UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 For the quarterly period ended September
30, 2000
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 October 25, 2000 (latest
practicable date):
Issued and Outstanding: 63,996,477
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<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>
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 116 $ 30
Accounts receivable, net 16 10
Restricted cash and certificates of deposits 220 270
Due from related parties 227 -
Inventory - 519
--------- ----------
TOTAL CURRENT ASSETS 579 829
Other receivables 100 321
Investments and advances 2,716 3,085
Property and equipment ,net 26 736
Patents and completed technology 144 145
Other assets 18 18
--------- ----------
TOTAL ASSETS $ 3,583 $ 5,134
========= ==========
</TABLE>
2
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 315 $ 531
Due to related parties 2,686 2,911
Deposit on contract 263 263
Warrant issued for Applied Common Stock 992 1,054
Other accrued liabilities 396 126
Bond payable 4,000 4,000
--------- ----------
TOTAL CURRENT LIABILITIES 8,652 8,885
Net liabilities of discontinued operations - 29
Promissory note to related party 2,250 2,250
--------- ----------
TOTAL LIABILITIES 10,902 11,164
Minority interest - 319
Stockholders' Equity (Deficit):
Preferred stock, par value $.01 per share
authorized 10,000,000, issued and
outstanding 3,312,202 and 3,912,202 33 39
Common stock, par value $.01 per share
authorized 100,000,000 and shares
issued and outstanding 63,996,477 and 640 628
62,796,477
Additional paid in capital 48,503 46,710
Accumulated deficit (56,470) (53,701)
--------- ----------
(7,294) (6,324)
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
--------- ----------
TOTAL STOCKHOLDERS' DEFICIT (7,319) (6,349)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,583 $ 5,134
========= ==========
</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 Nine months ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES
Contract revenues $ - $ 45 $ 67 $ 329
COSTS AND EXPENSES
Cost of sales 13 38 107 407
Research and development 5 81 115 281
General and administrative 198 401 1,033 1,311
Impairment of long lived assets - - 255 -
Reserve for inventory obsolesence - - 519 -
Depreciation and amortization 4 154 236 414
---------- -------- -------- ----------
Total costs and expenses 220 674 2,265 2,413
---------- -------- -------- ----------
LOSS FROM OPERATIONS (220) (629) (2,198) (2,084)
---------- -------- -------- ----------
Interest income 2 1 2 12
Other income - - 46 -
Interest expense (130) (130) (390) (390)
Gain on sale of subsidiary stock 77 - 77 -
Equity in losses from unconsolidated
subsidiary (925) (330) (2,059) (822)
Minority interest - 369 319 1,276
---------- -------- -------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,196) (719) (4,203) (2,008)
Gain from sale of discontinued
operations to related party - - 1,569 -
Loss from discontinued operations - (195) (135) (611)
---------- -------- -------- ----------
Net gain (loss) from discontinued
operations - (195) 1,434 (611)
---------- -------- -------- ----------
NET INCOME (LOSS) $ (1,196) $ (914) (2,769) $ (2,619)
========== ======== ======== ==========
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
(Based on weighted average shares in 2000 of
63,240,000 and 62,710,000 and in 1999 of
62,290,000)
Continuing operations $ (.02) $ (.01) $ (.07) $ (.04)
Discontinued operations - - .02 (.01)
---------- -------- -------- ----------
Total $ (.02) $ (.01) $ (.05) $ (.05)
</TABLE>
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>
Nine months ended
September 30,
-----------------
2000 1999
---- ----
(unaudited)
<S> <C>
OPERATING ACTIVITIES
Net (loss) $ (2,769) $ (2,619)
Loss from discontinued operations 135 833
Gain from disposition of discontinued operations (1,569) -
Gain on sale of subsidiary stock (77)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 236 443
Undistributed losses of unconsolidated
subsidiary 2,059 822
Impairment of long lived assets 255 -
Reserve for inventory obsolesence 519 -
Minority interest (319) (1,276)
Decrease (Increase) in:
Accounts receivable (6) 2
Inventories - 152
Prepaid and other current assets - -
Increase (decrease) in:
Unearned revenue - (187)
Other current liabilities - (233)
Accounts payable and accrued liabilities 54 595
---------- ---------
Net cash used in continuing operations (1,482) (1,468)
Net cash used in discontinued operations - (833)
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,482) (2,301)
---------- ---------
</TABLE>
5
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Except Per Share Data)
(Continued)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
2000 1999
---- ----
(unaudited)
<S> <C>
INVESTING ACTIVITIES
Payments received on receivables 221 -
Proceeds from sale of oil and gas lease 98 -
Proceeds from the sale of subsidiary stock 26 -
Redemption of certificate of deposit 50 -
Purchase of equipment - (60)
Purchase of patents (8) (8)
---------- ---------
Net cash from (used in) investing
activities - continuing 387 (68)
Net cash from investing activities - discontinued - -
---------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 387 (68)
---------- ---------
FINANCING ACTIVITIES
Advances from related party 1,181 1,689
---------- ---------
Net cash from (used in) financing
activities - continuing 1,181 1,689
Net cash from (used in) financing
activities - discontinued - -
---------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,181 1,689
---------- ---=-----
INCREASE (DECREASE) IN CASH 86 (680)
Cash at beginning of period 30 714
---------- ---------
CASH AT END OF PERIOD $ 116 $ 34
========== ==---====
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
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 and nine month periods ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000.
