<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, 1997
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
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 15, 1997 (latest
practicable date):
Issued and Outstanding: 58,014,368
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 2,592 $ 7,821
Temporary investments 7,035 7,459
Accounts receivable, net 3,716 7,149
Notes and advances from related parties 4,821 3,034
Restricted cash 2,154 670
Prepaid assets and other current receivables 1,026 735
------- -------
TOTAL CURRENT ASSETS 21,344 26,868
Certificates of deposit and restricted cash 1,160 1,145
Other receivables 315 384
Other investments 1,430 862
Property and equipment ,net 2,248 2,044
Non-performing note receivable 912 912
Deferred financing costs, net 168 192
Patents and completed technology 1,035 1,004
Goodwill, net 7,446 7,560
Other assets 283 142
------- -------
TOTAL ASSETS $36,341 $41,113
======= =======
</TABLE>
<PAGE> 3
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,753 $ 3,801
Due to related parties 185 186
Current portion of long term debt 89 89
Line of credit 5,745 7,042
Other current liabilities 2,729 2,755
-------- --------
TOTAL CURRENT LIABILITIES 12,501 13,873
Insurance loss reserve 1,275 1,275
Bonds payable 4,000 4,000
Other long term debt 29 29
Deferred gain 690 690
Promissory note to related party 2,250 2,250
-------- --------
TOTAL LIABILITIES 20,745 22,117
Minority interest 5,183 6,165
Stockholders' Equity:
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 4,641,167 46 46
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 58,014,368
and 57,924,368 580 579
Additional paid in capital 41,708 41,768
(Deficit) (31,896) (29,537)
-------- --------
10,438 12,856
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 10,413 12,831
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,341 $ 41,113
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
----------------------
1997 1996*
------- -------
(UNAUDITED)
<S> <C> <C>
REVENUES
Contract revenues $ 5,028 $
Other operating income 111
------- -------
5,028 111
COSTS AND EXPENSES
Cost of sales 4,009 76
Research and development 606 448
General and administrative 2,923 542
Depreciation and amortization 243
------- -------
(2,753) (955)
------- -------
Interest income (166) (17)
Interest expense 328 111
Equity in losses from unconsolidated
subsidiary 426
Minority interest (982)
------- -------
NET LOSS $(2,359) $(1,049)
======= =======
NET LOSS PER SHARE (Based on
weighted average shares in 1997 and
1996 of 57,508,000 and 57,079,000)** $ (.04) $ (.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
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(2,359) $(1,049)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 243 70
Undistributed losses of unconsolidated
subsidiary 426
Minority interest (982)
Interest 24 24
(Increase) decrease in receivables 3,433 (108)
Decrease in inventories 45
Increase in prepaid and other current assets (291)
Increase in other assets (141) (142)
Increase in restricted cash (1,499) (160)
Increase (decrease) in accounts payable
and accrued liabilities (74) 111
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,220) (1,209)
------- -------
INVESTING ACTIVITIES
Payments received on receivables 69 23
Purchase of equipment (309) (73)
Decrease in temporary investments 424
Increase in other investments (994)
Purchase of patents (56)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (866) (50)
------- -------
FINANCING ACTIVITIES
Payments of dividends on preferred (75) (75)
Issuance of common stock 16 120
Payment of line of credit (1,297)
Advances from related party 1,220
Advances to related parties, net (1,787)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,143) 1,265
------- -------
INCREASE (DECREASE) IN CASH (5,229) 6
Cash at beginning of period 7,821 36
------- -------
CASH AT END OF PERIOD $ 2,592 $ 42
======= =======
</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, 1997
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, Commodore Environmental Services, Inc.(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. The policies were
issued from July 1987 through January 1989. 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 which
required the Company to deposit an additional $750,000 in an interest bearing
account as a capital contribution to Harvest. As of March 31, 1997, Harvest had
$1,110,000 in an interest-bearing account and an amended $4,238,683 intercompany
demand note (the "Company Note") from 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.
The Company has reached a tentative agreement with a third party to
re-insure the total Harvest liability for a one-time payment of $1,275,000 and
as of December 31, 1996 the Company adjusted its insurance loss reserve
accordingly.
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, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's 10-K annual report dated December 31, 1996.
6
<PAGE> 7
B - CONTINGENCIES
The Company has matters of litigation arising in the ordinary course of its
business which in the opinion of management will not have a material adverse
effect on the financial condition or results of operations of the Company.
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 conducted through its 69.3% owned subsidiary, Commodore
Applied Technologies, Inc. ("Applied"), and consist of the development of
technologies for the destruction and neutralization of hazardous waste and the
separation of hazardous waste from other materials. Applied owns technologies
related to the separation and destruction of polychlorinated biphenyls (PCBs)
and chlorofluorocarbons (CFCs).
Applied is currently working on the commercialization of these technologies
through various acquisitions, licensing agreements and joint ventures. Through
Advanced Sciences, Inc. ("ASI"), a subsidiary acquired on October 1, 1996,
Applied has contracts with various government agencies and private companies
throughout the United States and abroad. As some government contracts are funded
in one year increments, there is a possibility for cutbacks. As these contracts
constitute a major portion of the subsidiaries revenues, such a reduction would
materially affect the operations of the Company. However, management believes
the subsidiary's existing client relationship will allow Applied to obtain new
contracts in the future.
