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 March 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11871
COMMODORE APPLIED TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-3312952
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2121 Jamieson Avenue, Suite 1406
Alexandria, Virginia 22314
-------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (703) 566-1284
--------------
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 May 14, 2001 was
52,060,445.
COMMODORE APPLIED TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page No.
PART I FINANCIAL INFORMATION.............................................1
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 2001 and December 31, 2000.................1
Condensed Consolidated Statement of Operations -
Three months ended March 31, 2001 and
March 31, 2000.......................................3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 2001 and
March 31, 2000.......................................4
Notes to Condensed Consolidated Financial Statements.........5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................8
PART II OTHER INFORMATION.................................................13
SIGNATURES.................................................................14
i
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share data)
March 31, December 31,
ASSETS 2001 2000
--------- ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 982 $ 1,980
Accounts receivable, net 4,642 4,536
Prepaid assets and other current receivables 449 625
------- -------
Total Current Assets 6,073 7,141
Property and Equipment, net 1,874 1,983
Intangible Assets
Patents and completed technology, net of
accumulated amortization of $648 and
$613 respectively 827 862
Covenants not to compete, net of
accumulated amortization of $306 and
$175, respectively 2,319 2,450
Goodwill, net of accumulated amortization
of $734 and $419, respectively 24,361 24,676
------- -------
Total Intangible Assets 27,507 27,988
Other Assets 285 361
------- -------
Total Assets $35,739 $37,473
======= =======
See notes to condensed consolidated financial statements.
1
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share data)
LIABILITIES AND March 31, December 31,
STOCKHOLDERS' EQUITY 2001 2000
----------- ------------
(unaudited)
Current Liabilities:
Accounts payable $ 2,024 $ 2,490
Related party payable 247 247
Current portion of long term debt 2,650 2,650
Line of credit 472 1,459
Notes payable 14,926 14,682
Other accrued liabilities 2,244 2,489
-------- --------
Total Current Liabilities 22,563 24,017
Long Term Debt 5,470 5,182
-------- --------
Total Liabilities 28,033 29,199
Minority Interest 671 419
Commitments and Contingencies - -
Stockholders' Equity
Convertible Preferred Stock, Series E & F
Par value $0.001 per share, 5% to 12%
cumulative dividends, 511,700 and 556,700
shares authorized, issued and outstanding
as of March 31, 2001 and December 31,
2000, respectively The shares had an
aggregate liquidation value of $6,740 and
$7,332 at March 31, 2001 and December 31,
2000 respectively 1 1
Common Stock, par value $0.001 per share,
125,000,000 shares authorized, 51,018,778
and 48,330,385 issued and outstanding,
at March 31, 2001 and December 31, 2000,
respectively 51 48
Additional Paid-in Capital 66,321 66,495
Accumulated Deficit (59,338) (58,689)
-------- --------
Total Stockholders' Equity 7,035 7,855
-------- --------
Total Liabilities and Stockholders' Equity $ 35,739 $ 37,473
======== ========
See notes to condensed consolidated financial statements.
2
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited - Dollars in Thousands, except per share data)
Three months ended
March 31, March 31,
2001 2000
---- ----
Contract revenues $ 4,021 $ 4,332
Costs and expenses:
Cost of sales 812 3,931
Research and development 120 245
General and administrative 2,077 780
Depreciation and amortization 628 162
Minority interest 252 -
-------- --------
Total costs and expenses 3,889 5,118
-------- --------
Income (loss) from operations 132 (786)
-------- --------
Other income (expense):
Interest income 13 17
Interest expense (794) (48)
-------- --------
Net other income (expense) (781) (31)
-------- --------
Loss before income taxes (649) (817)
Income taxes - -
-------- --------
Net loss $ (649) $ (817)
======== ========
Loss per share $ (.01) $ (.03)
======== ========
Number of weighted average shares outstanding (in thousands) 49,847 31,041
======== ========
See notes to condensed consolidated financial statements.
