UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
(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
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 308-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common stock, par value $0.001 per share NASD Over the Counter Bulletin Board (OTCBB)
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to be the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Exchange Act Rule 12b-2). Yes ___ No __X__.
Non-affiliates of the registrant held shares of common stock as of
March 31, 2005 with an aggregate market value of approximately $1,864,680.19
(based upon the last sale price of the common stock on March 31, 2005 as
reported by the NASD Over the Counter Bulletin Board).
As of March 31, 2005, 140,178,626 shares of the registrant's common
stock were outstanding.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
None
COMMODORE APPLIED TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
PART 1............................................................................................................6
ITEM 1. BUSINESS........................................................................................6
General.........................................................................................6
Soil Decontamination--Commodore Solution Technologies, Inc......................................7
Environmental Management - Commodore Advanced Sciences, Inc....................................12
Markets and Customers..........................................................................15
Raw Materials..................................................................................16
Backlog........................................................................................16
Research and Development.......................................................................16
Intellectual Property..........................................................................17
Competition....................................................................................17
Environmental Regulation.......................................................................19
Employees......................................................................................20
ITEM 2. PROPERTIES.....................................................................................21
ITEM 3. LEGAL PROCEEDINGS..............................................................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................22
PART II..........................................................................................................23
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITYAND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES...................................................................................23
Market Information.............................................................................23
Issuance of Common Stock Subsequent to December 31, 2004.......................................23
Dividend Information...........................................................................24
Recent Sales of Unregistered Securities........................................................25
ITEM 6. SELECTED FINANCIAL DATA.........................................................................28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........29
Overview.......................................................................................29
Critical Accounting Policies...................................................................30
Results of Operations..........................................................................31
Off-Balance Sheet Arrangements.................................................................33
Liquidity and Capital Resources................................................................34
Net Operating Loss Carryforwards...............................................................39
New Accounting Pronouncements..................................................................39
Forward Looking Statements.....................................................................40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........41
ITEM 9A. CONTROLS AND PROCEDURES........................................................................42
ITEM 9B. OTHER INFORMATION..............................................................................42
PART III.........................................................................................................45
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................45
Executive Officers and Directors...............................................................45
Key Employees..................................................................................48
Board Committees...............................................................................49
Audit Committee and Financial Expert...........................................................49
Compensation of Directors......................................................................49
Compliance with Section 16(a) of the Exchange Act..............................................50
ITEM 11. EXECUTIVE COMPENSATION........................................................................51
Summary Compensation...........................................................................51
Stock Options..................................................................................53
Employment Agreements..........................................................................54
Compensation Committee Interlocks and Insider Participation....................................54
Report of the Compensation Committee on Executive Compensation.................................54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................58
Equity Compensation Plan Information...........................................................58
Ten Year Option Repricings.....................................................................59
Shareholder Return Performance.................................................................61
Security Ownership of Certain Beneficial Owners................................................62
Security Ownership of Management...............................................................64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................67
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................70
PART IV..........................................................................................................71
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K...............................71
SIGNATURES.......................................................................................................80
SUPPLEMENTAL INFORMATION.........................................................................................81
Preliminary Note Regarding Certain Risks and Forward-Looking Statements
-----------------------------------------------------------------------
This Annual Report on Form 10-K contains "forward-looking statements."
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 projected future results, future plans, objectives or
goals or future conditions or events are also forward-looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are 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,
2003 and 2004 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 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;
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 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 in September
2001 (The Company believes that 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.
5
PART I
------
ITEM 1. BUSINESS
- ------- --------
GENERAL
Commodore Applied Technologies, Inc. (the "Company") is an
environmental solutions company offering a range of engineering and technical
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 our Solvated Electron Technology
("SET(TM)"), 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.
We believe that SET is the only patented, non-thermal, portable and
scalable process that is currently available for treating and decontaminating
soils, liquids and other materials containing PCBs, pesticides, dioxins,
chemical weapons and warfare agents and other toxic contaminants.
The Company's corporate mission is to serve the environmental
remediation market from its primary operating center to profitably provide
government and industry with engineering and remediation solutions to legacy
waste environmental problems. Our strategy focuses the Company on the unique and
high profit niches of hazardous materials conversion and waste remediation.
Demand for our environmental technologies is anticipated to arise
principally from the following sources:
o the need for alternative environmental treatment and disposal
methods for toxic substances (such as the SET technology), which
involve limited safety risks with respect to air pollution and
transportation of hazardous materials and do not result in large
volumes of residual waste that require further treatment prior to
disposal; and
o stricter legislation and regulations mandating new or increased
levels of air and water pollution control and solid waste
management.
Our business strategy is to expand our environmental technologies
businesses by:
o implementing the SET technology in selected niche markets within
certain strategic environmental market segments, such as
government mixed waste remediation and chemical weapons
demilitarization, where we believe SET offers the greatest value
and meets pressing customer needs; and
o establishing additional collaborative joint working and marketing
arrangements with established engineering and environmental
service organizations to pursue commercial opportunities in the
public and private sector.
The Company currently has identified two operating segments. These two
segments are as follows: Commodore Advanced Sciences, Inc., which primarily
provides various engineering, sampling, and public relations services to
Government agencies on a cost plus basis; and Commodore Solutions, Inc., which
is commercializing technologies to treat mixed and hazardous wastes.
6
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 December 31, 2004.
The Company's auditor's opinion on our fiscal 2002, 2003 and 2004
financial statements contains a "going concern" qualification in which they
express doubt about the Company's ability to continue in business, absent
additional financing.
Additional information regarding the business of each segment is set
forth below, and the information in Note 18 to the Company's Consolidated
Financial Statements included in this Annual Report on Form 10-K is incorporated
into this Part I by reference.
The Company was incorporated in Delaware in March 1996. As used in this
Annual Report, and except as the context otherwise requires, the "Company" means
Commodore Applied Technologies, Inc. and its subsidiaries, including Commodore
Solutions, Inc., Commodore Government Environmental Technologies, Inc., and
Commodore Advanced Sciences, Inc. The Company's principal executive offices are
located at 150 East 58th Street, Suite 3238, New York, New York 10155, and its
telephone number at that address is (212) 308-5800.
SOIL DECONTAMINATION--COMMODORE SOLUTION TECHNOLOGIES, INC.
The Company, through Commodore Solutions, Inc. ("Solutions"), has
developed and has commercialized its patented process known as SET. Based on the
results of its extensive testing and commercial processing activities, the
Company believes that SET is capable of effectively treating and decontaminating
soils and other materials, including sludges, sediments, oils and other
hydrocarbon liquids, metals, clothing and porous and non-porous structures and
surfaces, by destroying PCBs, pesticides, dioxins, chlorinated substances and
other toxic contaminants to an extent sufficient to satisfy current federal
environmental guidelines. The Company also believes that, based on the results
of additional tests, SET is capable of neutralizing substantially all known
chemical weapons materials and warfare agents, explosives and concentrating
certain radioactive wastes for more effective disposal.
The SET process was commercialized during the calendar year 2000. In
May 2000, the Company mobilized its S-10 system to Harrisburg, Pennsylvania to
begin processing PCB contaminated soils at the Pennsylvania Air National Guard's
base located at the Harrisburg International Airport (the "Initial Harrisburg
Contract"). The Company completed the contract in July 2001, remediating
approximately 340 tons of excavated soils to levels deemed unregulated for
disposal by the U.S. Environmental Protection Agency (the "EPA"). The Company
believes this is the first time a non-thermal process has treated
PCB-contaminated soils to levels allowing them to be replaced in the original
excavation.
Additionally, the Company performed several treatability studies for
third party customers during 2000, as well as continued internal testing and
process development. At Envirocare of Utah ("Envirocare"), the SET process
successfully treated water treatment sludge from a waste stream provided by the
Brookhaven National Laboratory (the "Envirocare Study"). Under current,
non-Commodore technology treatment processes at Envirocare, this waste could not
be treated to meet land disposal regulation requirements. The waste stream was a
laboratory mixed waste (radioactive) sludge, contaminated with lead and high
levels of RCRA organic compounds. The Envirocare Study waste contained the
7
hazardous waste codes F001, F003, F005, and D008. The Envirocare Study waste
stream also contained high water content, approximately 75%. The Company
successfully treated the material such that it was suitable for land disposal.
The results of the Envirocare Study were presented to the participants of the
Waste Management Conference in Tucson, Arizona in February 2001. In the case of
third party treatability studies, customer location processing and new patent
data set construction, all tests and processing results were verified by
independent laboratories agreed upon by the Company and/or the respective
client. In the case of internal Company process development testing, results
were verified with Company owned analytical equipment in addition to periodic
independent off-site testing.
In January 2001 the Company entered into a contract with Waste Control
Specialists, LLC ("WCS") for the treatment of various mixed waste streams stored
at the WCS facility near Andrews, Texas. This work employed the Company's SL-2
SET system and was completed in August 2001. No large scale waste treatment was
performed at this site. The contract was terminated by the Company because of
the failure of WCS to obtain a waste treatment permit in a timely manner in 2003
and all of the Company's SET equipment was removed from the WCS site.
In November 2001 the Company entered into a contract with American
Ecology Recycle Center ("AERC", Oak Ridge, Tennessee) for the treatment of 32
drums of Freon still bottom mixed wastes, as well as consultation regarding the
regulatory requirements for the treatment. Work commenced in November, employing
the Company's SL-2 SET system, and was essentially completed in 2002. As an
adjunct to that work, the Company entered into a contract with the University of
California (prime contractor for the Department of Energy's Los Alamos National
Laboratory) in March 2002 to dispose approximately 12,000 pounds of activated
sodium remaining from tests involving the Clinch River Breeder Reactor performed
by Rensselaer Polytechnic Institute twenty five years ago. The Company believes
this is the first time activated sodium (Na22) has been employed as a reactant
to treat other regulated waste materials (the AERC still bottoms).
In July 2002 the Company acquired all the SET equipment formerly
associated with the Teledyne-Commodore LLC. The Company plans to utilize this
equipment for treating Department of Energy ("DOE") legacy mixed waste materials
for disposal at major DOE sites in the United States. The Company has not
utilized this equipment to date.
In October 2003 the Company entered into a contract with ToxCo Metals,
("ToxCo"), Oak Ridge. Advanced Sciences, teamed with ToxCo, was performing
sodium disposition for the Department of Energy at ToxCo's facility in Oak
Ridge, Tennessee. This contract commenced late in 2003, and was expected to be
completed late in 2004. The DOE canceled the contract in late 2004 because they
determined that the sodium was subject to the Secretary of Energy's moratorium
on releasing scrap metals for recycling.
In December 2003 the Company entered into a contract with Envirocare of
Utah ("Envirocare"), Clive, Utah for the treatment of mixed wastes, as well as
consultation regarding the regulatory requirements for the treatment.
Preliminary feasibility testing commenced in March 2004, employing the Company's
SL-2 SET system. The Company is hopeful this may result in the first multi-year
installation and contract for the SET technology but no commercial work has
resulted to date.
8
The Company has generated aggregate revenues of less than $1,600,000
from the implementation of the SET technology since 1999.
The SET Technology
The SET technology, which is based upon solvated electron chemistry,
mixes anhydrous liquid ammonia and/or other similar solvents with reactive
metals and contaminated elements to effect the selective destruction or
neutralization of organic compounds (such as PCBs, pesticides and dioxins). The
Company has demonstrated that SET can achieve consistently high levels of
contaminant destruction when working with PCBs, dioxins and pesticides. SET has
treated soils containing up to 10,000 ppm of contaminants, and oils containing
up to 250,000 ppm, leaving residual soils and oils with contamination levels of
less than one ppm. In addition, SET has been successfully applied to other
PCB-contaminated surfaces such as concrete. The SET process can be used in
conjunction with selected post-treatment processes such that no hazardous or
toxic residues will result from the use of SET, nor will there be any toxic
emissions into the air, water, soils or other surfaces. For example, most
contaminated soils treated with SET can (subject, in some instances, to
re-blending the soil with organic matter) be used subsequently for planting or
for any other use for which non-contaminated soils are appropriate.
Equipment utilized in the SET process consists of tanks, pumps and
piping to handle anhydrous ammonia and other solvents in liquid and vapor forms,
and treatment vessels for holding contaminated materials and for the
introduction of solvating solutions. The system can be transported to field
sites and configured in numerous sizes.
The SET process requires placing the contaminated materials into a
treatment vessel where they are mixed with a solvent and charged with a base
metal (e.g. sodium). The chemical reaction produces metal salts such as calcium
chloride, calcium hydroxide and non-halogenated inert organics. The ammonia
within the treatment vessel is then removed to a discharge tank for later reuse.
The materials are removed, sampled for residual traces of PCB or other
halogenated organic compounds, and placed in storage for disposal. In many
cases, the decontaminated soil and metals can be replaced in their original
location, recycled or reused. The solvents do not enter the chemical reaction,
but merely serve as dissolving liquids for the solvated electron solution.
Operational Characteristics. Substantially all existing systems in use
for the destruction of PCBs and other halogenated compounds involve incineration
or other thermal processes, and either the permanent installation of highly
complex and expensive incinerators and waste disposal equipment at the affected
site, or the removal of contaminated materials to off-site facilities. The
Company believes that SET represents an approach to resolving serious
environmental remediation issues that does not create or entail the safety risks
of air pollution and transportation of hazardous materials. The Company believes
that SET is more effective than incineration and other destruction processes for
toxic substances in that:
o SET does not emit toxic fumes into the atmosphere, as is sometimes
the case with thermal or incineration methods;
o SET is portable and can be moved directly to the contaminated
site, thereby reducing the risk of off-site contamination;
9
o SET equipment can be customized and configured to address various
treatment applications;
o SET's reaction time is substantially less than that of alternative
processes, such as thermal destruction and other forms of chemical
treatment;
o SET equipment can be installed and operated inside industrial
plant facilities to treat hazardous wastes on line as a
continuation of the manufacturing process;
o SET, when used to treat soils, yields nitrogen-enriched soils that
can be reused on-site, avoiding replacement and the post-treatment
costs of off-site disposal; and
o SET has been shown to neutralize or destroy all chemical weapons
material and warfare agents in the United States stockpile, and
Lewisite (the primary chemical weapons material and warfare agent
of the former Soviet Union), in tests conducted by an independent,
federally certified surety laboratory.
The Company believes that SET is the only technology currently
available that possesses all of these features and is capable of treating a wide
variety of contaminants. The above characteristics (non-thermal, no air
emissions, mobile) are particularly applicable when dealing with mixed waste.
Wastes that contain radioactive material and hazardous waste regulated by RCRA
and TSCA are particularly difficult to treat and have extremely limited disposal
options. By applying the SET process to remove the RCRA and TSCA components,
leaving only radioactive waste material, disposal options expand. SET not only
removes the hazardous components but also does so by an efficient, non-thermal
process that can control and contain the radioactive material so that it remains
in the treated material and does not enter the environment in an uncontrolled
fashion.
EPA Nationwide Permit. In order to treat PCBs within the United States
on all non-Superfund sites, a treating entity must obtain a permit from the EPA.
Most EPA permits granted to date for PCB destruction are solely for single-site
incineration treatment centers. In August 1995, SET was demonstrated to the EPA
in order to obtain the Nationwide Permit, which was issued to the Company in
March 1996. The Nationwide Permit allows the Company to use SET on-site to treat
PCB-contaminated soil at any location in the United States. In addition to soil
treatment, the Nationwide Permit allows the Company to treat PCB contaminated
metallic surfaces and waste oils, as well as wastewater (the wastewater is
treated by a non-SET process). The Company has also successfully demonstrated
SET as a treatment process for organic materials contaminated with PCBs and
radionuclides and has received a draft revised EPA permit for these matrices.
This permit revision covers the destruction of PCBs in soils, waste oils,
organic materials, water, and on metallic surfaces.
The Nationwide Permit expired in September 2001, and may be renewed
subject to providing any requested additional information to the EPA at the time
of renewal. The Company is in the process of obtaining a permit revision for its
commercial SET processing system, the S-10. The S-10 system is capable of
processing up to 10 tons of contaminated material daily. The Company believes
that various revisions to the equipment and process parameters are being made to
the existing permit. The Company believes the revised permit will be issued
pending the final site selection for the full or part-time operation of any SET
system for the treatment of PCB wastes. The revised permit will require the
Company to fund closure costs associated with the implementation of any SET
system for the treatment of PCB wastes. The closure costs are calculated on a
site-by-site basis and are funded accordingly by the Company.
10
Based on currently published lists of EPA national operating permits,
the Company believes that it possesses the only non-thermal PCB treatment
technology for multiple applications permitted under the EPA's Alternate
Destruction Technology Program. EPA regulations governing permitting have been
in effect for more than 15 years, and according to the latest EPA published list
of non-thermal destructive processes, only seven companies have met EPA's
stringent requirements for commercial operation. Of these, only the Company is
permitted for the chemical destruction of such a wide range of PCB contaminated
materials. The EPA's Alternative Destruction Technology Program is designed to
encourage remediation technologies as an alternative to incineration.
Test Results. In more than 1,500 tests using SET, various high levels
of contaminants, including PCBs, were reduced to levels approaching
non-detectable with the destruction process occurring in a matter of minutes.
The following table lists selected results of these tests.
The following table displays selected test results from 1996-2001.
These tests were conducted on limited quantities of contaminated material, and
there can be no assurance that SET will be able to replicate any of these test
results on a large-scale commercial basis or on any specific project.
- --------------------- ----------------------- --------------------- ------------------ ------------------
Destruction
Post-Treatment Efficiency
Analyte Material Type Pre Treatment (ppm) (ppm)) (%)
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB** Sand, clay 777 <1.0 99.87
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Sand, silt, clay 77 <2.0 97.41
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Sand, silt 1250 <2.0 99.9
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB** Volcanic soil 102 0.2 99.8
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Activated carbon 512 0.93 99.8
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Solid resin 1212 0.5 99.96
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Sludge 32,800 1.3 99.996
- --------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin Sludge .04 ND 99.99
- --------------------- ----------------------- --------------------- ------------------ ------------------
DDD Clay 15 <0.02 99.87
- --------------------- ----------------------- --------------------- ------------------ ------------------
TCE** Corn cob* 6,400 <0.5 99.992
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB** Metal capacitors* 5.6 <0.2 96.5
- --------------------- ----------------------- --------------------- ------------------ ------------------
RDX Soil 3850 <1.0 99.98
- --------------------- ----------------------- --------------------- ------------------ ------------------
TCE Soil* 48,000 0.5 99.999
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Used motor oil 23,339 <1.0 99.996
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Transformer oil 509,000 20* 99.996
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Mineral oil 5000 <0.5 99.99
- --------------------- ----------------------- --------------------- ------------------ ------------------
PCB Hexane 100,000 0.5 99.995
- --------------------- ----------------------- --------------------- ------------------ ------------------
Freon 113** Aqueous sludge* 276 ND 99.999
- --------------------- ----------------------- --------------------- ------------------ ------------------
TCE** Aqueous sludge* 262 ND 99.999
- --------------------- ----------------------- --------------------- ------------------ ------------------
CCl4** Oil* 200,000 <0.5 99.999
- --------------------- ----------------------- --------------------- ------------------ ------------------
R 23 Refrigerant 999,999 ND 99.99
- --------------------- ----------------------- --------------------- ------------------ ------------------
Dioxin Oil 0.4 .000002 99.99
- --------------------- ----------------------- --------------------- ------------------ ------------------
Malathion Oil 900,000 ND 99.999
- --------------------- ----------------------- --------------------- ------------------ ------------------
* Material was low-level radioactive waste
** Commercial quantities treated on site
11
ENVIRONMENTAL MANAGEMENT--COMMODORE ADVANCED SCIENCES, INC.
The Company, through Commodore Advanced Sciences, Inc. ("Advanced
Sciences"), provides specialized technical and project management products and
services primarily to government-sector customers, including the Department of
Energy ("DOE") and the Department of Defense ("DOD"), and also to private-sector
domestic and foreign industrial customers. Advanced Sciences engages in all
aspects of environmental regulation and compliance, as well as access to leading
technologies and innovative skills related to the identification, investigation,
remediation and management of hazardous, mixed and radiological waste sites.
Advanced Sciences currently operates a network of three offices located in three
states, with its principal executive offices located in Richland, Washington.
The Company's strategy in acquiring Advanced Sciences was to
incorporate its process technology into the products and services offered to
Advanced Sciences' customers, with a view to increasing the quality and scope of
services offered and providing the Company with a broader customer base for its
technology.
Services
Environmental Services. Advanced Sciences' analytic and scientific
abilities enable it to become involved in environmental issues and problems at
their outset. Initially, Advanced Sciences provides its customers with a broad
outline of the types of environmental problems, health risks and liabilities
associated with a particular activity. Advanced Sciences also conducts
environmental audits and assessments, underground storage tank site
investigations, remedial investigations/feasibility studies, environmental
impact assessments, and statements and studies to identify any potential
environmental hazards.
Remediation Services. Having already established a market position in
the consulting and front-end analysis phase, Advanced Sciences is poised to
follow market demand into remediation services. After an environmental problem
is identified, Advanced Sciences offers alternative remediation approaches that
may involve providing on-site waste containment or management of
on-site/off-site remediation and waste removal. Advanced Sciences can also
redesign its customers' ongoing production processes and develop engineering
plans and technical specifications to minimize or eliminate the generation of
hazardous waste. The Company believes that Advanced Sciences' integration of
engineering and environmental skills, plus its access to innovative
technologies, provide Advanced Sciences with a competitive advantage in
redesigning production processes.
Technical Services. New technologies play a critical role in both the
remediation of existing waste sites and in the reduction of waste generated by
ongoing production processes. Advanced Sciences has access to the SET technology
and all its derivatives. Additionally, Advanced Sciences has access to the
Supported Liquid Membrane ("SLiM(TM)") technology held by Commodore Separation
Technologies, Inc. ("Separation"). This technology has the ability to
selectively extract heavy metals and radioactive nuclides from liquids and
gasses. The SLiM technology is held in an 85% owned subsidiary of Commodore
12
Environmental Services, which owns 4.95 % of the Company. Advanced Sciences has
at its disposal, on a per project basis, what it believes are among the most
qualified professionals in the environmental consulting business. Advanced
Sciences' scientists have participated on national boards for risk assessment
and quality assurance, were instrumental in the development of environmental
regulations for the DOE and the DOD, and have served as expert witnesses before
the U.S. Congress and the Nuclear Regulatory Commission. To maintain its
competitive position, Advanced Sciences intends to continue to develop viable
remediation technologies and attract and retain qualified personnel.
Contracts
eDAM - Advanced Science was awarded an environmental sampling and data
integration contract by Bechtel Jacobs Company LLC of Oak Ridge, TN in September
2004. CASI is the lead small business member of the Commodore Advanced Sciences
Team (CAST), which also includes team members Science Applications
International, Inc. (SAIC), and RCS Corporation (RCS).
The Environmental Data Acquisition and Management (eDAM) contract
awarded to CAST is valued at over $14 million for the base and option periods
September 2004-2008. The eDAM contract scope of work includes three major
components: execution of environmental sampling, sample management, and
environmental information management. Sampling includes collecting soil,
groundwater, surface water, air, sediment, biological, waste characterization,
and building D&D samples in support of site closures and CERCLA, RCRA, NPDES,
and TSCA compliance at all three U. S. Department of Energy (DOE) Oak Ridge
sites: ETTP, ORNL, and Y-12.
The Company has completed the pre-mobilization and mobilization phases
of its eDAM contract and is now in full operations. The Company has opened a
satellite office at the K-25 site, and has staffed the eDAM contract with
twenty-eight full time employees. The Company believes the eDAM contract may
attract more DOE client groups than are contemplated in the base scope of the
contract. The Company is seeking to extend its environmental monitoring service
capabilities to other DOE sites, such as Portsmouth, OH and Paducah, KY. The
current contract backlog for work is $5.4 million in 2005.
Duratek- Advanced Sciences was awarded a one-year contract from Duratek
Federal Services, Inc. beginning in January 2005, to perform environmental
monitoring services at two engineered landfills on the Oak Ridge Reservation.
Environmental monitoring services will include sample collection, packaging and
shipping to offsite analytical laboratories. Samples will be collected from
surface water, groundwater, and landfill leachate collection locations on storm
event, weekly, monthly, and quarterly bases.
UT Battelle: Advanced Sciences provides one engineering person on a
time and material basis to UT Battelle, supporting the site closure at Oak Ridge
National Laboratories (ORNL). The Advanced Sciences personnel provide structural
engineering assessment services under this contract. The time and material
contract remains on-going through 2005.
Denver Regional Water Council of Governments: Advanced Sciences is
contracted annually to sample surface waters, streams, groundwater wells and
watersheds to Chatfield Watershed Authority located southwest of Denver. The
contract is ongoing through 2005. A similar and ongoing contract for Cherry
Creek Basin Water Authority is also ongoing.
Tetra Tech Contract: Advanced Sciences provides engineering support
under Tetra Tech's general engineering support contract with Bechtel Jacobs Co,
LLC. Bechtel Jacobs is responsible for environmental oversight of the U.S. DOE's
Oak Ridge, TN site. Advanced Sciences provides 1 to 3 engineering personnel on a
time and material basis to Tetra Tech on a contract basis which is expected to
continue through September 2005.
13
WESKEM - Advanced Sciences was awarded a one-year contract from WESKEM
LLC., of Oak Ridge to support their sampling efforts with the Waste Disposition
Services Project in March 2005. The Sample Management Office (SMO) services
required to meet the needs of this project are: (i) Assistance with the
preparation of analytical statement of works (SOW), (ii) Maintenance of
laboratory performance metrics, (iii) Procurement of best value laboratories,
(iv) Performance of contract verification of data, and (v) Tracking of samples
and sample residue.
ToxCo Metals, Oak Ridge: Advanced Sciences, teamed with ToxCo Metals,
is performing sodium disposition for the Department of Energy at ToxCo's
facility in Oak Ridge, Tennessee. This contract commenced late in 2003, and was
expected to be completed late in 2004. The DOE canceled the contract in late
2004 because they determined that the sodium was subject to the Secretary of
Energy's moratorium on releasing scrap metals for recycling.
Envirocare of Utah: Advanced Sciences performed a series of mixed waste
treatment tests in 2004 on specific waste streams at the Envirocare of Utah
Clive facility northwest of Salt Lake City, using its SL-2 solvated electron
system. The Company was able to reduce or eliminate 48 out of 52 contaminates in
the waste samples provided by Envirocare of Utah by utilizing the SET treatment.
No further testing or commercial work has been generated to date at this
location.
