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, 2004
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 58th Street, Suite 3238
New York, New York 10155
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 308-5800
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Exchange Act Rule 12b-2). Yes No X .
----- -----
The number of shares the common stock outstanding at May 14, 2004 was
126,773,071.
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, 2004 and December 31, 2003.........................1
Condensed Consolidated Statement of Operations -
Three months ended March 31, 2004 and
March 31, 2003...............................................3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 2004 and
March 31, 2003...............................................4
Notes to Condensed Consolidated Financial Statements.................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........15
Item 4. Controls and Procedures.............................................15
PART II OTHER INFORMATION...................................................16
SIGNATURES...................................................................17
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 2004 2003
---------- ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 10 $ -
Accounts receivable, net 122 71
Prepaid assets and other current receivables 18 13
---------- ------------
Total Current Assets 150 84
Property and Equipment, net 87 142
Intangible Assets
Patents and completed technology, net of
accumulated amortization of $90 and
$80 respectively 10 20
---------- ------------
Total Assets $ 247 $ 246
========== ============
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)
March 31, December 31,
LIABILITIES AND 2004 2003
STOCKHOLDERS' DEFICIT ---------- ------------
(unaudited)
Current Liabilities:
Checks written in excess of cash $ - $ 13
Accounts payable 1,056 1,031
Related party payable 321 278
Current portion of long term debt 232 -
Line of credit 34 64
Other accrued liabilities 4,298 3,937
---------- ------------
Total Current Liabilities 5,941 5,323
Long Term Debt 1,713 1,575
---------- ------------
Total Liabilities 7,654 6,898
Commitments and Contingencies
-- --
Stockholders' Deficit
Convertible Preferred Stock, Series
E, F & H Par value $0.001 per share,
5% to 12% cumulative dividends, Series
E and F, 3% dividends for Series H
1,561,700 authorized, 1,013,700 shares
and 1,033,700 shares issued and
outstanding as of March 31, 2004 and
December 31, 2003, respectively. The shares
had an aggregate liquidation value of $3,856
and $4,142 at March 31, 2004 and
December 31, 2003, respectively. 1 1
Common Stock, par value $0.001 per share,
300,000,000 shares authorized, 126,773,071
and 117,702,133 shares issued and outstanding,
at March 31, 2004 and December 31, 2003,
respectively. 127 118
Additional Paid-in Capital 67,578 67,664
Accumulated Deficit (74,850) (74,172)
---------- ------------
(7,144) (6,389)
Treasury Stock, 3,437,500 shares (263) (263)
---------- ------------
Total Stockholders' Deficit (7,407) (6,652)
---------- ------------
Total Liabilities and Stockholders' Deficit $ 247 $ 246
========== ============
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,
2004 2003
---------- ------------
Contract revenues $ 182 $ 164
Costs and expenses:
Cost of sales 252 205
Research and development 6 59
General and administrative 455 214
Depreciation and amortization 64 66
---------- ------------
Total costs and expenses 777 544
---------- ------------
Income (loss) from operations (595) (380)
---------- ------------
Other income (expense):
Interest income - -
Interest expense (83) (50)
---------- ------------
Net other income (expense) (83) (50)
---------- ------------
Loss before income taxes (678) (430)
Income taxes - -
---------- ------------
Net loss $ (678) $ (430)
========== ============
Loss per share - basic and diluted $ (.01) $ (.01)
========== ============
Number of weighted average shares outstanding
(in thousands) 118,587 69,314
========== ============
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,
2004 2003
---------- ------------
Cash flows from operating activities:
Net loss $ (678) $ (430)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 64 66
Amortization of debt discount 7 35
Changes in assets and liabilities:
Accounts receivable (51) 50
Prepaid assets (5) 58
Checks written in excess of cash (13) -
Accounts payable 25 (23)
Other liabilities 285 170
---------- ------------
Net cash used in operating activities (366) (74)
Cash flows from investing activities:
Purchase of equipment - (6)
Advances from (to) related parties, net 43 3
---------- ------------
Net cash provided by investing
activities 43 (3)
Cash flows from financing activities:
Increase in (repayment of) line of credit (30) -
Increase in notes and loans payable 363 120
Payments on notes and loans payable - (40)
---------- ------------
Net cash provided by financing activities 333 80
Increase in cash 10 3
Cash, beginning of period - 59
---------- ------------
Cash, end of period $ 10 $ 62
========== ============
See notes to condensed consolidated financial statements.