3
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Dollars in Thousands, except per share data)
Three months ended
March 31, March 31,
2001 2000
Cash flows from operating activities:
Net loss $ (649) $ (817)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 628 162
Amortization of debt discount 532 --
Minority interest 252 --
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable (106) 249
Prepaid assets 176 (378)
Other assets 76 --
Accounts payable (466) (133)
Other liabilities (416) (226)
------- -------
Net cash provided/ (used) in operating activities 27 (1,143)
Cash flows from investing activities:
Purchase of equipment (38) (69)
Advances to related parties -- 4
Other Investments -- (325)
------- -------
Net cash used in investing activities (38) (390)
Cash flows from financing activities:
Increase in (repayment of) line of credit (987) 16
Increase (decrease) in notes and loans payable -- 285
Preferred stock dividends -- (112)
Proceeds from sale of preferred stock and warrants -- 1,770
Proceeds from sale of common stock -- 75
------- -------
Net cash provided/(used) in financing activities (987) 2,034
Increase (decrease) in cash (998) 501
Cash, beginning of period 1,980 1,797
------- -------
Cash, end of period $ 982 $ 2,298
======= =======
See notes to condensed consolidated financial statements.
4
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
for Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or
"Applied") 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, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
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/A for the year ended
December 31, 2000.
Certain prior-year amounts have been reclassified to conform to the
current year presentation.
The accompanying financial statements have been prepared under the
assumption that Applied will continue as a going concern. Such assumption
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. For the period ended March 31, 2001, and for the
years ended December 31, 2000, 1999, and 1998, Applied incurred losses of
$649,000, $11,441,000, $3,985,000, and $13,353,000, respectively. Applied has
also experienced net cash outflows from operating activities of $2,002,000,
$2,905,000, and $9,176,000 for the years ended December 31, 2000, 1999, and
1998, respectively. The financial statements do not include any adjustments that
might be necessary should Applied be unable to continue as a going concern.
Applied's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required, and ultimately to attain
profitability. Potential sources of cash include new contracts, external debt,
the sale of new shares of company stock or alternative methods such as mergers
or sale transactions. No assurances can be given, however, that Applied will be
able to obtain any of these potential sources of cash.
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 $118,000 at March 31, 2001
and December 31, 2000.
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The preparation of consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
5
Note B - Segment Information
The Company has identified four reportable segments in which it
operates, based on the guidelines set forth in the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131. These
four segments are as follows: (i) Commodore Advanced Sciences, Inc., which
primarily provides various engineering, legal, sampling, and public relations
services to Government agencies on a cost plus basis; (ii) Commodore Solutions,
Inc., which is commercializing technologies to treat mixed and hazardous waste;
(iii) Dispute Resolution Management, Inc., which was acquired (81%) on August
30, 2000, provides a package of services to help companies recover financial
settlements from insurance policies to defray costs associated with
environmental liabilities; and (iv) Corporate overhead and other miscellaneous
activities.
Applied evaluates segment performance based on the segment's net income
(loss). Applied's foreign and export sales and assets located outside of the
United States are not significant. Summarized financial information concerning
Applied's reportable segments is shown in the following table.
