<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, 1996
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 12, 1996 (latest
practicable date):
Issued and Outstanding: 57,924,368
<PAGE> 2
COMMODORE ENVIRONMENTAL SERVICES,INC
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION .................................. 3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995........... 3
Condensed Consolidated Statement of Operations
Three months ended
September 30, 1996 and 1995
Nine months ended September 30, 1996 and 1995...... 5
Condensed Consolidated Statement of Cash Flows
Nine months ended
September 30, 1996 and
September 30, 1995................................. 6
Notes to Condensed Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 10
PART II. OTHER INFORMATION ...................................... 13
SIGNATURES ....................................................... 14
<PAGE> 3
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,
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 2,226 $ 36
Temporary investments 20,766
Certificate of deposit 50 50
Other receivable 95 40
Due from related parties 8
Inventories 45
Prepaid assets 158 25
Restricted cash 2,063 1,793
------- -------
TOTAL CURRENT ASSETS 25,358 1,997
Mortgage notes and related receivables 1,296 303
Due from related party 125
Equipment (net of accumulated depreciation) 1,748 1,054
Other assets 100 34
Other investments 357 357
Deferred loan fees 216 288
Intangible assets 323 250
Non performing loans 912 912
------- -------
TOTAL ASSETS $30,310 $ 5,320
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONT'D)
<TABLE>
<CAPTION>
(000'S OMITTED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,385 $ 670
Due to related parties 219 1,085
Insurance loss reserve 994 994
-------- --------
TOTAL CURRENT LIABILITIES 2,598 2,749
Long-term obligation 2,250
Bonds payable 4,000 4,000
Minority interest in subsidiary 6,088
Minority interest in preferred stock of
subsidiary 19
Stockholders' Equity:
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 57,924,368
and 56,768,953 579 568
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 4,641,167 and 4,454,081 46 45
Additional paid in capital 40,286 19,209
(Deficit) (25,531) (21,226)
-------- --------
15,380 (1,404)
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 15,355 (1,429)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,310 $ 5,320
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
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,
1996 1995* 1996 1995*
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Interest and other income from
commercial real estate activities $ $ 150 $ $ 450
Income from refrigerant services 7 128
Income from soil remediation 21 35
Other income 11 31 39
------- ------- ------- -------
28 161 194 489
COSTS AND EXPENSES
General and administrative 1,291 369 2,384 1,316
Research and development 977 431 2,139 1,316
Cost of environmental services 64 149
------- ------- ------- ------
OPERATING LOSS (2,304) (639) (4,478) (2,143)
Minority interest 302 302
Interest expense (145) (146) (394) (437)
Interest income 265 265
------- ------- ------- -------
NET (LOSS) $(1,882) $(785) $(4,305) $(2,580)
======= ======= ======= =======
NET (LOSS) PER SHARE (Based on
weighted average shares of 57,125,000
and 56,935,000 in 1996 and 56,262,000
and 56,194,000 in 1995)* $ (.03) $ (.01) $ (.08) $ (.05)
======= ======= ======= =======
</TABLE>
* Reclassified to conform to current year presentation.
** Common stock equivalents are not included in the net loss
per share calculation since they are antidilutive.
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000'S OMITTED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (4,305) $(2,580)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 238 192
Minority interest (302)
Interest (non cash) 72 72
Increase in notes receivable (1,000)
Increase in accounts receivable (55)
Decrease in inventories 45
(Increase) decrease in other assets (199) 2
Increase in intangible assets (88) (83)
Increase in restricted cash (270) (491)
Increase (decrease) in accounts payable and
accrued liabilities 715 (196)
-------- --------
NET CASH (USED IN) OPERATING ACTIVITIES (5,149) (3,084)
-------- --------
INVESTING ACTIVITIES
Increase in temporary investments (20,766)
Payments received on receivables 7 455
Purchase of equipment (917) (431)
Increase in receivables (449)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (21,676) (425)
-------- --------
FINANCING ACTIVITIES
Sale of subsidiary common stock 30,568
Issuance of preferred stock 100
Increase in line of credit 2,000
Payment of line of credit (2,000)
Issuance of common stock 155 22
Payment of long term debt (110)
Payment of dividends on preferred stock (225) (222)
Advances from (payments to) related parties (1,483) 807
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 29,015 597
-------- --------
INCREASE (DECREASE) IN CASH 2,190 (2,912)
Cash at beginning of period 36 3,011
-------- --------
CASH AT END OF PERIOD $ 2,226 $ 99
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
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 $1,000,000. Those funds
have been deposited into a Harvest interest-bearing account. As of September 30,
1996, Harvest had $1,063,000 in an interest-bearing account and an amended
$4,264,683 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.
7
<PAGE> 8
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 September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
NOTE B - COMMITMENTS AND 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.
8
<PAGE> 9
NOTE C - SALE OF SUBSIDIARY COMMON STOCK
On June 28, 1996, the Company's formerly wholly-owned subsidiary, Commodore
Applied Technologies, Inc. ("CAT"), successfully completed an initial public
offering of 5,750,000 shares of common stock (including the underwriter's
over-allotment) and 5,750,000 redeemable common stock purchase warrants from
which CAT received net proceeds, after giving effect to the underwriting
discount and non-accountable expenses, of approximately $31,217,000. The
offering proceeds were received by CAT in July 1996. In addition, the Company
incurred approximately $649,000 in transaction costs in connection with the
offering, which reduced the gross proceeds.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General
The Company and its subsidiaries are engaged in the development of a
variety of environmental technologies for the destruction and separation of
hazardous materials. CAT has developed a patented non-thermal, portable and
scalable process known as AGENT 313 (TM) for treating and decontaminating soils
and other materials and surfaces containing polychlorinated biphenyls,
pesticides, dioxins and other toxic contaminants to an extent sufficient to
satisfy current federal environmental guidelines. It has been proven that AGENT
313 can also neutralize chemical weapons materials and warfare agents. Through
other subsidiaries, the Company is applying these and related technologies to
the destruction, separation and recycling of chlorofluorocarbons and other
ozone-depleting substances and is developing a related liquid membrane
technology for the purpose of separating other hazardous wastes from other types
of contaminated media.