Joint Ventures
Nuvotec, Inc., Joint Venture. In April 2002, Commodore Government
Environmental Technologies, Inc. ("Government Technologies"), a wholly-owned
subsidiary of the Company, entered into a LLC agreement with Technical Resources
International, Inc., ("TRI"), a wholly owned subsidiary of Nuvotec, Inc., as a
non-exclusive means by which each party (and their affiliates) could pursue
mixed waste treatment contracts on a limited, domestic basis. TRI is a provider
of contract services to the DOE and to the public utilities market. The purpose
of the joint venture, known as Nuvoset, LLC (the "Nuvoset LLC"), a Delaware
limited liability company, encompassed all aspects of mixed waste
characterization, treatment, storage, transportation and disposal through the
use, application and commercialization of the technologies of the Nuvotec LLC
partners. The Nuvoset, LLC was dissolved in 2003 by agreement between the
parties.
14
MARKETS AND CUSTOMERS
General
The Company markets its services and technologies to governmental and
industrial customers throughout the United States. The Company also plans to
target customers in markets abroad, particularly in Eastern Europe and the
Middle East. A majority of the Company's sales are technical in nature and
involve senior technical and management professionals, supported by the
Company's marketing groups. During the year ended December 31, 2004, sales of
approximately 6% of the Company's environmental management services were to
private sector customers and sales of approximately 94% were derived from
contracts with federal, state and municipal government agencies. Contracts to
private sector customers generally may not be terminated at the option of the
customer. Contracts with governmental customers generally may be terminated at
any time at the option of the customer. In 2004, Advanced Sciences' Oak Ridge
Contracts, Rocky Flats Contracts and ToxCo Contracts accounted for approximately
83%, 11% and 6%, respectively of the Advanced Sciences' sales. The Company has
benefited from its long-term relationships with many of its customers that
result in repeat business.
Soil Decontamination
The Company anticipates that the initial market for commercial
applications of SET will be the hazardous and mixed waste and industrial
by-products treatment and disposal market. Mixed waste is material that contains
both a hazardous and radioactive component. The most common methods of treatment
and disposal of hazardous wastes and industrial by-products include landfilling,
chemical and biological treatment and incineration. Most of the current
treatment and disposal methods entail air pollution and transportation risks. In
a mixed waste, both hazardous and nuclear regulations apply, making disposal
difficult, if not impossible. Currently, there exists very limited disposal
options and these may not provide a permanent solution. Certain of these
treatment and disposal methods result in large volumes of residual waste, which
may require further treatment prior to disposal. As a result, a number of these
methods are encountering increased public resistance and added regulatory
oversight.
As with any new technology or process, there has been initial
resistance to the use of SET on a large scale, especially in connection with a
strong vested interest on the part of the U.S. Military (based on substantial
expenditures and commitments previously made) to use incineration for the
destruction of weapons. In addition, other prospective projects for the Company
have already been committed to other forms of destruction technology, including
incineration, plasma arc, vitrification, molten metal, molten salt, chemical
neutralization, biological treatment, catalytic electrochemical oxidation and
supercritical wet oxidation. The Company, and its collaborative partners, have
been attempting to overcome such competition by introducing SET in smaller
clean-up projects and through feasibility studies demonstrating its
applicability to larger projects, such as the Initial Harrisburg Contract during
the years 2000 and 2001, and the WCS Fixed Facility Processing Contract during
the year 2001. The SET process provides a significant advantage by allowing the
processed material to be disposed of as a non-mixed waste by destroying the
hazardous component.
It may also be anticipated that, over an extended period, the market
for decontamination of hazardous materials will continue to decline as past
environmental degradation is corrected, and as the private and public sectors
limit further pollution through prohibitions on production and use of a broad
15
range of hazardous materials and through the modification and improved
efficiency of various manufacturing processes. The mixed waste market is one of
the few areas that shows growth and has limited competition when compared to the
general hazardous waste market. The SET process brings a unique solution to the
problem of remediating mixed waste.
Environmental Management
Based on market data compiled by Advanced Sciences, the largest market
for environmental services today within the United States is the U.S.
Government. Government wide spending levels for environmental services exceed
$10 billion per year. The DOD and DOE are expected to account for approximately
66% of such expenditures and together expect to spend in excess of $200 billion
for environmental work over the next twenty years. Advanced Sciences has a
long-term record for providing environmental services to the U.S. Government
with the DOD and DOE being its primary customers.
RAW MATERIALS
The Company has historically experienced no difficulty in obtaining
components used in the SET process for which it relies on a broad range of
suppliers. Nevertheless, business disruptions or financial difficulties of such
suppliers, shortages or other causes beyond the Company's control, could
adversely affect the Company by increasing the cost of goods sold or reducing
the availability of such components. If the Company was unable to obtain a
sufficient supply of required components, it could experience significant delays
in the furnishing of components used in the SET process, which could result in
the loss of orders and customers and could have a material adverse affect on the
Company's business, financial condition and results of operations. In addition,
if the cost of finished components was to increase, there can be no assurance
that the Company would be able to pass such increase on to its customers. The
use of outside suppliers also entails risks of quality control and disclosure of
proprietary information.
BACKLOG
At December 31, 2004, total potential backlog for the Company was
approximately $5,400,000 as compared with approximately $524,000 as of December
31, 2003. The total backlog represents work for which the Company has entered
into a signed agreement or purchase order with respect thereto or has received
an order to proceed with work up to a specified dollar amount. The Company
estimates that all of the total backlog represents work that will be completed
in the next 12 months. Backlog amounts have historically resulted in revenues;
however, no assurance can be given that all amounts included in backlog will
ultimately be realized, even if covered by written contracts or work orders.
RESEARCH AND DEVELOPMENT
Research and development activities are ongoing and utilize internal
technical staff, as well as independent consultants retained by the Company and
its subsidiaries. All such activities are company-sponsored. Research and
development expenditures for the Company and its subsidiaries were $9,000,
$70,000, and $297,000 for the years ended December 31, 2004, 2003, and 2002
respectively.
16
INTELLECTUAL PROPERTY
The Company currently has ten (10) issued U.S. and foreign patents.
Additionally, the Company has seven (7) patent applications currently on file
and pending in the U.S. and in foreign countries. The average life expectancy
for the currently issued patents is 12.67 years. As patents are issued, the U.S.
Patent and Trademark Office assigns the Company a twenty (20) year patent-life
for each patent issued.
The Company believes that its patent portfolio provides the Company the
necessary "proprietary turf" in which it can market, distribute, and license the
full range of the SET technology and all of its derivatives. Additionally, the
Company's strength of its patent portfolio may operate as an effective "barrier
to entry" in several of the markets in which the Company is presently conducting
business.
To protect its trade secrets and the un-patented proprietary
information in its development activities, the Company requires its employees,
consultants and contractors to enter into agreements providing for the
confidentiality and the Company's ownership of such trade secrets and other
un-patented proprietary information originated by such persons while in the
employ of the Company. The Company also requires potential collaborative
partners to enter into confidentiality and non-disclosure agreements.
There can be no assurance that any patents that may hereafter be
obtained, or any of the Company's confidentiality and non-disclosure agreements,
will provide meaningful protection of the Company's confidential or proprietary
information in the case of unauthorized use or disclosure. In addition, there
can be no assurance that the Company will not incur significant costs and
expenses, including the costs of any future litigation, to defend its rights in
respect of any such intellectual property.
COMPETITION
Soil Decontamination
The Company anticipates that the market for commercial private sector
applications of SET will be hazardous and non-hazardous waste and industrial
by-products treatment and disposal, in particular the more recalcitrant "mixed"
wastes (wastes containing a radioactive element). Several large domestic and
international companies and numerous small companies, many of whom have
substantially greater financial and other resources than the Company, compete
with the Company in this market. The Company primarily competes in the hazardous
waste treatment market in the U.S., a market valued at over $3.7 billion for
2005. The top ten competitors in this market account for over 70 percent of the
revenues for this market sector. The dominant companies in this sector include
companies with permitted waste treatment and disposal sites, including
Envirocare of Utah, Waste Control Specialists, Pacific EcoSolution, and American
Ecology, as well as other treatment companies such as Duratek and PermaFix. The
Company's revenues for 2004 account for less than 1 percent of the dollar volume
of the hazardous waste market. Any one or more of the Company's competitors or
other enterprises not presently known may develop technologies which are
superior to the technologies utilized by the Company. To the extent that the
Company's competitors are able to offer comparable services at lower prices or
of higher quality, or more cost-effective remediation alternatives, the
Company's ability to compete effectively could be adversely affected.
17
The domestic and international governmental public sector of the market
is dominated by many large multinational corporations who are presently engaged
in providing incineration and other conventional technologies in decontaminating
chemical weapons and warfare agents, concentration of nuclear wastes and the
decontamination of military vessels and other hardware. These competitors
include Raytheon Corporation (the current general contractor for the Johnston
Atoll incinerator), EG&G, Inc. (the general contractor for the Tooele Army
Depot), Mason and Hanger (the general contractor for the Newport News Naval
Facility), Waste Management Corporation (a bidder for domestic "large burial"
stockpile weapons decontamination), and others, including Browning-Ferris
Industries, Inc., Jacobs Engineering, Inc., Fluor Daniel Corporation and
Lockheed Martin Marietta Corporation. All of these corporations have
substantially greater financial, personnel and other resources than the Company.
In addition, many prospective users of SET have already committed substantial
resources to other forms of environmental remediation technology, including
incineration, plasma arc, vitrification, molten metal, molten salt, chemical
neutralization, catalytic electrochemical oxidation and supercritical wet
oxidation.
The Company believes that its ability to compete in both the commercial
private and governmental public sectors is dependent upon SET being accepted in
these sectors as a superior, more cost-effective method to achieve
decontamination of a variety of materials.
Environmental Management
Advanced Sciences has been primarily engaged in providing environmental
consulting and scientific support services to United States government agencies,
such as the DOE and DOD. Based on market data compiled by Advanced Sciences, the
largest market for environmental services today is the United States government,
which is expected to continue its spending level for environmental services at
approximately $11 to $12 billion for 2005. The DOE and DOD are expected to
account for approximately 66% of such expenditures. Commodore Advanced Sciences
currently occupies a position in the waste management and environmental services
arena by virtue of its long-term record for providing environmental services to
the United States government.
External developments and forces affecting Advanced Sciences include
competition from its competitors, as well as, demographic and technological
trends that influence the composition and needs of its customer base and the
usefulness and competitive position of its services. In addition, in order to
maintain its position in its market, Advanced Sciences must be able to respond
to economic trends and regulatory actions that affect the usefulness and
accessibility of its services and control its costs of doing business.
In the hazardous waste management market, Advanced Sciences'
competitors include such firms as Roy F. Weston, Jacobs Engineering, Science
Applications International Corp., CH2M Hill and CDM, all of whom have greater
financial and other resources than the Company. In providing environmental
impact assessment services, Commodore Advanced Sciences' principal competitors
in this market sector include Tetra Tech, The Earth Technology Corp., Battelle,
URS and Woodward-Clyde. Primary factors affecting Advanced Sciences'
competitiveness in this market are its ability to continue to attract and retain
qualified technical and professional staff with quality project performance
records and to control its costs of doing business.
18
In an effort to maintain its competitive position, Advanced Sciences
believes that it has developed a solid infrastructure, acquired a qualified
professional staff, and developed aggressive marketing objectives to provide
hazardous waste management and environmental sciences to the United States
government and private sector industrial customers. The Company believes its
competitive position with the United States government is enhanced by the
physical proximity of Advanced Sciences' plants to DOE and DOD sites, its
skilled professional staff, prior project experience with the United States
government, numerous existing multi-year contracts with the United States
government, integrated services and high quality performance.
ENVIRONMENTAL REGULATION
The environmental legislation and policies which the Company believes
are applicable to SET in the United States primarily include TSCA, RCRA, and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), and may include, on a case by case basis, the Clean Air Act of
1970, as amended (the "Clean Air Act"). These laws regulate the management and
disposal of toxic and hazardous substances, provide for the protection of land
and groundwater resources, and control the discharge of pollutants into the air.
Many of these laws have international counterparts, particularly in Europe and
elsewhere in North America.
TSCA regulates the manufacture, distribution, and sale of chemical
substances, and requires testing of new chemicals and new uses of known
chemicals that may present an unreasonable risk of injury to health or the
environment. The EPA, through TSCA, has adopted comprehensive regulations for
PCB's and other halogenated substances, as part of a vast regulatory program
covering thousands of chemicals.
RCRA was enacted in 1976 with the primary objective to protect human
health and the environment and to conserve valuable material and energy
resources. The most important aspect of RCRA is its establishment of
"cradle-to-grave" management and tracking of hazardous waste, from generator to
transporter, to treatment, storage, and disposal.
CERCLA and subsequent amendments under SARA (often referred to
collectively as Superfund) impose strict, retroactive liability upon persons who
generated, transported, or arranged for the transportation of hazardous
substances or owned or operated the vessels or facilities at which such
substances were disposed. CERCLA provides for the investigation and remediation
of hazardous substance sites and mandates that any hazardous substances
remaining on-site must meet certain regulatory requirements, with a preference
for innovative technology. These program regulations may create an incentive to
utilize environmental-friendly technologies such as SET, which destroy targeted
wastes without creating additional residual waste product. Moreover, to the
extent hazardous substances are effectively destroyed, potential liability can
be eliminated or significantly reduced.
The Clean Air Act empowered the EPA to establish and enforce ambient
air quality standards and limitations on emissions of air pollutants from
specific facilities. In 1987, the EPA began to enforce stricter standards for
incineration emissions. With more stringent regulations on waste reduction
technologies, the Company believes that SET could obtain a desired market share
since, in most cases, it produces little or no air emissions.
19
CERCLA imposes strict joint and several liability upon owners or
operators of facilities when a release or threatened release of a hazardous
substance has occurred, upon parties who generated hazardous substances that
were released at such facilities and upon parties who arranged for the
transportation of hazardous substances to and from such facilities. The
Company's plans to own and operate SET at on-site installations expose the
Company to potential liability under CERCLA for releases of hazardous substances
at those sites. In the event that off-site treatment, storage or disposal
facilities utilized by the Company for final disposition of residues from SET
are targeted for investigation and clean-up under CERCLA, the Company could
incur liability as a generator of such materials or by virtue of having arranged
for their transportation and disposal.
In light of such potential liability, the Company has designed the SET
technology to minimize the potential for release of hazardous substances into
the environment. In addition, the Company has developed plans to manage the risk
of CERCLA liability, including training of operators, use of operational
controls and structuring of its relationships with the entities responsible for
the handling of waste materials and by-products. The Company also maintains
insurance with respect to environmental claims, although there can be no
assurance that such insurance will be adequate.
The Clean Air Act Amendments of 1990 impose strict requirements upon
owners and operators of facilities that discharge pollutants into the
environment. These amendments may require that certain air emission control
technology be installed on the SET systems in the event that there is any
discharge of non-recovered gases into the environment. Such additional air
emission controls can be costly and require an air permit to construct and
operate.
The Company possesses a Nationwide Permit issued by the EPA under the
Alternative Destruction Technology Program that allowed it to use SET on-site to
treat PCB-contaminated soils and metallic surfaces, although the permit is
currently expired. The Nationwide Permit contains numerous conditions for
maintaining the Nationwide Permit and there can be no assurance that the Company
will be able to comply with such conditions to maintain and/or secure renewal of
the Nationwide Permit. In addition, if environmental legislation or regulations
are amended, or are interpreted or enforced differently, the Company may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals. Failure to obtain such permits or otherwise
comply with such regulatory requirements could have a material adverse effect on
the Company and its operations. Various revisions to the equipment and process
parameters are being made to the existing permit. The Company believes that the
revised permit will be issued pending the final site selection for the full or
part-time operation of any SET system for the treatment of PCB wastes. The
revised permit will require the Company to fund closure costs associated with
the implementation of any SET system for the treatment of PCB wastes. The
closure costs are calculated on a site-by-site basis and are funded accordingly
by the Company.
EMPLOYEES
As of December 31, 2004, the Company (including all of its direct and
indirect subsidiaries) had a total of 28 full-time and 6 part-time employees, of
which approximately 24 are engineers, scientists, lawyers and other
professionals. None of such employees are covered by collective bargaining
agreements and the Company's relations with its employees are believed to be
good.
20
OTHER INFORMATION
See Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K for information regarding revenue from customers, a measure
of profit or loss and total assets for each of the Company's segments for the
last 3 fiscal years.
ITEM 2. PROPERTIES.
- ------ ----------
The Company's principal executive offices are located in New York, New
York. The Company leases approximately 2,000 square feet of office space in New
York from an affiliate of Bentley J. Blum, a director and principal stockholder
of Commodore Environmental Services, Inc. ("Environmental") and a director of
the Company, Solution, Commodore Separation Technologies, Inc. ("Separation"),
Advanced Sciences and certain other subsidiaries and affiliates of the Company.
Such space also serves as the principal executive offices of Environmental and
certain of its affiliates. Although the Company's lease for the New York City
space expired in December 1998, the Company has been permitted to use the New
York City office space during 1999, 2000, 2001, 2002, 2003, 2004, and 2005 on a
rent-free basis. In November 2003 the Company issued 27,355,800 warrants to Mr.
Blum for consideration for the loans made to the Company, the usage of office
space and personnel of the Blum Asset Trust over the last five years, and debt
forbearance on the Blum Demand Note. Also, the Company provides general
insurance coverages and director & officer insurance to Environmental and
Separation under its policy at no charge to Environmental and Separation in
exchange for rent and direct labor, office supplies and third party vendor
services that the Company generates in its activities in the New York City
offices.
In addition to the New York, New York facilities, since April 2000, the
Company has leased approximately 1,600 square feet of space from Dr. Shelby T.
Brewer, a director and executive officer of the Company, on a month-to-month
basis, for a rental payment in the amount of $1,700 per month.
The Company leases approximately 400 square feet of laboratory, office
and storage space at Kirtland Air Force Base in Albuquerque, New Mexico for
rental payments in the amount of $735 per month, pursuant to a month-to-month
lease arrangement.
Advanced Sciences' principal executive and administrative offices are
located in Richland, Washington. Advanced Science leases approximately 3,750
square feet of space for rental payments in the amount of $3,500 per month under
a yearly lease.
In addition to the Richland, Washington facilities, Advanced Sciences
has leased approximately 1,600 square feet of space in Oak Ridge, TN for its
administrative functions, on a four year lease, for a rental payment in the
amount of $1,800 per month. Additionally, Advanced Sciences leases approximately
5,500 square feet of space at K-1035, at a DOE facility in Oak Ridge for its
operational staff for the EDAM contract, on a four year lease, for a rental
payment in the amount of $1,958 per month.
Advanced Sciences also leases approximately 1,000 square feet of space
for field operations in Wheat Ridge, Colorado for a rental payment in the amount
of $785 per month.
The Company believes that the foregoing properties will satisfy the
business and operational needs of the Company and its subsidiaries in the
present and in the foreseeable future.
21
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Indemnification Matters
- -----------------------
The Company, along with several other entities, in a prior year
guaranteed a performance bond of Separation relating to the Port of Baltimore
contract. The Company was notified on June 28, 2000 that the performance bond is
being called. It is not known, at this time, the amount, if any, the Company's
share of liability will be.
As of April 15, 2005, no litigation has been filed against the Company,
or any of the Company's subsidiaries with respect to this indemnification issue.
The Company is currently investigating all of the relevant facts and
circumstances in connection with the Surety's potential claim or cause of
action. No amount has been recorded in the financial statements as the Company
is unable to determine a loss amount, if any, on the issue of indemnification.
Incidental Matters
- ------------------
As of April 15, 2005, the Company and its subsidiaries are involved in
ordinary, routine litigation incidental to the conduct of their business.
Management believes that none of this litigation, individually or in the
aggregate, is material to the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ----------------------------------------------------
None.
22
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
AND ISSUER PURCHASES OF EQUITY SECURITIES.
------------------------------------------
MARKET INFORMATION
On June 28, 1996, the Company issued common stock and warrants at
initial public offering prices of $6.00 per share and $0.10 per warrant. The
Company's warrants, previously extended from June 16, 2001, expired on June 16,
2002. On March 6, 2003, the Common Stock ceased to be listed on the American
Stock Exchange ("AMEX") and began trading in the over-the-counter market in the
so-called "pink sheets" of the National Quotation Bureau, Inc. and the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the "OTC
Bulletin Board or OTCBB"), where it is currently traded under the symbol CXII.
As of March 31, 2005, there were 277 record holders of the Company's common
stock.
The following table sets forth, for the fiscal periods shown, the high
and low sale prices (rounded to the nearest cent) for the Company's common stock
as reported on the AMEX (prior to March 6, 2003) and on the OTCBB (after March
6, 2003).
Common Stock
------------
High Low
---- ---
Fiscal 2004
First Quarter............................. $0.03 $0.01
Second Quarter............................ 0.05 0.02
Third Quarter............................. 0.03 0.02
Fourth Quarter............................ 0.02 0.01
Fiscal 2003
First Quarter............................. $0.18 $0.02
Second Quarter............................ 0.03 0.02
Third Quarter............................. 0.04 0.02
Fourth Quarter............................ 0.20 0.01
ISSUANCE OF COMMON STOCK SUBSEQUENT TO DECEMBER 31, 2004
The Company issued a total of 5,832,573 shares of its common stock
during the period from January 1, 2005 to April 15, 2005, in connection with
various conversion notices from the holders of the Company's Series E
Convertible Preferred Stock, par value ($0.001) per share (the "Series E
Preferred Stock") and the holders of the Company's Series F Convertible
Preferred Stock, par value ($0.001) per share (the "Series F Preferred Stock").
23
DIVIDEND INFORMATION
Series E Preferred Stock
------------------------
The holders of the Company's Series E Convertible Preferred Stock, par
value ($0.001) per share (the "Series E Preferred Stock"), are entitled to a
variable rate dividends beginning at 12% and averaging 8.15% over the term of
the securities. Through December 31, 2004, the Company had paid an aggregate
since the stock was issued of $134,000 in cash dividends and the Company has
accrued an additional $961,886 in unpaid dividends. The Company has the option
to pay the dividends accrued in all periods after April 30, 2000 in the
Company's common stock rather than cash. During 2003 the Company paid $143,496
in common stock in payment of the accrued dividends on all of the converted
Series E Preferred Stock shares to date.
Series F Preferred Stock
------------------------
The holders of the Company's Series F Convertible Preferred Stock, par
value ($0.001) per share (the "Series F Preferred Stock"), are entitled to a
variable rate dividend beginning at 12% and averaging 8.15% over the term of the
securities. Through December 31, 2004, the Company had paid an aggregate since
the stock was issued of $92,000 in cash dividends and the Company has accrued an
additional $679,525 in unpaid dividends. The Company has the option to pay the
dividends accrued in all periods after September 30, 2000 in the Company's
common stock rather than cash. During 2002 the Company paid $39,939 in common
stock in payment of the accrued dividends on all of the converted Series F
shares to date.
Series H Preferred Stock
------------------------
The holders of the Company's Series H Convertible Preferred Stock, par
value ($0.001) per share (the "Series H Preferred Stock"), are entitled to a
dividend rate of 3% over the term of the securities. Through December 31, 2004,
the Company had not paid cash dividends and the Company has accrued $56,745 in
unpaid dividends. The Company has the option to pay the dividends accrued in all
periods in additional shares of Series H Preferred Stock. See "Recent Sales of
Unregistered Securities -- May 2002 Settlement Agreement Issuance of Series H
Preferred Stock."
Common Stock
------------
The Company has never paid cash dividends on its common stock. Any
future determination by the Board of Directors of the Company with respect to
the payment of cash dividends on the common stock of the Company will depend on
the ability of the Company to service its outstanding indebtedness, the
Company's future earnings, capital requirements, the financial condition of the
Company and such other factors as the Company's Board of Directors may consider.
The Company currently intends to retain its earnings, if any, to finance the
growth and development of its business, to repay outstanding indebtedness and
does not anticipate paying cash dividends on its common stock in the foreseeable
future.
24
RECENT SALES OF UNREGISTERED SECURITIES
April 2005 Exchange Agreement of Series E Preferred Stock and Series F Preferred
Stock
On April 12, 2005, the Company authorized the issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.
The Series I Preferred shall have the following rights, privileges, and
limitations:
a) The conversion feature shall be exercisable immediately.
b) The conversion price of the Series I Preferred shall be determined
by the average closing price of Company's common stock in the
previous 10 trading days, but in no event shall the conversion
price be more than $0.0285 per share.
c) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
d) The Series I Preferred shall have a non-cumulative annual dividend
of 10%, payable in cash or shares of the Company's common stock at
the Company's election.
e) Dividend will be paid quarterly commencing May 15, 2005, to the
Holders of record of shares of the Series I Preferred Stock.
Dividends until February 14, 2006 shall accrue but shall not be
payable until February 15, 2006.
f) The Company will reserve 75 million shares of its common stock for
the conversion of the Series I Preferred.
On April 12, 2005, the Company entered into an exchange agreement with
The Shaar Fund, LTD (the "Shaar Exchange Agreement"). Under terms of the Shaar
Exchange Agreement, the Company agreed that Shaar will exchange all of its
right, title and interest in and to the remaining outstanding shares of the
Series E Preferred and Series F Preferred (including all other accrued and
unpaid dividends thereon) for 395,302 shares of the Company's Series I
Preferred. See "MD&A - Liquidity and Capital Resources."
April 2005 New Shaar Convertible Note and Milford Capital Purchase Agreement
Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and Restated Secured Promissory Note of the Company, amending and
restating a note originally issued June 13, 2001, which such Note has an
outstanding principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").
On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford"). In accordance
with the terms of the Milford Capital Purchase Agreement, Shaar purchased a
secured promissory note of the Company, initially issued to Milford on June 13,
2001, in the original principal amount of $500,000, which had an outstanding
principal balance on March 22, 2005 of $188,149 ("Old Milford Note"), together
with (i) all interest, additional obligations, forbearance fees, exit fees,
penalties and other amounts due and payable from time to time under or in
connection with the Old Milford Note, and (ii) the Forbearance Amount in
connection with the Forbearance Agreement, dated January 30, 2004, between
Milford and the Company, and Shaar in which Shaar agreed to forgive payment from
the Company to Shaar of $300,000 of accrued and unpaid dividends on shares of
the Company's Series E Preferred held by Shaar ("Forgiven Dividends") and
consented to the transfer of the dollar value of the Forgiven Dividends to
Milford as part of the forbearance fee payable to Milford under the Forbearance
Agreement of 2004.