Three Months Ended March 31, 2001
Corporate
Overhead
Total CASI Solution DRM and Other
Contract Revenues $ 4,021 $ 1,223 $ 102 $ 2,696 $ --
Costs and expenses
Cost of Sales 912 809 103 -- --
Research and Development 120 -- 120 -- --
General and Administrative 1,977 280 169 1,368 160
Depreciation and Amortization 628 20 482 9 117
Minority Interest 252 -- -- -- 252
-------- --------- --------- -------- ----------
Total costs and expenses 3,889 1,109 874 1,377 529
-------- --------- --------- -------- ----------
Income (Loss) from Operations 132 114 (772) 1,319 (529)
Interest Income 13 -- 2 10 1
Interest Expense (794) (26) -- (10) (758)
-------- --------- --------- -------- ----------
Net Income (Loss) $ (649) $ 88 $ (770) 1,319 $ (1,286)
======= ======= ======= ====== =======
Total Assets $ 35,739 $ 2,361 $ 1,721 $4,127 $ 27,530
Expenditures for long-lived assets $ 38 $ -- $ -- $ 38 $ --
6
Three Months Ended March 31, 2000
Corporate
Overhead
Total CASI Solution and Other
Contract Revenues $ 4,332 $ 4,287 $ 20 $ 25
Costs and expenses
Cost of Sales 3,931 3,896 35 --
Research and Development 245 -- 388 (143)
General and Administrative 780 280 -- 500
Depreciation and Amortization 162 20 42 100
---------- ---------- ---------- ----------
Total costs and expenses 5,118 4,196 465 457
---------- ---------- ---------- ----------
Income (Loss) from Operations (786) 91 (445) (432)
Interest Income 17 -- -- 17
Interest Expense (48) (33) (15) --
Equity in losses of Unconsolidated
subsidiary -- -- -- --
---------- ---------- ---------- ----------
Net Income (Loss) $ (817) $ 58 $ (460) $ (415)
======= ======= ======= =======
Total Assets $ 16,906 $ 3,170 $ 2,624 $11,112
Expenditures for long-lived assets $ 69 $ 2 $ 67 $ --
Note C - Contingencies
Applied has matters of litigation arising in the ordinary course of
business which in the opinion of management will not have a material adverse
effect on its financial condition or results of operations.
Note D - Subsequent Events
On April 9, 2001, SB Enterprises issued a conversion notice for $250,000 of
the outstanding principal of the Brewer Restated Note. The Company issued SB
Enterprises 1,041,667 shares of common stock of the Company as a result of the
conversion notice. (See Liquidity and Capital Resources)
On April 16, 2001, the Investors executed a Memorandum of Understanding
to extend the payment date of the $500,000 of Bridge Loan Notes. Three of the
holders of the Bridge Loan Notes have granted payment extensions until June 30
and July 31, 2001, while the fourth holder of the Bridge Loan Notes has extended
only until May 1, 2001. If the fourth holder of the Bridge Loan Notes declares a
default on or after May 1, 2001, the other three holders of the Bridge Loan
Notes also are permitted to declare a default. As of May 15, 2001 the Company
has not been notified of the holder's intent to declare a default on the Bridge
Loan Note. In connection with the Bridge Loan Extension, the Company issued to
the Investors 500,000 warrants for 500,000 shares of the Company's common stock
at an exercise price of $0.22 per share. (See Liquidity and Capital Resources)
7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or
"Applied"), is engaged in providing a range of engineering, technical, and
financial services to the public and private sectors related to (i) remediating
contamination in soils, liquids and other materials and disposing of or reusing
certain waste by-products by utilizing SET, (ii) the settlement of complex,
long-tail and latent insurance claims by utilizing a series of tools including
an internally developed risk modeling program, FOCUS, and (iii) providing
services related to, environmental management for on-site and off-site
identification, investigation remediation and management of hazardous, mixed and
radioactive waste.
The Company is currently working on the commercialization of these
technologies through development efforts, licensing arrangements and joint
ventures. Through Commodore Advanced Sciences, Inc. ("ASI") formerly Advanced
Sciences, Inc., a subsidiary acquired on October 1, 1996, the Company has
contracts with various government agencies and private companies in the U.S. As
some government contracts are funded in one-year increments, there is a
possibility for cutbacks as these contracts constitute a major portion of ASI's
revenues, and such a reduction would materially affect the operations. However,
management believes its existing client relationships will allow the Company to
obtain new contracts in the future. Through Dispute Resolution Management, inc.
("DRM"), an 81% owned subsidiary acquired August 30, 2000, the Company has
several engagements with various industrial, manufacturing and mining companies
in the U.S. and in Europe for the recovery of insurance claims.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Revenues were $4,021,000 for the three months ended March 31, 2001,
compared to $4,332,000 for the three months ended March 31, 2000. Such revenues
were primarily from the Company's two subsidiaries, ASI and DRM.
In the case of DRM, revenues were $2,696,000 for the three months ended
March 31, 2001. The Company purchased its 81% interest in DRM on August 30, 2000
and was able to consolidate DRM's revenues and earnings as of that date.