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, 1999
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 business of the Company is to invest in environmental
technology companies which consist of its 33% owned affiliate Commodore Applied
Technologies, Inc. ("Applied"), which has developed technologies for the
destruction and neutralization of hazardous waste and the separation of
hazardous waste from other materials and its 87% owned affiliate Commodore
Separation Technologies, Inc., ("Separation"), whose principal business is to
separate and extract various solubilized materials from liquid streams which is
currently in the development stage and intends to commercialize its separation
and recovery system.
7
<PAGE>
In April 2000, Separation was notified by Maryland Environmental Services
("MES") requesting the removal of the SLiM equipment from the Port of Baltimore
Dundalk Marine Terminal and Hawkins Point facilities. MES cited the fact that
Separation had removed Chromium VI as per the requirements in the contract,
however there remained trace amounts of Chromium III in the leachate which
resulted in the total chromium concentrations to exceed contract specified
amounts. The Company has made several attempts to remove the trace amounts of
Chromium III, including the use of alternate technologies, however was unable to
satisfy MES requirements. It should be noted that the original samples tested
from the leachate solution did not have Chromium III present and therefore this
problem was not foreseen. As a result, the Company has withdrawn its equipment
from the Port of Baltimore and transferred it, along with its inventory, to a
storage facility in Albuquerque, New Mexico.
In June 2000, Separation closed its Kennesaw, Georgia facility. As a
result, Separation transferred approximately $228,000 of lab equipment and
furniture and fixtures to the Company, in exchange for $228,000 of intercompany
indebtedness. The remainder of equipment and inventory was transferred to a
storage facility in Albuquerque, New Mexico.
As a result of the closure of the Kennesaw facility and the transfer of
equipment and inventory to a storage facility, the Company has recorded a
reserve for inventory obsolesence of $519,000, an impairment reserve on long
lived assets of $428,000 and a write off of leasehold improvements of $85,000 in
the period ended June 30, 2000. The Company plans to continue to search for
applications for its technology.
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")
Polymer Technologies was incorporated in Delaware on March 3, 1998, has
commenced operations and from 1998 to March 6, 2000, has generated approximately
$80,000 in aggregate 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 was written down to $100,000 as of
December 31, 1998. In March 2000, the Company sold Polymer Technologies to the
Blum Technology Trust (an entity with common majority ownership) 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 book value of approximately $20,000.
8
<PAGE>
Results from Operations
-----------------------
Revenues, cost of sales and research and development expenses for 2000 and
1999 relate to the Company's Separation subsidiary.
Revenues were $0 for the three months ended September 30, 2000 compared to
$45,000 for the three months ended September 30, 1999. Revenues for the nine
months ended September 30, 2000 were $67,000 as compared to $329,000 for the
nine months ended September 30, 1999. Such revenues for 1999 were primarily due
to Separation's commencement of operations at the Port of Baltimore Hawkins
Point project. Revenue under such contract was recorded as the contract has
commenced operations. At the request of the customer, in May 2000, Separation
had withdrawn its equipment from the Port of Baltimore. Revenues for 2000 were
performed for a new customer, for which the job was completed in the second
quarter.
For the three months ended September 30, 2000, the Company had incurred
$13,000 in cost of sales as compared to $38,000 for the three months ended
September 30, 1999. For the nine month period ended September 30, 2000, cost of
sales were $107,000 as compared to $407,000 for the nine month period ended
September 30, 1999. Cost of sales relate primarily to Separation. These costs
include labor, fringes, subcontractor costs, travel costs, material purchases
and cost of equipment sold to the customer.
