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 June 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 August 3, 2000
(latest practicable date):
Issued and Outstanding: 63,996,477
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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,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 27 $ 30
Accounts receivable, net 59 10
Restricted cash and certificates of deposits 270 270
Due from related parties 227 --
Inventory -- 519
------------ ------------
TOTAL CURRENT ASSETS 583 829
Other receivables 100 321
Investments and advances 1,814 3,085
Property and equipment ,net 27 736
Patents and completed technology 147 145
Other assets 18 18
------------ ------------
TOTAL ASSETS $ 2,689 $ 5,134
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 377 $ 531
Due to related parties 2,337 2,911
Deposit on contract 263 263
Warrant issued for Applied Common Stock 1,054 1,054
Other accrued liabilities 363 126
Bond payable 4,000 4,000
------------ ------------
TOTAL CURRENT LIABILITIES 8,394 8,885
Net liabilities of discontinued operations - 29
Promissory note to related party 2,250 2,250
------------ ------------
TOTAL LIABILITIES 10,644 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 62,996,477 and 630 628
62,796,477
Additional paid in capital 46,681 46,710
Accumulated deficit (55,274) (53,701)
------------ ------------
(7,930) (6,324)
Less cost of 506,329 shares of common stock
held in treasury (25) (25)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (7,955) (6,349)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,689 $ 5,134
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES
Contract revenues $ 59 $ 20 $ 67 $ 284
COSTS AND EXPENSES
Cost of sales 54 50 94 369
Research and development 46 110 110 200
General and administrative 574 487 1,120 910
Impairment of long lived assets 170 - 170 -
Reserve for inventory obsolesence 519 - 519 -
Depreciation and amortization 118 130 232 260
------- ------- ------- -------
Total costs and expenses 1,481 777 2,245 1,739
------- ------- ------- -------
LOSS FROM OPERATIONS (1,422) (757) (2,178) (1,455)
------- ------- ------- -------
Interest income - 1 - 11
Other income - - 46 -
Interest expense (130) (130) (260) (260)
Equity in losses from unconsolidated
subsidiary (528) (184) (934) (492)
Minority interest - 488 319 907
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (2,080) (582) (3,007) (1,289)
Gain from disposition of discontinued
operations - - 1,569 -
Loss from discontinued operations - (224) (135) (416)
------- ------- ------- -------
Net gain (loss) from discontinued
operations - (224) 1,434 (416)
------- ------- ------- -------
NET INCOME (LOSS) $(2,080) $ (806) $(1,573) $(1,705)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
(Based on weighted average shares in 2000 of
62,490,000 and 62,390,000 and in 1999 of 62,290,000)
Continuing operations $ (.03) $ (.01) $ (.05) $ (.03)
Discontinued operations - - .02 -
------- ------- ------- -------
Total $ (.03) $ (.01) $ (.03) $ (.03)
======= ======= ======= =======
</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)
Six months ended
June 30,
2000 1999
--------- --------
(unaudited)
OPERATING ACTIVITIES
Net income (loss) $ (1,573) $(1,705)
Loss from discontinued operations 135 416
Gain from disposition of discontinued operations (1,569) -
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 232 260
Undistributed losses of unconsolidated
subsidiary 934 491
Impairment of long lived assets 170 -
Reserve for inventory obsolesence 519 -
Write off of leasehold improvements 85 -
Provision for losses on investments 206 -
Minority interest (319) (907)
Decrease (Increase) in:
Accounts receivable (49) (9)
Inventories - 181
Prepaid and other current assets - 1
Increase (decrease) in:
Unearned revenue - (187)
Other current liabilities - (233)
Accounts payable and accrued liabilities 83 908
--------- --------
Net cash used in continuing operations (1,146) (784)
Net cash used in discontinued operations (184) (416)
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (1,330) (1,200)
--------- --------
5
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Except Per Share Data)
(Continued)
Six months ended
June 30,
2000 1999
--------- --------
(unaudited)
INVESTING ACTIVITIES
Payments received on receivables 221 -
Sale of equipment 228 -
Proceeds from sale of oil and gas lease 98 -
Purchase of equipment - (2)
Purchase of patents (8) (8)
--------- --------
Net cash from (used in) investing
activities - continuing 539 (10)
Net cash from investing activities - discontinued 1,589 -
--------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,128 (10)
--------- --------
FINANCING ACTIVITIES
Advances from related party - 547
Payments to related parties, net (801)
--------- --------
Net cash from (used in) financing
activities - continuing (801) 547
Net cash from (used in) financing
activities - discontinued - -
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (801) 547
--------- --------
DECREASE IN CASH (3) (663)
Cash at beginning of period 30 714
--------- --------
CASH AT END OF PERIOD $ 27 $ 51
========= ========
See notes to condensed consolidated financial statements.
6
<PAGE>
COMMODORE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six month periods ended June 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 49% 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 consentrations 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 $59,000 for the three months ended June 30, 2000 compared to
$20,000 for the three months ended June 30, 1999. Revenues for the six months
ended June 30, 2000 were $67,000 as compared to $284,000 for the six months
ended June 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 June 30, 2000, the Company had incurred $54,000 in
cost of sales as compared to $50,000 for the three months ended June 30, 1999.
For the six month period ended June 30, 2000, cost of sales were $94,000 as
compared to $369,000 for the six month period ended June 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 June 30, 2000, the Company incurred research and
development costs of $46,000, as compared to $110,000 for the three months ended
June 30, 1999. For the six months ended June 30, 2000, the Company incurred
$110,000 as compared to $200,000 for the six month period ended June 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 six month periods ended June 30, 2000 as compared to the
three and six month periods ended June 30, 1999 primarily due to cutbacks in
order to preserve capital.
General and administrative expenses for the three months ended June 30, 2000
were $574,000 as compared to $487,000 for the three month period ended June 30,
1999. General and administrative expenses for the six month period ended June
30, 2000 were $1,120,000 as compared to $910,000 for the six months ended June
30, 1999. The increase is primarily due to professional fees and printing costs
associated with public reporting requirements.
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 six months ended June 30, 2000 as compared to
$0 for the six months ended June 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 $907,000 and $419,000 for the six months
ended June 30, 2000 and June 30, 1999, respectively.
Equity in losses from unconsolidated subsidiary for the three months ended June
30, 2000 was $528,000 as compared to $184,000 for the three months ended June
30, 1999. The losses relate to the operations of Applied. For the six months
ended June 30, 2000, equity in losses from unconsolidated subsidiary was
$934,000 as compared to $492,000 for the six months ended June 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 six months ended June 30, 2000 as compared to $416,000 for the
six months ended June 30, 1999.
The Company had a net loss of $2,080,000 for the three-month period ended June
30, 2000 as compared to a net loss of $806,000 for the three-month period ended
June 30, 1999. For the six months ended June 30, 2000, the Company had a net
loss of $1,573,000 as compared to a net loss of $1,705,000 for the six months
ended June 30, 1999. The results for the six month period ended June 30, 2000
included a gain on disposition of discontinued operations of $1,569,000. The
Company
10
<PAGE>
recorded a net loss from continuing operations of $2,080,000 for the three
months ended June 30, 2000 as compared to a net loss from continuing operations
of $582,000 for the three month period ended June 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 six months
ended June 30, 2000, the Company had a net loss of $1,573,000, which included a
gain from the sale of discontinued operations of $1,569,000. At June 30, 2000,
the Company had a working capital deficit of $7,811,000 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 June 30, 2000, the majority shareholder has
advanced a net $1,643,000 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 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 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.
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<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 16, 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.
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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: August 18, 2000
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