<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-10054
COMMODORE ENVIRONMENTAL SERVICES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0275043
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
150 EAST 58TH STREET
NEW YORK, NEW YORK 10155
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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 for 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 [ ].
The number of shares the common stock outstanding at August 12, 1997
was 58,646,083.
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COMMODORE ENVIRONMENTAL SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION....................................................... 3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996...................................... 3
Condensed Consolidated Statement of Operations
Three months ended June 30, 1997 and 1996
Six months ended June 30, 1997 and 1996.................................. 5
Condensed Consolidated Statement of Cash Flows -
Six months ended June 30, 1997 and
June 30, 1996............................................................ 6
Notes to Condensed Consolidated Financial Statements ....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 11
PART II. OTHER INFORMATION........................................................... 15
SIGNATURES............................................................................ 16
</TABLE>
2
<PAGE> 3
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>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
--------- ---------
(unaudited)
<S> <C> <C>
Current Assets:
Cash 2,055 7,821
Temporary investments 18,833 7,459
Accounts receivable, net 2,965 7,149
Notes and advances to related parties 4,761 3,034
Restricted cash 650 670
Prepaid assets and other current assets 804 735
--------- ---------
Total Current Assets 30,068 26,868
Certificates of deposit and restricted cash 1,123 1,145
Other receivables 568 384
Other investments 908 862
Property and equipment, net 2,633 2,044
Non-performing note receivable 912 912
Deferred financing costs, net 144 192
Patents and completed technology, net 1,054 1,004
Goodwill, net 7,481 7,560
Other assets 286 142
--------- ---------
Total Assets $ 45,177 $ 41,113
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
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COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - - (CONT'D)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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(unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 4,688 $ 3,801
Due to related parties 188 186
Current portion of long-term debt 69 89
Line of credit 4,008 7,042
Other accrued liabilities 88 2,755
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Total Current Liabilities 9,041 13,873
Insurance loss reserve 1,275 1,275
Bonds payable 4,000 4,000
Other long term debt 25 29
Deferred gain 690 690
Promissory note to related party 2,250 2,250
Minority Interest 9,027 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 58,646,083
and 57,924,368 585 579
Additional paid-in capital 53,353 41,768
Retained earnings (deficit) (35,090) (29,537)
---------- ----------
18,894 12,856
Less cost of 506,329 shares of common
stock held in treasury (25) (25)
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Total Stockholders' Equity 18,869 12,831
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Total liabilities and stockholders' equity $ 45,177 $ 41,113
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996* 1997 1996*
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Contract revenues $ 4,951 $ 24 $ 9,979 135
Costs and expenses:
Cost of sales 3,989 9 7,998 85
Research and development 827 714 1,433 1,162
General and administrative 3,949 551 6,872 1,093
Depreciation and amortization 239 -- 482 --
--------- --------- --------- ---------
Total costs and expenses (9,004) (1,274) (16,785) (2,340)
--------- --------- --------- ---------
Loss from operations (4,053) (1,250) (6,806) (2,205)
--------- --------- --------- ---------
Other income (expense):
Interest income 294 14 460 31
Interest expense (281) (138) (609) (249)
Equity in losses from
unconsolidated subsidiary (528) -- (954) --
Minority interest 1,376 -- 2,358 --
Income tax expense (2) -- (2) --
--------- --------- --------- ---------
Net loss $ (3,194) (1,374) $ (5,553) $ (2,423)
========= ========= ========= =========
Net loss per share
(Based on weighted average
shares of 57,857,000 and 57,682,000
in 1997 and 56,840,000 and 56,840,000
in 1996)** $ (.06) $ (.02) $ (.10) $ (.03)
========= ========= ========= =========
</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
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COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,553) $ (2,423)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization 482 183
Interest (non cash) 48 48
Undistributed losses of unconsolidated subsidiary 954 --
Minority interest (2,358) --
Issuance of stock options 623 --
Decrease (increase) in:
Accounts receivable 4,184 (21)
Inventory -- 45
Other assets (213) (299)
Restricted cash 42 (170)
Increase (decrease) in:
Accounts payable and accrued liabilities 887 1,215
Other liabilities (2,667) --
---------- ----------
Net cash used in operating activities (3,571) (1,422)
CASH FLOW FROM INVESTING ACTIVITIES:
Payments received on receivables -- 1
Purchase of equipment (932) (483)
Purchase of temporary investments (11,374) --
Acquisition of patents (116) --
Increase in receivables (184) --
Other investments (1,000) --
---------- ----------
Net cash used in operating activities: (13,606) (482)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of subsidiary stock 11,087 --
Issuance of preferred stock 5,340 --
Increase (decrease) in line of credit (3,034) 2,000
Issuance of common stock 55 120
Payment of long term debt (22) --
Payment of dividends on preferred stock (288) (75)
Advances to related parties (1,727) (21)
---------- ----------
Net cash used in financing activities 11,411 2,024
In crease (decrease) in cash (5,766) 120
Cash at beginning of period 7,821 36
---------- ----------
Cash, end of period $ 2,055 156
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 1997
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for
Commodore Environmental Services, Inc. and subsidiaries ("the Company") 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 the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending 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 annual report on form 10-K for the year ended
December 31, 1996.
