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,
1999
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
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
150 East 58th Street,
New York, New York 10155
--------------------- -----
(Address of Principal Executive Offices) (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 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 NO X
Number of shares of common stock outstanding at December 31, 1999 (latest
practicable date):
Issued and Outstanding: 62,796,477
----------
<PAGE>
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,
1999 1998
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 78 $ 712
Accounts receivable, net 15 1
Restricted cash and certificates of deposits 260 260
Inventory 418 685
--------- -----------
TOTAL CURRENT ASSETS 771 1,658
Other receivables 321 321
Investments and advances 4,322 4,630
Property and equipment ,net 1,054 1,154
Patents and completed technology 152 148
Net assets of discontinued operations 100 100
Other assets 18 18
--------- -----------
TOTAL ASSETS $ 6,738 $ 8,029
========= ===========
</TABLE>
2
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable $ 212 $ 78
Due to related parties 348 281
Unearned revenue 263 450
Other accrued liabilities 1,300 1,287
--------- -----------
TOTAL CURRENT LIABILITIES 2,123 2,096
Bonds payable 4,000 4,000
Promissory note to related party 2,250 2,250
--------- -----------
TOTAL LIABILITIES 8,373 8,346
Minority interest 1,686 2,105
Stockholders' Equity:
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 3,912,202 39 39
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 62,796,477 628 628
Additional paid in capital 46,741 46,741
Accumulated deficit (50,704) (49,805)
--------- -----------
(3,296) (2,397)
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
--------- -----------
TOTAL STOCKHOLDERS' EQUITY (3,321) (2,422)
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,738 $ 8,029
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
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,
1999 1998*
--------- -----------
(unaudited)
<S> <C> <C>
REVENUES
Contract revenues $ 264 $ 1,259
COSTS AND EXPENSES
Cost of sales 319 961
Research and development 90 173
General and administrative 423 1,428
Depreciation and amortization 130 96
--------- -----------
Total costs and expenses 962 2,658
--------- -----------
LOSS FROM OPERATIONS (698) (1,399)
--------- -----------
Interest income 10 132
Interest expense (130) (159)
Equity in losses from unconsolidated
subsidiary (308) (1,246)
Gain on sale of subsidiary stock 7,643
Minority interest 419 418
--------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (707) 5,389
Discontinued operations (192)
--------- -----------
NET INCOME (LOSS) $ (899) $ 5,389
========= ===========
NET INCOME (LOSS) PER SHARE - BASIC
(Based on weighted average shares in 1999
and 1998 of 62,290,000 and 59,475,000)** $ (.01) $ .09
NET INCOME (LOSS) PER SHARE - DILUTED
(Based on weighted average shares in 1999
and 1998 of 62,290,000 and 73,908,000) $ (.01) $ .07
</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>
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,
1999 1998
--------- -----------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (899) $ 5,389
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 130 96
Gain on sale of subsidiary stock (7,643)
Undistributed losses of unconsolidated
subsidiary 308 1,246
Changes in net assets of subsidiary prior to
deconsolidation 3,236
Minority interest (419) (418)
Interest 24
Decrease (Increase) in:
Accounts receivable (3) (8)
Inventories 267 -
Prepaid and other current assets 1 -
Increase (decrease) in:
Unearned revenue (187) -
Accounts payable and accrued liabilities 105 (62)
--------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (697) 1,860
INVESTING ACTIVITIES
Payments received on receivables - 163
Purchase of equipment - -
Acquisition of completed technology - (4,436)
Purchase of patents (7) -
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7) (4,273)
--------- -----------
FINANCING ACTIVITIES
Payments of dividends on preferred - (64)
Proceeds from sale of subsidiary stock - 5,450
Advances from related party 85 -
Advances to related parties, net (17) (5,450)
--------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 68 (64)
--------- -----------
INCREASE (DECREASE) IN CASH (636) (2,477)
Deconsolidation of subsidiary owner cash (11,015)
Cash at beginning of period 714 13,542
--------- -----------
CASH AT END OF PERIOD $ 78 $ 50
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
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 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, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
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, 1998.
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 the Company are conducted through its
49% owned affiliate 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
chloroflourocarbons (CFCs).
6
<PAGE>
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 in October 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.
Applied's principal businesses consist of the development of technologies or
the destruction or 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
chloroflourocarbons (CFCs). In addition, Applied owns 100% of Advanced Sciences,
a subsidiary acquired in October 1996. Advanced Sciences has contracts with
various government agencies and private companies throughout the United States
and abroad relating engineering and scientific services. The consolidated
financial statements do not include the accounts of Applied and its
majority-owned subsidiaries.
Commodore Separation Technologies, Inc., a subsidiary of Applied, whose
principal business is to separate and extract various solubilized materials from
liquid streams is currently in the development stage and intends to
commercialize its separation and recovery system.
