<PAGE>
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 March 31, 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 May 12, 1995
(latest practicable date):
Issued and Outstanding: 56,766,687
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000'S Omitted)
March 31, December 31,
1995 1994
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 690 $ 3,011
Certificates of deposit 50 50
Other receivable 40 40
Due from related parties 3 8
Restricted cash 550 292
------- -------
TOTAL CURRENT ASSETS 1,333 3,401
Mortgage notes and related receivables 4,782 4,683
Due from related party 125 125
Equipment (net of accumulated depreciation) 803 715
Other assets 25 26
Other investments 357 357
Deferred loan fees 360 384
Intangible assets 2,443 2,466
Non performing real estate loan 912 912
------- -------
TOTAL ASSETS $11,140 $13,069
------- -------
------- -------
</TABLE>
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COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000'S Omitted)
March 31, December 31,
1995 1994
---------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 543 $ 1,020
Due to related parties 794 1,295
Current portion of long-term obligation 151 151
Insurance loss reserve 994 994
------- -------
TOTAL CURRENT LIABILITIES 2,482 3,460
Long-term mortgage obligations 1,547 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 56,566,687
and 56,406,687 566 564
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 4,454,081 44 44
Additional paid in capital 19,333 19,406
(Deficit) (16,807) (15,963)
------- -------
3,136 4,051
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
------- -------
TOTAL STOCKHOLDERS' EQUITY 3,111 4,026
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,140 $13,069
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(000's Omitted)
Three months ended
March 31,
-------------------
1995 1994
------ ------
<S> <C> <C>
(unaudited)
REVENUES
Interest and other income from
commercial real estate activities $ 150 $ 242
Other income 18 3
------- -------
168 245
------- -------
COSTS AND EXPENSES
General and administrative 282 254
Research and development 583 391
Interest 147 180
------- -------
(1,012) 825
------- -------
NET (LOSS) $ (844) $ (580)
------- -------
------- -------
NET (LOSS) PER SHARE (Based on
weighted average shares in 1995 and
1994 of 56,060,000 and 55,080,000) $ (.02) $ (.01)
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE
[CAPTION]
(000's Omitted)
Three months ended
March 31,
-------------------
1995 1994
------ ------
(unaudited)
[S] [C] [C]
OPERATING ACTIVITIES
Net (loss) $ (844) $ (580)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 48 53
Decrease in notes receivable 5 25
(Increase) in other assets (13)
Increase in restricted cash (258)
Decrease in accounts payable and accrued liabilities (477) (44)
------- -----
NET CASH USED IN OPERATING ACTIVITIES (1,526) (559)
------- -----
INVESTING ACTIVITIES
Payments received on receivables 78 191
Payments recovered on non performing assets 11
Purchase of equipment (88) (33)
Increase in receivables (177) (475)
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NET CASH USED IN INVESTING ACTIVITIES (187) (306)
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FINANCING ACTIVITIES
Issuance of bonds 1,500
Increase in deferred financing costs (180)
Payments of dividends on preferred (73)
Issuance of common stock 2 1
Payment of long term debt (36) (32)
Payments to related parties, net (501) (710)
------- -----
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (608) 579
------- -----
DECREASE IN CASH (2,321) (286)
Cash at beginning of period 3,011 2,700
------- -----
CASH AT END OF PERIOD $ 690 $2,414
------- -----
------- -----
See notes to condensed consolidated financial statements.
5
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 ("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 March 31, 1995, Harvest had $550,000 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
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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 three
month period ended March 31, 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 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>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
General
The current principal businesses 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 first quarter of 1995 were $168,000 as
compared to $245,000 for the first three months of 1994, a decrease of
$77,000. The decrease is due to the collection of a mortgage
receivable in 1994, which no longer exists in 1995.
General and administrative expenses totalled $282,000 for the
first quarter of 1995 as compared to $254,000 for the first quarter of
1994, an increase of $28,000. This increase is attributable
to expenses relating to the increased activities associated with the
new hazardous material subsidiaries.
In the first quarter of 1995, the Company incurred $583,000 in
research and development expenses associated with research,
development and marketing of technologies for the destruction of
hazardous materials, as compared to $397,000 for the same period in
1994. The increase in research and development costs is due to undertaking
additional projects and the furthering of existing work in the
development of technologies for the destruction of hazardous
materials.
Interest expense was $147,000 for the first quarter of
1995 as compared to $180,000 for the first quarter of 1994, a decrease
of $23,000. The decrease is due to the reduction of outstanding debt
in 1995 from 1994.
The Company had a net loss of $844,000 for the three-month period
ended March 31, 1995 as compared to a net loss of $580,000 for the
three-month period ended March 31, 1994. The results are due to the
factors described above.
8
<PAGE>
Liquidity and Capital Resources
The Company had a working capital deficit of $1,149,000 on March
31, 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 the ongoing research and development costs. The
Company anticipates additional research and development expenditures and
operating expenditures of approximately $2,000,000 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 is
looking to sell or refinance the property. In the event of a sale or
refinance, 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 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 any 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 for asbestos abatement site work
performed by the subsidiaries then owned by the Company. Such coverage
was in effect for activities during the period from July 1987 to January 1989.
As a result, the Company has available less than six years of its own
information upon which to base reserves for losses and loss adjustment
expenses. Accordingly, the actual incurred losses and loss adjustment
expenses may vary significantly from the estimated amounts included in the
Company's financial statements. However the Company's management believes its
reserves for losses and loss adjustment reserves are reasonable.
9
<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 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>
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: May 12, 1995
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 690
<SECURITIES> 0
<RECEIVABLES> 40
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,333
<PP&E> 897
<DEPRECIATION> 94
<TOTAL-ASSETS> 11,140
<CURRENT-LIABILITIES> 2,482
<BONDS> 4,000
<COMMON> 566
0
44
<OTHER-SE> 2,501
<TOTAL-LIABILITY-AND-EQUITY> 11,140
<SALES> 0
<TOTAL-REVENUES> 168
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 865
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> (844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (844)
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
