1994 1995 1994
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Interest and other income from
commercial real estate $ 150 $ 236 $ 300 $ 478
Other income 10 2 28 5
------- ------- ------- -------
160 238 328 483
EXPENSES
General and administrative 260 247 542 501
Research and development 707 511 1,290 902
Interest 146 208 293 388
------- ------- ------- -------
NET (LOSS) $ (953) $(728) $(1,797) $(1,308)
======= ===== ======= =======
NET(LOSS) PER SHARE (Based on
weighted average shares of 56,260,000
and 56,160,000 in 1995 and 55,290,000
and 55,235,000 in 1994) $ (.02) $(.01) $ (.03) $ (.02)
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000'S OMITTED)
SIX MONTHS ENDED
JUNE 30,
----------------
1995 1994
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(1,797) $(1,308)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 96 76
Interest (non cash) 48 54
(Increase) decrease in notes receivable 25
(Increase) decrease in other assets 1 1
Increase in restricted cash (233)
Decrease in accounts payable and accrued liabilities (561) (303)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (2,446) (1,455)
------- -------
INVESTING ACTIVITIES
Payments received on receivables 226 415
Payments recovered on non performing assets 8
Purchase of equipment (168) (66)
Increase in receivables (327) (722)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (269) (365)
------- -------
FINANCING ACTIVITIES
Issuance of bonds 1,500
Issuance of preferred stock 100 350
Increase in deferred financing costs (215)
Issuance of Common Stock 22 3
Payment of long term debt (73) (65)
Payment of redeemable preferred stock (578)
Payment of dividends on preferred stock (147) (57)
Advances from (payments to) related parties (58) (1,453)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (156) (515)
------- -------
DECREASE IN CASH (2,871) (2,335)
Cash at beginning of period 3,011 2,700
------- -------
CASH AT END OF PERIOD $ 140 $ 365
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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 July 1987, the Company established Harvest American Insurance Company
("Harvest"), a wholly owned subsidiary of the Company, licensed by the State of
Vermont as a "captive" insurance company. Harvest issued "occurrence" based
insurance policies to each of the Company's former asbestos abatement
subsidiaries, but not to any other persons or entities. An occurrence based
policy insures against claims arising at any time in the future based upon
events which occurred while the policy was in effect. The policies were in
effect from July 1987 through January 1989. The operating subsidiaries of the
Company paid premiums to Harvest based upon a percentage of sales. Beginning in
January 1989, in response to greater availability of "occurrence type"
insurance, the Company obtained third party asbestos abatement related general
liability insurance from unrelated insurance companies. Harvest no longer issues
policies. The maximum exposure under the outstanding policies is $5,000,000 in
the aggregate.
In December 1994, The Vermont Department of Banking and Insurance (the
"Department"), and the Company entered into a Settlement Agreement (the
"Agreement") with respect to an order served by the Department against Harvest
in November 1991. The Agreement requires the Company to fund Harvest an
additional $500,000 over an eighteen month period. Those funds will be deposited
into a Harvest interest-bearing account. As of June 30, 1995, Harvest had
$557,000 in an interest-bearing account and an amended $4,764,683 intercompany
demand note (the "Company Note") made to the order of Harvest by the Company.
The Department and/or Harvest have the right to use the proceeds from the
reserve account to purchase reinsurance in order to eliminate all or part of the
insurance risk.
6
<PAGE> 7
In addition, the Company will indemnify and defend Harvest against any
claims made against Harvest. There is currently one claim relating to a fire
which occurred at a job site which Harvest insured. This claim is currently
being investigated by the Company.
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 six-month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1995.
B - CONTINGENCIES
In August 1990, the Company sold its two remaining environmental services
subsidiaries, Hesco Environmental Safety Co., Inc. ("Hesco") and AWI
Environmental Services, Inc. ("AWI"). Following consummation of the Hesco and
AWI transactions, Hesco and AWI retained certain contingent liabilities relating
to pending litigation against Hesco and AWI. However, under the terms of the
sales agreements, the Company had agreed to indemnify Hesco and AWI for certain
possible future failures of Harvest to pay Hesco or AWI under Harvest insurance
policies. Hesco, a named insured under the insurance policies issued by Harvest,
is presently a named party in certain pending litigation, most of which involve
workman's compensation claims, and Harvest has denied coverage. All of such
litigation is incidental to the business conducted by Hesco. In the event that
Harvest has insufficient assets to meet its obligations under these insurance
policies, Harvest can attempt to seek payment therefor by demanding funds from
the Company under an intercompany note receivable from the Company. A successful
claim for which there is inadequate coverage would have a material adverse
effect on the Company. There is no assurance that Harvest will not ultimately be
found liable for coverage of Hesco's losses in connection with any or all of
such actions and counsel to Harvest has not expressed an opinion on the
likelihood of Harvest's liability therefor.
In or about September 1991, Hesco was served a summons and complaint by
Insurance Company of North America, American Home Assurance Co., Home Insurance
Co., Subscription Participants, as collective subrogees of the Long Island
Lighting Company in connection with a fire which occurred at the Long Island
Lighting Company power station and which plaintiffs claim was caused by the
negligence of Hesco. Plaintiffs are seeking $1,250,000 in damages. Harvest has
informed Hesco that it has denied coverage and that the above claim is not
covered by Harvest under the Harvest insurance policy held by Hesco.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General
The current principal business of Commodore Environmental Services, Inc.