4
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2004
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 U.S. 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, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 2003.
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, 2004, and for the
years ended December 31, 2003, 2002, and 2001, Applied incurred losses of
$678,000, $2,957,000, $5,972,000, and $6,554,000, respectively. Applied has also
experienced net cash (outflows) inflows from operating activities of $(955,000),
$(121,000), and $965,000 for the years ended December 31, 2003, 2002, and 2001,
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 $376,000 and $313,000 at
March 31, 2004 and December 31, 2003, respectively.
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 U.S. 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
The Company accounts for stock-based compensation under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income (loss), as all options vested had an exercise
price equal to or greater than the market value of the underlying common stock
on the date of grant or the date of repricing. No options were issued or vested
during the quarters ended March 31, 2004 and 2003, therefore, there would be no
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
Note B - Supplemental Cash Flow Information
During the three months ended March 31, 2004, 20,000 shares of
Preferred Stock Series E were converted into 9,071,937 shares of common stock.
There were no shares of Preferred Stock Series F converted into shares of common
stock. The Company did not pay accrued dividends on the conversions of Preferred
Stock Series E. The Company accrued dividends on Preferred Stock Series E and F
and H of $77,042, which is included in Other Accrued Liabilities.
During the three months ended March 31, 2003, 17,500 shares of
Preferred Stock Series E were converted into 2,450,514 shares of common stock,
and 109,000 shares of Preferred Stock Series F were converted into 16,136,715
shares of common stock. The Company also paid accrued dividends of $183,000 on
Preferred Stock Series E and F through the issuance of 2,118,560 shares of
common stock. The Company accrued dividends on Preferred Stock Series E and F
and H of $114,000, which is included in Other Accrued Liabilities.
Note C - Other Accrued Liabilities
Other accrued liabilities consist of the following:
March 31, December 31,
2004 2003
---------- ------------
Compensation and employee benefits $ 1,519 $ 1,373
Dividends payable 1,482 1,405
Accrued interest 427 351
Loss reserve 376 313
Exit and forbearance fees on notes payable 219 219
Related parties 185 185
Other 89 91
---------- ------------
$ 4,298 $ 3,937
========== ============
Note D - Segment Information
The Company has identified three 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
three 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;
and (iii) Corporate overhead and other miscellaneous activities.
6
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 tables.
Three Months Ended March 31, 2004
Corporate
Advanced Overhead
Total Sciences Solution and Other
Contract Revenues $ 182 $ 142 $ 40 $ -
Costs and expenses
Cost of Sales 252 78 174 -
Research and Development 6 - 6 -
General and Administrative 455 102 78 275
Depreciation and Amortization 64 9 55 -
-------- --------- --------- ----------
Total costs and expenses 777 189 313 275
-------- --------- --------- ----------
Income (Loss) from Operations (595) (47) (273) (275)
Interest Expense (83) - - (83)
-------- --------- --------- ----------
Net Income (Loss) $ (678) $ (47) $ (273) $ (358)
======== ========= ========= ==========
Total Assets $ 247 $ 148 $ 81 $ 18
Expenditures for long-lived assets $ - $ - $ - $ -
7
Three Months Ended March 31, 2003
Corporate
Advanced Overhead
Total Sciences Solution and Other
Contract Revenues $ 164 $ 164 $ - $ -
Costs and expenses
Cost of Sales 205 205 - -
Research and Development 59 - 59 -
General and Administrative 214 76 62 76
Depreciation and Amortization 66 10 56 -
-------- --------- --------- ----------
Total costs and expenses 544 291 (177) 76
-------- --------- --------- ----------
Income (Loss) from Operations (380) (127) (177) (76)
Interest Expense (50) (2) - (48)
-------- --------- --------- ----------
Net Income (Loss) $ (430) $ (129) $ (177) $ (124)
======== ========= ========= ==========
Total Assets $ 571 $ 217 $ 300 $ 54
Expenditures for long-lived assets $ 6 $ 6 $ - $ -
8
Note E - Net loss per common share
Basic net loss per common share ("Basic EPS") excludes dilution and is
computed by dividing net loss available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted net loss
per common share ("Diluted EPS") reflects the potential dilution that could
occur if stock options or other contracts to issue common stock were exercised
or converted into common stock. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive effect on
net loss per common share.