Revenues in DRM were primarily from completed settlement agreements between
their clients and major insurers. DRM has several client engagements, of which
three represented more than 10% of DRM's annual revenue. The combined revenue
for these three customers was $2,466,000 or 91% of the DRM's total revenue for
the period ending March 31, 2001. Settlements are the result of 18 to 24 months
of effort by various employees of DRM, of which the expenses are captured in the
general and administrative costs section. Anticipated losses on engagements, if
any, will be provided for by a charge to income during the period such losses
are first identified.
In the case of ASI, revenues were $1,223,000 for the period ended March
31, 2001 as compared with $4,287,000 for the period ended March 31, 2000. The
8
decrease in revenues is primarily due to the completion of a five-year contract
to provide technical management support services to the Department of Energy for
the opening and operation of the Waste Isolation Pilot Plant near Carlsbad, New
Mexico, which ended on December 31, 2000. ASI has been unsuccessful with
replacing this contract volume to date. The revenues from ASI 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-reimbursement contracts is recorded under
the percentage of completion method as costs are incurred and include estimated
fees in the proportion that costs to date bear to total estimated costs. ASI has
two major customers, each of which represent more than 10% of total revenue. The
combined revenue for these two customers was $1,223,000 or 100% of total
revenues for the period ending March 31, 2001. Cost of sales were $809,000 for
the period ending March 31, 2001 compared to $3,896,000 for the period ending
March 31, 2000. The decrease in cost of sales is due to a decrease sales volume
in the period ended March 31, 2001.
In the case of Commodore Solution, Inc. ("Solution"), revenues were
$102,000 for the period ended March 31, 2001 as compared with $20,000 for the
period ended March 31, 2000. The increase is primarily due to the increase in
feasibility studies and commercial processing. Revenues were primarily from
remediation services performed for engineering and waste treatment companies in
the U.S. under a variety of contracts. Solution has two major customers, each of
which represents more than 10% of the revenue for the period ended March 31,
2001. The combined revenue for these two customers was $102,000 or 100% of the
Solution's total revenue for the period ended March 31, 2001. Cost of sales was
$103,000 for the period ended March 31, 2001 as compared to $35,000 for the
period ended March 31, 2001. The increase in cost of sales is attributable to
greater sales and marketing expenses for the SET technology, which the Company
anticipates will result in greater revenues from Solution in the remainder of
2001. Anticipated losses on engagements, if any, will be provided for by a
charge to income during the period such losses are first identified.
For the three months ended March 31, 2001, the Company incurred
research and development costs of $120,000 as compared to $245,000 for the three
months ended March 31, 2000. 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 are
capitalized, and then depreciated over the estimated useful life of the asset.
The decrease in research and development expense is due to the continued
commercialization focus of the Company.
General and administrative expenses for the three months ended March
31, 2001 were $1,977,000 as compared to $780,000 for the three months ended
March 31, 2000. This difference is due to DRM's salaries and other expenses.
Interest income was $13,000 for the three months ended March 31, 2001,
as compared to $17,000 for the three months ended March 31, 2000.
Interest expense for the three months ended March 31, 2001 was $794,000
as compared to $48,000 for the three months ended March 31, 2000. The increase
in interest expense of $746,000 is primarily related to amortization of non-cash
interest costs associated with the Company's purchase of 81% of DRM on August
30, 2000 ($532,000), the amortization of non-cash interest costs associated with
the Brewer Promissory Note ($29,000), and the amortization of non-cash interest
costs associated with the Bridge Loan ($167,000).
9
LIQUITY AND CAPITAL RESOURCES
At March 31, 2001 and December 31, 2000, ASI had a $472,000 and
$1,459,000 outstanding balance, respectively, on its revolving lines of credit.
In October 2000, ASI refinanced their line of credit with KBK
Financial, Inc. (the "KBK Credit Line"). The KBK Credit Line is not to exceed
85% of eligible receivables or $2,500,000 and is due October 2002 with interest
payable monthly at prime plus 2 percent (10 percent as of March 31, 2001). The
KBK Credit Line is collateralized by the assets of Advanced Sciences and is
guaranteed by the Company. The KBK Credit Line contains certain financial
covenants and restrictions including minimum ratios that Advanced Sciences must
satisfy. ASI was in compliance with the covenants of the KBK Credit Line at
March 31, 2001.