(the "Company") is holding interests in commercial and real estate properties
and the development of technologies for the destruction of hazardous materials.
Results of Operations
Gross revenues for the second quarter of 1995 were $160,000 as compared to
$238,000 for the second quarter of 1994, a decrease of $78,000. Gross revenues
for the six-month period ended June 30, 1995 were $328,000 as compared to
$483,000 for the six-month period ended June 30, 1994, a decrease of $155,000.
The decrease is due to the collection of a mortgage receivable at the end of
1994, resulting in the loss of that revenue stream in 1995.
General and administrative expenses totalled $260,000 for the second
quarter of 1995 as compared to $247,000 for the second quarter of 1994, an
increase of $13,000, and general and administrative expenses totalled $542,000
for the six-month period ended June 30, 1995 as compared to $501,000 for the
six-month period ended June 30, 1994, an increase of $41,000. This increase is
attributable to expenses relating to the increased activity associated with the
new hazardous material destruction subsidiaries.
In the second quarter of 1995, the Company incurred $707,000 of research and
development expenses associated with research, development and marketing of
technologies for the destruction of hazardous materials, as compared to $511,000
in the second quarter of 1994. For the six-month period ended June 30, 1995, the
Company incurred $1,290,000 of research and development expenses as compared to
$902,000 for the six-month period ended June 30, 1994. The increase in research
and development costs is due to additional projects and the furthering of
existing work in the development of technologies in the destruction of hazardous
materials.
Interest expense was $146,000 for the second quarter of 1995 as compared to
$208,000 for the second quarter of 1994, a decrease of $62,000; and interest
expense was $293,000 for the six-month period ended June 30, 1995 as compared to
$388,000 for the six-month period ended June 30, 1994, a decrease of $95,000.
The decrease is due to the reduction of outstanding interest bearing debt in
1995 from 1994.
8
<PAGE> 9
The Company had a net loss of $953,000 for the three-month period ended June
30, 1995 as compared to a net loss of $728,000 for the three-month period ended
June 30, 1994. The Company had a net loss of $1,797,000 for the six-month period
ended June 30, 1995 as compared to a net loss of $1,308,000 for the six-month
period ended June 30, 1994. The fluctuation in results have been described in
the individual paragraphs above.
Liquidity and Capital Resources
The Company had a working capital deficit of $2,078,000 on June 30, 1995 as
compared to a working capital deficit of $59,000 at the beginning of the year.
The increase in the deficit is primarily attributable to ongoing research and
development costs. Provided that the Company is successful in obtaining required
capital, the Company anticipates additional research and development
expenditures and operating expenditures of approximately $1,500,000 in the
aggregate through the remainder of 1995.
The Company has a long-term receivable and mortgage payable which net to
approximately $3,000,000. The owner of the property has informed the Company
that it is looking to sell or refinance the property. In the event of a sale or
refinancing, the Company would expect to collect on the receivable and pay off
the mortgage. This would improve the overall liquidity of the Company. In the
event that the Company does not collect on the mortgage receivable, the Company
will be required to seek additional financing from other sources to fund the
ongoing research and development expenses, and there can be no assurance as to
whether, when or to what extent the Company will be successful in obtaining such
financing if required.
Although the balance of the insurance loss reserve is recorded as a current
liability, it is not possible to determine whether that balance or any
additional cash funds will be required to be paid during 1995.
The Company established a captive insurance subsidiary, Harvest American
Insurance Company ("Harvest") in July 1987 for the purpose of providing
liability insurance coverage to the environmental services subsidiaries of the
Company for asbestos abatement site work for the period July 1987 to January
1989. As a result, the Company has less than six years of its own information
upon which to base reserves for losses and loss adjustment expenses is
available. Accordingly, the actual incurred losses and loss adjustment expenses
may vary significantly from the estimated amounts included in the accompanying
financial statements. The Company's management believes its reserves for losses
and loss adjustment reserves are reasonable.
9
<PAGE> 10
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 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON 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) Exhibits - none
(b) Reports on Form 8-K - none
10
<PAGE> 11
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 ENVIRONMENTAL SERVICES, INC.
(Registrant)
By /s/ ANDREW P. ODDI
------------------------------------------
Andrew P. Oddi - Vice President
Finance and Administration
(Principal Financial Officer)
Date: August 11, 1995
11
<PAGE> 12
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ---------- ------------ -------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 140
<SECURITIES> 0
<RECEIVABLES> 40
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 757
<PP&E> 977
<DEPRECIATION> 142
<TOTAL-ASSETS> 10,549
<CURRENT-LIABILITIES> 2,835
<BONDS> 5,510
<COMMON> 568
0
45
<OTHER-SE> 1,591
<TOTAL-LIABILITY-AND-EQUITY> 10,549
<SALES> 0
<TOTAL-REVENUES> 160
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> (953)
<INCOME-TAX> 0
<INCOME-CONTINUING> (953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (953)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