Options and warrants to purchase 123,870,308 and 34,274,905 shares of
common stock as of March 31, 2004 and 2003, respectively, were not included in
the computation of Diluted EPS. The inclusion of the options would have been
anti-dilutive, thereby decreasing net loss per common share.
Note F - 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.
9
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; and (ii) 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 owns technologies related to the separation and destruction
of mixed waste, polychlorinated biphenyls (PCBs) and chlorofluorocarbons (CFCs).
The Company is currently working on the commercialization of these technologies
through development efforts, licensing arrangements and joint ventures. Through
Commodore Advanced Sciences, Inc. ("Advanced Sciences") 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
Advanced Sciences' 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.
The Company currently requires additional cash to sustain existing
operations and to meet current obligations and ongoing capital requirements. The
Company's current monthly operating expenses exceed cash revenues by
approximately $100,000.
The Company's auditor's opinion on our fiscal 2002 and 2003 financial
statements contains a "going concern" qualification in which they express doubt
about the Company's ability to continue in business, absent additional
financing. The Company currently requires additional cash to sustain existing
operations and to meet current obligations and ongoing capital requirements.
10
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
Revenues were $182,000 for the three months ended March 31, 2004,
compared to $164,000 for the three months ended March 31, 2003.
In the case of Advanced Sciences, revenues were $142,000 for the three
month period ended March 31, 2004 as compared with $164,000 for the period ended
March 31, 2003. Advanced Sciences has experienced a significant decrease in
revenue caused by fewer contracts and overall, less work being performed by
Advanced Sciences. The revenues from Advanced Sciences 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. Advanced
Sciences has two major customers, each of which represents more than 10% of
total revenue. The combined revenue for these two customers was $142,000 or 100%
of total revenues for the period ending March 31, 2004. Cost of sales was
$78,000 for the three month period ended March 31, 2004 compared to $205,000 for
the three month period ended March 31, 2003. The decrease in cost of sales can
be attributed to a decrease in variable costs caused by fewer contracts and
overall, less work being performed by Advanced Sciences.
In the case of Commodore Solution, Inc. ("Solution"), revenues were
$40,000 for the period ended March 31, 2004 as compared with $0 for the period
ended March 31, 2003. Solution had one major customer during the three-month
period ended March 31, 2004 which accounted for $40,000 or 100% of the total
revenues for the period. There were marginal revenues recorded for the
three-month period ended March 31, 2004 of which the total was due to the
relocation of the SET equipment to Clive, Utah. Revenues, when recognized, are
primarily from remediation services performed for engineering and waste
treatment companies in the U.S. under a variety of contracts. There was $174,000
cost of sales for the three-month period ended March 31, 2004. Cost of sales,
when incurred, is attributable to sales and marketing expenses for the SET
technology. 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-month period ended March 31, 2004, the Company incurred
research and development costs of $6,000 as compared to $59,000 for the
three-month period ended March 31, 2003. 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-month period ended
March 31, 2004 were $455,000 as compared to $214,000 for the three-month period
ended March 31, 2003. This difference is primarily due to the deferred salaries
for the executives of the Company for the three-month period ended March 31,
2004.
In the case of Advanced Sciences, general and administrative costs
increased from $76,000 for the three-month period ended March 31, 2003 to
$102,000 for the three-month period ended March 31, 2004. This increase is
primarily due to the increased salary of the President of Advanced Sciences over
the previous deferred base amount for the three-month period ended March 31,
2004. Solution incurred general and administrative costs of $78,000 for the
three-month period year ended March 31, 2004 as compared with $62,000 for the
three-month period ended March 31, 2003. This increase was primarily due to (i)
expenses associated with a USEPA demonstration of the SL-2 system at a client
location in Clive, Utah for inclusion to the Company's nationwide permit for PCB
destruction; and (ii) increased sales and marketing effort for Solution's
services, which may result in contracts that will produce revenue in 2004.
11
Interest expense for the three months ended March 31, 2004 was $83,000
as compared to $50,000 for the three months ended March 31, 2003. The increase
in interest expense of $33,000 is primarily related to higher, amortized
non-cash interest costs associated with the Blum Note, Milford/Shaar Note and
the Weiss Group Note.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004 and December 31, 2003 Advanced Sciences had a $34,000
and $64,000 outstanding balance, respectively, on its revolving lines of credit.
The Company currently requires additional cash to sustain existing
operations and to meet current obligations and ongoing capital requirements. The
Company's current monthly operating expenses exceed cash revenues by
approximately $100,000 at March 31, 2004.