25
Shaar and the Company have agreed that Shaar will exchange the
outstanding principal amount of the Old Shaar Note and the Old Milford Note
(including all accrued and unpaid interest, unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")
The New Shaar Convertible Note shall have the following rights,
privileges, and limitations:
a) The New Shaar Convertible Note bears an interest rate of 10% per
annum, which is payable in cash or shares of the Company's common
stock at the Company's election.
b) Interest shall accrue on the principal amount for a one year
period ("Deferral Period"). On March 22, 2006, the Company will
make a single lump sum payment to the holder in an amount equal to
all interest that accrued during the Deferral Period
c) Beginning April 15, 2006, and monthly thereafter on the 15th day
of each month until March 22, 2009 ("Maturity Date"), the Company
shall pay to Shaar all accrued and unpaid interest ("Interest
Payments")on the principal balance of the note accruing during the
prior month.
d) On the Maturity Date, the Company shall make a single lump sum
payment to Shaar equal to the outstanding principal balance of the
New Shaar Convertible Note ("Principal Balance"), together with
all accrued and unpaid interest.
e) At the option of Shaar, the outstanding Principal Balance may be
converted, either in whole or in part, into shares of the
Company's common stock.
f) The conversion price of the payment of the Principal Balance, the
Deferral Period, and the Interest Payments shall be determined by
the average closing price of Company's common stock in the 10
trading days preceding the conversion date,, but in no event shall
the conversion price be more than $0.0285 per share ("Conversion
Price").
g) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
h) The New Shaar Convertible Note may not be prepaid by the Company
prior to the Maturity Date.
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 is
required to pay Milford/Shaar principal and interest on a monthly basis in
arrears. The Milford/Shaar Bridge Loan Notes may be prepaid at any time without
penalty. 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 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
26
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
Milford/Shaar Bridge Loan Notes were restructured into the New Shaar Convertible
Note as of April 12, 2005. Prior to the New Shaar Convertible Note, the current
principal balance of the Milford/Shaar Bridge Loan Notes was $3,033,741 as of
December 31, 2004. Additionally, as of December 31, 2004, there was $119,073 in
accumulated forbearance fees and $100,000 due in exit fees on the Milford/Shaar
Bridge Loan Notes. See "MD&A - Liquidity and Capital Resources."
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,
including the son of Paul E. Hannesson, our former President and Chief Executive
Officer, and Stephen A. Weiss, a shareholder of Greenberg Traurig LLP, our
former corporate counsel. Since the date of that loan, certain warrants have
been issued to the holders of the Weiss Group Note in consideration of certain
payment extensions.
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 recipients of securities in the transactions described above
represented their intention to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof,
and appropriate restrictive legends were affixed to the certificates or warrants
representing the securities issued in this transaction. The Company made
available to the recipients, written information about the Company in accordance
with Rule 502 of the Securities Act and advised such recipient of the
limitations on resale of such securities. In addition, the recipients were
offered the opportunity, prior to exchanging and/or purchasing any securities,
to ask questions of, and receive answers from, the Company concerning the terms
and conditions of the transaction and to obtain additional relevant information
about the Company. Based upon the facts above, the Company believed these
transactions to be exempt from the registration requirements of the Securities
Act in reliance on Section 4 (2) thereof as a transaction not involving any
public offering of securities.
27
ITEM 6. SELECTED FINANCIAL DATA.
- ------ ------------------------
The following table presents selected financial data of the Company, as
of December 31, 2004, 2003, 2002, 2001 and 2000 and for the years then ended.
The following selected historical data is derived from the Company's
Consolidated Financial Statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report.
Consolidated Statement of Operations Data: (in thousands, except per share data)
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Revenue:
Contract revenues........... $17,057 $4,590 $3,710 $660 $738
Cost of sales:
Cost of revenues............ 14,452 3,369 2,108 811 919
Research and development.... 993 423 297 70 9
General and administrative.. 5,228 2,420 1,792 1,700 1,674
Depreciation and 865 658 314 267 136
amortization....................
Impairment of Machinery -- 776 -- -- --
Impairment of Patents -- 627 -- -- --
Impairment of Goodwill... 6,586 -- -- -- --
----------------------------------------------------------------------
Loss from operations............ (11,067) (3,683) (801) (2,188) (2,000)
Interest income............. 57 38 -- -- --
Interest expense............ (586) (226) (104) (769) (404)
Equity in net losses of
subsidiary................. -- (295) -- -- --
----------------------------------------------------------------------
(11,596) (4,166) (905) (2,957) (2,404)
----------------------------------------------------------------------
Loss before income taxes .......
Income taxes................ -- -- -- -- --
Loss on disposal of
discontinued operations -- -- (4,134) -- --
(Loss) gain from discontinued
operations 155 (2,388) (933) -- --
----------------------------------------------------------------------
Net loss ....................... $(11,441) $(6,554) $(5,972) $(2,957) $(2,404)
======================================================================
Net loss per share -- basic and
diluted......................... $ (.34) $ (.13) $ (.11) $ (.04) $ (.02)
======================================================================
Weighted average number of
shares.......................... 35,866 53,241 57,775 92,035 126,682
======================================================================
Consolidated Balance Sheet Data: (in thousands)
2000 2001 2002 2003 2004
----------------------------------------------------------------------
Cash and cash equivalents......... $ 579 $ 170 $ 59 $ -- $ 15
Assets held for sale - DRM........ 29,687 29,407 -- -- --
Total assets...................... 37,473 31,200 736 246 369
Long term debt.................... 221 -- 431 1,575 3,034
Liabilities held for sale - DRM... 22,966 22,165 -- -- --
Total liabilities................. 29,618 29,629 5,025 6,898 9,697
Minority interests................ -- -- -- -- --
Stockholders' (deficit) equity.... 7,855 1,571 (4,289) (6,652) (9,328)
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS.
--------------
OVERVIEW
The Company is engaged in providing a range of engineering and
technical 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
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 Advanced
Sciences' existing client relationships will allow the Company to obtain new
contracts in the future.
The Company has identified two 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 two
segments are as follows: Commodore Advanced Sciences, Inc., which primarily
provides various engineering, legal, sampling, and public relations services to
Government agencies on a cost plus basis; and Commodore Solutions, Inc., which
is commercializing technologies to treat mixed and hazardous waste.
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 $80,000. Currently, the Company is addressing this cash shortfall
through loans from The Shaar Fund, Ltd., but The Shaar Fund, Ltd. is under no
obligation to continue to make such advances to the Company. If this lender
decided to discontinue advances, the Company would not be able to meet its
current obligations. In addition, the Company owes $1,050,503 in loans that are
currently due or are payable on demand. Although the lenders on these loans have
not yet called the loans, the Company does not currently have the ability to pay
these loans absent additional financing.
The Company's auditor's opinion on our fiscal 2002, 2003 and 2004
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.
29
CRITICAL ACCOUNTING POLICIES
We prepare our financial statements in conformity with U.S. generally
accepted accounting principles. As such, we are required to make certain
estimates, judgments and assumptions that we believe are reasonable based upon
the information available. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
Our accounting policies that are the most important to the portrayal of
our financial condition and results, and which require the highest degree of
management judgment relate to the reserves for doubtful accounts receivable and
the valuation of stock and options issued for services.
Reserves for Doubtful Accounts
Management estimates the amount of required reserves for the potential
non-collectibility of accounts receivable based upon the customer's financial
condition, age of the customer's receivables, changes in payment histories, and
consideration of other relevant factors. Because the reserve for doubtful
accounts is an estimate of events that have not yet occurred, we could incur
additional charges or benefits in the future to reflect differences between
estimated and actual collections.
Valuation of stock and options
We value and account for the issuance of equity instruments to
non-employees to acquire goods and services based on the fair value of the goods
and services or the fair value of the equity instrument at the time of issuance,
whichever is more reliably measurable. The fair value of stock issued for goods
or services is determined based on the quoted market price on the date the
commitment to issue the stock has occurred. The fair value of stock options or
warrants granted to non-employees for goods or services is calculated on the
date of grant using the Black-Scholes options pricing model.
Revenue Recognition
Substantially all the Company's current revenues consist of engineering
and scientific services performed for the U.S. Government and prime contractors
that serve the U.S. Government under a variety of contracts, most of which
provide for unit prices. Revenue under unit price contracts are recorded when
the services are provided.
Most of the Company's historical contracts provided for reimbursement
of costs plus fixed fees. Direct and indirect contract costs incurred in
reimbursement plus cost contracts are subject to audit by the Defense Contract
Audit Agency ("DCAA"). Management does not expect these audits to materially
affect the financial statements and have established appropriate allowances to
cover potential audit disallowances. Contract revenues have been recorded in
amounts which are expected to be realized upon final settlement. The DCAA has
audited the Company's contracts through 1996. An allowance for doubtful accounts
and potential disallowances has been established based upon the portion of
billed and unbilled receivables that management believes may be uncollectible.
30
RESULTS OF OPERATIONS
Year ended December 31, 2004 compared to Year ended December 31, 2003
Revenues were $738,000 for the year ended December 31, 2004, compared
to $660,000 for the year ended December 31, 2003. The increase in revenues is
due to the increases in revenue contribution by Advanced Sciences as certain
contracts were renewed and other contracts were initiated.
In the case of Advanced Sciences, revenues were $698,000 for the year
ended December 31, 2004, compared to $568,000 for the year ended 2003. Revenues
in 2004 were primarily from engineering and scientific services performed for
the United States government under two contracts similar to those in place in
2003. Advanced Sciences had two major customers in 2004, each of which
represents more than 10% of annual revenue. The combined revenue for these two
customers was $698,000 or 100% of the Company's total 2004 revenue. The increase
in revenues at Advanced Sciences is primarily the result of the renewal of
existing contracts and overall, more subcontract work being performed in 2004.
Cost of sales decreased from $721,000 for 2003 to $548,000 for 2004. A reduction
in cost of sales at Advanced Sciences resulted from greater operating
efficiencies on existing contracts and a reduction in overhead expenses.
Anticipated losses on contracts are provided for by a charge to income during
the period such losses are first identified.
In the case of Solution, revenues were $40,000 for the year ended
December 31, 2004 as compared with $92,000 for the year ended December 31, 2003.
The decrease is primarily due to the decrease in feasibility studies and
commercial processing. Revenues in 2004 were primarily from remediation services
performed for a scrap metal recycling company in the U.S. under a subcontract.
Solution had one major customer which represented more than 10% of annual
revenue. The revenue for this customer was $40,000 or 100% of the Solution's
total 2004 revenue. The decrease in revenues at Solution is primarily the result
of less subcontract work being performed in 2004. Cost of sales was $371,000 for
the year ended December 31, 2004 as compared to $90,000 for the year ended
December 31, 2003. The increase in cost of sales is attributable to greater
manufacturing costs of specialty equipment 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 year ended December 31, 2004, the Company incurred research and
development costs of $9,000, as compared to $70,000 for the year ended December
31, 2003. 100% of the research and development costs are attributable to the
operations of Solution. In 2004, the Company invested more money in capital
expenditures and less in laboratory work then it had in 2003. Advanced Sciences
did not incur research and development costs in the years 2003 and 2004.
General and administrative expenses for the year ended December 31,
2004 were $1,674,000 as compared to $1,700,000 for the year ended December 31,
2003. This decrease reflects the impact of some of the restructuring steps in
the Company throughout 2004.
In the case of Advanced Sciences, general and administrative costs
decreased from $570,000 for the year ended December 31, 2003 to $308,000 for the
year ended December 31, 2004. This decrease reflects the impact of some
restructuring steps in Advanced Sciences (including principally a outsourcing of
certain administrative functions) the Company made throughout 2004 to increase
operating efficiencies. Solution incurred general and administrative costs of
31
$120,000 for the year ended December 31, 2004 as compared with $73,000 for the
year ended December 31, 2003. This increase was primarily due to an increased,
focused sales and marketing effort for Solution's services, which may result in
contracts that will produce revenue in 2005 and beyond.
The decrease in interest expense of $365,000 from 2003 to 2004 is
primarily related to lower, amortized non-cash interest costs associated with
the Milford/Shaar Note and the Weiss Group Note and lower balances on the
Company's line of credit.
The Net Loss was $2,404,000 for the year ended December 31, 2004,
compared to $2,957,000 for the year ended December 31, 2003. The decrease in the
net loss was a result of increased revenues and the decreased interest expenses
for the year ended December 31, 2004 compared to the year ended December 31,
2003.
Year ended December 31, 2003 compared to Year ended December 31, 2002
Revenues were $660,000 for the year ended December 31, 2003, compared
to $3,710,000 for the year ended December 31, 2002. The decrease in revenues is
due to the decreases in revenue contribution by Advanced Sciences as certain
contracts were not renewed and other contracts were completed.
In the case of Advanced Sciences, revenues were $568,000 for the year
ended December 31, 2003, compared to $3,448,000 for the year ended 2002.
Revenues in 2003 were primarily from engineering and scientific services
performed for the United States government under a variety of contracts similar
to those in place in 2002. Advanced Sciences had two major customers in 2003,
each of which represents more than 10% of annual revenue. The combined revenue
for these two customers was $568,000 or 100% of the Company's total 2003
revenue. The decline in revenues at Advanced Sciences is primarily the result of
fewer contracts and overall, less subcontract work being performed in 2003. The
government decided to deal directly with the subcontractor rather than having
Advanced Sciences subcontract this work on behalf of the government. The
government took this action, as the subcontracts became too large. Cost of sales
decreased from $1,854,000 for 2002 to $721,000 for 2003. A reduction in cost of
sales at Advanced Sciences resulted from fewer contracts and overall, less work
performed resulting in decreased revenues. Anticipated losses on contracts are
provided for by a charge to income during the period such losses are first
identified.
In the case of Solution, revenues were $92,000 for the year ended
December 31, 2003 as compared with $262,000 for the year ended December 31,
2002. The decrease is primarily due to the decrease in feasibility studies and
commercial processing. Revenues in 2003 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 annual revenue. The combined revenue for these two customers
was $92,000 or 100% of the Solution's total 2003 revenue. The decrease in
revenues at Solution is primarily the result of less subcontract work being
performed in 2003. Cost of sales was $90,000 for the year ended December 31,
2003 as compared to $254,000 for the year ended December 31, 2002. The decrease
in cost of sales is attributable to lower sales expenses for the SET technology
due to less subcontract work being performed in 2003. Anticipated losses on
engagements, if any, will be provided for by a charge to income during the
period such losses are first identified.
32
For the year ended December 31, 2003, the Company incurred research and
development costs of $70,000, as compared to $297,000 for the year ended
December 31, 2002. 100% of the research and development costs are attributable
to the operations of Solution. In 2003, the Company invested more money in
capital expenditures and less in laboratory work and consultants than it had in
2002. Advanced Sciences did not incur research and development costs in the
years 2002 and 2003.
General and administrative expenses for the year ended December 31,
2003 were $1,700,000 as compared to $1,792,000 for the year ended December 31,
2002. This decrease reflects the impact of some of the restructuring steps in
the Company throughout 2003.
In the case of Advanced Sciences, general and administrative costs
decreased from $754,000 for the year ended December 31, 2002 to $570,000 for the
year ended December 31, 2003. This decrease reflects the impact of some
restructuring steps in Advanced Sciences (including principally a reduction in
personnel) the Company made throughout 2003 due to the inability to replace
certain completed contracts. Solution incurred general and administrative costs
of $73,000 for the year ended December 31, 2003 as compared with $203,000 for
the year ended December 31, 2002. This decrease was primarily due to a more
narrowly focused sales and marketing effort for Solution's services, which has
resulted in contracts that will produce revenue in 2004.
The increase in interest expense of $665,000 from 2002 to 2003 is
primarily related to higher, amortized non-cash interest costs associated with
the Blum Note, Milford/Shaar Note and the Weiss Group Note and higher balances
on the Company's line of credit.
The loss from discontinued operations is approximately $0 and $933,000
for the years ended December 31, 2003 and 2002. The Company discontinued DRM in
2002 and there were no operations during 2003. The loss from discontinued
operations is approximately $0 and $4,134,000 for the years ended December 31,
2003 and 2002.
The net loss was $2,957,000 for the year ended December 31, 2003,
compared to $5,972,000 for the year ended December 31, 2002. The decrease in the
net loss was partially the result of the one-time recognition of the
discontinued operations of DRM (933,000) and the loss on disposal of assets of
DRM (4,134,000) for the year ended December 31, 2002. The net loss prior to
these items was $2,957,000 for the year ended December 31, 2003, compared to
$905,000 for the year ended December 31, 2002. The increase in the net loss was
primarily the result of decreased revenues and increased interest expenses for
the year ended December 31, 2003 compared to the year ended December 31, 2002.
OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements, such as financing or
variable interest entities, that either have, or are reasonably likely to have,
a current or future material effect on financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
33
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004 and December 31, 2003 Advanced Sciences had a $0
and $64,000 outstanding balance, respectively, on its two million dollar,
receivables revolving line of credit. The line of credit is based on credit
worthy receivables of Advanced Sciences.
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 December 31, 2004. Currently, the Company is
addressing this cash shortfall though loans from The Shaar Fund, Ltd., but The
Shaar Fund, Ltd. is under no obligation to continue to make such advances to the
Company. If this lender decided to discontinue advances, the Company would not
be able to meet its current obligations. In addition, the Company owes
$1,050,503 in loans that are currently due or are payable on demand as of April
14, 2005. Although the lenders on these loans have not yet called the loans, the
Company does not currently have the ability to pay these loans absent additional
financing.
The Company's auditor's opinion on our fiscal 2002, 2003 and 2004
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 year ended December 31, 2004, the Company incurred a net loss
of $2,404,000 as compared to a net loss of $2,957,000 for the year ended
December 31, 2003.
As shown in the financial statements for the years ended December 31,
2004, 2003, and 2002, the Company incurred losses of $2,404,000, $2,957,000, and
$5,972,000 respectively. The Company has also experienced net cash inflows
(outflows) from operating activities of ($1,532,000), ($955,000), and ($123,000)
for the years ended December 31, 2004, 2003 and 2002 respectively. At December
31, 2004 and 2003 the Company had working capital (deficit) of ($5,654,000) and
($5,239,000) respectively. The increase in the working capital deficit from
December 31, 2003 to December 31, 2004 is mainly due to the Company's loss from
operations.
As shown in the financial statements for the years ended December 31,
2004 and 2003 the Company had stockholders' (deficit) equity of ($9,328,000) and
($6,652,000) respectively. The Company's net increase in stockholders' deficit
from December 31, 2003 to December 31, 2004 is primarily due to the loss for the
year ended December 31, 2004.
For the year ended December 31 2004, the Company issued 16,144,919
shares of the Company's common stock upon conversion of 32,500 shares of Series
E Preferred by the holders thereof. For the year ended December 31 2004, there
were no conversions of shares of Series F Preferred. The Company issued no
shares of the Company's common stock with respect to accrued dividends
pertaining to the Series E and Series F Preferred conversions for the year ended
December 31, 2004.
For the year ended December 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.
34
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 $252,397 as of December
31, 2004 and remains unpaid as of April 15, 2005.
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 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 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. See "MD&A - Recent Sales of Unregistered 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
Milford/Shaar Bridge Loan Notes were restructured into the New Shaar Convertible
Note as of April 12, 2005. Prior to the New Shaar Convertible Note, the current
principal balance of the Milford/Shaar Bridge Loan Notes was $3,033,741 as of
December 31, 2004. Additionally, as of December 31, 2004, there was $119,073 in
accumulated forbearance fees and $100,000 due in exit fees on the Milford/Shaar
Bridge Loan Notes. See "MD&A - Recent Sales of Unregistered Securities."
35
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 is payable on demand. The current principal balance of the Blum Demand Note
is $312,032 as of December 31, 2004 and remains unpaid as of April 15, 2005. See
"MD&A - Recent Sales of Unregistered Securities."
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. See "MD&A - Recent Sales of Unregistered
Securities."
On April 12, 2005, the Company authorized the issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.
The Series I Preferred shall have the following rights, privileges, and
limitations:
a) The conversion feature shall be exercisable immediately.
b) The conversion price of the Series I Preferred shall be determined
by the average closing price of Company's common stock in the
previous 10 trading days, but in no event shall the conversion
price be more than $0.0285 per share.
c) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
d) The Series I Preferred shall have a non-cumulative annual dividend
of 10%, payable in cash or shares of the Company's common stock at
the Company's election.
e) Dividend will be paid quarterly commencing May 15, 2005, to the
Holders of record of shares of the Series I Preferred Stock.
Dividends until February 14, 2006 shall accrue but shall not be
payable until February 15, 2006.
f) The Company will reserve 75 million shares of its common stock for
the conversion of the Series I Preferred.
On April 12, 2005, the Company entered into an exchange agreement with
The Shaar Fund, LTD (the "Shaar Exchange Agreement"). Under terms of the Shaar
Exchange Agreement, the Company agreed that Shaar will exchange all of its
right, title and interest in and to the remaining outstanding shares of the
Series E Preferred and Series F Preferred (including all other accrued and
unpaid dividends thereon) for 395,302 shares of the Company's Series I
Preferred. See "MD&A - Recent Sales of Unregistered Securities."
36
Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and Restated Secured Promissory Note of the Company, amending and
restating a note originally issued June 13, 2001, which such Note has an
outstanding principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").
On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford"). In accordance
with the terms of the Milford Capital Purchase Agreement, Shaar purchased a
secured promissory note of the Company, initially issued to Milford on June 13,
2001, in the original principal amount of $500,000, which had an outstanding
principal balance on March 22, 2005 of $188,149 ("Old Milford Note"), together
with (i) all interest, additional obligations, forbearance fees, exit fees,
penalties and other amounts due and payable from time to time under or in
connection with the Old Milford Note, and (ii) the Forbearance Amount in
connection with the Forbearance Agreement, dated January 30, 2004, between
Milford and the Company, and Shaar in which Shaar agreed to forgive payment from
the Company to Shaar of $300,000 of accrued and unpaid dividends on shares of
the Company's Series E Preferred held by Shaar ("Forgiven Dividends") and
consented to the transfer of the dollar value of the Forgiven Dividends to
Milford as part of the forbearance fee payable to Milford under the Forbearance
Agreement of 2004.
Shaar and the Company have agreed that Shaar will exchange the
outstanding principal amount of the Old Shaar Note and the Old Milford Note
(including all accrued and unpaid interest, unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note").
The New Shaar Convertible Note shall have the following rights,
privileges, and limitations:
a) The New Shaar Convertible Note bears an interest rate of 10% per
annum, which is payable in cash or shares of the Company's common
stock at the Company's election.
b) Interest shall accrue on the principal amount for a one year
period ("Deferral Period"). On March 22, 2006, the Company will
make a single lump sum payment to the holder in an amount equal to
all interest that accrued during the Deferral Period
c) Beginning April 15, 2006, and monthly thereafter on the 15th day
of each month until March 22, 2009 ("Maturity Date"), the Company
shall pay to Shaar all accrued and unpaid interest ("Interest
Payments")on the principal balance of the note accruing during the
prior month.
d) On the Maturity Date, the Company shall make a single lump sum
payment to Shaar equal to the outstanding principal balance of the
New Shaar Convertible Note ("Principal Balance"), together with
all accrued and unpaid interest.
e) At the option of Shaar, the outstanding Principal Balance may be
converted, either in whole or in part, into shares of the
Company's common stock.
f) The conversion price of the payment of the Principal Balance, the
Deferral Period, and the Interest Payments shall be determined by
the average closing price of Company's common stock in the 10
trading days preceding the conversion date,, but in no event shall
the conversion price be more than $0.0285 per share ("Conversion
Price").
g) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
h) The New Shaar Convertible Note may not be prepaid by the Company
prior to the Maturity Date.
37
The recipient of securities in this transaction represented its
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof, and appropriate
restrictive legends were affixed to the warrants and the certificates
representing the shares issued in this transaction. The Company made available
to The Shaar Fund Ltd., written information about the Company in accordance with
Rule 502 of the Securities Act and advised such recipient of the limitations on
resale of such securities. In addition, The Shaar Fund Ltd. was offered the
opportunity, prior to exchanging and/or purchasing any securities, to ask
questions of, and receive answers from, the Company concerning the terms and
conditions of the transaction and to obtain additional relevant information
about the Company. Based upon the facts above, the Company believed this
transaction to be exempt from the registration requirements of the Securities
Act in reliance on Section 4 (2) thereof as a transaction not involving any
public offering of securities. See "MD&A - Recent Sales of Unregistered
Securities."
The financial information included in the accompanying form 10K for the
period ending December 31, 2004 reflects the terms of the DRM Settlement
Agreement. For the year ended December 31, 2002 the Company recorded a loss on
the disposal of DRM in the amount of $4,134,000. 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. Because of the
dissolution of DRM, its' operations have been reflected as discontinued
operations for the years ended December 31, 2002, and 2001.
The following table summarizes the Company's contractual obligations,
maturities and commitments. See Notes 8 and 14 of the Notes to Consolidated
Financial Statements for additional information regarding long-term debt and
operating leases.
Less than 1 More than
Year 1-3 Years 3-5 Years 5 Years Total
----------------------------------------------------------------------------
Long-term debt $ 258,000 $ - $ 3,034,000 $ - $ 3,292,000
Operating leases $ 126,000 $ 42,000 $ - $ - $ 168,000
Purchase obligations $ - $ - $ - $ - $ -
Other long-term liabilities $ - $ - $ - $ - $ -
----------------------------------------------------------------------------
$ 384,000 $ 42,000 $ 3,034,000 $ - $ 3,460,000
The Company hopes to meet its short-term capital requirements
(including its $100,000 monthly cash shortfall) through continued loans from The
Shaar Fund, Ltd., although this lender is under no obligation to continue to
make advances to the Company. The Company intends to negotiate a forbearance
arrangement with other lenders on loans that are currently due. Ultimately, the
Company intends to reduce its cash shortfall and 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.
38
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards (the "NOLs") of
approximately $36,487,000, which expire in the years 2010 through 2024. 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. It cannot be determined when or if the Company
will be able to utilize the NOLs.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46 ("FIN 46R") (revised December 2003), Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51 ("ARB 51"), which addresses how a business enterprise should evaluate
whether it has a controlling interest in an entity through means other than
voting rights and accordingly should consolidate the entity. FIN 46R replaces
FASB Interpretation No. 46 ("FIN 46"), which was issued in January 2003. Before
concluding that it is appropriate to apply ARB 51 voting interest consolidation
model to an entity, an enterprise must first determine that the entity is not a
variable interest entity ("VIE"). As of the effective date of FIN 46R, an
enterprise must evaluate its involvement with all entities or legal structures
created before February 1, 2003, to determine whether consolidation requirements
of FIN 46R apply to those entities. There is no grandfathering of existing
entities. Public companies must apply either FIN 46 or FIN 46R immediately to
entities created after January 31, 2003 and no later than the end of the first
reporting period that ends after March 15, 2004. The adoption of FIN 46 had no
effect on our results of operations and financial position.