The current principal businesses of Commodore Environmental Services, Inc.
are conducted through its 69.3% owned subsidiary, Commodore Applied
Technologies, Inc. ("Applied"), and consist of the development of technologies
or the destruction of neutralization of hazardous waste and the separation of
hazardous waste from other materials. Applied owns technologies related to the
separation of destruction of polychlorinated biphenyls (PCBs) and
chlorofluorocarbons (CFCs). In addition Applied owns 100% of Advanced Sciences,
Inc. ("ASI"), a subsidiary acquired on October 1, 1996. ASI has contracts with
various government agencies and private companies throughout the United States
and abroad relating engineering and scientific services. Applied also owns 87%
of Commodore Separation Technologies, Inc. whose principal business is to
separate and abstract various solubilized materials from liquid and gaseous
streams. The consolidated financial statements include accounts of Applied and
its majority-owned subsidiaries. All significant intercompany balances have
been eliminated. All joint ventures with a 50% or less ownership have been
accounted for under the equity method since Applied does not have a controlling
interest.
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. The policies were issued from July 1987 through January 1989. The
maximum exposure under the outstanding policies is $5,000 in aggregate.
7
<PAGE> 8
In December 1994, The Vermont Department of Banking and Insurance (the
"Department"), and the Company entered into an agreement which required the
Company to deposit an additional $750 in an interest bearing account as a
capital contribution to Harvest. As of June 30, 1997, Harvest had $1,123 in an
interest-bearing account and an amended $4,239 intercompany demand note (the
"Company Note") from the Company. The Company and/or Harvest have the rights
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 the third party to
re-insure the total Harvest liability for a one-time payment of $1,275 and as
of December 31, 1996 the Company adjusted its insurance loss reserve
accordingly.
On March 29, 1996, the Company, in exchange for the issuance of 15,000,000
shares of Applied common stock, capitalized Applied, as follows: (1)
contributed 90.05 percent of the outstanding common stock of Commodore
Laboratories, Inc. ("Labs") and 100 percent of the outstanding capital stocks
of Commodore Technologies, Inc. ("Technologies"), Commodore Government
Environmental Technologies, Inc. ("Government"), Commodore Remediation
Technologies, Inc. ("Remediation"), and Sandpiper Properties, Inc.
("Sandpiper"), (2) assigned all rights, titles, and interest in its contracts,
assets, and properties related to Commodore SET(TM) technology to Applied, and
(3) contributed $3,000 of a promissory note to Applied for the purpose of
funding the development of SET(TM).
In June of 1996, Applied completed an initial public offering of
5,750,000 shares of its common stock, par value $.001 per share of common stock,
at a price to the public of $6.00 per share. Along with each share was one
detachable warrant valued at $.10, which entitles its owner to one Applied
share of stock at the price of $8.40 per share from the period from June 28,
1997 until June, 28, 2001. These warrants are redeemable by Applied for $.01
per share if the average trading price of Applied stock for any 20 day period
is greater than or equal to $18.00 per share. Net proceeds from the offering
were $30,551.
In July 1996, the Company acquired the remaining 9.95 percent of Labs and
contributed its investment to Applied. The excess of the Company's purchase
price of $3,000 over the $2,294 fair value of the net assets acquired has been
recorded as completed technology and is being amortized over 7 years.
8
<PAGE> 9
On October 1, 1996, Applied acquired all of the outstanding voting common
stock of Advanced Sciences, Inc. ("ASI") and A.S. Environmental, Inc. ("ASE").
This transaction also included the purchase of ASI's foreign subsidiaries,
Advanced Sciences Integrada, S.A., ("ASI Argentina") and Advanced Sciences
Integrated Mexico, S.A., ("ASI Mexico"). The acquisition has been recorded
using the purchase method of accounting. Accordingly, the results of operations
of ASI have been included in those of Applied for the period subsequent to the
date of acquisition.
