<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 March 31, 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 May 13, 1996 (latest
practicable date):
Issued and Outstanding: 57,348,953
----------
<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)
MARCH 31, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 42 $ 36
Certificates of deposit 50 50
Other receivables 148 40
Due from related parties 8 8
Inventories 0 45
Prepaid assets 50 25
Restricted cash 1,953 1,793
------ ------
TOTAL CURRENT ASSETS 2,251 1,997
Mortgage notes and related receivables 280 303
Due from related party 125 125
Equipment (net of accumulated depreciation) 1,107 1,054
Other assets 151 34
Other investments 357 357
Deferred loan fees 264 288
Intangible assets 2,339 2,389
Non performing real estate loan 912 912
------ ------
TOTAL ASSETS $7,786 $7,459
====== ======
</TABLE>
<PAGE> 3
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000'S OMITTED)
MARCH 31, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 781 $ 670
Due to related parties 2,305 1,085
Insurance loss reserve 994 994
-------- --------
TOTAL CURRENT LIABILITIES 4,080 2,749
Bonds payable 4,000 4,000
Stockholders' Equity:
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 57,348,953
and 56,768,953 573 568
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 4,534,709 45 45
Additional paid in capital 19,249 19,209
(Deficit) (20,136) (19,087)
-------- --------
(269) 735
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (294) 710
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,786 $ 7,459
======== ========
</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 ended
MARCH 31,
---------------------
1996 1995*
---- -----
(UNAUDITED)
<S> <C> <C>
REVENUES
Interest and other income from
commercial real estate activities $ $ 150
Income from refrigerant services 111
Other income 17 18
------- -------
128 168
COSTS AND EXPENSES
General and administrative 542 446
Research and development 448 419
Cost of refrigerant services 76
Interest 111 147
------- -------
(1,177) (1,012)
------- -------
NET (LOSS) $(1,049) $ (844)
======= =======
NET (LOSS) PER SHARE (Based on
weighted average shares in 1996 and
1995 of 57,079,000 and 56,060,000)** $ (.02) $ (.02)
</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.
4
<PAGE> 5
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000'S OMITTED)
THREE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(1,049) $ (844)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 70 48
Interest 24
(Increase) decrease in receivables (108) 5
Decrease in inventories 45
(Increase) in other assets (142)
Increase in restricted cash (160) (258)
Increase (decrease) in accounts payable
and accrued liabilities 111 (477)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,209) (1,526)
------- -------
INVESTING ACTIVITIES
Payments received on receivables 23 78
Purchase of equipment (73) (88)
Increase in receivables (177)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (50) (187)
------- -------
FINANCING ACTIVITIES
Payments of dividends on preferred (75) (73)
Issuance of common stock 120 2
Payment of long term debt (36)
Advances from related party 1,220
Payments to related parties, net (501)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,265 (608)
------- -------
INCREASE (DECREASE) IN CASH 6 (2,321)
Cash at beginning of period 36 3,011
------- -------
CASH AT END OF PERIOD $ 42 $ 690
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 an additional $100,000
on July 15, 1996. Those funds will be deposited into a Harvest interest-bearing
account. As of March 31, 1996, Harvest had $953,000 in an interest-bearing
account and an amended $4,364,683 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 three month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
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. 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 businesses of Commodore Environmental Services, Inc.
(the "Company") are the development of technologies for the destruction of
hazardous materials and the separation of mixed refrigerant by using a selective
destruction technology.
Results from Operations
Gross revenues for the first quarter of 1996 were $128,000 as compared to
$168,000 for the first quarter of 1995, a decrease of $40,000. In the first
quarter of 1996, the Company recognized $111,000 of income from the separation
of mixed refrigerant by using the Company's selective destruction technology.
There were no revenues relating to this in the first quarter of 1995, as this
technology was then in the development stage. Additionally, in the first quarter
of 1996, the Company recognized nominal revenues relating to income from
commercial real estate activities as compared to $150,000 in the first quarter
of 1995. The decrease is due to the collection of a mortgage receivable in
October of 1995.
General and administrative expenses totalled $542,000 for the first quarter
of 1996 as compared to $446,000 for the first quarter of 1995, an increase of
$96,000. This 22% increase is attributable to expenses relating to salaries,
insurance, and travel and related activities associated with research and
development activities for the destruction of hazardous materials and
operational activities involving refrigeration separation.
In the first quarter of 1996, the Company incurred $448,000 in research and
development expenses associated with research, development and marketing of
technologies for the destruction of hazardous materials, as compared to $419,000
for the same period in 1995. The 7% increase in the first quarter of 1996 is due
to the hiring of additional personnel to undertake additional projects and the
furthering of existing work in the development of technologies for the
destruction of hazardous materials.
In the first quarter of 1996, the Company incurred $76,000 of costs for
refrigerant services. There were no such costs in the first quarter of 1995, due
to the technology being in the development stage at that time. These costs
represent materials, labor and the cost of waste removal.
Interest expense was $111,000 for the first quarter of 1996 as compared to
$147,000 for the first quarter of 1995, a decrease of $36,000. The 24% decrease
is due primarily to the lower amount of outstanding debt in 1996 as compared to
1995.
8
<PAGE> 9
The Company had a net loss of $1,049,000 for the three-month period ended
March 31, 1996 as compared to a net loss of $844,000 for the three-month period
ended March 31, 1995. The increased net loss is attributable to the various
revenue and expense items in the individual paragraphs above.
Liquidity and Capital Resources
The Company had a working capital deficit of $1,829,000 on March 31, 1996 as
compared to a working capital deficit of $752,000 at the beginning of the year.
The increase in the deficit is primarily attributable to the ongoing research
and development activities.
In March 1996, the Company formed a new subsidiary which has filed a
registration statement with the Securities and Exchange Commission in the second
quarter of 1996, respecting a proposed initial public offering of common stock
of the subsidiary. If the subsidiary is successful in completing the offering,
the Company and its subsidiaries will then have sufficient working capital to
continue its research and development and commercialization of its environmental
technologies.
The ability of the Company to continue as a going concern is dependant on
the Company obtaining external financing and attaining future profitable
operations. Currently, the Company's continued existence is dependant upon the
majority shareholder's ability to fund the Company, and there can be no
assurance that such funding will continue to be provided to the Company.
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.
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> 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: May 13, 1996
11
<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2251
<PP&E> 1267
<DEPRECIATION> 160
<TOTAL-ASSETS> 7786
<CURRENT-LIABILITIES> 4080
<BONDS> 4000
0
45
<COMMON> 573
<OTHER-SE> (912)
<TOTAL-LIABILITY-AND-EQUITY> 7786
<SALES> 111
<TOTAL-REVENUES> 128
<CGS> 76
<TOTAL-COSTS> 76
<OTHER-EXPENSES> 990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> (1,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