On December 18, 2003, the SEC issued Staff Accounting Bulletin No. 104,
Revenue Recognition ("SAB 104"), which supercedes SAB 101, Revenue Recognition
in Financial Statements. SAB 104's primary purpose is to rescind accounting
guidance contained in SAB 101 related to multiple element revenue arrangements,
which was superceded as a result of the issuance of EITF 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. SAB 104 does not have a
material impact on our financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, which amends Accounting Principles Board (APB) Opinion No.
29, Accounting for Nonmonetary Transactions. The guidance in APB Opinion 29 is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in APB Opinion 29,
however, included certain exceptions to that principle. SFAS 153 amends APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for
fiscal periods beginning after June 15, 2005. We do not expect that the adoption
of SFAS 153 will have a material impact on our financial position or results of
operations.
39
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment,
which requires companies to measure and recognize compensation expense for all
stock-based payments at fair value. SFAS 123R is effective for fiscal years
beginning after June 15, 2005 and, thus, will be effective for us beginning with
the fiscal year 2006. Early adoption is encouraged and retroactive application
of the provisions of SFAS 123R to the beginning of the fiscal year that includes
the effective date is permitted, but not required. We are currently evaluating
the impact of SFAS 123R and the adoption of SFAS 123R may have a material impact
on our financial position or results of operations. See Stock-Based Compensation
in Note 1 of our Notes to Consolidated Financial Statements for more information
related to the pro forma effects on our reported net income and net income per
share of applying the fair value recognition provisions of the previous SFAS
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
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 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,
2003 and 2004 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;
40
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; the timing and award of contracts by
the U.S. Department of Energy for the cleanup of waste sites
administered by it;
o the timing and award of contracts by the U.S. Department of Energy
for the cleanup of waste sites administered by it;
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; and
o 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------- ----------------------------------------------------------
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
The consolidated financial statements of the Company are included on
pages F-1 through F-36 of this Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
41
ITEM 9A. CONTROLS AND PROCEDURES
- -------- -----------------------
(a) Evaluation of disclosure controls and procedures
Based on their evaluations as of December 31, 2004, the chief executive
officer and chief financial officer of the Company have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC.
(b) Changes in internal controls
There were no significant changes in the Company's internal controls
over financial reporting or in other factors that could significantly affect
these internal controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 9B. OTHER INFORMATION
- -------- -----------------
On April 12, 2005, the Company authorized the issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.
The Series I Preferred shall have the following rights, privileges, and
limitations:
a) The conversion feature shall be exercisable immediately.
b) The conversion price of the Series I Preferred shall be determined
by the average closing price of Company's common stock in the
previous 10 trading days, but in no event shall the conversion
price be more than $0.0285 per share.
c) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
d) The Series I Preferred shall have a non-cumulative annual dividend
of 10%, payable in cash or shares of the Company's common stock at
the Company's election.
e) Dividend will be paid quarterly commencing May 15, 2005, to the
Holders of record of shares of the Series I Preferred Stock.
Dividends until February 14, 2006 shall accrue but shall not be
payable until February 15, 2006.
f) The Company will reserve 75 million shares of its common stock for
the conversion of the Series I Preferred.
On April 12, 2005, the Company entered into an exchange agreement with
The Shaar Fund, LTD (the "Shaar Exchange Agreement"). Under terms of the Shaar
Exchange Agreement, the Company agreed that Shaar will exchange all of its
right, title and interest in and to the remaining outstanding shares of the
Series E Preferred and Series F Preferred (including all other accrued and
unpaid dividends thereon) for 395,302 shares of the Company's Series I
Preferred. See "MD&A - Recent Sales of Unregistered Securities and MD&A -
Liquidity and Capital Resources."
42
Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and Restated Secured Promissory Note of the Company, amending and
restating a note originally issued June 13, 2001, which such Note has an
outstanding principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").
On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford"). In accordance
with the terms of the Milford Capital Purchase Agreement, Shaar purchased a
secured promissory note of the Company, initially issued to Milford on June 13,
2001, in the original principal amount of $500,000, which had an outstanding
principal balance on March 22, 2005 of $188,149 ("Old Milford Note"), together
with (i) all interest, additional obligations, forbearance fees, exit fees,
penalties and other amounts due and payable from time to time under or in
connection with the Old Milford Note, (iii) the Forbearance Amount in connection
with the Forbearance Agreement, dated January 30, 2004, between Milford and the
Company, and Shaar in which Shaar agreed to forgive payment from the Company to
Shaar of $300,000 of accrued and unpaid dividends on shares of the Company's
Series E Preferred held by Shaar ("Forgiven Dividends") and consented to the
transfer of the dollar value of the Forgiven Dividends to Milford as part of the
forbearance fee payable to Milford under the Forbearance Agreement of 2004.
Shaar and the Company have agreed that Shaar will exchange the
outstanding principal amount of the Old Shaar Note and the Old Milford Note
(including all accrued and unpaid interest, unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")
The New Shaar Convertible Note shall have the following rights,
privileges, and limitations:
a) The New Shaar Convertible Note bears an interest rate of 10% per
annum, which is payable in cash or shares of the Company's common
stock at the Company's election.
b) Interest shall accrue on the principal amount for a one year
period ("Deferral Period"). On March 22, 2006, the Company will
make a single lump sum payment to the holder in an amount equal to
all interest that accrued during the Deferral Period
c) Beginning April 15, 2006, and monthly thereafter on the 15th day
of each month until March 22, 2009 ("Maturity Date"), the Company
shall pay to Shaar all accrued and unpaid interest ("Interest
Payments")on the principal balance of the note accruing during the
prior month.
d) On the Maturity Date, the Company shall make a single lump sum
payment to Shaar equal to the outstanding principal balance of the
New Shaar Convertible Note ("Principal Balance"), together with
all accrued and unpaid interest.
e) At the option of Shaar, the outstanding Principal Balance may be
converted, either in whole or in part, into shares of the
Company's common stock.
f) The conversion price of the payment of the Principal Balance, the
Deferral Period, and the Interest Payments shall be determined by
the average closing price of Company's common stock in the 10
trading days preceding the conversion date,, but in no event shall
the conversion price be more than $0.0285 per share ("Conversion
Price").
43
g) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
h) The New Shaar Convertible Note may not be prepaid by the Company
prior to the Maturity Date.
The recipient of securities in this transaction represented its
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof, and appropriate
restrictive legends were affixed the certificates representing the shares issued
in this transaction. The Company made available to The Shaar Fund Ltd., written
information about the Company in accordance with Rule 502 of the Securities Act
and advised such recipient of the limitations on resale of such securities. In
addition, The Shaar Fund Ltd. was offered the opportunity, prior to exchanging
and/or purchasing any securities, to ask questions of, and receive answers from,
the Company concerning the terms and conditions of the transaction and to obtain
additional relevant information about the Company. Based upon the facts above,
the Company believed this transaction to be exempt from the registration
requirements of the Securities Act in reliance on Section 4 (2) thereof as a
transaction not involving any public offering of securities.
44
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
The names and ages of the executive officers and directors of the
Company, and their positions with the Company as of March 31, 2005 are as
follows:
Name Age Position
- -------------------------------------------------------------------------------
Dr. Shelby T. Brewer 68 Chairman of the Board and Chief
Executive Officer
- -------------------------------------------------------------------------------
O. Mack Jones 64 President & Chief Operating Officer
- -------------------------------------------------------------------------------
James M. DeAngelis 44 Chief Financial and Administrative
Officer, Treasurer
- -------------------------------------------------------------------------------
Bentley J. Blum 63 Director
- -------------------------------------------------------------------------------
Dr. Frank E. Coffman 63 Director
- -------------------------------------------------------------------------------
Paul E. Hannesson 64 Director
- -------------------------------------------------------------------------------
VADM Michael P. Kalleres 65 Director
- -------------------------------------------------------------------------------
Ambassador William A. Wilson 90 Director
- -------------------------------------------------------------------------------
DR. SHELBY T. BREWER, 68, Director since January 2001
o Chairman and CEO of the Company since April 2003.
o President of the Company from January 2001 to April 2003.
o Since April 2000, Mr. Brewer served as Chairman and CEO of
Solutions, a wholly owned subsidiary of the Company.
o From 1996 to March 2000, Dr. Brewer was President of S. Brewer
Enterprises, a privately held consulting firm he founded that is
engaged in supporting mergers and acquisitions, arranging private
and public financing, and forming joint ventures abroad.
o Served as President and CEO of the nuclear power businesses of ABB
Combustion Engineering, a public company, from 1985 to 1995.
o From 1981 to 1984, he served as Assistant Secretary of Energy in
the Reagan administration, holding the top nuclear post in the US
government.
o Dr. Brewer holds Ph.D. and M.S. degrees in nuclear engineering
from Massachusetts Institute of Technology; he holds a B.S. degree
in mechanical engineering and a B.A. in humanities from Columbia
University.
45
BENTLEY J. BLUM, 63, Director since March 1996
o Served as director of Environmental since 1984, Chairman of the
Board of Environmental, a public company, from 1984 to November
1996 and is its principal stockholder.
o Currently serves as a director of Separation, a wholly owned
subsidiary of Environmental. Currently serves as a director of
Solution, a wholly owned subsidiary of the Company.
o Sole stockholder and director of a number of corporations that
hold real estate interests, oil drilling and other corporate
interests that are privately held companies.
o Mr. Blum is the brother-in-law of Paul E. Hannesson, a director of
the Company.
DR. FRANK E. COFFMAN 63, Director since June 2002
o Mr. Coffman also currently serves as Senior Vice President,
Corporate Development Officer of Holmes & Narver, a public
company, involved in construction and engineering (August 1997 -
Present).
o Mr. Coffman served as Senior Vice President, Government &
Commercial Programs, IT Corporation, a public company, from
January 1995 to May 1997 and as Vice President, Government &
Commercial Programs, IT Corporation from 1984 to 1995.
o Mr. Coffman served as Deputy Assistant Secretary for Waste
Management for the Department of Energy ("DOE") from 1981 to 1984,
Director of the Office of Advanced Nuclear Systems, DOE from 1980
to 1981 and as a Director of the Division of Fusion Development
and Technology, DOE from 1978 to 1980.
o Mr. Coffman served as Chief of the Energy Research Development
Agency, Fusion Systems and Applications Studies Branch from 1970
to 1975.
o Mr. Coffman serves on the Board of Directors of Holmes and Narver,
a public company.
o Mr. Coffman holds a Ph.D. in nuclear physics and a MA degree in
plasma physics from Vanderbilt University. Mr. Coffman holds a BS
degree in physics from Western Kentucky University.
JAMES M. DEANGELIS, 44, Director since June 2002
o Mr. DeAngelis was appointed Vice President-Finance and Treasurer
of the Company in 1998 and promoted to Chief Financial and
Administrative Officer and Secretary in December 1998.
o Mr. DeAngelis also served as Senior Vice President-Sales &
Marketing of Separation, a public company, since July 1996.
o He also served as the President of CFC Technologies, formerly a
wholly owned subsidiary of the Company, since September 1994.
o He holds a MBA from the American Graduate School of International
Management. He holds B.S. degrees in Biology and Physiology from
the University of Connecticut.
46
PAUL E. HANNESSON, 62, Director since March 1996
o Mr. Hannesson served as Chairman, CEO and President of the Company
from 1996 to January 2001.
o He served as Director and Officer of Environmental, a public
company, from 1996 to July 1998.
o He serves as Chairman of the Board and CEO of Separation, a wholly
owned subsidiary of the Company.
o Mr. Hannesson is the brother-in-law of Bentley Blum, a director of
the Company.
O. MACK JONES, 64, Director since October 2003
o President and C.O.O. of the Company since April 2003.
o Since February 2001, Mr. Jones served as Acting President of
Advanced Sciences, a wholly owned subsidiary of the Company.
o From April 1998 to February 2001, Mr. Jones also has served as
Vice President of Field Operations of the Company since April
1998, managing its field treatability studies and commercial
projects.
o From June 1996 to April 1998, Mr. Jones served as a consultant to
the Company assisting in the commercialization of the solvated
electron technology.
o From 1991 to May 1996, Mr. Jones served as the founder and
principal executive officer of a privately held environmental
consulting company, Florida Vector Services, which provided both
consulting and hands-on remediation services primarily in
TSCA-related areas.
o From 1986 to 1991, Mr. Jones was Vice President-Operations with
Quadrex Environmental Company, a public company, managing the
company's field remediation businesses.
o Mr. Jones held several managerial operating positions in power
generation and distribution arenas during his twenty-six years of
service to General Electric Company, a public company.
o Mr. Jones holds a degree in mechanical engineering from
Mississippi State University and is registered as a professional
mechanical engineer.
VADM MICHAEL P. KALLERES, 63, Director since June 2002
o VADM Kalleres currently serves as President of Dare to Excel Inc.,
a privately held financial management and consulting firm (1998 to
present). He also served as President and Chief Executive Officer
of Global Associates, Ltd., Technology Services Group, a privately
held financial and corporate consulting firm, from 1994 to 1998.
o VADM Kalleres retired from active duty in September 1994 after 32
years as a naval officer.
o VADM Kalleres was awarded 18 personal/unit military/combat
decorations including the Defense Distinguished Service Medal (2
awards) and the U.S. Navy Distinguished Service Medal. He is also
a recipient of the Congressional, Ellis Island Medal of Honor.
47
o VADM Kalleres is a former member (1994-1998) of the Defense
Science Board, the Naval Studies Board of the National Academy of
Science. He is also a board member of the Dean's Advisory Council
at the Krannert School of Management-Purdue University, and the
National Board of the Salvation Army.
o VADM Admiral Kalleres was awarded a BS degree in Industrial
Management and Engineering from the Krannert School of
Management-Purdue University, and a MS degree in Political and
International Affairs from George Washington University.
AMBASSADOR WILLIAM A. WILSON, 89, Director since June 2002
o Mr. Wilson has been active in ranching and farming in California
and Mexico from 1980 to the present.
o Mr. Wilson was active in real estate development in California
from 1961 through 1980.
o Mr. Wilson served as Chief Engineer of Wilson Oil Tools, a
privately held company, from 1938 through 1955 and as Chairman
from 1955 to 1961.
o Mr. Wilson served as the Presidential Envoy to the Holy See from
1980 to 1984 and as Ambassador to the Holy See from 1984 to 1986.
o Mr. Wilson served on the Board of Directors of Jorgensen Steel
Co., a public company, from 1973 to 1984 and again from 1986 to
1991. Mr. Wilson also served on the Board of Directors of Pennzoil
Company, a public company, from 1983 to 1987.
o Mr. Wilson holds a BA in Mechanical Engineering from Stanford
University and a Doctor of Laws, Honoris Causa from Assumption
College, Barry University, and Pepperdine University.
Each director is elected to serve for a term of one year or until his
or her successor is duly elected and qualified. The Company's officers are
elected by, and serve at the pleasure of, the Board of Directors, subject to the
terms of any employment agreements. Messrs. Hannesson and Blum are
brothers-in-law. No family relationship exists among any other directors or
executive officers of the Company.
KEY EMPLOYEES
The names and ages of the key employees of the Company not listed
above, and their positions with the Company as of April 15, 2005, are as
follows:
Name Age Position
- ---- --- --------
Walter L. Foutz 51 Vice President of Operations, Advanced Sciences
Mr. Foutz was appointed Vice President of Operations of Advanced
Sciences in April 2005. Previously, Mr. Foutz served as Advanced Sciences'
Western Regional Manager from January of 2002. Previously, Mr. Foutz has been a
Sr. Project Manager with corporate and management responsibilities for Advanced
Sciences from December 2000 to January 2002.. From 1991 to 2000 Mr. Foutz was
the Environmental Program Manager for MDM Services Corporation, managing
environmental task-order contracts with numerous government clients. From
1986-1991 Mr. Foutz was the lead Senior Environmental Geologist on RFI/CMS and
RI/FS projects at Dyess Air Force Base, Texas; Fallon Naval Air Station,
Nevada;' Kansas City DOE Plant, Arizona Air National Guard Base, Tucson; US Army
Kwajelein Atoll, Marshall Islands.
48
Mr. Foutz received his B.S. in Geology in 1981. He has 24 years of
progressive professional experience in geological, hydro-geological, and
environmental consulting and contract management as a Department of Energy
contractor.
BOARD COMMITTEES
The Company's Board of Directors has (i) an Audit Committee and (ii) a
Compensation, Stock Option and Benefits Committee. The Company no longer
maintains an Executive and Finance Committee (the "Finance Committee"). On
August 30, 2000, the Board of Directors unanimously voted to abolish the Finance
Committee and determined that the entire Board of Directors would perform its
function.
As of December 31, 2004, the Compensation, Stock Option and Benefits
Committee, was composed of Dr. Frank E. Coffman, as Chairman, Michael P.
Kalleres, Ambassador William A. Wilson and Dr. Shelby T. Brewer. The
Compensation, Stock Option, and Benefits Committee has responsibility for
establishing and reviewing employee and consultant/advisor compensation, bonuses
and incentive compensation awards, administering and interpreting the Company's
1998 Stock Option Plan, as amended (the "1998 Plan"), and determining the
recipients, amounts and other terms (subject to the requirements of the 1998
Plan) of options which may be granted under the 1998 Plan and outside the 1998
Plan, from time to time and providing guidance to management in connection with
establishing additional benefit plans.
As of December 31, 2004, the Audit Committee was composed of Michael P.
Kalleres as Chairman, Dr. Frank E. Coffman, Ambassador William A. Wilson and
James M. DeAngelis. The responsibilities of the Audit Committee include
selecting, engaging and determining the compensation of the firm of independent
accountants to be retained by the Company, reviewing with the Company's
independent accountants the scope and results of their audits, reviewing with
the independent accountants and management the Company's accounting and
reporting principles, policies and practices, as well as the Company's
accounting, financial and operating controls and staff, supervising the
Company's policies relating to business conduct and dealing with conflicts of
interest relating to officers and directors of the Company.
AUDIT COMMITTEE AND FINANCIAL EXPERT
Michael P. Kalleres currently serves as the Chairman of the Audit
Committee and the Board of Directors has determined him to be an audit committee
financial expert for the Company. Mr. DeAngelis qualifies as an audit committee
financial expert but is not independent of management.
COMPENSATION OF DIRECTORS
The Company pays non-management directors a director's fee in the
amount of $375 per meeting for attendance at the meetings of the Board of
Directors, and the Company reimburses the directors for actual expenses incurred
in respect of such attendance. The Company does not separately compensate
employees for serving as directors.
49
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the outstanding shares
of the Company's common stock, to file initial reports of beneficial ownership
and reports of changes in beneficial ownership of shares of common stock with
the Commission. Such persons are required by regulations promulgated under the
Exchange Act to furnish the Company with copies of all Section 16(a) forms filed
with the Commission.
Based on representations from the officers and directors, the Company
believes that no director, executive officer or holder of more than 10% of the
outstanding shares of common stock failed to file on a timely basis the reports
required by Section 16(a) of the Exchange Act during, or with respect to, the
year ended December 31, 2004.
CODE OF ETHICS
The Company's board of directors has established and adopted a code of
ethics in 2004 applicable to its senior executives, financial officers and
directors. See Exhibit 14.01 - "Code of Ethics of Commodore Applied
Technologies, Inc."
50
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
SUMMARY COMPENSATION
The following table sets forth the amount of all compensation paid by
the Company and/or its affiliates and allocated to the Company's operations for
services rendered during each of 2004, 2003 and 2002 to all persons serving as
the Company's Chief Executive Officer during 2004, 2003, and 2002 to each of the
Company's four most highly compensated executive officers other than the Chief
Executive Officer whose total salary and bonus compensation exceeded $100,000
during any such year.
Summary Compensation Table
------------------------------------------------ -----------------------------------------
Annual Compensation Long-Term Compensation
Other
Annual Restricted Securities LTIP All Other
Compen- Stock Under- Pay- Compen-
Name and Principal Salary Bonus sation Award(s) Lying outs sation
Position Year ($) ($) ($) ($) Options (#) ($) ($)
---------------------- ------------ --------- ------- ------------- ------------ ---------------- ------ -----------
(a) (b) (c) (d) (e) (g) (g) (h) (i)
Dr. Shelby T. Brewer (1) 2004 -0-(2) -0- -0- -0- -0-(3) -0- 30,000(4)
Chief Executive Officer 2003 -0-(2) -0- -0- -0- 39,450,846(3) -0- 30,000(4)
2002 69,677(2) -0- -0- -0- 2,865,200(3) -0- 30,000(4)
O. Mack Jones(5) -0-
President & 2004 132,000(6) -0- -0- -0- -0-(7) -0- -0-
Chief Operating Officer 2003 103,938(6) -0- -0- -0- 10,240,625(7) -0- -0-
2002 110,019(6) -0- -0- -0- 1,759,375(7) -0- -0-
James M. DeAngelis(8) 2004 103,938(9) -0- -0- -0- -0-(10) -0- -0-
Senior Vice President & 2003 12,480(9) -0- -0- -0- 20,641,812(10) -0- -0-
Chief Financial Officer 2002 114,175(9) -0- -0- -0- 1,841,688(10) -0- -0-
(1) Mr. Brewer served as Chief Executive Officer and President of
Solutions and a director of the Company since April 2000. Mr.
Brewer assumed the positions of Chairman, Chief Executive Officer
and President of the Company from January 2001 through October
2003 and continues to serves as Chief Executive Officer and a
director since October 2003 to present.
(2) Represents the amount of Mr. Brewer's base salary paid by the
Company. Mr. Brewer's base salary for 2004 was $285,000, of which
$285,000 was originally deferred until December 31, 2004, and
remains unpaid as of March 31, 2005. Mr. Brewer's base salary for
2003 from January through April was $250,000, and from May through
December was $285,000 of which $271,000 was originally deferred
until December 31, 2003, and remains unpaid as of March 31, 2005.
Mr. Brewer's base salary for 2002 was $250,000 of which $184,231
was originally deferred until December 31, 2002, and remains
unpaid as of March 31, 2005. Mr. Brewer's base salary for 2001was
$250,000 of which $160,000 annually originally deferred until
December 31, 2001, and remains unpaid as of March 31, 2005. Mr.
Brewer's base salary for 2000 was $90,000.
(3) Represents shares of common stock underlying stock options granted
to Mr. Brewer by the Company in his capacity as an officer and
director of the Company. Mr. Brewer canceled prior options for
840,000 shares of common stock voluntarily on October 2, 2002.
(4) Represents a $1,000,000 Life Insurance Policy in the name of Dr.
Shelby T. Brewer paid on behalf of Mr. Brewer by the Company.
51
(5) Mr. Jones served as Vice President and Field Operations Manager of
Solutions from April 1998 to January 2001 and as President of
Advanced Sciences from February 2001 to present, and President and
Chief Operating Officer from April 2003 to present. Mr. Jones has
served as a director of the Company since October 2003.
(6) Represents the amount of Mr. Jones' base salary paid by the
Company. Mr. Jones' total base salary for 2004 was $250,000 of
which $118,000 originally deferred until December 31, 2004, and
remains unpaid as of March 31, 2005. Mr. Jones' total base salary
for 2003 from January through April was $165,000, and from May
through December was $250,000 of which $115,485 originally
deferred until December 31, 2003, and remains unpaid as of March
31, 2005. Mr. Jones' total base salary for 2002 was $165,000 of
which $60,581 originally deferred until December 31, 2002, and
remains unpaid as of March 31, 2005. Mr. Jones' total base salary
for 2001 was $165,000 of which $33,000 originally deferred until
December 31, 2001, and remains unpaid as of March 31, 2005. Mr.
Jones' base salary for 2000 and 1999 was $150,000.
(7) Represents shares of common stock underlying stock options granted
to Mr. Jones the Company in his capacity as an officer of the
Company. Mr. Jones canceled prior options for 437,500 shares of
common stock voluntarily on October 2, 2002.
(8) Mr. DeAngelis served as Vice President and Treasurer of the
Company from July 1998 to December 1999 and as Sr. Vice President,
Chief Financial and Administrative Officer, Treasurer and
Secretary from December 1999 to present. Mr. DeAngelis has served
as a director of the Company since June 2002.
(9) Represents the amount of Mr. DeAngelis' base salary paid by the
Company. Mr. DeAngelis' total base salary for 2004 was $225,000 of
which $121,062 was originally deferred until December 31, 2004,
and remains unpaid as of March 31, 2005. Mr. DeAngelis' total base
salary for 2003 from January through April was $165,000, and from
May through December was $225,000 of which $194,520 was originally
deferred until December 31, 2003, and remains unpaid as of March
31, 2005. Mr. DeAngelis' total base salary for 2002 was $165,000
of which $55,985 was originally deferred until December 31, 2002,
and remains unpaid as of March 31, 2005. Mr. DeAngelis' total base
salary for 2001 was $165,000 of which $33,000 was originally
deferred until December 31, 2001, and remains unpaid as of March
31, 2005. Mr. DeAngelis' base salary for 2000 and 1999 was
$165,000 and $145,000 respectively.
(10) Represents shares of common stock underlying stock options granted
to Mr. DeAngelis by the Company in his capacity as an officer of
the Company. Mr. DeAngelis canceled prior options for 681,250
shares of common stock voluntarily on October 2, 2002.
52
STOCK OPTIONS
No options were granted during the year ended December 31, 2004 to any
individuals listed in the Summary Compensation Table pursuant to the Company's
1998 Stock Option Plan, as amended, (the "1998 Plan") and no options were
granted to any individuals outside of the 1998 Plan. The Company has no
outstanding stock appreciation rights and granted no stock appreciation rights
during the year ended December 31, 2004.
The following table sets forth certain information concerning the
exercise of options and the value of unexercised options held under the 1998
Plan and outside of the 1998 Plan at December 31, 2004 by the individuals listed
in the Summary Compensation Table.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares Value at Fiscal Year-End(#) at Fiscal Year-End($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Un-exercisable Un-exercisable(2)
- ----------------------------------- ------------------ --------------- ------------------------------ --------------------------
(a) (b) (c) (d) (e)
Dr. Shelby T. Brewer............ -0- -0- 40,316,046 / 40,316,046 -0- /-0-
James M. DeAngelis.............. -0- -0- 21,483,500 / 21,483,500 -0- / -0-
O. Mack Jones................... -0- -0- 12,000,000 / 12,000,000 -0- / -0-
(1) Represents the difference between the last reported sale price of
the Common Stock on December 31, 2004 ($0.013), and the exercise
prices of the options (ranging from $0.0285 to $0.07) multiplied
by the applicable number of options exercised.
(2) Represents the difference between the exercise price and the
closing price on December 31, 2004, multiplied by the applicable
number of securities.
53
EMPLOYMENT AGREEMENTS
The Company has no employment contracts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The individuals who served as members of the Compensation, Stock Option
and Benefits Committee (the "Compensation Committee") during the year ended
December 31, 2004 were Dr. Frank E. Coffman (Chairman), VADM Michael P.