In consideration for the ASI and ASE stock, Applied issued 900,000 shares
of common stock to ASI and ASE shareholders, with a fair value of $2,250.
Assets and liabilities acquired are as follows:
<TABLE>
<S> <C>
Cash $ 199
Accounts Receivables 4,783
Prepaid expenses 286
Restricted cash 151
Property and equipment 377
Trade Payables (3,234)
Accrued expenses (1,931)
Line of credit (5,681)
Notes payable (200)
Capital leases and other long-term obligations (173)
-------
Net liabilities in excess of assets purchased (5,423)
Issuance of common stock (2,250)
-------
Goodwill $(7,673)
=======
</TABLE>
On December 2, 1996 Applied purchased Commodore Separation Technologies,
Inc. ("Separation"), Commodore CFC Technologies, Inc. ("CCFC") and CFC
Technologies, Inc. ("CFC") from the Company for $5,400, consisting of $3,000 in
cash and/or issued warrants to purchase 7,500,000 shares of Applied's common
stock at an exercise price of $15.00 per share and with termination date of
December 2, 2003. The acquisition has been accounted for as a transaction
between entities under common control. Applied has recorded its investment in
Separation, CFC and CCFC as $753, which is equal to the Company's historical
basis in these subsidiaries. The difference between this amount and the $5,400
paid to the Company has been recorded as a direct reduction in the paid-in
capital of Applied.
Substantially all of Applied's revenues are from ASI, and consist of
engineering and scientific services performed for the U.S. Government and prime
contractors that serve the U.S. Government under a variety of contracts, most
of which provide for reimbursement of cost plus fixed fees. Revenue under
cost-reimbursement contracts is recorded under the percentage of completion
method as costs are incurred and include estimated fees in the proportion that
costs incurred to date bear to total estimated costs.
9
<PAGE> 10
Anticipated losses on contracts are provided for by a charge to income
during the period such losses are identified. Changes in job performance, job
conditions, estimated profitability (including those arising from contract
penalty provisions) and final contract settlements may result in revisions to
cost and income and are recognized in the period in which the revisions are
determined. Allowances for anticipated losses totaled $2,306 at December 31,
1996 and $2,444 at June 30, 1997.
Applied's condensed consolidated financial statements for the six month
period ended June 30, 1996 only include the accounts for Labs, the predecessor
company and are therefore not comparable to the condensed consolidated
financial statements of Applied for subsequent periods. The consolidated
financial statements include the accounts of Applied and its majority-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. The investment in Teledyne-Commodore, LLC, a 50% owned joint
venture with Teledyne Environmental, Inc., has been accounted for under the
equity method as Applied does not have a controlling interest in the venture.
At June 30, 1997, the Company and its subsidiaries had advanced an
aggregate amount of $4,500 to Lanxide Performance Materials, Inc. ("LPM"); a
wholly-owned subsidiary of Lanxide which specializes in the manufacture of
ceramic bonding and refractory materials. Lanxide is related to the Company by
common ownership. The promissory notes become due on February 28, 1998.
Interest receivable on the note totaled $18 as of December 31, 1996. The notes
are collateralized by the assets of LPM and guaranteed by Lanxide on behalf of
its subsidiary.
On July 3, 1997, the Company obtained effective control of Lanxide.
Pursuant to a Securities Agreement dated July 3, 1997, the Company agreed to
purchase up to $25 million of Lanxide's Series G Preferred Stock (the "Series G
Stock") as follows: (i) on July 3, 1997, the Company purchased 10,000 shares of
Series G Stock for a purchase price of $1.0 million in cash; (ii) on July 28,
1997, the Company purchased 10,000 shares of Series G Stock for $1.0 million in
cash; (iii) if prior to August 27, 1997, the Company receives $10.5 million in
financing, the Company will purchase 85,000 shares of Series G Stock to be paid
in the form of (x) $4.0 million in cash and (y) the cancellation of Lanxide's
outstanding indebtedness to the Company and Applied in the amount of $4.5
million. In addition, Lanxide issued a Warrant (the "Warrant") to the Company
for the purchase of 250,000 shares of Series F Preferred Stock of Lanxide (the
"Series F Stock") at an exercise price of $100 per share, which Warrant may be
exercised, in part, by the exchange of shares of Series G Stock for a like
number of Series F Stock. The amount and the nature of the consideration paid,
and to be paid, by the Company for such securities was determined as a result
of arm's-lengths negotiations among representatives of the Company and Lanxide
and certain of the Lanxide Stockholders.