In March 1998, the Company, through its wholly-owned subsidiary Commodore
Polymer Technologies, Inc., ("Polymer Technologies"), purchased the business
(consisting of customer, supplier and industry relationships) related to the
ceramic polymer known as CERASET (the "CERASET Business") from a subsidiary of
Lanxide, a company which specializes in the manufacture of ceramic bonding and
refractory materials. In connection with such purchase, Polymer Technologies
also required a license, subject to pre-existing and certain future licenses, to
utilize the technologies related to the CERASET polymers (the "CERASET
License"), and acquired the right to use the trademark "CERASET" in connection
with the marketing and sales of products containing CERASET polymers (the
CERASET Trademark"), on a worldwide basis (excluding Japan). The CERASET
materials and processes provide additional performance advantage for reinforced
metals and reinforced ceramics, and extend the Company's business portfolio into
rapidly expanding area of high-performance polymer composites, adhesives,
sealants and coatings. Lanxide is affiliated with the Company by significant
common beneficial ownership.
7
<PAGE>
Pursuant to the terms of the CERASET License, Polymer Technologies has
agreed to pay a subsidiary of Lanxide a royalty equal to 4% of the net sales
price of all products sold by Polymer Technologies and any of its sublicensees,
which are manufactured using the CERASET technology until the aggregate royalty
payments equal $4 million. Thereafter, Lanxide's subsidiary will be entitled to
receive a royalty payment equal to 2% of the net sales price of all products
sold by Polymer Technologies and its sublicensees, which are manufactured using
the CERASET technology.
Polymer Technologies was incorporated in Delaware on March 3, 1998, has
commenced operations and has generated nominal revenues to date. From 1998 to
March 6, 2000, CERASET has generated approximately $80,000 in revenues. Due to
the limited success in expanding its sales, the Company believed that the
CERASET License, CERASET Business and CERASET Trademark have a nominal value and
should be written down to $100,000 as of December 31, 1998. Since 1998, the
Company has embarked on efforts to develop new polymer technologies. In doing
so, the Company has expensed approximately $240,000 in 1998 and $410,000 in 1999
in research and development expense with respect to these new polymers (not
including CERASET). The new polymers serve some of the same properties however
the new polymers are not dependent on CERASET. In March 2000, the Company sold
Polymer Technologies to the Blum Technology Trust for $1,588,902. The
consideration was determined to be a good faith negotiation among the parties to
the transfer of the Polymer stock taking into consideration Polymer's net worth
of approximately $100,000.
Results from Operations
- -----------------------
Revenues were $264,000 for the three months ended March 31, 1999 compared
to $1,259,000 for the three months ended March 31, 1998. Such revenues for 1998
were primarily due to the Company's commencement of operations at the Port of
Baltimore Hawkins Point project. Revenue under such contract was recorded as the
contract has commenced operations. Revenues for 1998 were primarily due to one
month of Applied's operations. As of February 1998, the Company no longer
consolidated the results of Applied as its ownership dropped to 35%.
For the three months ended March 31, 1999, the Company had incurred $319,000
primarily relating to cost of sales relating to the Port of Baltimore contracts.
These costs include labor, fringes, subcontractor costs, travel costs, material
purchases and cost of equipment sold to the customer. For the three months ended
March 31, 1998, the Company had incurred $961,000 which primarily related to
Applied.
8
<PAGE>
For the three months ended March 31, 1999, the Company incurred research and
development costs of $90,000, as compared to $173,000 for the three months ended
March 31, 1998. 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 decreased for the three months ended March 31, 1999 as compared to
the three months ended March 31, 1998 primarily due to cutbacks in order to
preserve capital.
General and administrative expenses for the three months ended March 31,
1999 were $423,000 as compared to $1,428,000 for the three months ended March
31, 1998. The decrease is primarily due to the termination of executives and
staff in order to conserve capital for the foreseeable future.
Depreciation and amortization increased from $96,000 for the three months
ended March 31, 1998 to $130,000 for the three months ended March 31, 1999. This
is a direct result of the Company purchasing more equipment required for the
research and commercialization of its technology.
Interest income was $10,000 for the three months ended March 31, 1999 as
compared to $132,000 for the three months ended March 31, 1998. The decrease
resulted from a reduction in the amount of temporary investments and
indebtedness to Applied.
Interest expense for the three months ended March 31, 1999 was $130,000 as
compared to $159,000 for the three months ended March 31, 1998. The decrease is
primarily a result of the full amortization of deferred loan fees through the
end of 1998.
As a result of the 1998 Private Placement of the Company owned Applied
common stock, the Company recorded a gain on sale of subsidiary stock of
$7,643,000.
Minority interest reflects the portion of the consolidated results of the
Company which relate to minority shareholders of Applied and Separation. The
Company recorded minority interest income of $418,000 during the first month of
1998. Minority interest for 1999 relates to the portion of Separation which the
Company does not own.
Equity in losses from unconsolidated subsidiary for the three months ended
March 31, 1999 was $308,000 as compared to $1,246,000 for the three months ended
March 31, 1998. The losses relate to the operations of Applied.