The Company's auditor's opinion on our fiscal 2002 and 2003 financial
statements contains a "going concern" qualification in which they express doubt
about the Company's ability to continue in business, absent additional
financing. The Company currently requires additional cash to sustain existing
operations and to meet current obligations and ongoing capital requirements.
For the three-month period ended March 31, 2004, the Company incurred a
net loss of $678,000 as compared to a net loss of $430,000 for the three-month
period ended March 31, 2003. For the three-month period ended March 31, 2004,
and for the years ended December 31, 2003, 2002, and 2001, Applied incurred
losses of $678,000, $2,957,000, $5,972,000, and $6,554,000, respectively.
Applied has also experienced net cash (outflows) inflows from operating
activities of $(955,000), $(121,000), and $965,000 for the years ended December
31, 2003, 2002, and 2001, respectively.
During the three-month period ended March 31, 2003, the Company
converted 20,000 shares of Series E Preferred and 0 shares of Series F Preferred
for 9,071,937 and 0, respectively, shares of the Company's common stock. For the
three-month period ended March 31, 2004, the Company converted no shares of
Series H Preferred and issued no stock with respect to accrued dividends
pertaining to the Series H Preferred.
In November 2000, the Company completed $500,000 in financing in the
form of a loan (the "Weiss Group Note") from a group of four investors. The
Weiss Group Note bears interest at 12% per annum and was due and payable on
February 12, 2001. All holders of the Weiss Group Note have granted payment
extensions to the Company until January 15, 2005 in exchange for warrants for
2,500,000 shares of the Company's common stock at an exercise price of $0.0285.
The current principal balance of the Weiss Group Note is $253,601 as of March
31, 2004 and remains unpaid as of May 17, 2004. The warrant discount remaining
on the Weiss Group Note at March 31, 2004, is $22,008.
Effective February 14, 2004, the members of the Weiss Group Note
voluntarily cancelled all issued warrants to purchase 1,500,000 shares at an
exercise price of $0.05 per share of the Company's common stock in connection
with the Weiss Group Note.
Effective February 15, 2004, the Company issued warrants to purchase
2,500,000 shares of its common stock at an exercise price of $0.0285 per share
to all holders of the Weiss Group Note in consideration of the extension of the
due date of such loans by such persons from May 31, 2002 to January 15, 2005.
The value of the warrants of approximately $29,344 was recorded as a discount on
the associated notes payable and will be amortized through January 15, 2005. The
Company believes that this transaction is exempt from the registration
requirements of the Securities Act under Section 4(2) thereof as a transaction
not involving any public offering of securities.
12
On May 23, 2001, a private investor purchased $250,000 of the Company's
common stock at the market price. The Company issued the private investor
1,973,077 shares of common stock of the Company as a result of the equity
purchase. In connection with the purchase of the shares of the Company's common
stock, the Company issued the private investor a 2-year warrant for 500,000
shares of the Company's common stock at an exercise price of $0.22 per share.
The Company re-priced this warrant in November 2003 to $0.0285 and extended the
expiration date of this warrant to November 19, 2005. The Company believes that
this transaction is exempt from the registration requirements of the Securities
Act under Section 4(2) thereof as a transaction not involving any public
offering of securities.
On June 13, 2001, the Company issued and sold to Milford Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year, 15% Senior Secured Promissory Notes (the "Milford/Shaar Bridge Loan
Notes") in the aggregate principal amount of $1,000,000. In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,334 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related intellectual
property as collateral for the Milford/Shaar Bridge Loan Notes.
The Company made all payments on the Milford/Shaar Bridge Loan Notes
until November 13, 2001. The Company asked for and received a forbearance of
payments on the Milford/Shaar Bridge Loan Notes from November 13, 2001 until
December 31, 2005. In connection with the Milford/Shaar Bridge Loan Notes, the
Company issued to Milford/Shaar in February 2004, a five-year warrant for
250,000 shares of the Company's common stock at an exercise price of $0.03 per
share. The Shaar Fund, Ltd., through the Shaar Bridge Loan, continues to provide
cash installments on a periodic basis in the form of additional principal. The
principal balance of the Milford/Shaar Bridge Loan Notes is $1,713,749 as of
March 31, 2004 and remains unpaid as of May 17, 2004. Additionally, as of May
17, 2004, there is $119,073 in accumulated forbearance fees and $100,000 due in
exit fees on the Milford/Shaar Bridge Loan Notes.