NOTE 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.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
General
The current principal businesses of the Company are conducted through its
69.3% owned subsidiary. 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 in 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 subsidiary's revenues, such a
reduction would materially affect the operations. However, management believes
the subsidiary's existing client relationships will allow Applied to obtain new
contracts in the future.
Commodore Separation Technologies, Inc. whose principal business is to
separate and extract various solubilized materials from liquid and gaseous
streams is currently in the development stage and intends to commercialize its
separation and recovery system.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended
June 30, 1996
Revenues were $4,951 and $9,979 for the three and six months ended June
30, 1997, compared to $24 and $135 for the three and six months ended June 30,
1996. Such revenues for 1997 were primarily due to Applied's acquisition of
ASI, effective October 1, 1996, and consisted of engineering and scientific
services performed for the United 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. Cost of sales
increased to $3,989 and $7,998 from $9 and $85 for the same periods in 1996.
Anticipated losses on contracts are provided for by a charge to income during
the period such losses are first identified.
For the three and six months ended June 30,1997, the Company incurred
research and development costs of $827 and $1,433, as compared to $714 and
$1,162 for the three and six months ended June 30, 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 that those costs related to the design or construction of an
asset having an economic useful life are capitalized, and then depreciated over
the estimated useful life of the asset. Research and development increased for
the three and six months ended June 30, 1997 as compared to the three and six
months ended June 30, 1996 primarily due to the continued use of independent
consultants in the development of SET(TM). Also, Applied hired additional
technical and operational personnel to develop the SET(TM) and separation
processes.
11
<PAGE> 12
General and administrative expenses for the three and six months ended
June 30, 1997 were $3,949 and $6,872, as compared to $551 and $1,093 for the
three and six months ended June 30, 1996. The increase was primarily due to
hiring executives and staff to support the increased activities of Applied
caused by its own and its subsidiary's change to "public" status and efforts to
commercialize its technology. Approximately $892 and $1,647 of the increase
relates to expenses incurred at the newly acquired Advanced Sciences
subsidiary.
In April 1997, Separation completed a sale of stock which reduced
Applied's ownership percent from 100 percent to 87 percent. As a result, the
financial statements report $228 as that portion of the subsidiary's loss
applicable to the minority interest. In addition, the Company owns 63.9 percent
of Applied and therefore the financial statements report an additional $1,148
and $2,130 of minority interest for the three and six month periods ended June
30, 1997, respectively.
Interest income was $294 and $460 for the three and six months ended June
30, 1997, as compared to $14 and $31 for the three and six months ended June
30, 1996. The increase resulted from the investment of the proceeds of Applied
and its subsidiary's initial public offerings.
Interest expense for the three and six months ended June 30, 1997 was $281
and $609 as compared to $138 and $249 for the three and six months ended June
30, 1996. Interest expense increased in 1997 due to the debt assumed in
connection with the acquisition of ASI.
Equity in losses of unconsolidated subsidiary for the three and six months
ended June 30,1997 was $528 and $954, as compared to $0 for the three and six
months ended June 30, 1996. Applied's Teledyne-Commodore, LLC joint venture
commenced operations in October 1996.
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1996, Applied successfully completed an initial public
offering of its Common Stock and warrants from which it received net proceeds
of approximately $30,551. In connection with the initial public offering,
Applied incurred transaction costs of approximately $649. Applied allocated
approximately $12.0 million of the net proceeds for the funding of proposed
collaborative joint ventures, $2.0 million of which was allocated to
Teledyne-Commodore, LLC.
In July 1996, Applied utilized a portion of the net proceeds from its
initial offering to repay an outstanding line of credit of $2.0 million, as
well as a $5,925 promissory note to its principal stockholder. Applied set
aside $1.0 million cash collateral to support a loan made by a commercial bank
to Applied's principal stockholder in December 1993. In September 1996, such
cash collateral was released by the bank.
At June 30, 1997 and December 31, 1996, Applied had a $4,008 and $7,042
outstanding balance, respectively on a $9,250 revolving line of credit due
September 30, 1997. This decrease in debt was attributable to the repayment of
the line of credit resulting from collections of Accounts receivable balances.
Applied anticipates refinancing the revolving line of credit in the third
quarter of 1997. In addition, Applied plans to pursue various options to
finance its anticipated capital expenditures for 1997 and 1998.
For the three and six months ended June 30, 1997 the Company incurred net
losses of $3,194 and $5,553 respectively. At June 30, 1997 and December 31,
1996, the Company had working capital of $21,027 and $12,995, respectively.