Results from Operations
Gross revenues for the third quarter of 1996 were $28,000 as compared to
$161,000 for the third quarter of 1995, a decrease of $133,000. Gross revenues
for the nine month period ended September 30, 1996 were $194,000 as compared to
$489,000 for the nine month period ended September 30, 1995, a decrease of
$295,000. The decrease is due to the collection of a mortgage receivable at the
end of 1995, resulting in the loss of that revenue stream in 1996.
General and administrative expenses totalled $1,291,000 for the third
quarter of 1996 as compared to $369,000 for the third quarter of 1995, an
increase of $922,000, and general and administrative expenses totalled
$2,384,000 for the nine month period ended September 30, 1996 as compared to
$1,316,000 for the nine month period ended September 30, 1995, an increase of
$1,068,000. The increases are due to the hiring of additional personnel
including executives, increased professional fees, insurance and travel and
related expenses.
In the third quarter of 1996, the Company incurred $977,000 of research and
development expenses associated with research, development and marketing of
technologies for the destruction of hazardous materials, as compared to $431,000
in the third quarter of 1995. For the nine-month period ended September 30,
1996, the Company incurred $2,139,000 of research and development expenses as
compared to $1,316,000 for the nine-month period ended September 30, 1995. 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.
10
<PAGE> 11
In the third quarter of 1996, the Company generated interest income of
approximately $265,000. The interest income was generated from temporary
investments which were purchased with the net proceeds from the sale of its
subsidiary's stock. The Company had no interest income from temporary
investments in 1995.
Interest expense was $145,000 for the third quarter of 1996 as compared to
$146,000 for the third quarter of 1995, a decrease of $1,000; and interest
expense was $394,000 for the nine-month period ended September 30, 1996 as
compared to $437,000 for the nine-month period ended September 30, 1995, a
decrease of $43,000. The decrease is due to the reduction of outstanding
interest-bearing debt in 1996 from 1995.
The Company had a net loss of $1,882,000 for the three month period ended
September 30, 1996 as compared to a net loss of $785,000 for the three month
period ended September 30, 1995. The Company had a net loss of $4,305,000 for
the nine month period ended September 30, 1996 as compared to a net loss of
$2,508,000 for the nine month period ended September 30, 1995. The fluctuation
in results have been described in the individual paragraphs above.
On October 1, 1996, the Company (through one of its majority owned
subsidiaries) acquired Advanced Sciences, Inc. ("ASI"), a privately-owned
environmental engineering and consulting services company based in Albuquerque,
New Mexico in exchange for 900,000 shares of the Company's Common Stock. ASI
specializes in the identification, investigation, remediation and management of
hazardous and mixed waste sites for industry and government.
11
<PAGE> 12
Liquidity and Capital Resources
The Company had a working capital of $22,760,000 on September 30, 1996 as
compared to a working capital deficit of $752,000 at the beginning of the year.
On June 28, 1996, the Company's formerly wholly-owned subsidiary, CAT, was
successful in completing an initial public offering, and the Company continues
to hold 69.3% common stock ownership. The completion of this offering resulted
in net proceeds of approximately $30,568,000. Gross proceeds from the offering
were $35,075,000 offset by underwriting discounts and non-accountable expenses
of $3,858,000 and approximately $649,000 in transaction costs. The Company has
invested the remaining proceeds in short term cash equivalent investments and
anticipates using the proceeds to further the development of its various
technologies and commercialize the technologies through joint ventures with
partners.
In August 1996, CAT (through one of its wholly owned subsidiaries) signed a
joint venture agreement with a subsidiary of Teledyne Inc. to form a Limited
Liability Company ("LLC") a mutually owned joint venture formed to pursue
chemical demilitarization on a worldwide basis. Pursuant to this agreement, the
CAT is required to fund the LLC $2,000,000 over the next six months.
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, less than seven 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.
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 1996.
12
<PAGE> 13
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 -
A report on Form 8-K was filed by the Company on
October 1, 1996 in connection with the
acquisition of Advanced Sciences, Inc. and A.S.
Environmental, Inc.
13
<PAGE> 14
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 ANDREW P. ODDI
------------------------------------
Andrew P. Oddi - Vice President
Finance and Administration
(Principal Financial Officer)
Date: November 18, 1996
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,992
<SECURITIES> 0
<RECEIVABLES> 95
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,358
<PP&E> 2,005
<DEPRECIATION> (258)
<TOTAL-ASSETS> 30,310
<CURRENT-LIABILITIES> 2,598
<BONDS> 6,250
0
46
<COMMON> 579
<OTHER-SE> 14,730
<TOTAL-LIABILITY-AND-EQUITY> 30,310
<SALES> 0
<TOTAL-REVENUES> 194
<CGS> 0
<TOTAL-COSTS> 149
<OTHER-EXPENSES> 4,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> (4,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,305)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