On October 2, 2002, Mr. Bentley Blum, a Director of the Company, had
previously loaned the Company with $125,000 of cash installments over the period
of one year (the "Blum Loan"). The Company elected to convert the Blum Loan to
the Company's common stock using the conversion feature of the 5-day average
closing price of the Company's common stock prior to October 2, 2002. On October
2, 2002, Blum issued a conversion notice for $125,000 of the outstanding
principal of the Blum Loan into 2,500,000 shares. Mr. Blum continued to provide
cash installments in the form of a loan to the Company through February 2004
(the "Blum Demand Note"). The Blum Demand Note bears interest at 9% per annum
and has no due date at this time. The current principal balance of the Blum
Demand Note is $312,032 as of March 31, 2004 and remains unpaid as of May 17,
2004 and is included in related party payable.
On November 19, 2003, the Company issued a warrant to purchase
27,355,800 shares of its common stock at an exercise price of $0.0285 per share
(the closing price of our common stock on the OTCBB on such date) to the Blum
Asset Trust, a company controlled by Bentley Blum, a Director of the Company, in
consideration for the loans made to the Company and the usage of office space
and personnel of the Blum Asset Trust over the last five years. The Company
believes that this transaction is exempt from the registration requirements of
the Securities Act under Section 4(2) thereof as a transaction not involving any
public offering of securities.
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.
13
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards (the "NOLs") of
approximately $34,000,000, which expire in the years 2010 through 2023. 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 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. There can be no assurance that the Company will be
able to generate sufficient taxable income in the future to utilize any of 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 and
uncertainties that would affect any such forward-looking statements. These risks
and uncertainties include, but are not limited to:
o the Company's critical need for additional cash to sustain
existing operations and meet existing obligations and capital
requirements (the Company's auditor's opinion on our fiscal 2002
and 2003 financial statements contains a "going concern"
qualification in which they express doubt about the Company's
ability to continue in business, absent additional financing);
o the ability to generate profitable operations from a large scale
remediation project;
o the ability of the Company to renew its nationwide permit to treat
PCBs;
o the ability of the Company to implement its waste processing
operations, including obtaining commercial waste processing
contracts and processing waste under such contracts in a timely
and cost effective manner.;
o the timing and award of contracts by the U.S. Department of Energy
for the cleanup of waste sites administered by it;
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o the Company's ability to integrate acquired companies;
o the acceptance and implementation of the Company's waste treatment
technologies in the government and commercial sectors;
o the Company's ability to obtain and perform under other large
technical support services projects; developments in environmental
legislation and regulation;
o the ability of the Company to obtain future financing on favorable
terms;
o other circumstances affecting anticipated revenues and costs;
o the expiration of the Company's nationwide EPA permit expired in
September 2001. (the permit may be renewed subject to providing
additional information. The Company has not resubmitted
information for a new permit); and
o the ability of the Company to replicate on a large scale,
economically viable basis, the results of its technology test
results.
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.
ITEM 4. Controls and Procedures
-----------------------
a) Evaluation of disclosure controls and procedures. As required by
Rule 13a-15e under the Exchange Act, as of March 31, 2004, the
Company carried out an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and
procedures. This evaluation was carried out under the supervision
and with the participation of the Company's management, including
the Company's President and Chief Executive Officer, and the
Company's Chief Financial Officer and Chief Accounting Officer.
Based upon that evaluation, the Company's President and Chief
Executive Officer, and Chief Financial Officer and Chief
Accounting Officer have concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to
material information relating to the Company required to be
included in the Company's periodic SEC filings. Disclosure
controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in
Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rule
and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed
under the Exchange Act is accumulated and communicated to
management, include the Company's Chief Executive Officer, and
Chief Financial Officer and Chief Accounting Officer as
appropriate, to allow timely decisions regarding required
disclosures.
b) Changes in internal controls. There have been no changes in
internal controls or in other factors during our most recent
fiscal quarter that has significantly affected or is reasonably
likely to significantly affect our internal controls over
financial reporting, including any corrective actions with regard
to significant deficiencies and material weaknesses.
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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 -
1. 31.1 - Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
2. 31.2 - Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
3. 32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
4. 32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
1. The Company filed a Current Report on Form 8-K, dated April 15,
2004, announcing its 2003 Fiscal Year End earnings.
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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.
Date: May 17, 2004 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)
17