For the three months ended September 30, 2000, the Company incurred
research and development costs of $5,000, as compared to $81,000 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
the Company incurred $115,000 as compared to $281,000 for the nine month period
ended September 30, 1999. 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 month and nine month periods
ended September 30, 2000 as compared to the three and nine month periods ended
September 30, 1999 primarily due to cutbacks in order to preserve capital.
General and administrative expenses for the three months ended September
30, 2000 were $198,000 as compared to $401,000 for the three month period ended
September 30, 1999. General and administrative expenses for the nine month
period ended September 30, 2000 were $1,033,000 as compared to $1,311,000 for
the nine months ended September 30, 1999. The decrease for the three months
ended is primarily due to the reduction of expenses in the Company's Separation
subsidiary.
9
<PAGE>
In June 2000, Separation closed its Kennesaw, Georgia facility. As a
result, the Company transferred approximately $228,000 of lab equipment and
furniture and fixtures to the Company in exchange for $228,000 of intercompany
indebtedness. The remainder of equipment and inventory was transferred to a
storage facility in Albuquerque, New Mexico. As a result of the closure, all of
the employees in the Georgia facility have found other employment or been
released.
As a result of the closure of the Kennesaw facility and the transfer of
equipment and inventory to a storage facility, the Company has recorded a
reserve for inventory obsolesence of $519,000, an impairment reserve on long
lived assets of $170,000 and a write off of leasehold improvements of $85,000 in
the period ended June 30, 2000.
Other income was $46,000 for the nine months ended September 30, 2000 as
compared to $0 for the nine months ended September 30, 1999. Other income
relates to the collection of an outstanding receivable, which had been written
off in a previous period. The amount collected was in excess of the carrying
value of the receivable.
Minority interest reflects the portion of the consolidated results of the
Company which relate to minority shareholders of Separation. The Company
recorded minority interest income of $319,000 and $1,276,000 for the nine months
ended September 30, 2000 and September 30, 1999, respectively.
Equity in losses from unconsolidated subsidiary for the three months ended
September 30, 2000 was $925,000 as compared to $330,000 for the three months
ended September 30, 1999. The losses relate to the operations of Applied. For
the nine months ended September 30, 2000, equity in losses from unconsolidated
subsidiary was $2,059,000 as compared to $822,000 for the nine months ended
September 30, 1999.
On March 6, 2000, the Company sold Polymer Technologies to the Blum
Technology Trust (an entity with common majority ownership) 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 $20,000. In connection therewith, the Company recorded a gain
on disposition of discontinued operations of $1,569,000.
Loss from discontinued operations relating to Polymer Technologies amounted
to $135,000 for the nine months ended September 30, 2000 as compared to $611,000
for the nine months ended September 30, 1999.
The Company had a net loss of $1,196,000 for the three-month period ended
September 30, 2000 as compared to a net loss of $914,000 for the three-month
period ended September 30, 1999. For the nine months ended September 30, 2000,
the Company had a net loss of $2,769,000 as compared to a net loss of $2,619,000
for the nine months ended September 30, 1999. The results for the nine month
period ended September 30, 2000 included a gain on disposition of discontinued
operations of $1,569,000. The Company recorded a net loss from continuing
10
<PAGE>
operations of $1,196,000 for the three months ended September 30, 2000 as
compared to a net loss from continuing operations of $719,000 for the three
month period ended September 30, 1999. Results from continuing operations are
attributable to the various revenue and expense items in the individual
paragraphs above.
Liquidity and Capital Resources
-------------------------------
The Company is currently funding the financial needs of Separation along
with its current working capital and operational requirements. For the nine
months ended September 30, 2000, the Company had a net loss of $2,769,000, which
included a gain from the sale of discontinued operations to a related party of
$1,569,000. At September 30, 2000, the Company had a working capital deficit of
$8,073,000 as compared to a working capital deficit of $8,056,000 at the
December 31, 1999. The Company has $4,000,000 of bonds payable due in December
2000.
The Company anticipates that it will need additional financing throughout
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 September 30, 2000, the majority
shareholder has advanced a net $1,938,000 to the Company. There can be no
assurance that the majority shareholder will continue to provide adequate
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 2019. 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.
11
<PAGE>
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.
12
<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
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - 27 - Financial Data Schedule
(b) Reports on Form 8-K - On July 18, 2000, the
Company filed with the Securities and Exchange
Commission, the Company's Current Report on Form
8-K, dated July 18, 2000 with respect to the
extension of the due date on its borrowings from
a third party lender.
13
<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 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: November 13, 2000
14
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