Kalleres, Ambassador William A. Wilson and Dr. Shelby T. Brewer.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee was established in November 1996 and is
responsible for, among other things, establishing the compensation policies
applicable to executive officers of the Company. The Compensation Committee was
composed of Dr. Frank E. Coffman (Chairman), VADM Michael P. Kalleres,
Ambassador William A. Wilson and Dr. Shelby T. Brewer at December 31, 2004, all
of whom, with the exception of Dr. Shelby T. Brewer, were non-employee Directors
of the Company. All decisions of the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by, and are
subject to the final approval of, the full Board of Directors of the Company.
Set forth below is a report prepared by Mr. Coffman, Mr. Kalleres and Mr. Wilson
in their capacities as members of the Compensation Committee at December 31,
2004, addressing the Company's compensation policies for 2004 as they affected
the Company's executive officers.
Overview and Philosophy
The Company's executive compensation program is designed to be linked
to corporate performance and returns to stockholders. Of particular importance
to the Company is its ability to grow and enhance its competitiveness for the
rest of the decade and beyond. Shorter-term performance, although scrutinized by
the Compensation Committee, stands behind the issue of furthering the Company's
strategic goals. To this end, the Company has developed an overall compensation
strategy and specific compensation plans that tie a significant portion of
executive compensation to the Company's success in meeting specified performance
goals.
The objectives of the Company's executive compensation program are to:
o attract, motivate and retain the highest quality executives;
o motivate them to achieve tactical and strategic objectives in a
manner consistent with the Company's corporate values; and
o link executive and stockholder interest through equity-based plans
and provide a compensation package that recognizes individual
contributions as well as overall business results.
54
To achieve these objectives, the Company's executive compensation
program is designed to:
o focus participants on high priority goals to increase stockholder
value;
o encourage behavior that exemplifies the Company's values relating
to customers, quality of performance, employees, integrity,
teamwork and good citizenship;
o assess performance based on results and pre-set goals that link
the business activities of each individual to the goals of the
Company; and
o increase stock ownership to promote a proprietary interest in the
success of the Company.
Executive Officer Compensation
Each year the Compensation Committee conducts a full review of the
Company's executive compensation program. This review includes a comprehensive
evaluation of the competitiveness of the Company's compensation program and a
comparison of the Company's executive compensation to certain other public
companies, which in the view of the Compensation Committee represent the
Company's most direct competitors for executive talent. It is the Compensation
Committee's policy to target overall compensation for executive officers of the
Company taking into account the levels of compensation paid for such positions
by such other public companies. A variety of other factors, however, including
position and time in position, experience, and both Company performance and
individual performance, will have an impact on individual compensation amounts.
The key elements of the Company's executive compensation program in
2004 consisted of base salary, annual incentive compensation and long-term
incentive compensation in the form of stock options. The Compensation
Committee's policies with respect to each of these elements, including the basis
for the compensation awarded to the Company's Chief Executive Officer, are
discussed below.
Base Salaries. Base salaries for executive officers are established by
evaluating, on an annual basis, the performance of such individuals (which
evaluation involves management's consideration of such factors as
responsibilities of the positions held, contribution toward achievement of the
Company's strategic plans, attainment of specific individual objectives and
interpersonal managerial skills), and by reference to the marketplace for
executive talent, including a comparison to base salaries for comparable
positions at other similar public companies.
In 2004, total compensation was paid to executives primarily based upon
individual performance and the extent to which the business plans for their
areas of responsibility were achieved or exceeded. On balance, performance goals
were substantially met or exceeded and therefore compensation was paid
accordingly.
Mr. Brewer, the Chairman of the Board, and Chief Executive Officer of
the Company received annual compensation based upon, among other things,
individual performance and the extent to which the business plans for his areas
of responsibility were achieved or exceeded. Mr. Brewer received a base salary
at an annual rate of $285,000 in 2004, of which $285,000 annually was deferred
until December 31, 2004, and remains unpaid as of April 14, 2005.
55
The members of the Compensation Committee establish the amount actually
received by Mr. Brewer each year as base salary for services rendered to the
Company and its affiliates. In establishing Mr. Brewer's base salary for 2004,
the Compensation Committee took into account the salaries of chief executive
officers at other similar public companies, future objectives and challenges,
and Mr. Brewer's individual performance, contributions and leadership. The
Compensation Committee reviewed in detail Mr. Brewer's achievement of his 2003
goals and his individual contributions to the Company and its affiliates. The
Compensation Committee concluded that he had achieved his 2003 goals and had
provided a leadership role in achieving the Company's and its affiliates'
strategic priorities for 2003. The Compensation Committee also considered Mr.
Brewer's decisive management of operational and strategic issues, his drive to
reinforce a culture of innovation and his ability and dedication to enhance the
long-term value of the Company and its affiliates for their respective
stockholders. In making its salary decisions with respect to Mr. Brewer, the
Compensation Committee exercised its discretion and judgment based on the above
factors, and no specific formula was applied to determine the weight of each
factor.
Mr. Brewer's base salary was not increased in 2004 and remains $285,000
per year.
Annual Incentive Bonus. Annual incentive bonuses for executive officers
are intended to reflect the Compensation Committee's belief that a significant
portion of the annual compensation of each executive officer should be
contingent upon the performance of the Company. During 2004, no annual incentive
bonuses were paid to the individuals named in the Summary Compensation Table.
Stock Options. The Compensation Committee has the power to grant stock
options under the 1998 Plan and outside of the 1998 Plan. With respect to
executive officers, it has been the Compensation Committee's practice to grant,
on an annual basis, stock options that vest at the rate of 20% upon grant and
20% in each calendar year thereafter for four years, and that are exercisable
over a ten-year period at exercise prices per share set at the fair market value
per share on the date of grant. Generally, the executives must be employed by
the Company at the time the options vest in order to exercise the options and,
upon announcement of a Change in Control (pursuant to and as defined in the 1998
Plan), such options become immediately exercisable. The Compensation Committee
believes that stock option grants provide an incentive that focuses the
executives' attention on managing the Company from the perspective of an owner
with an equity stake in the business. The Company's stock options are tied to
the future performance of the Company's stock and will provide value to the
recipient only when the price of the Company's stock increases above the option
grant price.
A total of zero and 77,081,358 and 9,847,218 stock options were granted
pursuant to the 1998 Plan and outside the 1998 Plan in 2004, 2003 and 2002
respectively. Zero and 39,450,846 and 2,865,200 of such options were granted to
Mr. Brewer in 2004, 2003 and 2002 respectively, and Zero and 30,882,437, and
3,601,063 of such options were granted (in the aggregate) to other individuals
named in the Summary Compensation Table in 2004, 2003 and 2002 respectively. The
number of stock options granted in 2004, 2003 and 2002 were determined by
reference to the long-term compensation for comparable positions at other
similar public companies and based upon an assessment of individual performance.
56
Impact of Section 162(m) of the Internal Revenue Code
The Compensation Committee's policy is to structure compensation awards
for executive officers that will be consistent with the requirements of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Section
162(m) limits the Company's tax deduction to $1.0 million per year for certain
compensation paid in a given year to the Chief Executive Officer and the four
highest compensated executives other than the Chief Executive Officer named in
the Summary Compensation Table. According to the Code and corresponding
regulations, compensation that is based on attainment of pre-established,
objective performance goals and complies with certain other requirements will be
excluded from the $1.0 million deduction limitation. The Company's policy is to
structure compensation awards for covered executives that will be fully
deductible where doing so will further the purposes of the Company's executive
compensation program. However, the Compensation Committee also considers it
important to retain flexibility to design compensation programs that recognize a
full range of performance criteria important to the Company's success, even
where compensation payable under such programs may not be fully deductible. The
Company expects that all compensation payments in 2004 to the individuals listed
in the Summary Compensation Table will be fully deductible by the Company.
Conclusion
The Compensation Committee believes that the quality of executive
leadership significantly affects the long-term performance of the Company and
that it is in the best interest of the stockholders to compensate fairly
executive leadership for achievement meeting or exceeding the high standards set
by the Compensation Committee, so long as there is a corresponding risk when
performance falls short of such standards. A primary goal of the Compensation
Committee is to relate compensation to corporate performance. Based on the
Company's performance in 2004, the Compensation Committee believes that the
Company's current executive compensation program meets such standards and has
contributed, and will continue to contribute, to the Company's and its
stockholders' long-term success.
COMPENSATION, STOCK OPTION AND BENEFITS COMMITTEE
Ambassador William A. Wilson (Chairman)
Dr. Frank E. Coffman
Paul E. Hannesson
Michael P. Kalleres
The Report of the Compensation Committee on Executive Compensation
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report into any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
57
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT EQUITY
---------------------------------------------------------------------
COMPENSATION PLAN INFORMATION
-----------------------------
The following table reflects the number of shares of our common stock
that, as of December 31, 2004, were outstanding and available for issuance under
compensation plans that have previously been approved by our stockholders as
well as compensation plans that have not previously been approved by our
stockholders.
Number of Securities
Remaining Available for
Weighted-Average Future Issuance Under
Number of Securities to be Exercise Price of Equity Compensation
Issued Upon Exercise of Outstanding Options, Plans (Excluding
Outstanding Options, Warrants and Securities Reflected in
Warrants and Rights Rights ($) Column (a))
(a) (b) (c)
Plan Category
Equity Compensation Plans
Approved by Security
Holders 12,692,312 0.06 5,307,688
(1)(2)..................
Equity Compensation Plans not
Approved by Security 102,507,158 0.03 -0-
Holders (3)(4) ............
Total.......................... 115,199,470 0.04 5,307,688
-----------------------------------------------------------------------------------------
1. Consists of options issuable under the 1998 Stock Option Plan, as
amended, as approved by the stockholders on September 12, 2003.
2. Consists of options issuable outside of the 1998 Stock Option
Plan, as amended as approved by the stockholders on September 12,
2003.
3. Includes options to purchase a total of 75,151,358 shares issued
to Mr. Brewer, Mr. DeAngelis, Mr. Jones, and Mr. Hannesson in
November 2003 outside of the 1998 Stock Option Plan, as amended.
4. Includes warrant to purchase a total of 27,355,800 shares issued
to Mr. Blum in November 2003.
58
The following is a brief description of the material features of the
equity compensation plans not approved by our stockholders that are reflected in
the chart above.
On November 19, 2003, our Board of Directors approved the issuance of
stock options outside of the Company's 1998 Stock Option Plan, as amended, and
warrants for the Company's common stock to executive officers and directors of
the Company. A total of 75,151,358 fully vested, non-qualified stock options
were issued with an exercise price of $0.0285 and an expiration date of December
14, 2008 (as described in footnote 3 above). A warrant for a total of 27,355,800
shares of the Company's common stock was issued to a director with an exercise
price of $0.0285 and an expiration date of November 18, 2008 (as described in
footnote 4 above). The purpose of these options and warrant is to advance the
interests of our stockholders by enhancing our ability to attract, retain and
motivate persons who make important contributions to the Company by providing
them with equity ownership opportunities that better align their interests with
those of our stockholders.
Ten Year Option Repricings
The following table sets forth information regarding options held by
the Commodore Named Executive Officers and Directors that were voluntarily
surrendered by such persons, after which the Company issued new options to such
persons at current fair market value. The Compensation Committee approved these
transactions in order to restore the incentive value of such options.
Number of Exercise
Securities Price of Length of
Underlying Market Price of Option at New Original
Options Stock at Time of Time of Exercise Option Term
Repriced or Repricing or Repricing or Price At Date of
Date Amended (#) Amendment ($)(1) Amendment ($) ($)(2) Repricing or Amendment
---- ------------ ------------------ ------------- -------- ----------------------
Dr. Shelby T. 10/02/02 200,000 $0.07 $0.288 $0.07 12/14/08
Brewer
10/02/02 500,000 $0.07 $1.00 $0.07 12/14/08
10/02/02 140,000 $0.07 $1.06 $0.07 12/14/08
James M. DeAngelis 10/02/02 181,250 $0.07 $0.4375 $0.07 12/14/08
10/02/02 300,000 $0.07 $0.288 $0.07 12/14/08
10/02/02 200,000 $0.07 $0.688 $0.07 12/14/08
O. Mack Jones 10/02/02 187,500 $0.07 $0.4375 $0.07 12/14/08
10/02/02 100,000 $0.07 $0.288 $0.07 12/14/08
10/02/02 150,000 $0.07 $0.688 $0.07 12/14/08
Paul E. Hannesson 10/02/02 147,500 $0.07 $0.4375 $0.07 12/14/08
10/02/02 1,000,000 $0.07 $0.50 $0.07 12/14/08
Bentley J. Blum 10/02/02 70,000 $0.07 $0.4375 $0.07 12/14/08
10/02/02 70,000 $0.07 $1.00 $0.07 12/14/08
-------------------------
(1) Represents the closing price of our common stock on October 2,
2002 as reported by the AMEX Stock Market ($0.07).
(2) In October 2002, Mr. Brewer, the Company's Chairman of the Board
and Chief Executive Officer, voluntarily surrendered options to
purchase 840,000 shares of our common stock, after which the
Company issued to him options to purchase 865,200 shares of our
common stock so long as Mr. Brewer continues to be an eligible
participant under the 1998 Stock Option Plan, as amended. The
exercise price of the new options is equal to 100% of the fair
market value of our common stock on the date of grant of the new
options, as determined by the last reported sales price of our
common stock as reported by the AMEX Stock Market on the date we
granted the new options.
59
(3) In October 2002, Mr. DeAngelis, the Company's Chief Financial and
Administrative Officer, Treasurer and Secretary, voluntarily
surrendered options to purchase 681,250 shares of our common
stock, after which the Company issued to him options to purchase
681,250 shares of our common stock so long as Mr. DeAngelis
continues to be an eligible participant under the 1998 Stock
Option Plan, as amended. The exercise price of the new options is
equal to 100% of the fair market value of our common stock on the
date of grant of the new options, as determined by the last
reported sales price of our common stock as reported by the AMEX
Stock Market on the date we granted the new options.
(4) In October 2002, Mr. Jones, the Company's President and Chief
Operating Officer, voluntarily surrendered options to purchase
437,500 shares of our common stock, after which the Company issued
to him options to purchase 437,500 shares of our common stock so
long as Mr. Jones continues to be an eligible participant under
the 1998 Stock Option Plan, as amended. The exercise price of the
new options is equal to 100% of the fair market value of our
common stock on the date of grant of the new options, as
determined by the last reported sales price of our common stock as
reported by the AMEX Stock Market on the date we granted the new
options.
(5) In October 2002, Mr. Hannesson, the Company's former Chairman of
the Board and Chief Executive Officer, voluntarily surrendered
options to purchase 1,147,500 shares of our common stock, after
which the Company issued to him options to purchase 1,147,500
shares of our common stock so long as Mr. Hannesson continues to
be an eligible participant under the 1998 Stock Option Plan, as
amended. The exercise price of the new options is equal to 100% of
the fair market value of our common stock on the date of grant of
the new options, as determined by the last reported sales price of
our common stock as reported by the AMEX Stock Market on the date
we granted the new options.
(6) In October 2002, Mr. Blum voluntarily surrendered options to
purchase 140,000 shares of our common stock, after which the
Company issued to him options to purchase 144,200 shares of our
common stock so long as Mr. Blum continues to be an eligible
participant under the 1998 Stock Option Plan, as amended. The
exercise price of the new options is equal to 100% of the fair
market value of our common stock on the date of grant of the new
options, as determined by the last reported sales price of our
common stock as reported by the AMEX Stock Market on the date we
granted the new options.
60
SHAREHOLDER RETURN PERFORMANCE
This graph compares our total stockholder returns, the Standard and
Poor's 500 Composite Stock Index, the Standard and Poor's Small Cap Composite
Environmental Services Stock Index, the Standard and Poor's 500 Composite
Environmental Services Stock Index, and the Standard and Poor's 500 Super
Composite Environmental Services Stock Index. The graph assumes $100 invested at
the per share closing price of the common stock of Commodore Applied
Technologies, Inc. on the American Stock Exchange, from January 1, 1999 through
March 6, 2003, and then on the Over the Counter Bulletin Board from that point
forward.
Comparison of initial $100 investment in various indices versus the common stock of the Company.
- ---------------------- ------------- ------------- ------------- -------------- -------------
12/29/2000 12/28/2001 12/27/2002 12/31/2003 12/31/2004
- ---------------------- ------------- ------------- ------------- -------------- -------------
CXII 30.77 16.00 8.62 1.60 1.23
- ---------------------- ------------- ------------- ------------- -------------- -------------
S&P 500 89.86 79.02 59.58 75.68 82.36
- ---------------------- ------------- ------------- ------------- -------------- -------------
S&P Small Cap
Environmental
Services 164.98 141.80 114.28 126.59 171.13
- ---------------------- ------------- ------------- ------------- -------------- -------------
S&P 500 Environmental
Services 161.92 185.26 129.85 170.66 158.82
- ---------------------- ------------- ------------- ------------- -------------- -------------
S&P Super
Composite
Environmental
Services 162.53 180.58 134.78 172.61 174.14
- ---------------------- ------------- ------------- ------------- -------------- -------------
61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of March 31,
2005, with respect to the beneficial ownership of common stock by each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of common stock of the Company. Unless otherwise indicated,
the owners have sole voting and investment power with respect to their
respective shares.
Number of Shares Percentage of Outstanding
Name and Address of of Common Stock Shares of Common Stock
Beneficial Owner Beneficially Owned(4) Beneficially Owned
Dr. Shelby T. Brewer (1)...... 62,009,593(5) 24.12%
Bentley J. Blum(2)............ 35,019,680(6) 13.13%
James M. DeAngelis (2)........ 22,582,000(7) 8.81%
O. Mack Jones (3)............. 12,000,000(8) 4.68%
Commodore Environmental
Services, Inc. (2)............ 6,939,802(9) 2.71%
Paul E. Hannesson (2)......... 6,714,721(10) 2.56%
(1) The address of Dr. Shelby T. Brewer is 2151 Jamieson Street,
Carlyle Towers, Suite 308, Alexandria, Virginia 22314.
(2) The address of Commodore Environmental Services, Inc., Bentley J.
Blum, Paul E. Hannesson, and James M. DeAngelis is 150 East 58th
Street, Suite 3238, New York, New York 10155.
(3) The address of O. Mack Jones is 507 Knight Street, Suite B,
Richland, Washington 99352.
(4) As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as
consisting of sole or shared voting power (including the power to
vote or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the
next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment rights.
(5) Consists of: (i) 3,428 shares of common stock (ii) 490,695 shares
of our common stock representing the balance held of the common
stock issued pursuant to the Restated Brewer Note, dated as of
March 15, 2001, between the Company and SB Enterprises and a
subsequent conversion notice for 50% of the outstanding principal
dated as of April 9, 2001; (iii) 865,200 shares of the Company
common stock underlying currently exercisable options granted to
Mr. Brewer by the Company under the 1998 Plan; (iv) 2,000,000
shares of the Company common stock underlying currently
exercisable options granted to Mr. Brewer by the Company outside
of the Company's 1998 Plan; (v) 1,000,000 shares of our common
stock underlying a currently exercisable two year warrant at an
exercise price of $0.05 per share granted to S.B. Enterprises in
connection with the extension of the Brewer Note until January 1,
2004; and (vi) 39,450,846 shares of our common stock underlying a
currently exercisable five year warrant at an exercise price of
$0.0285 per share granted to Mr. Brewer outside of the Company's
1998 Plan.
(6) Consists of: (i) 2,500,000 shares of our common stock issued to
Bentley J. Blum in exchange for $125,000 of debt owed to Mr. Blum
from the Company; (ii) 144,200 shares of the Company common stock
underlying currently exercisable options granted to Mr. Blum by
the Company under the Company's 1998 Plan; (iii) 27,355,800 shares
62
of our common stock underlying a currently exercisable five year
warrant at an exercise price of $0.0285 per share granted to the
Blum Asset Trust by the Company in connection with the Blum Loan
and services provided by the Blum Asset Trust over the last five
years; and (iv) Mr. Blum's indirect beneficial ownership of common
stock based upon his beneficial ownership of 28,479,737 shares and
his spouse's ownership of 2,000,000 shares of Environmental common
stock, representing together 37.74% of the outstanding shares of
Environmental common stock at April 14, 2005, and 4,500,000 shares
of Environmental common stock underlying currently exercisable
stock options, representing together 41.02% of the outstanding
shares of Environmental. Does not include 450,400 shares of
Environmental common stock owned by Simone Blum, the mother of Mr.
Blum, and 385,000 shares of Environmental common stock owned by
Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any
beneficial interest in the shares of Environmental common stock
owned by his spouse, mother and father.
(7) Consists of (i) 16,500 shares of common stock; (ii) 841,688 shares
of common stock underlying currently exercisable stock options
granted to Mr. James M. DeAngelis by the Company under the
Company's 1998 Plan; (iii) 1,000,000 shares of common stock
underlying currently exercisable stock options granted to Mr.
DeAngelis by the Company outside of the Company's 1998 Plan; (iv)
Mr. DeAngelis' indirect beneficial ownership of common stock based
upon his ownership of 580,000 shares of Environmental; and (vi)
20,641,812 shares of our common stock underlying a currently
exercisable five year warrant at an exercise price of $0.0285 per
share granted to Mr. DeAngelis outside of the 1998 Plan.
(8) Consists of (i) 1,759,375 shares of common stock underlying
currently exercisable stock options granted to Mr. O. Mack Jones
by the Company under the Company's 1998 Plan; and (ii) 10,240,625
shares of our common stock underlying a currently exercisable five
year warrant at an exercise price of $0.0285 per share granted to
Mr. Jones outside of the 1998 Plan.
(9) Consists of 6,939,802 shares of our common stock currently held by
Environmental.
(10) Consists of: (i) 1,181,925 shares of common stock underlying
currently exercisable stock options granted to Mr. Paul E.
Hannesson by the Company under the 1998 Plan; (ii) 4,818,075
shares of our common stock underlying a currently exercisable five
year warrant at an exercise price of $0.0285 per share granted to
Mr. Hannesson outside of the Company's 1998 Plan; and (iii) Mr.
Hannesson's indirect beneficial ownership of common stock based
upon his ownership of an aggregate of (a) 2,650,000 shares of
Environmental common stock owned by Suzanne Hannesson, the spouse
of Mr. Hannesson, (b) 2,650,000 shares of Environmental common
stock owned by the Hannesson Family Trust (Suzanne Hannesson and
John D. Hannesson, trustees) for the benefit of Mr. Hannesson's
spouse and (c) 500,000 shares of Environmental common stock in
exchange for options to purchase 950,000 shares of Environmental
common stock, issued to Hannesson Family Trust, representing
together 7.18% of the outstanding shares of Environmental common
stock as of April 14, 2005, and (d) currently exercisable options
to purchase 525,705 shares of Environmental common stock,
representing together 7.78% of the outstanding shares of
Environmental common stock. Does not include (i) 40,000 shares of
the Company's common stock owned by each of Jon Paul and Krista
Hannesson, the adult children of Mr. Hannesson; and (ii) 1,000,000
shares of Environmental common stock owned by each of Jon Paul and
Krista Hannesson. Mr. Hannesson disclaims any beneficial interest
in the shares of Environmental common stock owned by or for the
benefit of his spouse and children. It also does not include
1,000,000 shares of common stock underlying stock options granted
to Mr. Hannesson by the Company that are not currently
exercisable.
63
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of common stock as of March 31, 2005 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of common stock of the Company, (ii) each Director, (iii)
each individual listed in the Summary Compensation Table herein, and (iv) all
executive officers and Directors of the Company as a group, as reported by such
persons. Unless otherwise indicated, the owners have sole voting and investment
power with respect to their respective shares.
Number of Shares Percentage of Outstanding
Name and Address of of Common Stock Shares of Common Stock
Beneficial Owner Beneficially Owned(4) Beneficially Owned
Dr. Shelby T. Brewer (1)............. 62,009,593(5) 24.12%
Bentley J. Blum(2)................... 35,019,680(6) 13.13%
James M. DeAngelis (2)............... 22,582,000(7) 8.81%
O. Mack Jones (3).................... 12,000,000(8) 4.68%
Commodore Environmental
Services, Inc. (2)................... 6,939,802(9) 2.71%
Paul E. Hannesson (2)................ 6,714,721(10) 2.56%
Dr. Frank E. Coffman, PhD (2)........ 450,000(11) *
VADM Michael P. Kalleres (2)......... 450,000(12) *
Ambassador William A. Wilson (2)..... 450,000(13) *
All executive officers and Directors 137,849,898 53.85%
as a group (8 persons)
* Percentage ownership is less than 1%.
(1) The address of Dr. Shelby T. Brewer is 2151 Jamieson Street,
Carlyle Towers, Suite 308, Alexandria, Virginia 22314.
(2) The address of Commodore Environmental Services, Inc., Bentley J.
Blum, Paul E. Hannesson, and James M. DeAngelis is 150 East 58th
Street, Suite 3238, New York, New York 10155.
(3) The address of O. Mack Jones is 507 Knight Street, Suite B,
Richland, Washington 99352.
(4) As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as
consisting of sole or shared voting power (including the power to
vote or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the
next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment rights.
(5) Consists of: (i) 3,428 shares of common stock (ii) 490,695 shares
of our common stock representing the balance held of the common
stock issued pursuant to the Restated Brewer Note, dated as of
March 15, 2001, between the Company and SB Enterprises and a
subsequent conversion notice for 50% of the outstanding principal
dated as of April 9, 2001; (iii) 13,189,842 shares of our common
stock representing the balance held of the common stock issued
pursuant to the Restated Brewer Note, dated as of March 15, 2001,
between the Company and SB Enterprises and a subsequent conversion
64
notice for the remaining 50% of the outstanding principal dated as
of March 17, 2003 (iv) 865,200 shares of the Company common stock
underlying currently exercisable options granted to Mr. Brewer by
the Company under the 1998 Plan; (v) 2,000,000 shares of the
Company common stock underlying currently exercisable options
granted to Mr. Brewer by the Company outside of the Company's 1998
Plan; (vi) 1,000,000 shares of our common stock underlying a
currently exercisable two year warrant at an exercise price of
$0.05 per share granted to S.B. Enterprises in connection with the
extension of the Brewer Note until January 1, 2004; and (vii)
39,450,846 shares of our common stock underlying a currently
exercisable five year warrant at an exercise price of $0.0285 per
share granted to Mr. Brewer outside of the Company's 1998 Plan.