In addition, the KBK Credit Line agreement stipulates that no payments
shall be made by ASI to the Company other than monthly scheduled payments of
principal with respect to the $7,700,000 subordinated indebtedness owed by ASI
to the Company (which is eliminated in consolidation) and intercompany
indebtedness not to exceed $20,000 in any month. In addition, ASI shall not
incur indebtedness in excess of $25,000, other than trade payables, the above
subordinated indebtedness and other contractual obligations to suppliers and
customers incurred in the ordinary course of business.
For the three months ended March 31, 2001, the Company incurred a net
loss of $649,000 as compared to a net loss of $817,000 for the three months
ended March 31, 2000. For the years ended December 31, 2000, 1999, and 1998, the
Company incurred losses and also experienced net cash outflows from operating
activities. At March 31, 2001 the Company had working capital deficit of
$16,490,000 and shareholders' equity of $7,035,000.
In March 2000, the Company completed $2.0 million in financing through
private placement. The Company issued 226,000 shares of a new Series F
Convertible Preferred Stock, convertible into Common Stock at the market price,
after September 30, 2000 and up through April 30, 2003 at which time it
automatically converts to Common Stock. The Series F Convertible Preferred Stock
has a variable rate dividend averaging 8.15% over the term of the security. The
Company reserved the right to redeem all the Series F Convertible Preferred
Stock on or before September 30, 2000 by payment of $2.3 million plus any
accrued dividends.
On September 15, 2000, the Company issued and sold to S. Brewer
Enterprises, Inc. (the "SB Enterprises") a 9.75% Secured Promissory Note (the
"Brewer Promissory Note") in the aggregate principal amount of $500,000. In
connection with the Notes, Commodore Environmental Services, Inc., pledged to
the SB Enterprises 500,000 shares of our common stock owned by Commodore
Environmental Services, Inc. at a purchase price of $.01 per share, as security
for the Brewer Promissory Note. The Company shall pay SB Brewer Enterprises the
interest on a monthly basis in arrears and pay the outstanding principal amount
on the earliest to occur (the "Maturity Date") of (i) the sale of the Company's
interest in the Teledyne-Commodore, LLC; or (iii) on March 15, 2001. The Brewer
Promissory Note may be prepaid at any time without penalty.
On March 15, 2001, SB Enterprises executed an Amended and Restated
Promissory Note (the "Restated Brewer Note"), which extended the Maturity Date
of the note until December 31, 2001. Additionally, the conversion feature of the
Restated Brewer Note was changed to the 5-day average closing price of the
Company's common stock prior to a conversion notice. On April 9, 2001, SB
Enterprises issued a conversion notice for $250,000 of the outstanding principal
of the Brewer Restated Note. The Company issued SB Enterprises 1,041,667 shares
of common stock of the Company as a result of the conversion notice.
10
On November 13, 2000, the Company issued and sold to certain investors
(the "Investors") 12% Senior Secured Promissory Notes (the "Bridge Loan Notes")
in the aggregate principal amount of $500,000. In connection with the Notes,
Commodore Environmental Services, Inc. issued and sold to the Investors
1,000,000 shares of our common stock owned by Commodore Environmental Services,
Inc, at a purchase price of $.01 per share. We shall pay each Investor the
outstanding principal amount, together with all accrued and unpaid interest on
the earliest to occur (the "Maturity Date") of (i) the prepayment of the Notes
out of one hundred percent (100%) of the first proceeds received by us as a cash
distribution (whether in the form of an intercompany dividend, bonus, loan or
otherwise) from DRM, or (ii) the consummation of a contemplated $2,000,000 debt
financing with BHC Funding, Inc. or (iii) on February 12, 2001. The Notes may be
prepaid at any time, on five-(5) business days prior notice, without penalty. We
did not pay the Notes as of the February 12, 2001 Maturity Date.