9
<PAGE>
In March 2000, the Company sold Polymer Technologies to the Blum Technology
Trust for $1,588,902. The consideration was determined to be a good faith
negotiation among the parties to the transfer of the Polymer stock taking into
consideration Polymer's net worth of approximately $100,000. Loss from
discontinued operations relating to Polymer Technologies amounted to $192,000
for the three months ended March 31, 1999.
The Company had a net loss of $899,000 for the three-month period ended
March 31, 1999 as compared to net income of $5,389,000 for the three-month
period ended March 31, 1998. The results are attributable to the various revenue
and expense items in the individual paragraphs above.
Liquidity and Capital Resources
- -------------------------------
On September 29, 1998, Commodore Applied Technologies, Inc. ("Applied")
transferred its 87% ownership in the Separation to Commodore Environmental
Services LLC ("LLC"), a wholly-owned subsidiary of Commodore Environmental
Services, Inc. ("Environmental") in connection with a debt restructuring
agreement between Applied and Environmental.
Separation was incorporated on November 15, 1995, under the laws of the
State of Delaware. Separation is a process technology company which has
developed and continue commercializing its separation technology and recovery
system, known as SLiM (TM). Separation believes SLiM (TM) is capable of
effectively separating and extracting solubilized materials. Separation has been
awarded its first commercial contracts in November 1997 and February 1998 and
has commenced operations on one contract in March 1999 and plans to commence
operations on the second contract in April 2000.
The Company is currently funding the financial needs of Separation along
with its current working capital and operational
requirements. For the three months ended March 31, 1999, the Company had a net
loss of $899,000. At March 31, 1999, the Company had a working capital deficit
of $1,352,000 as compared to a working capital deficit of $438,000 at the
December 31, 1998. The Company did not pay dividends of $63,125 due March 31,
1999 on its Series AA Preferred Stock.
The Company anticipates that it will need additional financing throughout
1999 and 2000 to satisfy its current operating requirements. The Company
believes that it may be able to obtain such financing through the sale of its
Applied Common Stock in one or more private placement transactions. In addition,
since the first quarter of 1999, the Company was funded through advances made
from an entity owned by its majority shareholder. As of December 31, 1999, the
majority shareholder has advanced $2,300,000 to the Company. There can be no
assurance that the majority shareholder will continue to provide adequate
10
<PAGE>
financing for the Company to continue as a going concern. There also can be no
assurance that the Company will be able to obtain financing from external
sources.
Net Operating Losses
- --------------------
The Company has net operating loss carryforwards which expire in the years
2000 through 2018. The amount of net operating loss carryforward that can be
used in any one year will limited by the applicable tax laws which are in effect
at the time such carryforward can be utilized. A valuation allowance has been
established to offset any benefit from the net operating loss carryforwards as
it cannot be determined when or if the Company will be able to utilize the net
operating losses.
Forward-Looking Statements
- --------------------------
Certain matters discussed in this Annual Report are "forward- looking
statements" intended to qualify for the safe harbors from liability established
by Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These forward-looking statements
can generally be identified as such because the context of the statement will
include words such as the Company "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements. Such statements
may address future events and conditions concerning, among other things the
Company's results of operations and financial condition; the consummation of
acquisition and financing transactions and the effect thereof on the Company's
business; capital expenditures; litigation; regulatory matters; and the
Company's plans and objective for future operations and expansion. Any such
forward- looking statements would be subject to the risks and uncertainties that
could cause actual results of operations, financial condition, acquisitions,
financing transactions, operations, expenditures, expansion and other events to
differ materially from those expressed or implied in such forward-looking
statements. Any such forward- looking statements would be subject to a number of
assumptions regarding, among other things, future economic, competitive and
market conditions generally. Such assumptions would be based on facts and
conditions as they exist at the time such statements are made as well as
predictions as to future facts and conditions, the accurate prediction of which
may be difficult and involve the assessment of events beyond the Company's
control. Furthermore, the Company's business is subject to a number of risks
that would affect any such forward-looking statements. These risks and
uncertainties could cause actual results of the Company to differ materially
from those projected or implied by such forward-looking statements.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no material legal proceedings to which
the Company is a party which have not been disclosed in previous filings with
the Securities and Exchange Commission. There are no material developments to be
reported in any previously reported legal proceeding.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults upon Senior Securities
The Company did not pay dividends of $63,125 due March 31,
1999 on its Series AA Preferred Stock.
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 - 27 - Financial Data Schedule
(b) Reports on Form 8-K - none
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMODORE ENVIRONMENTAL SERVICES, INC.
(Registrant)
By: /s/ Andrew 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: April 06, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMMODORE
ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 418
<CURRENT-ASSETS> 771
<PP&E> 1,866
<DEPRECIATION> 812
<TOTAL-ASSETS> 6,738
<CURRENT-LIABILITIES> 2,123
<BONDS> 6,250
0
39
<COMMON> 628
<OTHER-SE> (3,988)
<TOTAL-LIABILITY-AND-EQUITY> 6,738
<SALES> 264
<TOTAL-REVENUES> 274
<CGS> 319
<TOTAL-COSTS> 962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> (707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (707)
<DISCONTINUED> (192)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (899)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