(6) Consists of: (i) 2,500,000 shares of our common stock issued to
Bentley J. Blum in exchange for $125,000 of debt owed to Mr. Blum
from the Company; (ii) 144,200 shares of the Company common stock
underlying currently exercisable options granted to Mr. Blum by
the Company under the Company's 1998 Plan; (iii) 27,355,800 shares
of our common stock underlying a currently exercisable five year
warrant at an exercise price of $0.0285 per share granted to the
Blum Asset Trust by the Company in connection with the Blum Loan
and services provided by the Blum Asset Trust over the last five
years; and (iv) Mr. Blum's indirect beneficial ownership of common
stock based upon his beneficial ownership of 28,479,737 shares and
his spouse's ownership of 2,000,000 shares of Environmental common
stock, representing together 37.74% of the outstanding shares of
Environmental common stock at April 14, 2005, and 4,500,000 shares
of Environmental common stock underlying currently exercisable
stock options, representing together 41.02% of the outstanding
shares of Environmental. Does not include 450,400 shares of
Environmental common stock owned by Simone Blum, the mother of Mr.
Blum, and 385,000 shares of Environmental common stock owned by
Samuel Blum, the father of Mr. Blum. Mr. Blum disclaims any
beneficial interest in the shares of Environmental common stock
owned by his spouse, mother and father.
(7) Consists of (i) 16,500 shares of common stock; (ii) 841,688 shares
of common stock underlying currently exercisable stock options
granted to Mr. James M. DeAngelis by the Company under the
Company's 1998 Plan; (iii) 1,000,000 shares of common stock
underlying currently exercisable stock options granted to Mr.
DeAngelis by the Company outside of the Company's 1998 Plan; (iv)
Mr. DeAngelis' indirect beneficial ownership of common stock based
upon his ownership of 580,000 shares of Environmental; and (vi)
20,641,812 shares of our common stock underlying a currently
exercisable five year warrant at an exercise price of $0.0285 per
share granted to Mr. DeAngelis outside of the 1998 Plan.
(8) Consists of (i) 1,759,375 shares of common stock underlying
currently exercisable stock options granted to Mr. O. Mack Jones
by the Company under the Company's 1998 Plan; and (ii) 10,240,625
shares of our common stock underlying a currently exercisable five
year warrant at an exercise price of $0.0285 per share granted to
Mr. Jones outside of the 1998 Plan.
(9) Consists of 6,939,802 shares of our common stock currently held by
Environmental.
(10) Consists of: (i) 1,181,925 shares of common stock underlying
currently exercisable stock options granted to Mr. Paul E.
Hannesson by the Company under the 1998 Plan; (ii) 4,818,075
shares of our common stock underlying currently exercisable stock
options granted to Mr. Paul E. Hannesson by the Company at an
exercise price of $0.0285 per share granted to Mr. Hannesson
outside of the Company's 1998 Plan; and (iii) Mr. Hannesson's
indirect beneficial ownership of common stock based upon his
ownership of an aggregate of (a) 2,650,000 shares of Environmental
common stock owned by Suzanne Hannesson, the spouse of Mr.
Hannesson, (b) 2,650,000 shares of Environmental common stock
owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
Hannesson, trustees) for the benefit of Mr. Hannesson's spouse and
(c) 500,000 shares of Environmental common stock in exchange for
options to purchase 950,000 shares of Environmental common stock,
issued to Hannesson Family Trust, representing together 7.18% of
the outstanding shares of Environmental common stock as of April
14, 2005, and (d) currently exercisable options to purchase
525,705 shares of Environmental common stock, representing
together 7.78% of the outstanding shares of Environmental common
stock. Does not include (i) 40,000 shares of the Company's common
stock owned by each of Jon Paul and Krista Hannesson, the adult
children of Mr. Hannesson; and (ii) 1,000,000 shares of
Environmental common stock owned by each of Jon Paul and Krista
Hannesson. Mr. Hannesson disclaims any beneficial interest in the
shares of Environmental common stock owned by or for the benefit
of his spouse and children. It also does not include 1,000,000
shares of common stock underlying stock options granted to Mr.
Hannesson by the Company that are not currently exercisable.
65
(11) Consists of 450,000 shares of common stock underlying currently
exercisable stock options granted to Mr. Dr. Frank E. Coffman by
the Company under the Company's 1998 Plan.
(12) Consists of 450,000 shares of common stock underlying currently
exercisable stock options granted to Mr. Michael P. Kalleres VADM
by the Company under the Company's 1998 Plan.
(13) Consists of 450,000 shares of common stock underlying currently
exercisable stock options granted to Mr. Ambassador William A.
Wilson by the Company under the Company's 1998 Plan.
Messrs. Blum and Hannesson are brothers-in-law.
Executive Officers and Key Employees
- ------------------------------------
The executive officers of the Company are Dr. Shelby T. Brewer, who
serves as Chairman of the Board and Chief Executive Officer, O. Mack Jones, who
serves as President and Chief Operating Officer, and James M. DeAngelis, who
serves as Chief Financial and Administrative Officer and Secretary and
Treasurer.
66
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- ----------------------------------------------
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 is due on demand. The current principal balance of the Blum Demand Note is
$312,032 as of December 31, 2004 and remains unpaid as of April 14, 2005. See
"MD&A - Liquidity and Capital Resources."
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.
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 $252,397 as of December
31, 2004 and remains unpaid as of April 15, 2005. See "MD&A - Liquidity and
Capital Resources."
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.
On April 12, 2005, the Company authorized the issuance of 550,000
shares of Series I Convertible Preferred Stock ("Series I Preferred"), par value
$0.001 per share, each such share of Series I Preferred having a stated value of
$10.00 per share.
The Series I Preferred shall have the following rights, privileges, and
limitations:
a) The conversion feature shall be exercisable immediately.
b) The conversion price of the Series I Preferred shall be determined
by the average closing price of Company's common stock in the
previous 10 trading days, but in no event shall the conversion
price be more than $0.0285 per share.
c) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
67
d) The Series I Preferred shall have a non-cumulative annual dividend
of 10%, payable in cash or shares of the Company's common stock at
the Company's election.
e) Dividend will be paid quarterly commencing May 15, 2005, to the
Holders of record of shares of the Series I Preferred Stock.
Dividends until February 14, 2006 shall accrue but shall not be
payable until February 15, 2006.
f) The Company will reserve 75 million shares of its common stock for
the conversion of the Series I Preferred.
On April 12, 2005, the Company entered into an exchange agreement with
The Shaar Fund, LTD (the "Shaar Exchange Agreement"). Under terms of the Shaar
Exchange Agreement, the Company agreed that Shaar will exchange all of its
right, title and interest in and to the remaining outstanding shares of the
Series E Preferred and Series F Preferred (including all other accrued and
unpaid dividends thereon) for 395,302 shares of the Company's Series I
Preferred.
Additionally, under the Shaar Exchange Agreement, the Company issued an
Amended and Restated Secured Promissory Note of the Company, amending and
restating a note originally issued June 13, 2001, which such Note has an
outstanding principal balance as of April 12, 2005 of $3,251,585.35 ("Old Shaar
Note").
On April 12, 2005 Shaar executed a purchase agreement ("Milford Capital
Purchase Agreement") to Milford Capital & Management ("Milford"). In accordance
with the terms of the Milford Capital Purchase Agreement, Shaar purchased a
secured promissory note of the Company, initially issued to Milford on June 13,
2001, in the original principal amount of $500,000, which had an outstanding
principal balance on March 22, 2005 of $188,149 ("Old Milford Note"), together
with (i) all interest, additional obligations, forbearance fees, exit fees,
penalties and other amounts due and payable from time to time under or in
connection with the Old Milford Note, (iii) the Forbearance Amount in connection
with the Forbearance Agreement, dated January 30, 2004, between Milford and the
Company, and Shaar in which Shaar agreed to forgive payment from the Company to
Shaar of $300,000 of accrued and unpaid dividends on shares of the Company's
Series E Preferred held by Shaar ("Forgiven Dividends") and consented to the
transfer of the dollar value of the Forgiven Dividends to Milford as part of the
forbearance fee payable to Milford under the Forbearance Agreement of 2004.
Shaar and the Company have agreed that Shaar will exchange the
outstanding principal amount of the Old Shaar Note and the Old Milford Note
(including all accrued and unpaid interest, unpaid fees and Forgiven Dividends)
for the Company's newly issued 10% convertible secured promissory note (the "New
Shaar Convertible Note")
The New Shaar Convertible Note shall have the following rights,
privileges, and limitations:
a) The New Shaar Convertible Note bears an interest rate of 10% per
annum, which is payable in cash or shares of the Company's common
stock at the Company's election.
b) Interest shall accrue on the principal amount for a one year
period ("Deferral Period"). On March 22, 2006, the Company will
make a single lump sum payment to the holder in an amount equal to
all interest that accrued during the Deferral Period
c) Beginning April 15, 2006, and monthly thereafter on the 15th day
of each month until March 22, 2009 ("Maturity Date"), the Company
shall pay to Shaar all accrued and unpaid interest ("Interest
Payments")on the principal balance of the note accruing during the
prior month.
68
d) On the Maturity Date, the Company shall make a single lump sum
payment to Shaar equal to the outstanding principal balance of the
New Shaar Convertible Note ("Principal Balance"), together with
all accrued and unpaid interest.
e) At the option of Shaar, the outstanding Principal Balance may be
converted, either in whole or in part, into shares of the
Company's common stock.
f) The conversion price of the payment of the Principal Balance, the
Deferral Period, and the Interest Payments shall be determined by
the average closing price of Company's common stock in the 10
trading days preceding the conversion date,, but in no event shall
the conversion price be more than $0.0285 per share ("Conversion
Price").
g) If the Company's common stock is not listed on an exchange at the
time of the conversion, then the conversion price will be 50% of
the market price at that time.
h) The New Shaar Convertible Note may not be prepaid by the Company
prior to the Maturity Date.
Services Agreement
In September 1997, the Company, Environmental, Separation, Advanced
Sciences, and certain other affiliates of the Company (the "Affiliated Parties")
entered into a services agreement, dated as of September 1, 1997 (the "Services
Agreement"), whereby the Company and the Affiliated Parties agreed to cooperate
in sharing, where appropriate, costs related to accounting services, financial
management, human resources and personnel management and administration,
information systems, executive management, sales and marketing, research and
development, engineering, technical assistance, patenting, and other areas of
service as are appropriately and necessarily required in the operations of the
Company and the Affiliated Parties (collectively, the "Services"). Pursuant to
the Services Agreement, services provided by professional employees of the
Company and the Affiliated Parties to one another are charged on the basis of
time actually worked as a percentage of salary (including cost of benefits)
attributable to that professional. In addition, charges for rent, utilities,
office services and other routine charges regularly incurred in the normal
course of business are apportioned to the professionals working in the office on
the basis of salary, and then charged to any party in respect of whom the
professional devoted such time based upon time actually worked. Furthermore,
charges from third parties, including, without limitation, consultants,
attorneys and accountants, are levied against the party actually receiving the
benefit of such services. Pursuant to the Services Agreement, the Company acts
as the coordinator of billings and payments for Services on behalf of itself and
the other Affiliated Parties.
There was no sharing of services in 2001, 2002, 2003 and 2004,
although, insurance costs were allocated between Affiliated Parties when it was
beneficial to insure the family of companies under one policy.
69
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -------- --------------------------------------
The following table presents fees for professional audit services
rendered by Tanner LC for the audit of the Company's financial statements for
the years ended December 31, 2004 and December 31, 2003, and fees billed by
Tanner LC for other services during those periods.
- ----------------------- ------------------- ---------------
2004 2003
---- ----
Audit Fees $34,840 $27,500
- ----------------------- -------------- --------------------
Audit Related Fees -0- -0-
- ----------------------- -------------- --------------------
Tax Fees 8,000 11,200
- ----------------------- -------------- --------------------
All Other Fees 3,200 3,050
- ----------------------- -------------- --------------------
Total $46,040 $41,750
- ----------------------- -------------- --------------------
Fees for audit services include fees associated with the annual audit,
the reviews of our quarterly reports on Form 10-Q, assistance with and review of
documents filed with the SEC and comfort letters. Tax fees included tax
compliance and tax consultations. All other fees include fees related to
edgarization and filing of SEC forms, and the audit of the Company's Profit
Sharing Plan.
The board of directors has adopted a policy that requires advance
approval of all audit, audit-related, tax services, and other services performed
by our independent auditor. The policy provides for pre-approval by the board of
directors of specifically defined audit and non-audit services. Unless the
specific service has been previously pre-approved with respect to that year, the
board of directors must approve the permitted service before the independent
auditor is engaged to perform it.
Financial Information Systems Design and Implementation Fees
There were no fees billed by Tanner LC for services rendered in
connection with financial information systems design and implementation services
described in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X. during the
fiscal year ended December 31, 2004.
Principal Accountant Independence
The Audit Committee has determined that the provision of all non-audit
services performed by the principal accountant were compatible with maintaining
their independence.
70
PART IV
- -------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
- ------- ----------------------------------------------------------------
The following documents are filed as part of this Annual Report:
Page No.
--------
Financial Statements.
Commodore Applied Technologies, Inc.
Report of Independent Registered Public Accounting Firm........... F-1
Consolidated Balance Sheets as of December 31, 2004 and 2003...... F-2
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002.................................. F-3
Consolidated Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 2004, 2003 and 2002.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002.................................. F-6
Notes to Consolidated Financial Statements........................ F-9
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and, therefore,
have been omitted.
71
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2004 and 2003
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Index
Page
----
Commodore Applied Technologies, Inc.
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheet as of December 31, 2004 and 2003 F-2
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002 F-4
Consolidated Statements of Stockholders' (Deficit) Equity for
the years ended December 31, 2004, 2003 and 2002 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 2004, 2003 and 2002 F-7
Notes to Consolidated Financial Statements F-10
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Commodore Applied Technologies, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Commodore Applied
Technologies, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' (deficit) equity
and cash flows for the years ended December 31, 2004, 2003, and 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commodore Applied
Technologies, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for the years ended December
31, 2004, 2003, and 2002, in conformity with U.S. generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital deficit and
has suffered recurring losses that raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Tanner LC
Salt Lake City, Utah
January 21, 2005, except for Notes 8 and 18, which are dated April 12, 2005
F-1
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2004 and 2003
(Amounts in thousands except shares)
- --------------------------------------------------------------------------------
2004 2003
--------------------
Assets
------
Current assets:
Cash and cash equivalents $ 15 $ -
Accounts receivable, net 259 71
Prepaid assets and other current assets - 13
--------------------
Total current assets 274 84
Property and equipment, net 95 142
Intangible assets:
Patents and completed technology, net of accumulated
amortization of $100 and $80, respectively - 20
--------------------
Total intangible assets - 20
Total assets $ 369 $ 246
--------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2004 and 2003
(Amounts in thousands except shares)
- --------------------------------------------------------------------------------
2004 2003
--------------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Checks written in excess of cash $ - $ 13
Accounts payable 1,045 1,031
Related party payable 253 278
Line of credit - 64
Notes payable, net 258 -
Other accrued liabilities 5,107 3,937
--------------------
Total current liabilities 6,663 5,323
Long-term debt, net 3,034 1,575
--------------------
Total liabilities 9,697 6,898
--------------------
Commitments and contingencies
Stockholders' deficit:
Convertible Preferred Stock, Series E, F and H,
par value $.001 per share, aggregate liquidation
value of $3,677 and $4,142 at December 31, 2004
and 2003, respectively, 5% to 12% cumulative
dividends for Series E and F, 3% dividends for
Series H, 1,561,700 shares authorized, 1,001,200
shares and 1,033,700 shares issued and outstanding
at December 31, 2004 and 2003, respectively 1 1
Common Stock, par value $.001 per share, 300,000,000
shares authorized, 134,346,052 shares and 117,702,133
shares issued and outstanding, at December 31, 2004
and 2003, respectively 134 118
Additional paid in capital 67,376 67,664
Accumulated deficit (76,576) (74,172)
--------------------
(9,065) (6,389)
Treasury stock, 3,437,500 shares (263) (263)
--------------------
Total stockholders' deficit (9,328) (6,652)
--------------------
Total liabilities and stockholders'
deficit $ 369 $ 246
--------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 2004 and 2003 and 2002
(Amounts in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------
2004 2003 2002
--------------------------------------------
Revenues $ 738 $ 660 $ 3,710
Costs and expenses:
Cost of revenues 919 811 2,108
Research and development 9 70 297
General and administrative 1,674 1,700 1,792
Depreciation and amortization 136 267 314
--------------------------------------------
Total costs and expenses 2,738 2,848 4,511
--------------------------------------------
Loss from operations (2,000) (2,188) (801)
Other income (expense):
Interest expense (404) (769) (104)
--------------------------------------------
Loss from continuing operations
before for income taxes (2,404) (2,957) (905)
Income tax benefit - - -
--------------------------------------------
Loss from continuing operations (2,404) (2,957) (905)
Loss on disposal of discontinued operations - - (4,134)
Loss from discontinued operations - - (933)
--------------------------------------------
Net loss $ (2,404) $ (2,957) $ (5,972)
--------------------------------------------
Net loss per common share from continuing operations -
basic and diluted $ (0.02) $ (0.04) $ (0.02)
Net loss per common share from discontinued operations -
basic and diluted $ - $ - $ (0.09)
--------------------------------------------
Total net loss per share - basic and diluted $ (0.02) $ (0.04) $ (0.11)
--------------------------------------------
Number of weighted average shares outstanding -
basic and diluted 126,682 92,035 57,775
--------------------------------------------
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
F-4
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' (Deficit) Equity
Years Ended December 31, 2004, 2003, and 2002
(Amounts in thousands except shares)
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
----------------------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
---------------------------------------------------------------------------------------
Balance, January 1, 2002 441,700 $ - 55,417,354 $ 55 $ 66,759 $ (65,243) $ - $ 1,571
Conversion of series E and
F preferred stock into
common stock (28,000) - 2,496,423 3 (3) - - -
Issuance of common stock
as payment of preferred
stock dividends - - 1,113,285 1 136 - - 137
Issuance of preferred H
Stock pursuant to
disposition of DRM 800,000 1 - - 799 - - 800
Treasury stock, 5,937,500
shares, received from
shareholders of DRM
pursuant to the
disposition of DRM - - - - - - (463) (463)
Issuance of 2,500,000
shares of treasury stock
as payment of related
party payable - - - - (75) - 200 125
Preferred stock dividends - - - - (528) - - (528)
Issuance of warrants to
officer of the Company to
extend note payable - - - - 41 - - 41
Net loss - - - - - (5,972) - (5,972)
-----------------------------------------------------------------------------------------
Balance, December 31, 2002 1,213,700 1 59,027,062 59 67,129 (71,215) (263) (4,289)
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
F-5
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' (Deficit) Equity
Continued
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
----------------------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
---------------------------------------------------------------------------------------
Conversion of series E and
F preferred stock into
common stock (180,000) - 43,366,669 44 (44) - - -
Issuance of common stock as
payment of preferred stock
dividends - - 2,118,560 2 180 - - 182
Conversion of debt to
common stock - - 13,189,842 13 271 - - 284
Issuance of warrants for:
Payment of accounts payable - - - - 3 - - 3
Services - - - - 198 - - 198
Extension of debt - - - - 301 - - 301
Preferred stock dividends - - - - (374) - - (374)
Net loss - - - - - (2,957) - (2,957)
-----------------------------------------------------------------------------------------
Balance, December 31, 2003 1,033,700 1 117,702,133 118 67,664 (74,172) (263) (6,652)
Conversion of series E
preferred stock into
common stock (32,500) - 16,143,919 16 (16) - - -
Exercise of warrants - - 500,000 - 19 - - 19
Preferred stock dividends - - - - (291) - - (291)
Net loss - - - - - (2,404) - (2,404)
-----------------------------------------------------------------------------------------
Balance, December 31, 2004 1,001,200 $ 1 134,346,052 $ 134 $ 67,376 $ (76,576) $ (263) $ (9,328)
-----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
F-6
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 2004 and 2003 and 2002
(Amounts in thousands except shares and per share data)
- -----------------------------------------------------------------------------------------------------------------
2004 2003 2002
---------------------------------------------
Cash flows from operating activities:
Net loss $ (2,404) $ (2,957) $ (5,972)
Add: net loss from discontinued operations - - 933
Add: net loss from disposal of discontinued operations - - 4,134
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 136 267 314
(Gain) loss on disposition of property and equipment - - (35)
Amortization of debt discount 31 35 6
Issuance of warrants for services - 198 -
Issuance of warrants for extension of debt - 301 -
Changes in assets and liabilities:
Accounts receivable, net (188) 25 503
Prepaid assets 13 150 24
Net assets of component DRM - - (83)
Checks written in excess of cash (13) 13 -
Accounts payable and accrued liabilities 893 1,013 53
---------------------------------------------
Net cash used in operating activities (1,532) (955) (123)
Cash flows from investing activities:
Equipment purchased or constructed (61) - -
Patents acquired - (11) -
Advances from (repayments to) related parties, net (25) 198 45
---------------------------------------------
Net cash (used in) provided by investing activities (86) 187 45
Cash flows from financing activities:
(Repayments)/borrowings under line of credit (64) 64 (108)
Borrowings on debt and warrants 1,678 776 431
Payments on long-term debt and notes payable - (131) (356)
Proceeds from exercise of warrants 19 - -
---------------------------------------------
Net cash provided by (used in) financing activities 1,633 709 (33)
---------------------------------------------
Net change in cash and cash equivalents 15 (59) (111)
Cash and cash equivalents at beginning of year - 59 170
---------------------------------------------
Cash and cash equivalents at end of year $ 15 $ - $ 59
---------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
F-7
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 55 $ 10 $ 281
-----------------------------------
Income taxes $ - $ - $ -
-----------------------------------
Non-Cash Investing and Financing Activities:
2004
- ----
o The Company recorded $291 of unpaid dividends to holders of
preferred stock.
o The Company purchased equipment in the amount of $8 with a note
payable.
2003
- ----
o The Company recorded $374 of unpaid dividends to holders of
preferred stock, and paid $182 of the unpaid dividends by issuance
of 2,118,560 shares of common stock.
o The Company converted debt of $250 and accrued interest of $34 by
issuance of 13,189,842 shares of common stock.
o The Company issued 50,000 warrants valued at $3 as payment of
accounts payable.
o The Company issued to a member of the board of directors
27,355,800 warrants valued at $470 for forbearance of debt ($272)
and services ($198).
o The Company issued 1,000,000 new warrants and re-priced and
extended 1,500,000 warrants to forbear payments on and extend
notes payable, resulting in a debt discount of $30.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
2002
- ----
o The Company recorded $528 of unpaid dividends to holders of
preferred stock, and paid $137 of the unpaid dividends by issuance
of 1,113,285 shares of common stock.
o The Company financed prepaid assets with notes payable of $140.
o The Company issued warrants valued at $41 with debt extensions.
o Effective May 16, 2002, the Company dissolved the acquisition of
its 81% interest in Dispute Resolution Management, Inc (DRM) (see
Note 6). Consideration given consisted of the issuance of 800,000
shares of Series H Convertible Preferred valued at $800. The
Company received 5,937,500 shares of treasury stock valued at $463
from DRM shareholders. The Company also relieved $29,490 of assets
held for sale - component DRM, $2,595 of accounts payable and
$22,165 of liabilities held for sale - component DRM, and recorded
a loss on disposal of discontinued operations of $4,134 and a loss
on discontinued operations of $933.
o The Company issued 2,500,000 shares of treasury stock valued at
$125 to satisfy a related party payable to an officer of the
Company.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands except share and per share data)
- --------------------------------------------------------------------------------
1. Summary of Background
Significant Commodore Applied Technologies, Inc. and subsidiaries
Accounting ("Applied" or "the Company"), is engaged in the
Policies destruction and neutralization of hazardous waste from
other materials. Applied owns technologies related to
the separation and destruction of polychlorinated
biphenyls (PCBs) and chlorofluorocarbons (CFCs). Applied
is currently working on the commercialization of these
technologies through development efforts, licensing
arrangements and joint ventures.
Through Commodore Advanced Sciences, Inc. ("CASI"),
formerly Advanced Sciences, Inc., a subsidiary acquired
on October 1, 1996, Applied has contracts with various
government agencies and private companies in the United
States and abroad.
Through Dispute Resolution Management, Inc. (DRM), a
subsidiary acquired August 30, 2000 and disposed of May
16, 2002, Applied provided a package of services to help
companies recover financial settlements from insurance
policies to defray costs associated with environmental
liabilities. As of May 16, 2002, Applied no longer owns
an 81% interest in DRM (see Note 5). Applied's loss of
the DRM subsidiary may have a material adverse effect on
the financial condition of Applied and its cash flow
requirements. Applied currently requires additional cash
to sustain existing operations and to meet current
obligations and ongoing capital requirements.
Principles of Consolidation
The consolidated financial statements include the
accounts of Applied and its majority-owned subsidiaries.
Dispute Resolution Management, Inc. is included as
discontinued operations from August 30, 2000 (date of
acquisition) through May 16, 2002 (date of dissolution)
(see Note 5). During the year ended December 31, 2002,
Applied disposed of DRM, and recorded the related loss
on the disposal of DRM. Applied has presented its
financial statements to reflect the operations of DRM as
discontinued operations.
All significant intercompany balances and transactions
have been eliminated.
- --------------------------------------------------------------------------------
F-10
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Cash and Cash Equivalents
Significant Applied considers cash and highly liquid debt
Accounting instruments with original maturities of three months or
Policies less at the date of purchase to be cash equivalents.
Continued
Concentration of Credit Risk and Significant Customers
Applied maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits.
Applied has not experienced any losses in such accounts.
With respect to trade receivables, Applied generally
does not require collateral as the majority of Applied's
services are performed for the U.S. Government and prime
contractors that serve the U.S. Government. Applied
believes it is not exposed to any significant credit
risk on cash, cash equivalents and trade receivables.
Sales to major customers which exceeded 10 percent of
revenues are as follows:
Years Ended December 31,
-------------- -------------- ---------------
2004 2003 2002
-------------- -------------- ---------------
Customer A $ 260 $ - $ 2,622
Customer B $ 188 $ 350 $ 784
Customer C $ 128 $ 21 $ -
Customer D $ 67 $ 7 $ -
- --------------------------------------------------------------------------------
F-11
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Risk and Uncertainty
Significant Applied's operations involving the separation and
Accounting destruction of PCBs requires a permit from the EPA.
Policies Applied had a valid nationwide permit related to the
Continued treatment of PCBs in certain substances. The permit
expired September 15, 2001. Applied is currently in the
process of applying for a renewal of the permit. Until
the permit is reviewed and allowed, Applied, or its
client, must post a closure bond specific to the amount
of any contracts that utilize Applied's destruction
technology related to the treatment of PCB's.
Accounts receivable
Trade receivables are carried at original invoice amount
less an estimate made for doubtful receivables based on
a review of all outstanding amounts on a monthly basis.
