<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 September 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 November 10, 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)
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -------------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash $ 99 $ 3,011
Certificate of deposit 50 50
Other receivable 40 40
Due from related parties 3 8
Restricted cash 783 292
------ -----
TOTAL CURRENT ASSETS 975 3,401
Mortgage notes and related receivables 4,677 4,683
Due from related party 125 125
Equipment (net of accumulated depreciation) 1,098 715
Other assets 24 26
Other investments 357 357
Deferred loan fees 312 384
Intangible assets 2,405 2,466
Non performing loans 912 912
------ ------
TOTAL ASSETS $10,885 $13,069
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 3
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONT'D)
<TABLE>
<CAPTION>
(000'S OMITTED)
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 824 $ 1,020
Due to related parties 2,097 1,295
Current portion of long-term obligations 151 151
Insurance loss reserve 994 994
------ -------
TOTAL CURRENT LIABILITIES 4,066 3,460
Long-term mortgage obligations 1,473 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 19,301 19,406
(Deficit) (18,543) (15,963)
------ -------
1,371 4,051
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
------- -------
TOTAL STOCKHOLDERS' EQUITY 1,346 4,026
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,885 $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 NINE MONTHS
ENDED SEPT 30, ENDED SEPT 30,
---------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Interest and other income from
commercial real estate activities $ 150 $ 232 $ 450 $ 710
Other income 11 2 39 7
------- ------ -------- --------
161 234 489 717
COSTS AND EXPENSES
General and administrative 211 232 753 733
Research and development 589 162 1,879 1,064
Interest 146 207 437 595
------- ------ -------- --------
NET (LOSS) $ (785) $ (367) $ (2,580) $ (1,675)
======= ====== ======== ========
NET (LOSS) PER SHARE (Based on
weighted average shares of 56,262,000
and 56,194,000 in 1995 and 55,400,000
and 55,290,000 in 1994)* $ (.01) $ (.01) $ (.05) $ (.03)
======= ====== ======== ========
</TABLE>
* Common stock equivalents are not included in the net loss per
share calculation since they are antidilutive.
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)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (2,580) $(1,675)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 192 152
Interest (non cash) 72 81
Decrease in notes receivable 25
Decrease in other assets 2 2
Increase in intangible assets (83)
Increase in restricted cash (491)
Decrease in accounts payable and
accrued liabilities (196) (164)
-------- -------
NET CASH (USED IN) OPERATING
ACTIVITIES (3,084) (1,579)
-------- -------
INVESTING ACTIVITIES
Payments received on receivables 455 623
Increase in oil and gas investment (22)
Purchase of equipment (431) (504)
Increase in receivables (449) (919)
-------- -------
NET CASH (USED IN) INVESTING
ACTIVITIES (425) (822)
-------- -------
FINANCING ACTIVITIES
Issuance of bonds 1,500
Issuance of preferred stock 100 2,075
Increase in subscriptions receivable (1,550)
Increase in deferred financing costs (215)
Issuance of common stock 22 3
Payment of long term debt (110) (65)
Payment of redeemable preferred stock (578)
Payment of dividends on preferred stock (222) (88)
Advances from (payments to) related parties 807 (1,230)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 597 (148)
-------- -------
DECREASE IN CASH (2,912) (2,549)
Cash at beginning of period 3,011 2,700
-------- -------
CASH AT END OF PERIOD $ 99 $ 151
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 a total
of $750,000 of which $500,000 has been deposited as of September 30, 1995 and
an additional $250,000 will be deposited at various times through July 15,
1996. Those funds will be deposited into a Harvest interest-bearing account.
As of September 30, 1995, Harvest had $785,000 in an interest-bearing account
and an amended $4,514,683 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. While Harvest has denied
coverage of this claim, the 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 nine-month period ended September 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. As
indicated above, the Company is investigating this claim.
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 from Operations
Gross revenues for the third quarter of 1995 were $161,000 as compared
to $234,000 for the third quarter of 1994, a decrease of $73,000. Gross
revenues for the nine month period ended September 30, 1995 were $489,000 as
compared to $717,000 for the nine month period ended September 30, 1994, a
decrease of $228,000. 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 $211,000 for the third
quarter of 1995 as compared to $232,000 for the third quarter of 1994, a
decrease of $21,000, and general and administrative expenses totalled $753,000
for the nine month period ended September 30, 1995 as compared to $733,000 for
the nine month period ended September 30, 1994, an increase of $20,000.
In the third quarter of 1995, the Company incurred $589,000 of
research and development expenses associated with research, development and
marketing of technologies for the destruction of hazardous materials, as
compared to $162,000 in the third quarter of 1994. For the nine-month period
ended September 30, 1995, the Company incurred $1,879,000 of research and
development expenses as compared to $1,064,000 for the nine-month period ended
September 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 third quarter of 1995 as
compared to $207,000 for the third quarter of 1994, a decrease of $61,000; and
interest expense was $437,000 for the nine-month period ended September 30,
1995 as compared to $595,000 for the nine-month period ended September 30,
1994, a decrease of $158,000. 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 $785,000 for the three month period
ended September 30, 1995 as compared to a net loss of $367,000 for the three
month period ended September 30, 1994. The Company had a net loss of
$2,580,000 for the nine month period ended September 30, 1995 as compared to a
net loss of $1,675,000 for the nine month period ended September 30, 1994. The
fluctuation in results have been described in the individual paragraphs above,
and are primarily attributable to the increased research and development
expenses in 1995.
Liquidity and Capital Resources
The Company had a working capital deficit of $3,091,000 on September
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. The Company anticipates additional research
and development expenditures and operating expenditures of approximately
$800,000 in the aggregate through the remainder of 1995.
The Company has a long-term receivable and mortgage payable relating
to a property located in Alsip, Illiniois. In October, 1995, the owner of the
property sold the property to an unrelated third party. The Company collected
on the receivable and paid off the underlying mortgage. This improved the
overall liquidity of the Company by approximately $3,000,000. The Company
plans to utilize a portion of such proceeds to continue its efforts in research
and development activities associated with the destruction of hazardous
materials.
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. The Company has established a reserve of $994,000
as of September 30, 1995, based on an actuarial valuation performed by an
independent third party. It is possible that 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.
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.
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 INFORMATION
Not applicable.
PART II - OTHER INFORMATION
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: November 10, 1995
11
<PAGE> 12
EXHIBIT INDEX
-------------
Exhibit 27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 40
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 975
<PP&E> 1,240
<DEPRECIATION> 142
<TOTAL-ASSETS> 10,885
<CURRENT-LIABILITIES> 4,066
<BONDS> 5,473
<COMMON> 568
0
45
<OTHER-SE> 733
<TOTAL-LIABILITY-AND-EQUITY> 10,885
<SALES> 0
<TOTAL-REVENUES> 161
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> (785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (785)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