On April 16, 2001, the Investors executed a Memorandum of Understanding
to extend the payment date of the $500,000 of Bridge Loan Notes. Three of the
holders of the Bridge Loan Notes have granted payment extensions until June 30
and July 31, 2001, while the fourth holder of the Bridge Loan Notes has extended
only until May 1, 2001. If the fourth holder of the Bridge Loan Notes declares a
default on May 1, 2001, the other three holders of the Bridge Loan Notes also
are permitted to declare a default. As of May 15, 2001 the Company has not been
notified of the holder's intent to declare a default on the Bridge Loan Note. In
connection with the Bridge Loan Extension, the Company issued to the Investors
500,000 warrants for 500,000 shares of the Company's common stock at an exercise
price of $0.22 per share.
The Company has an irrevocable obligation to repurchase from the former
shareholders of DRM, by August 30, 2001, that number of 9.5 million shares of
the Company's common stock (at a per share price equal to the greater of $1.50
or the closing price of our common stock 30 days prior to purchase) as shall be
necessary to provide the holders of such shares with a total of $14.5 million.
As partial security for the payment of such obligation, all of the shares of DRM
common stock owned by the Company have been pledged to Messrs. William J.
Russell and Tamie P. Speciale, the former sole stockholders of DRM. In the event
the Company is unable to make such $14.5 million payment, when due, the pledgees
may foreclose on the DRM stock; in which event the Company would lose its entire
equity ownership in the DRM subsidiary.
The Company currently intends to meet its repurchase obligation to the
former shareholders of DRM by reacquiring their shares and selling those shares
to generate the cash necessary to meet the obligation; however, the Company's
ability to effect the repurchase obligation in this manner is heavily dependent
on the stock price of the Company's common stock at the time of the repurchase.
At May 8, 2001, the closing price of the Company's common stock on the American
Stock Exchange, Inc. was $0.23 per share.
The Company currently requires additional cash to sustain existing
operations and meet the Company's ongoing capital requirements. Excluding the
Company's DRM subsidiary, the Company's current monthly operating expenses
exceed its cash revenues by approximately $200,000. The continuation of the
Company's operations is dependent in the short term upon its ability to obtain
additional financing and, in the long term, to generate sufficient cash flow to
meet its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability.
The Company currently is negotiating with a lender to obtain debt
financing, to supplement funds generated from operations, to meet the Company's
cash needs over the next 12 months. The Company intends to meet its long term
capital needs through obtaining additional contracts that will generate funds
from operations and obtaining additional debt or equity financing as necessary
or engaging in merger or sale transactions. There can be no assurance that such
sources of funds will be available to the Company or that it will be able to
meet its short or long term capital requirements.
11
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards (the "NOLs") of
approximately $38,000,000, which expire in the years 2001 through 2020. The
amount of NOLs that can be used in any one year will be limited by the
applicable tax laws that are in effect at the time such NOLs can be utilized.
The Company has determined a maximum of approximately $2.4 million of NOLs is
available to be used annually. Unused NOLs balances may be accumulated and used
in subsequent years. A full valuation allowance has been established to offset
any benefit from the net operating loss carryforwards. It cannot be determined
when or if the Company will be able to utilize the NOLs.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly 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 objectives 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. Further, the Company's business is subject to a number of risks that
would affect any such forward-looking statements. These risks and uncertainties
include, but are not limited to, the ability of the Company to commercialize its
technology; product demand and industry pricing; the ability of the Company to
obtain patent protection for its technology; developments in environmental
legislation and regulation; the ability of the company to obtain future
financing on favorable terms; and other circumstances affecting anticipated
revenues and costs. These risks and uncertainties could cause actual results of
the Company to differ materially from those projected or implied by such
forward-looking statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
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
13
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: May 15, 2001 COMMODORE APPLIED TECHNOLOGIES, INC.
(Registrant)
By /s/ James M. DeAngelis
-----------------------------------
James M. DeAngelis - Senior
Vice President and Chief
Financial Officer (as both
a duly authorized officer
of the registrant and the
principal financial officer
of the registrant)