Management determines the allowance for doubtful
accounts by identifying troubled accounts and by using
historical experience applied to an aging of accounts.
Trade receivables are written off when deemed
uncollectible. Recoveries of trade receivables
previously written off are recorded when received.
A trade receivable is considered to be past due if any
portion of the receivable balance is outstanding for
more than 90 days. Interest is not charged on trade
receivables.
Property and Equipment
Property and equipment are recorded at cost, less
accumulated depreciation. Improvements which
substantially increase the useful lives of assets are
capitalized. Maintenance and repairs are expensed as
incurred. Upon retirement or disposal, the related cost
and accumulated depreciation are removed from the
respective accounts and any gain or loss is recorded in
the Statement of Operations. Provisions for depreciation
are computed on the straight-line method based on the
estimated useful lives of the assets which range from
3-5 years.
Intangible Assets
Patents and completed technology represents certain
technology and related patents acquired in connection
with the purchase of third-party interests in Commodore
Laboratories, Inc. ("Labs"). Patents and completed
technology were fully amortized as of December 31, 2004.
- --------------------------------------------------------------------------------
F-12
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Impairment of Long-Lived Assets
Significant Applied reviews its long-lived assets for impairment
Accounting whenever events or changes in circumstances indicate
Policies that the carrying amount of the assets may not be
Continued recoverable through undiscounted future cash flows. If
it is determined that an impairment loss has occurred
based on expected cash flows, such loss is recognized in
the Statement of Operations.
Revenue Recognition
Substantially all of Applied's revenues from continuing
operations are generated by its subsidiary, CASI. CASI's
revenues consist of engineering and scientific services
performed for the U.S. Government and prime contractors
that serve the U.S. Government under a variety of
contracts, most of which provide for unit prices.
Revenue under unit price contracts are recorded when the
services are provided.
Most of CASI's historical contracts provided for
reimbursement of costs plus fixed fees. Direct and
indirect contract costs incurred in reimbursement plus
cost contracts are subject to audit by the Defense
Contract Audit Agency ("DCAA"). Management does not
expect these audits to materially affect the financial
statements and have established appropriate allowances
to cover potential audit disallowances. Contract
revenues have been recorded in amounts which are
expected to be realized upon final settlement. The DCAA
has audited CASI's contracts through 1996. An allowance
for doubtful accounts and potential disallowances has
been established based upon the portion of billed and
unbilled receivables that management believes may be
uncollectible.
Research and Development
Research and development expenditures are charged to
operations as incurred.
- --------------------------------------------------------------------------------
F-13
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Income Taxes
Significant Income taxes are determined in accordance with Statement
Accounting of Financial Accounting Standards ("SFAS") 109, which
Policies requires recognition of deferred income tax liabilities
Continued and assets for the expected future tax consequences of
events that have been included in the financial
state-ments or tax returns. Under this method, deferred
income tax liabilities and assets are determined based
on the difference between financial statement and tax
bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are
expected to re-verse. SFAS 109 also provides for the
recognition of deferred tax assets if it is more likely
than not that the assets will be realized in future
years.
Stock-Based Compensation
At December 31, 2004, Applied has one stock-based
employee compensation plan, which is described more
fully in Note 11. Applied accounts for its plans under
the recognition and measurement prin-ciples of APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net loss, as
all options granted under those plans had an exercise
price that equaled or exceeded the market value of the
underlying common stock on the date of grant. Inasmuch
as Applied cancelled certain options during 2002 and
reissued new options to the option holders, the options
are considered variable op-tions and are revalued each
quarter to determine the effect on operations, if any.
The following table illustrates the effect on net loss
per share if Applied had applied the fair value
recognition provision of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based
employee compensation.
Years Ended December 31,
--------------------------------
2004 2003 2002
--------------------------------
Net loss, as reported $ (2,404) $ (2,957) $ (5,972)
Addback: Stock-based employee compensation
expense determined under instrinsic value
based method for all awards, net of related
tax effects - - -
Deduct: Total stock- based employee
compen-sation expense determined under fair
value based method for all awards, net of
related
tax effects - (1,544) (500)
--------------------------------
Pro forma net loss $ (2,404) $ (4,501) $ (6,472)
--------------------------------
Loss per share:
Basic and diluted - as reported $ (.02) $ (.04) $ (.11)
--------------------------------
Basic and diluted - pro forma $ (.02) $ (.04) $ (.12)
--------------------------------
- --------------------------------------------------------------------------------
F-14
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of Stock-Based Compensation - continued
Significant The Black-Scholes model calculates the fair value of the
Accounting grant based upon the following assumptions about the
Policies underlying stock: The expected dividend yield of the
Continued stock is zero, the assumed volatility is 218%, the
expected risk-free rate of return is 3.2 percent,
calculated as the rate offered on U.S. Government
securities with the same term as the expected life of
the options, and the expected term is the maximum
possible term under the option.
Stock options issued during the years ended December 31,
2004, 2003 and 2002 had an average value of $0, $.02 and
$.07, respectively.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by
reference to various market data and other valuation
techniques as appropriate. Accounts receivable, cash
equivalents, long term debt and the line of credit are
financial instruments that are subject to possible
material market variations from the recorded book value.
Applied has reflected in the financial statements debt
discounts which are being amortized over the estimated
lives of the obligations. The debt discounts bring the
obligations to a market rate of interest. The fair value
of these financial instruments approximate the recorded
book value as of December 31, 2004 and 2003.
Use of Estimates
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.
Reclassifications
Certain amounts in prior years have been reclassified to
conform with the current year presentation.
- --------------------------------------------------------------------------------
F-15
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Going The accompanying consolidated financial statements have
Concern 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. As shown in the consolidated financial
statements, Applied incurred losses and negative cash
flows from operating activities for the years ended
December 31, 2004, 2003 and 2002. Applied also has a
working capital deficit of $6,389 and an accumulated
deficit of $76,576 at December 31, 2004. These factors
raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated 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. Applied currently
requires additional cash to sustain existing operations
and to meet current obligations and ongoing capital
requirements.
3. Accounts The components of Applied's trade receivables are as
Receivable follows as of December 31:
2004 2003
--------------------------------
Contract receivables $ 268 $ 143
Less: Allowance for doubtful accounts
and potential disallowances (9) (72)
--------------------------------
Accounts receivable, net $ 259 $ 71
--------------------------------
Substantially all of CASI trade receivables are pledged
to collateralize its line of credit (see Note 7).
- --------------------------------------------------------------------------------
F-16
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Property Property and equipment consist of the following as of
and December 31:
Equipment
Average
Useful Life 2004 2003
--------------------------------------
Machinery and equipment 3 $ 633 $ 573
Furniture and fixtures 5 58 58
Computer equipment 4 222 213
------------------------
913 844
Less: accumulated depreciation
and amortization (818) (702)
------------------------
Property and equipment, net $ 95 $ 142
------------------------
5. Acquisition On August 30, 2000, Applied completed a stock purchase
and agreement with Dispute Resolution Management, Inc. (DRM)
Dissolution and its two shareholders in which Applied acquired 81%
of Dispute of DRM for a purchase price of approximately $28
Resolution million. In 2002, Applied defaulted on its payment
Management obligation under the purchase agreement. In August 2002,
Applied entered into a settlement agreement with DRM
(the "DRM Settlement Agreement"). Under terms of the DRM
Settlement Agreement, Applied acknowledged that it had
previously received back 4,750,000 shares of its common
stock from DRM and its shareholders, which was recorded
as treasury stock at the fair market value of the common
stock. As part of the DRM Settlement Agreement, Applied
received an additional 1,187,500 shares of its common
stock from DRM and its shareholders, which was also
recorded as treasury stock at the fair market value of
the common stock.
Additionally, Applied issued 800,000 shares of Series H
Preferred stock (the "Series H Preferred"), par value
$0.001 per share, each such share of Series H Preferred
having a stated value of $1 per share, to DRM, Russell
and Speciale as part of the DRM Settlement Agreement as
of September 30, 2002 for satisfaction of the remaining
liabilities relating to the purchase and working capital
of DRM.
For the year ended December 31, 2002 Applied recorded a
loss on the disposal of DRM in the amount of $4,134.
- --------------------------------------------------------------------------------
F-17
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Other Other accrued liabilities consist of the following at
Accrued December 31:
Liabilities
2004 2003
------------------------------
Dividend payable $ 1,696 $ 1,405
Compensation and employee benefits 1,876 1,373
Accrued interest 664 351
Loss reserve 376 313
Forbearance and exit fees 219 219
Related party advances 185 185
Other 91 91
------------------------------
$ 5,107 $ 3,937
------------------------------
7. Line At December 31, 2004 and 2003, CASI had $0 and $64
of outstanding, respectively, on a revolving line of
Credit credit. The line of credit is not to exceed 85% of
eligible receivables or $2,500 and is due November 2005
with interest payable monthly at prime plus 2.0 percent
(7% at December 31, 2004). The credit line is
collateralized by the assets of CASI and is guaranteed
by Applied. The line of credit contains certain
financial covenants and restrictions including minimum
ratios that CASI must satisfy.
8. Notes Notes payable and long-term debt consist of the
Payable and following at December 31:
Long-Term
Debt
2004 2003
--------------------
Notes payable to individuals
with interest at 15%,due in
aggregate monthly installments,
beginning in July 2001, of $83 plus
interest, maturing through August
2002, secured by property and
equipment and patents. 250,000
warrants valued at $4 were issued
in 2003 to extend these notes
through December 31, 2005. Subsequent
to December 31, 2004, but prior to
issuance of the consolidated financial
statements, these notes payable were
extended through March 2009 - see
Note 18. $ 3,034 $ 1351
- --------------------------------------------------------------------------------
F-18
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Notes Notes payable to individuals with
Payable and interest at 12%, in default as of
Long-Term January 15, 2005. A discount of $0
Debt and $30 was recorded as of December
Continued 31, 2004 and 2003 for the value of
re-priced and additional warrants
granted to extend the due date.
These notes are secured by accounts
receivable. On February 14, 2004,
the individuals cancelled their
warrants to purchase 1,500,000
shares at an exercise price of
$0.05 per share of the Company's
common stock. 254 254
Note payable to a bank with
interest due at 17.5%, with
monthly payments less than $1 and
maturing December 2007, secured by
property and equipment. 8 -
Unamortized discount for warrants (4) (30)
--------------------
3,292 1,575
Less current maturities (258) -
--------------------
$ 3,034 $ 1,575
--------------------
Future maturities of long-term debt are as follows:
Year Ending December 31: Amount
------------------------ ------------------
2005 $ 258
2006 -
2007 -
2008 -
2009 3,034
Thereafter -
------------------
$ 3,292
------------------
- --------------------------------------------------------------------------------
F-19
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Income Applied provides for deferred income taxes on temporary
Taxes differences which represent tax effects of transactions
reported for tax purposes in periods different than for
book purposes.
The provision for income taxes for the years ended
December 31 results in an effective tax rate which
differs from federal income tax rates as follows:
2004 2003 2002
-----------------------------------------
Expected tax benefit at federal
statutory rate $ (777) $ (1,005) $ (2,030)
State income tax benefit, net of
federal income tax benefit (120) (177) (358)
Interest accretion - - 24
Other 64 180 604
Disposition of discontinued
operations - - 1,654
Change in valuation allowance 833 1,002 106
-----------------------------------------
Income tax benefit $ - $ - $ -
-----------------------------------------
The components of the net deferred tax as of December
31, are as follows:
2004 2003
---------------------------
Reserve for uncollectable
receivables and potential
disallowances $ 168 $ 160
Net operating loss carryforward 13,501 12,437
Impairment charges 1,694 1,933
---------------------------
15,363 14,530
Valuation allowance (15,363) (14,530)
---------------------------
Net deferred taxes $ - $ -
---------------------------
- --------------------------------------------------------------------------------
F-20
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Income Applied conducts a periodic examination of its valuation
Taxes allowance. Factors considered in the evaluation include
Continued recent and expected future earnings and Applied's
liquidity and equity positions. As of December 31, 2004
and 2003, Applied has established a valuation allowance
for the entire amount of net deferred tax assets.
Applied has net operating loss ("NOL") carryforwards at
December 31, 2004 of approximately $36,487 which expire
in years 2010 through 2024. The NOL carryforwards are
limited to use against future taxable income due to
changes in ownership and control.
10. Stockholders' Series E Convertible Preferred Stock
Equity Effective November 4, 1999, Applied issued 335,000
shares of Series E Convertible Preferred Stock with a
stated value of $10 per share.
This stock has a dividend rate of 12% per annum through
April 30, 2000 and thereafter 5% per annum paid
quarterly. In addition the stock has a special dividend
at the rate of 7.5% per annum which began to accrue on
May 1, 2000 and continues to accrue until paid, payable
on May 1, 2001. The Company accrued $124, $207 and $341
of dividends in 2004, 2003 and 2002, respectively, and
issued 1,566,989 shares common stock to pay $142 of
accrued dividends in 2003.
The Series E Convertible Preferred Stock has a
liquidation preference of $10 per share. In connection
with the issuance of the Series E Convertible Preferred
Stock, Applied issued warrants to purchase 572,500
shares of common stock at a purchase price equal to 110%
of the market price on the date of closing ($1.20).
These warrants were valued at $60 and expire on November
4, 2004.
The Series E Convertible Preferred Stock is convertible
into common stock at any time on or after April 30, 2000
at a conversion price equal to the arithmetic mean of
the closing prices of common stock as reported in the
respective stock exchange for the ten trading days
immediately preceding the date of conversion.
- --------------------------------------------------------------------------------
F-21
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stockholders' Series E Convertible Preferred Stock - Continued
Equity During the years ended December 31, 2004, 2003 and 2002,
Continued 32,500, 162,500 and 0 shares of Series E Convertible
Preferred Stock were converted into 16,143,919,
40,916,155 and 0 shares of common stock, respectively.
As of December 31, 2004 there are 95,500 shares of
Series E Convertible Preferred Stock outstanding.
Series F Convertible Preferred Stock
In March 2000, Applied issued 266,700 shares of Series F
Convertible Preferred Stock with a stated value of $10
per share. Transaction costs on the issuance totaled
$230 resulting in net proceeds to Applied of $1,771.
The stock has a dividend rate of 12% per annum through
September 30, 2000 and thereafter 5% per annum paid
quarterly. In addition the stock has a special dividend
at the rate of 7.5% per annum which began to accrue
October 1, 2000 and continues to accrue until paid,
payable on October 1, 2001. The Company accrued $148,
$143 and $178 of dividends in 2004, 2003 and 2002,
respectively, and issued 551,571 shares and 1,113,285
shares of common stock to pay $40 and $137 of accrued
dividends in 2003 and 2002, respectively.
The Series F Convertible Preferred Stock has a
liquidation preference of $10 per share. In connection
with the issuance of Series F Convertible Preferred
Stock, Applied issued warrants to purchase 363,475
shares of common stock at $1.93875 per share. These
warrants expire on March 16, 2005.
The Series F Convertible Preferred Stock is convertible
into common stock at any time on or after September 30,
2000. On conversion, the investor will receive for each
converted preferred share the greater number of common
stock as determined by (1) the face value per share
($10) plus accrued dividends divided by the average of
the closing prices over a ten consecutive trading day
period ending on the trading day immediately preceding
the conversion date, or (2) $7.50 (the cash invested for
each preferred share) divided by $1.93875.
- --------------------------------------------------------------------------------
F-22
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stockholders' Series F Convertible Preferred Stock - Continued
Equity During the years ended December 31, 2004, 2003 and 2002,
Continued 0 shares, 17,500 shares and 28,000 shares of Series F
Convertible Preferred Stock were converted to 0 shares,
2,450,514 shares and 2,496,426 shares of common stock,
respectively. Applied has 118,200 shares of Series F
convertible stock outstanding at December 31, 2004.
Series H Convertible Preferred Stock
Applied issued 800,000 shares of Series H Preferred
stock (the "Series H Preferred"), par value $0.001 per
share, each such share of Series H Preferred having a
stated value of $1 per share, to DRM, Russell and
Speciale as part of the DRM Settlement Agreement as of
September 30, 2002 for satisfaction of the remaining
liabilities relating to the purchase and working capital
of DRM. The Series H Preferred shall have the following
rights, privileges, and limitations:
a) The conversion feature shall be exercisable on or
after June 30, 2003.
b) No Series H Preferred may be converted prior to June
30, 2003. Until July 31, 2005, only 80,000 shares of
the Series H Preferred shall be convertible in any
calendar quarter. The balance of any unconverted
Series H Preferred Stock may be converted at any
time on or after August 1, 2005.
c) The conversion price of the Series H Preferred shall
be determined by the average closing price of
Company's common stock in the previous 30 trading
days, but in no event shall the conversion price be
less than $0.20 per share.
d) The conversion price of the Series H Preferred shall
be determined by the average closing price of
Company's common stock in the previous 30 trading
days, but in no event shall the conversion price be
less than $0.20 per share.
e) The Series H Preferred shall have a non-cumulative
annual dividend of 3%, payable in cash or Series H
Preferred within 30 days of the end of Applied's
fiscal year, at Applied's election. Dividends of
$24, $24 and $9 were accrued during 2004, 2003, and
2002 respectively.
- --------------------------------------------------------------------------------
F-23
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Stockholders' Series H Convertible Preferred Stock - Continued
Equity
Continued f) The Series H Preferred shall not be transferable.
The holders of all series of convertible preferred stock
have the right, voting as a class, to approve or
disapprove of the issuance of any class or series of
stock ranking senior to or on a parity with the
convertible preferred stock with respect to declaration
and payment of dividends or the distribution of assets
on liquidation, dissolution or winding-up. Upon
liquidation, dissolution or winding up of Applied,
holders of Series E and Series F Convertible Preferred
Stock are entitled to receive liquidation distributions
equivalent to $10.00 per share before any distribution
to holders of the Common Stock or any capital stock
ranking junior to the Series E Convertible Preferred
Stock. There have been no shares of Series H Preferred
stock converted into common shares as of December 31,
2004.
Cumulative unpaid dividends on Preferred Stock are
$1,696 and $1,405 at December 31, 2004 and 2003,
respectively.
- --------------------------------------------------------------------------------
F-24
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock Options Stock Options
and Stock In December 1998, Applied adopted its 1998 Stock Option
Warrants Plan pursuant to which officers, directors, key
employees and/or consultants of Applied can receive
non-qualified stock options to purchase up to an
aggregate 5,000,000 shares of Applied's Common Stock.
During 1999 and 2000 Applied increased the number of
shares authorized by 5,000,000 shares each year
resulting in 15,000,000 shares currently available under
the 1998 stock option plan. Exercise prices applicable
to stock options issued under this Plan represent no
less than 100% of the fair value of the underlying
common stock as of the date of grant. Stock options
granted under the plan may vest immediately or for any
period up to five years.
In as much as Applied rescinded certain options during
2002 and reissued new options to the option holders, the
options are considered variable options and will be
revalued each quarter to determine the effect on
operations, if any. There is no variable option expense
recognized during 2004 and 2003 as the variable options'
exercise price exceeded the fair market value of the
Company's stock.
A summary of the status of options granted under and
outside of the Plan as of December 31, 2004, 2003 and
2002, and changes during the years then ended is
presented below:
2004 2003 2002
------------------------------------------------------------------
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
------------------------------------------------------------------
Options
outstanding -
beginning of
year 87,285,951 $ 0.05 10,204,593 $ 0.24 7,266,908 $ 0.84
Granted - 77,081,358 0.03 9,847,218 0.07
Exercised - - - - - -
Rescinded - - - 0.74 (3,744,373) .74
Forfeited 769,146 0.07 - 0.55 (3,165,160) .55
------------------------------------------------------------------
Options
outstanding -
end of year 86,516,805 $ 0.05 87,285,951 $ 0.05 10,204,593 $ 0.24
------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-25
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock The following table summarizes information about
Options employee stock options and all other stock options
and Stock outstanding at December 31, 2004:
Warrants
Continued
Options Options
Outstanding Exercisable
----------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercisable Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------------------------------------------------------------------------
$ 0.03 - 0.03 77,081,358 3.96 years $ 0.03 77,081,358 $ 0.03
0.07 - 0.07 9,078,072 3.96 years 0.07 9,078,072 0.07
2.00 - 6.00 357,375 1.98 years 4.86 357,375 4.86
----------------------------------------------------------------
86,516,805 3.95 years $ 0.05 86,516,805 $ 0.05
----------------------------------------------------------------
Stock Warrants
A summary of the warrants granted as of December 31,
2004, 2003 and 2002 and changes during the periods then
ended is presented below:
2004 2003 2002
------------------------------------------------------------------
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
------------------------------------------------------------------
Warrants
outstanding
- - beginning
of year 35,794,357 $ .18 24,070,312 $ 3.50 21,365,705 $ 4.16
Granted - - 30,655,800 0.03 5,537,716 2.19
Exercised (500,000) .03 - - - -
Repriced - - (1,500,000) 0.05 - -
Rescinded - - (113,025) 1.94 (1,000,000) 4.16
Expired (3,416,748) .05 (17,318,730) 3.50 (1,833,109) 4.16
------------------------------------------------------------------
Warrants
outstanding
- - end of year 31,877,609 $ 0.18 35,794,357 $ 0.18 24,070,312 $ 3.50
------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-26
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Stock Outstanding warrants at December 31, 2004 are as follows:
Options
and Stock
Warrants
Continued
Granted Number of Current
2000 and Granted Granted Granted Granted Warrants Exercise Expiration
Prior 2001 2002 2003 2004 Outstanding Price Date
- ------------------------------------------------------------------------------------
25,000 - - - - 25,000 1.94 March 2005
250,000 - - - - 250,000 1.94 March 2005
113,475 - - - - 113,475 1.94 March 2005
1,000,000 - - - - 1,000,000 2.00 August 2005
- 333,334 - - - 333,334 0.22 June 2006
- - - 500,000 - 500,000 0.03 October 2006
- - - 1,000,000 - 1,000,000 0.03 February 2007
- - - 1,000,000 - 1,000,000 0.03 April 2006
- - - 27,355,800 - 27,355,800 0.03 November 2008
50,000 - 50,000 0.03 November 2008
- - - 250,000 - 250,000 0.03 February 2009
- -----------------------------------------------------------
1,388,475 333,334 - 30,155,800 - 31,877,609
- -----------------------------------------------------------
In 2003, 1,500,000 warrants originally issued with debt
were repriced and extended, and 1,000,000 warrants were
newly issued, both to extend the related debt. The
Company recorded a debt discount of $30 at December 31,
2003. Also in 2003, 250,000 warrants were issued to
extend the related debt. A debt discount of $5 was
recorded, with $3 of the debt discount amortized during
2004. As of December 31, 2004 all warrants are
exercisable.
12. Earnings All earnings per share amounts reflect the
Per implementation of SFAS 128 "Earnings per Share". Basic
Share earnings per share are computed by dividing net income
(loss) available to common shareholders by the weighted
average number of shares outstanding during the period.
Diluted earnings per share are computed using the
weighted average number of shares determined for the
basic computations plus the number of shares that would
be issued assuming all contingently issuable shares
having a dilutive effect on earnings per share were
outstanding for the period. Options and warrants to
purchase 118,394,414, 123,080,308 and 34,274,905 shares
of common stock as of December 31, 2004, 2003 and 2002,
respectively were excluded from the calculation of
diluted earnings per share as the effect would have been
anti-dilutive as the Company experienced net losses.
- --------------------------------------------------------------------------------
F-27
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Earnings Per
Share
Continued
Years Ended December 31,
------------------------------------------
2004 2003 2002
------------------------------------------
Net loss $ (2,404) $ (2,957) $ (5,972)
Preferred stock dividends (291) (304) (528)
------------------------------------------
Net loss available to
common shareholders $ (2,695) $ (3,261) $ (6,500)
------------------------------------------
Weighted average common
shares outstanding (basic) 126,682,000 92,035,000 57,775,000
Series E Convertible
Preferred Stock (*) (*) (*)
Series F Convertible
Preferred Stock (*) (*) -
Series H Convertible
Preferred Stock (*) (*) (*)
Employee Stock Options (*) (*) (*)
Warrants issued in connection
with various transactions (*) (*) (*)
------------- -------------- -------------
Weighted average common
shares outstanding (diluted) 126,682,000 92,035,000 57,775,000
------------- -------------- -------------
Net loss per share - basic
and diluted $ (.02) $ (.04) $ (.11)
------------- -------------- -------------
(*) Due to Applied's loss from continuing operations in
2004, 2003 and 2002, the incremental shares issuable in
connection with these instruments are anti-dilutive and
accordingly not considered in the calculation.
13. Related Party Applied had the following related party transactions not
Transactions disclosed elsewhere:
Applied has payables to related parties of $185 and $185
at December 31, 2004 and 2003, recorded in accrued
liabilities.
During 2003, 27,355,800 warrants valued at $470 were
issued to a member of the board of directors for
services of rent and facilities, and forbearance on
payment of note that is due on demand.
- --------------------------------------------------------------------------------
F-28
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Related Party Applied has a note payable to a member of the board of
Transactions directors that is dueon demand and carries interest at
Continued 9%. The balance due at December 31, 2004 and 2003 is
$312 and $272, respectively, and is included in the
related party payable.
Applied has long-term debt to shareholders of Applied.
See Note 8.
14. Commitments Operating Leases
and Applied and its subsidiaries are committed under
Contingencies non-cancelable operating leases for office space and
other equipment. Future obligations under the leases are
as follows:
2005 $ 126
2006 37
2007 5
---------------
$ 168
---------------
Rent expense approximated $126, $325, and $204 in 2004,
2003 and 2002, respectively. Rent expense in 2003
includes $198 from the issuance of warrants to a member
of the board of directors for office rent expense.
Executive Bonus Plan
Applied has a five-year Executive Bonus Plan (the "Bonus
Plan") under which a number of executives and employees
of Applied are entitled to formula bonuses. No bonuses
are accrued at December 31, 2004 and 2003.
Litigation
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.
- --------------------------------------------------------------------------------
F-29
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
14. Commitments Guarantee
and Applied, along with several other entities, in a prior
Contingencies year, guaranteed a performance bond of Commodore
Continued Separation Technologies, Inc. relating to a contract
with the Port of Baltimore. Applied was notified on June
28, 2000 that the performance bond is being called. It
is not known, at this time, the amount, if any,
Applied's share will be. No amount has been reflected in
these consolidated financial statements as the amount
is not determinable.
15. 401(K) Applied has adopted a 401(K) savings plan for all
Savings Plan employees who qualify as to age and service.
Contributions by Applied are discretionary. Applied made
annual contributions to the plan of approximately $0, $0
and $0 during the years ended December 31, 2004, 2003
and 2002, respectively.