12
<PAGE> 13
Effective as of December 1, 1996, Applied transferred certain of its
operating assets related to its SET(TM) technology to Commodore Advanced
Sciences, Inc. ("CAS"), subject to certain liabilities related to such assets,
in exchange for 100 shares of common stock, par value $.01 per share, of CAS,
representing all of the issued and outstanding shares of capital stock of CAS.
CAS agreed to assume all of the net assets of Applied relating to its SET(TM)
technology at December 1, 1996, which assets had an aggregate value of
approximately $4.0 million at such date, and all known or all unknown
contingent or unliquidated liabilities of and claims against Applied and its
subsidiaries to the extent they relate to or arise out of the transferred
assets. Applied retained, among other things, (a) all temporary cash
investments of Applied at December 1, 1996, aggregating approximately $14.1
million, and (b) the executive offices and related assets of Applied located in
Virginia.
Effective as of December 2, 1996, Applied acquired (i) all of the
outstanding capital stock of Separation and (ii) all of the outstanding capital
stock of Refrigerant from the Company, as part of a corporate restructuring of
the Company to consolidate all of its current environmental technology
businesses with Applied. In addition, the Company assigned to Applied
outstanding Separation notes aggregating $976 at December 2, 1996, representing
advances previously made by the Company to Separation, which Applied has
contributed to the equity of Separation. In consideration for the transfer of
all of the outstanding capital stock of Separation and Refrigerant to Applied,
Applied paid the Company $3.0 million in cash and, issued to the Company a
warrant expiring December 2, 2003 to purchase 7,500,000 shares of Applied
Common Stock at an exercise price of $15.00 per share, valued at $2.4 million.
In April 1997, Separation successfully completed an initial public
offering of its equity securities, from which it received net proceeds of
approximately $11.1 million. Such funds will be used primarily to finance
Separation's operations through 1997. This offering reduced Applied's equity
ownership in Separation from 100 percent to 87 percent.
In May 1997, the Company sold $6,000 of 7 percent convertible preferred
shares, Series D and warrants to purchase 600,000 shares of Applied Common
Stock now held by the Company. Net proceeds from the offering were $5,340.
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 through
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 differ
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 1997.
NET OPERATING LOSSES
The Company has net operating loss carry forwards which expire in the
years 2000 through 2011. The amount of net operating loss carry forward that
can be used in any one year will limited by the applicable tax laws which are
in effect at the time such carry forward can be utilized. A valuation allowance
has been established to offset any benefit from the net operating loss carry
forwards as it cannot be determined when or if the Company will be able to
utilize the net operating losses.
13
<PAGE> 14
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of, among other factors, competitive conditions in the
industries in which the Company operates, failure to commercialize one or more
of the technologies of the Company and general economic conditions that are
less favorable than expected. In light of these risks and uncertainties, there
can be no assurance that the forward-looking information contained in this
respect will in fact occur.
14
<PAGE> 15
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 proceedings.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS AMONG 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
15
<PAGE> 16
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.
DATE: AUGUST 14,1997 COMMODORE ENVIRONMENTAL SERVICES, INC.
(REGISTRANT)
BY
---------------------------------------------
MICHAEL D. FULLWOOD - SENIOR VICE PRESIDENT,
CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER,
SECRETARY, AND GENERAL COUNSEL (AS BOTH A
DULY AUTHORIZED OFFICER OF THE REGISTRANT
AND THE PRINCIPAL FINANCIAL OFFICER OR CHIEF
ACCOUNTING OFFICER OF THE REGISTRANT)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,055
<SECURITIES> 18,833
<RECEIVABLES> 5,409
<ALLOWANCES> 2,444
<INVENTORY> 0
<CURRENT-ASSETS> 30,068
<PP&E> 5,156
<DEPRECIATION> 2,523
<TOTAL-ASSETS> 45,177
<CURRENT-LIABILITIES> 9,041
<BONDS> 0
0
46
<COMMON> 585
<OTHER-SE> 18,263
<TOTAL-LIABILITY-AND-EQUITY> 45,177
<SALES> 0
<TOTAL-REVENUES> 9,979
<CGS> 0
<TOTAL-COSTS> 16,785
<OTHER-EXPENSES> 954<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149<F1>
<INCOME-PRETAX> (5,551)
<INCOME-TAX> 2
<INCOME-CONTINUING> (5,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,553)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1>(A) Net of interest income of $460.
<F2>(B) Equity in losses from unconsolidated subsidiary.
</FN>
</TABLE>