Results from Operations
Revenues were $5,028,000 for the three months ended March 31, 1997 compared
to $111,000 for the three months ended March 31, 1996. Such revenues for 1997
were primarily due to the Company's acquisition of Advanced Sciences, effective
October 1, 1996, and consisted of engineering and scientific services performed
for the Unites States government under a variety of contracts, most of which
provide for reimbursement of cost plus fixed fees. Revenue under
cost-reimbursements contracts is recorded under the percentage of completion
method as costs incurred and include estimated fees in the proportion that
costs to date bear to total estimated costs. 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. Cost of sales
increased to $4,009,000 from $76,000 for the same periods. Anticipated losses
on contracts are provided for by a charge to income during the period such
losses are first identified.
7
<PAGE> 8
For the three months ended March 31, 1997, the Company incurred research and
development costs of $606,000, as compared to $448,000 for the three months
ended March 31, 1996. Research and development costs include salaries, wages,
and other related costs of personnel engaged in research and development
activities, contract services and materials, test equipment and rent for
facilities involved in research and development activities. Research and
development costs are expensed when incurred, except those costs related to the
design or construction of an asset having an economic useful life, which are
capitalized, and then depreciated over the estimated useful life of the asset.
Research and development increased for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 primarily due to the continued
use of independent consultants in the development of the technology. Also, the
Company hired additional technical and operational personnel to develop the
process.
General and administrative expenses for the three months ended March 31,
1997 were $2,923,000 as compared to $542,000 for the three months ended March
31, 1996. The increase is primarily due to hiring executives and staff to
support the increased activities of the Company's subsidiary Applied and its
change to "public" status and its efforts to commercialize the technology.
Approximately $892,000 of the increase related to expenses incurred at the newly
acquired Advanced Sciences subsidiary.
Interest income was $166,000 for the three months ended March 31, 1997 as
compared to $17,000 for the three months ended March 31, 1996. The increase
resulted from the investment of the proceeds of Applied's public offering.
Interest expense for the three months ended March 31, 1997 was $328,000 as
compared to $111,000 for the three months ended March 31, 1996. The increase is
due to the debt assumed in connection with the acquisition of ASI.
Equity in losses from unconsolidated subsidiary for the three months ended
March 31, 1997 was $426,000 as compared to $0 for the three months ended March
31, 1996. The Teledyne-Commodore, LLC joint venture commenced operations in
October 1996.
Minority interest income for 1997 relates to the minority ownership of the
Applied subsidiary. As of March 31, 1997, the Company owns 69.3% of Applied and
therefore adjusts its consolidated results to reflect the portion of Applied
losses which the Company does not own. In 1996, the Company owned 100% of its
subsidiaries and therefore did not record any minority interest.
The Company had a net loss of $2,359,000 for the three-month period ended
March 31, 1997 as compared to a net loss of $1,049,000 for the three-month
period ended March 31, 1996. The increased net loss is attributable to the
various revenue and expense items in the individual paragraphs above.
8
<PAGE> 9
Liquidity and Capital Resources
The Company has working capital of $8,843,000 on March 31, 1997 as
compared to working capital of $12,995,000 at the beginning of the year. The
decrease in working capital is primarily attributable to the ongoing research
and development activities and the administrative expenses associated with
supporting those activities. In addition, the Company contributed an additional
$1,000,000 to the Teledyne-Commodore LLC, joint venture.
At March 31, 1997 and December 31, 1996, the Company had a $4,245,000 and
$7,042,000 outstanding balance, respectively, on a $9,250,000 revolving line of
credit due September 30, 1997. This debt was attributable to the line of credit
assumed in the acquisition of Advanced Sciences, effective October 1, 1996. The
reduction in debt reflects the reduction in the borrowing base through the
collection of receivables. The Company anticipates refinancing the revolving
line of credit in the third quarter of 1997.
In April 1997, Commodore Separation Technologies, Inc. an 87% owned
subsidiary of Applied ("Separation"), successfully completed an initial public
offering of its equity securities, from which it received net proceeds of
approximately $11,700,000. Such funds will be used primarily to finance
Separation's operations through 1997. At March 31, 1997, Separation had a
$1,500,000 line of credit outstanding which was repaid in April 1997 with
proceeds received from the offering.
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 seven 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
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
Treasurer
(As both a duly authorized
Officer of the Registrant
and the Chief Accounting
Officer of the Registrant)
Date: May 15, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,592
<SECURITIES> 0
<RECEIVABLES> 6,328
<ALLOWANCES> (2,612)
<INVENTORY> 0
<CURRENT-ASSETS> 21,344
<PP&E> 2,761
<DEPRECIATION> (513)
<TOTAL-ASSETS> 36,341
<CURRENT-LIABILITIES> 12,501
<BONDS> 7,554
0
46
<COMMON> 580
<OTHER-SE> 9,787
<TOTAL-LIABILITY-AND-EQUITY> 36,341
<SALES> 0
<TOTAL-REVENUES> 5,028
<CGS> 0
<TOTAL-COSTS> 4,009
<OTHER-EXPENSES> 3,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328
<INCOME-PRETAX> (2,359)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,359)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