16. Discontinued Condensed financial information for DRM, which was
Operations discontinued, is as follows for the year ended December
31, 2002, which includes DRM operations from August 30,
2000 (date of acquisition) through May 16, 2002 (date of
dissolution):
2002
---------------
Revenues $ 718
Costs and expenses (1,515)
Interest expense (186)
Minority interest 50
---------------
Net (loss) gain before income
tax expense (933)
Income tax expense -
---------------
Net (loss) gain from discontinued
operations $ (933)
---------------
- --------------------------------------------------------------------------------
F-30
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Segment Using the guidelines set forth in SFAS No. 131,
Information "Disclosures About Segments of an Enterprise and Related
Information," Applied has identified two reportable
segments as follows:
1. CASI, which primarily provides various engineering,
legal, sampling and public relations services to
government agencies on a cost plus basis.
2. Solution, which, through CASI, has equipment to
treat mixed and hazardous waste through a patented
process using sodium and anhydrous ammonia.
DRM, from August 30, 2000 (date of acquisition) to May
16, 2002 (date of dissolution), provided a package of
services to help companies recover financial settlements
from insurance policies to defray costs associated with
environmental liabilities. Income (loss) from DRM is
recorded in the discontinued operations section of the
segment information.
- --------------------------------------------------------------------------------
F-31
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Segment Common overhead costs are allocated between segments
Information based on a record of time spent by executives.
Continued
Applied evaluates segment performance based on the
segment's net income (loss). The accounting policies of
the segments are the same as those described in the
summary of significant accounting policies. 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.
2004
---- Corporate
Overhead
Total CASI Solution & Other
----------------------------------------------------
Revenues $ 738 $ 698 $ 40 $ -
Costs and expenses:
Cost of revenues 919 548 371 -
Research and development 9 - 9 -
General and administrative 1,674 308 120 1,246
Depreciation and amortization 136 - - 136
----------------------------------------------------
Total costs and expenses 2,738 856 500 1,382
----------------------------------------------------
Income (loss) from operations (2,000) (158) (460) (1,382)
Interest expense (404) (1) - (403)
----------------------------------------------------
Loss from continuing operations before
income taxes (2,404) (159) (460) (1,785)
Income taxes - - - -
----------------------------------------------------
Income (loss) from continuing operations (2,404) (159) (460) (1,785)
Income (loss) from discontinued operations - - - -
----------------------------------------------------
Net income (loss) $ (2,404) $ (159) $ (460) $ (1,785)
----------------------------------------------------
Total assets $ 369 $ 354 $ - $ 15
----------------------------------------------------
Expenditures for long-lived assets $ 61 $ 61 $ - $ -
----------------------------------------------------
- --------------------------------------------------------------------------------
F-32
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Segment
Information
Continued
2003
---- Corporate
Overhead
Total CASI Solution & Other
-----------------------------------------------------
Revenues $ 660 $ 568 $ 92 $ -
Costs and expenses:
Cost of revenues 811 721 90 -
Research and development 70 - 70 -
General and administrative 1,700 570 73 1,057
Depreciation and amortization 267 - - 267
-----------------------------------------------------
Total costs and expenses 2,848 1,291 233 1,324
-----------------------------------------------------
Income (loss) from operations (2,188) (723) (141) (1,324)
Interest expense (769) (1) - (768)
-----------------------------------------------------
Loss from continuing operations before
income taxes (2,957) (724) (141) (2,092)
Income taxes - - - -
-----------------------------------------------------
Income (loss) from continuing operations (2,957) (724) (141) (2,092)
Income (loss) from discontinued operations - - - -
-----------------------------------------------------
Net income (loss) $ (2,957) $ (724) $ (141) $ (2,092)
-----------------------------------------------------
Total assets $ 246 $ 84 $ - $ 162
-----------------------------------------------------
Expenditures for long-lived assets $ 11 $ - $ - $ 11
-----------------------------------------------------
- --------------------------------------------------------------------------------
F-33
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Segment
Information
Continued
2002
---- Corporate
Overhead
Total CASI Solution & Other
------------------------------------------------------
Revenues $ 3,710 $ 3,448 $ 262 $ -
Costs and expenses:
Cost of revenues 2,108 1,854 254 -
Research and development 297 - 297 -
General and administrative 1,792 754 203 835
Depreciation and amortization 314 30 247 37
------------------------------------------------------
Total costs and expenses 4,511 2,638 1,001 872
------------------------------------------------------
Income (loss) from operations (801) 810 (739) (872)
Interest expense (104) - - (104)
------------------------------------------------------
Loss from continuing operations before
income taxes (905) 810 (739) (976)
Income taxes - - - -
------------------------------------------------------
Income (loss) from continuing operations (905) 810 (739) (976)
Loss from discontinued operations (5,067) - - (5,067)
------------------------------------------------------
Net (loss) income $ (5,972) $ 810 $ (739) $ (6,043)
------------------------------------------------------
Total assets $ 736 $ 292 $ 353 $ 91
------------------------------------------------------
Expenditures for long-lived assets $ 2 $ 2 $ - $ -
------------------------------------------------------
- --------------------------------------------------------------------------------
F-34
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
18. Subsequent On April 12, 2005, the Company authorized the issuance
Events of 550,000 shares of Series I Convertible Preferred
Stock ("Series I Preferred"), par value $0.001 per
share, each such share of Series I Preferred having a
stated value of $10.00 per share. These preferred shares
are convertible into common stock at the rate of the
average closing price of the Company's common stock for
the previous ten trading days, and the conversion rate
is not to exceed $0.0285 per share. Non-cumulative
dividends accrue at ten percent, and will be payable
quarterly beginning February 2006. The Company will
reserve 75,000,000 shares of common stock for the
potential conversion of the Series I Convertible
Preferred Stock into common stock.
Also on April 12, 2005, a Series E and F preferred
stockholder agreed to exchange all of their Series E
and F preferred stock and all accrued and unpaid
dividends thereon, for 423,753 shares of Series I
Convertible Preferred Stock. The value of the accrued
and unpaid dividends due this preferred stockholder is
$1,641 at December 31, 2004, and this preferred
stockholder has 83,000 and 118,200 shares of Series E
and F preferred stock, respectively, at December 31,
2004.
The same preferred stockholder of the Company also has a
note payable due from the Company. This preferred stock-
holder, also on April 12, 2005, agreed to purchase
another debt holder's note payable due from the Company,
and this preferred stockholder and debt holder exchanged
the existing notes payable for a convertible secured
promissory note, which note has interest of ten percent
and is convertible into common stock at the rate of the
average closing price of the Company's common stock for
the previous ten trading days, and the conversion rate
is not to exceed $0.0285 per share. Interest payments
are deferred until April 2006 and are made monthly
thereafter, and the principal is due in one lump-sum
payment in March 2009. The Company may not prepay the
note payable.
The outstanding principal balance of these two notes
that were effectively extended to March 2009 on April
12, 2005 is $3,034. As these extensions were obtained
subsequent to year-end, but prior to issuance of these
consolidated financial statements, the Company has
included these notes payable principal balances in
long-term debt at December 31, 2004 in the accompanying
consolidated financial statements.
- --------------------------------------------------------------------------------
F-35
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
19. Recent In December 2003, the FASB issued Interpretation No. 46
Accounting ("FIN 46R") (revised December 2003), Consolidation of
Pronounce- Variable Interest Entities, an Interpretation of
ments Accounting Research Bulletin No. 51 ("ARB 51"), which
addresses how a business enterprise should evaluate
whether it has a controlling interest in an entity
though means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46 ("FIN 46"), which was issued in
January 2003. Before concluding that it is appropriate
to apply ARB 51 voting interest consolidation model to
an entity, an enterprise must first determine that the
entity is not a variable interest entity. As of the
effective date of FIN 46R, an enterprise must evaluate
its involvement with all entities or legal structures
created before February 1, 2003, to determine whether
consolidation requirements of FIN 46R apply to those
entities. There is no grandfathering of existing
entities. Public companies must apply either FIN 46 or
FIN 46R immediately to entities created after January
31, 2003 and no later than the end of the first
reporting period that ends after March 15, 2004. The
adoption of FIN 46 had no effect on the Company's
consolidated financial position, results of operations
or cash flows.
In December 2003, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No.
104, Revenue Recognition. SAB 104 revises or rescinds
portions of the interpretive guidance included in Topic
13 of the codification of staff accounting bulletins in
order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance
and SEC rules and regulations. The adoption of SAB 104
did not have a material effect on the Company's results
of operations or financial condition.
- --------------------------------------------------------------------------------
F-36
COMMODORE APPLIED TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
19. Recent In December 2004, the FASB issued SFAS No. 153,
Accounting Exchanges of Nonmonetary Assets, which amends Accounting
Pronounce- Principles Board (APB) Opinion No. 29, Accounting for
ments Nonmonetary Transactions. The guidance in APB Opinion 29
Continued is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the
assets exchanged. The guidance in APB Opinion 29,
however, included certain exceptions to that principle.
SFAS 153 amends APB Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar
productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the
entity are expected to change significantly as a result
of the exchange. SFAS 153 is effective for fiscal
periods beginning after June 15, 2005. The Company does
not expect that the adoption of SFAS 153 will have a
material impact on the financial position or results of
operations.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment, which requires companies to measure
and recognize compensation expense for all stock-based
payments at fair value. SFAS 123R is effective for the
fiscal year beginning after June 15, 2005 and, thus,
will be effective for the Company beginning with the
fiscal year of 2006. Early adoption is encouraged and
retroactive application of the provisions of SFAS 123R
to the beginning of the fiscal year that includes the
effective date is permitted, but not required. The
Company is currently evaluating the impact of SFAS 123R
and the adoption may have a material impact on the
Company's financial position and results of operations.
See Stock Compensation in Note 1 for more information
related to the pro forma effects on reported net loss
and net loss per share of applying the fair value
recognition provisions of the previous SFAS 123,
Accounting for Stock-Based Compensation, to stock-based
employee compensation.
- --------------------------------------------------------------------------------
F-37
Exhibits.
- ---------
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of the Company. (1)
3.2 By-Laws of the Company. (1)
4.1 Specimen common stock Certificate. (3)
4.11 Common Stock Purchase Agreements, dated as of September 26,
1997, by and between the Company and each of certain
private investors listed therein. (9)
4.19 Warrant to purchase shares of common stock of Commodore
Applied Technologies, Inc. issued to The Shaar Fund Ltd.
(16)
4.20 Certificate of Designation of Series E Preferred Stock.
(16)
4.21 Warrant to purchase shares of common stock of Commodore
Applied Technologies, Inc. issued to Avalon Research Group,
Inc. (16)
4.22 Warrant to purchase shares of common stock of Commodore
Applied Technologies, Inc. issued to The Shaar Fund Ltd.
(20)
4.22 Certificate of Designation of Series F Preferred Stock.
(20)
4.23 Warrant to purchase shares of common stock of Commodore
Applied Technologies, Inc. issued to Avalon Research Group,
Inc. (20)
4.24 Certificate of Designation of Series H Preferred Stock.
(24)
*4.25 Certificate of Designation of Series I Preferred Stock.
10.5 Non-Competition, Non-Disclosure and Intellectual Property
Agreement, dated March 29, 1996, between the Company and
Gerry D. Getman. (1)
10.7 1996 Stock Option Plan of the Company. (1)
10.9 Nationwide Permit for PCB Disposal issued by the EPA to
Commodore Remediation Technologies, Inc. (1)
10.17 License Agreement, dated as of March 29, 1996, by and
between the Company and Environmental, relating to the use
of SET in the CFC Business. (2)
10.32 Services Agreement, dated as of September 1, 1997, by and
among the Company, Environmental, Separation, Advanced
Sciences and other affiliated companies named therein. (14)
10.33 Amended and Restated 1996 Stock Option Plan. (13)
10.34 Securities Purchase Agreement, dated November 4, 1999,
between Commodore Applied Technologies, Inc. and The Shaar
Fund Ltd. (16)
10.35 Registration Rights Agreement, dated November 4, 1999,
between Commodore Applied Technologies, Inc. and the Shaar
Fund Ltd. (16)
10.36 Finder's Agreement, dated August 17, 1999, between
Commodore Applied Technologies, Inc. and Avalon Research
Group, Inc. (16)
10.37 Securities Purchase Agreement, dated March 15, 2000,
between Commodore Applied Technologies, Inc. and The Shaar
Fund Ltd. (16)
10.38 Registration Rights Agreement, dated March 15, 2000,
between Commodore Applied Technologies, Inc. and the Shaar
Fund Ltd. (16)
10.39 Warrant to purchase 340,000 shares of common stock of
Commodore Applied Technologies, Inc. issued to William J.
Russell. (20)
72
10.40 Warrant to purchase 340,000 shares of common stock of
Commodore Applied Technologies, Inc. issued to Tamie P.
Speciale. (20)
10.41 Warrant to purchase 300,000 shares of common stock of
Commodore Applied Technologies, Inc. issued to Diane
Archangeli. (20)
10.42 Warrant to purchase 20,000 shares of common stock of
Commodore Applied Technologies, Inc. issued to Arthur Berry
& Company, Inc. (20)
10.43 Specimen Form of Common Stock Certificate. (1)
10.50 Secured Promissory Note, dated November 13, 2000, issued to
Klass Partners Ltd. in the principal amount of $250,000.
(20)
10.51 Secured Promissory Note, dated November 13, 2000, issued to
Mathers Associates in the principal amount of $150,000.
(20)
10.52 Secured Promissory Note, dated November 13, 2000, issued to
Jon Paul Hannesson in the principal amount of $75,000. (20)
10.53 Secured Promissory Note, dated November 13, 2000, issued to
Stephen A. Weiss in the principal amount of $25,000. (20)
10.55 Securities Purchase Agreement, dated November 13, 2000, by
and among Commodore Applied Technologies, Inc., Commodore
Environmental Services, Inc., Mathers Associates, Klass
Partners, Ltd., Jon Paul Hannesson and Stephen A. Weiss.
(20)
10.56 Security Agreement, dated November 13, 2000 by and among
Mathers Associates, Klass Partners, Ltd., Jon Paul
Hannesson, Stephen A. Weiss and Commodore Applied
Technologies, Inc. (20)
10.57 Registration Rights Agreement, dated November 13, 2000,
among Mathers Associates, Klass Partners, Ltd., Jon Paul
Hannesson, Stephen A. Weiss and Commodore Applied
Technologies, Inc. (20)
10.58 Dispute Resolution Management, Inc. Undertaking Letter,
dated November 13, 2000. (20)
10.59 Nationwide Permit Extension for PCB Disposal issued by the
EPA to Commodore Remediation Technologies, Inc. (20)
10.71 Memorandum of Understanding for Amendment of $500,000 CXI
Bridge Loan Documents, dated April 16, 2001, by and among
the Company, Commodore Environmental Services, Inc.,
Mathers Associates, Jon Paul Hannesson and Stephen A.
Weiss. (20)
10.72 Klass Partners Ltd. Agreement for Amendment of CXI Bridge
Loan Documents, dated April 16, 2001, by the Company and
Klass Partners, Ltd. (20)
10.73 Warrant to purchase 300,000 shares of common stock of the
Company issued to Mathers Associates. (20)
10.74 Warrant to purchase 75,000 shares of common stock of the
Company issued to Jon Paul Hannesson. (20)
10.75 Warrant to purchase 75,000 shares of common stock of the
Company issued to Krista S. Hannesson. (20)
10.76 Warrant to purchase 50,000 shares of common stock of the
Company issued to Stephen A. Weiss. (20)
10.77 Memorandum of Understanding for Amendment of $500,000 CXI
Bridge Loan Documents, dated April 16, 2001, by and among
the Company, Commodore Environmental Services, Inc.,
Mathers Associates, Klass Partners, Jon Paul Hannesson and
Stephen A. Weiss. (23)
10.78 Warrant to purchase 222,222 shares of common stock of the
Company issued to Klass Partners. (23)
10.79 Warrant to purchase 166,667 shares of common stock of the
Company issued to Mathers Associates. (23)
10.80 Warrant to purchase 41,666 shares of common stock of the
Company issued to Jon Paul Hannesson. (23)
73
10.81 Warrant to purchase 41,666 shares of common stock of the
Company issued to Krista S. Hannesson. (23)
10.82 Warrant to purchase 27,778 shares of common stock of the
Company issued to Stephen A. Weiss. (23)
10.84 Registration Rights Agreement dated May 22, 2001, between
Commodore Applied Technologies, Inc., and Dr. Marion Danna.
(23)
10.85 Warrant to purchase 500,000 shares of common stock of the
Company issued to Dr. Marion Danna. (23)
10.86 Secured Promissory Note, dated June 13, 2001, issued to
Milford Capital & Management in the principal amount of
$500,000. (23)
10.87 Secured Promissory Note, dated June 13, 2001, issued to the
Shaar Fund, Ltd. in the principal amount of $500,000. (23)
10.88 Registration Rights Agreement dated June 13, 2001, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (23)
10.89 Registration Rights Agreement dated June 13, 2001, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (23)
10.90 Warrant to purchase 166,667 shares of common stock of the
Company issued to Milford Capital & Management. (23)
10.91 Warrant to purchase 166,667 shares of common stock of the
Company issued to the Shaar Fund, Ltd. (23)
10.94 Forbearance Agreement dated January 11, 2002, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (23)
10.95 Forbearance Agreement dated January 11, 2002, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (23)
10.96 Forbearance Agreement dated February 13, 2002, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (23)
10.97 Forbearance Agreement dated February 13, 2002, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (23)
10.98 Forbearance Agreement dated March 13, 2002, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (23)
10.99 Forbearance Agreement dated March 13, 2002, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (23)
10.101 Forbearance Agreement dated April 1, 2002, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (24)
10.102 Forbearance Agreement dated April 1, 2002, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (24)
10.103 Memorandum of Understanding for Amendment of $500,000 CXI
Bridge Loan Documents, dated April 29, 2002, by and among
the Company, Commodore Environmental Services, Inc.,
Mathers Associates, Klass Partners, Jon Paul Hannesson and
Stephen A. Weiss. (24)
10.104 Forbearance Agreement dated May 13, 2002, between Commodore
Applied Technologies, Inc., and the Shaar Fund, Ltd. (24)
10.105 Forbearance Agreement dated May 13, 2002, between Commodore
Applied Technologies, Inc., and Milford Capital &
Management. (24)
74
10.106 Forbearance Agreement dated June 13, 2002, between
Commodore Applied Technologies, Inc., and the Shaar Fund,
Ltd. (24)
10.107 Forbearance Agreement dated June 13, 2002, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (24)
10.108 Settlement Agreement dated August 19, 2002 by and among
Commodore Applied Technologies, Inc., Dispute Resolution
Management, Inc., William J. Russell and Tamie P. Speciale.
(24)
10.109 Liability Release Agreement dated August 19, 2002 by
Dispute Resolution Management, Inc., William J. Russell and
Tamie P. Speciale to Commodore Applied Technologies, Inc.
(24)
10.110 Liability Release Agreement dated August 19, 2002 by
Commodore Applied Technologies, Inc. to Dispute Resolution
Management, Inc., William J. Russell and Tamie P. Speciale.
(24)
10.112 Warrant to purchase 1,000,000 shares of common stock of
Commodore Applied Technologies, Inc. issued to Dr. Shelby
T. Brewer. (24)
10.113 Registration Rights Agreement, dated October 2, 2002 issued
to Dr. Shelby T. Brewer. (24)
10.114 Memorandum of Understanding for Amendment of $500,000 CXI
Bridge Loan Documents, dated November 18, 2002, by and
among the Company, Commodore Environmental Services, Inc.,
Mathers Associates, Klass Partners, Jon Paul Hannesson and
Stephen A. Weiss. (24)
10.115 Warrant to purchase 222,222 shares of common stock of the
Company issued to Klass Partners. (24)
10.116 Warrant to purchase 166,667 shares of common stock of the
Company issued to Mathers Associates. (24)
10.117 Warrant to purchase 41,667 shares of common stock of the
Company issued to Jon Paul Hannesson. (24)
10.118 Warrant to purchase 41,666 shares of common stock of the
Company issued to Krista S. Hannesson. (24)
10.119 Warrant to purchase 27,778 shares of common stock of the
Company issued to Stephen A. Weiss. (24)
10.120 Warrant to purchase 500,000 shares of common stock of the
Company issued to Klass Partners. (24)
10.121 Warrant to purchase 300,000 shares of common stock of the
Company issued to Mathers Associates. (24)
10.122 Warrant to purchase 75,000 shares of common stock of the
Company issued to Jon Paul Hannesson. (24)
10.123 Warrant to purchase 75,000 shares of common stock of the
Company issued to Krista S. Hannesson. (24)
10.124 Warrant to purchase 50,000 shares of common stock of the
Company issued to Stephen A. Weiss. (24)
10.126 Warrant to purchase 500,000 shares of common stock of the
Company issued to Dr. Marion Danna. (25)
10.127 Warrant to purchase 27,355,800 shares of common stock
issued to Blum Asset Trust. (25)
10.128 Forbearance Agreement dated February 1, 2004, between
Commodore Applied Technologies, Inc., and Milford Capital &
Management. (25)
75
10.129 Warrant to purchase 250,000 shares of common stock of the
Company issued to Milford Capital & Management. (25)
10.130 Memorandum of Understanding for Amendment of $500,000 CXI
Bridge Loan Documents, dated February 15, 2004, by and
among the Company, Mathers Associates, Klass Partners, Jon
Paul Hannesson and Stephen A. Weiss. (25)
10.131 Warrant to purchase 222,222 shares of common stock of the
Company issued to Klass Partners. (25)
10.132 Warrant to purchase 166,667 shares of common stock of the
Company issued to Mathers Associates. (25)
10.133 Warrant to purchase 41,667 shares of common stock of the
Company issued to Jon Paul Hannesson. (25)
10.134 Warrant to purchase 41,667 shares of common stock of the
Company issued to Krista S. Hannesson. (25)
10.135 Warrant to purchase 27,778 shares of common stock of the
Company issued to Stephen A. Weiss. (25)
10.136 Warrant to purchase 500,000 shares of common stock of the
Company issued to Klass Partners. (25)
10.137 Warrant to purchase 300,000 shares of common stock of the
Company issued to Mathers Associates. (25)
10.138 Warrant to purchase 75,000 shares of common stock of the
Company issued to Jon Paul Hannesson. (25)
10.139 Warrant to purchase 75,000 shares of common stock of the
Company issued to Krista S. Hannesson. (25)
10.140 Warrant to purchase 50,000 shares of common stock of the
Company issued to Stephen A. Weiss. (25)
10.141 Warrant to purchase 444,444 shares of common stock of the
Company issued to Klass Partners. (25)
10.142 Warrant to purchase 333,334 shares of common stock of the
Company issued to Mathers Associates. (25)
10.143 Warrant to purchase 83,332 shares of common stock of the
Company issued to Jon Paul Hannesson. (25)
10.144 Warrant to purchase 83,332 shares of common stock of the
Company issued to Krista S. Hannesson. (25)
10.145 Warrant to purchase 55,556 shares of common stock of the
Company issued to Stephen A. Weiss. (25)
10.146 Series E Convertible Preferred automatic conversion date
extension dated March 10, 2004, between the Company and The
Shaar Fund, Ltd. (25)
10.147 Series F Convertible Preferred automatic conversion date
extension dated April 9, 2004, between the Company and The
Shaar Fund, Ltd. (25)
10.148 Dividend Forgiveness letter dated April 9, 2004, between
the Company and The Shaar Fund, Ltd. (25)
*10.149 Promissory Note dated April 12, 2005, between the Company
and The Shaar Fund, Ltd.
*10.150 Amended and Restated Security Agreement dated April 12,
2005, between the Company and The Shaar Fund, Ltd.
*10.151 Patent Collateral Assignment dated April 12, 2005, between
the Company and The Shaar Fund, Ltd.
76
*10.152 Amended and Restated Guaranty and Suretyship Agreement
dated April 12, 2005, between the Company and The Shaar
Fund, Ltd.
*10.153 Exchange Agreement dated April 12, 2005, between the
Company and The Shaar Fund, Ltd.
*14.01 Code of Ethics of Commodore Applied Technologies, Inc.
16.1 Letter regarding change in certifying accountant. (12)
16.2 Letter regarding change in certifying accountant. (17)
*22.1 Subsidiaries of the Company.
*31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
*31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
*32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
*32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.1 Debt Repayment Agreement, dated September 28, 1998, between
the Company and Environmental. (15)
99.2 Registration Rights Agreement, dated September 28, 1998,
between the Company and Environmental. (15)
* Filed herewith.
(1) Incorporated by reference and filed as Exhibit to Registrant's
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on May 2, 1996 (File No. 333-4396).
(2) Incorporated by reference and filed as Exhibit to Registrant's
Amendment No. 1 to Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on June 11, 1996 (File No.
333-4396).
(3) Incorporated by reference and filed as Exhibit to Registrant's
Amendment No. 2 to Registration Amendment No.2 to Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on June 25, 1996 (File No. 333-4396).
(4) Incorporated by reference and filed as Exhibit to Registrant's
Post-Effective Amendment No. 1 to Registration Statement on Form S-1
filed with the Securities and Exchange Commission on July 1, 1996
(File No. 333-4396).
(5) Incorporated by reference and filed as Exhibit to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on October 15, 1996 (File No. 1-11871).
(6) Incorporated by reference and filed as Exhibit to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on January 27, 1997 (File No. 1-11871).
(7) Incorporated by reference and filed as Exhibit to Amendment No. 3 to
Registration Statement on Form S-1 of Separation filed with the
Securities and Exchange Commission on January 23, 1997 (File No.
333-11813).
(8) Incorporated by reference and filed as Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 of Environmental
filed with the Securities and Exchange Commission on April 15, 1997
(File No. 0-10054).
(9) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 3, 1997 (File No. 1-11871).
77
(10) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 23, 1998 (File No. 1-11871).
(11) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed with the Securities and Exchange Commission on April 15, 1997
(File No. 1-11871).
(12) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 24, 1996 (File No. 1-11871).
(13) Incorporated by reference and filed as an Exhibit to the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on December 5, 1997 (File No. 333-41643).
(14) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
filed with the Securities and Exchange Commission on March 31, 1998
(File No. 1-11871).
(15) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 5, 1999 (File No. 1-11871).
(16) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 5, 1999 (File No. 1-11871).
(17) Incorporated by reference and filed as Exhibit to Amendment No. 5 to
Registrant's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 12, 1999 (File No.
333-95445).
(18) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 23, 1999 (File No. 1-11871).
(19) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 13, 2000 (File No. 1-11871).
(20) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
2000 filed with the Securities and Exchange Commission on May 04, 2001
(File No. 1-11871).
(21) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 26, 2001 (File No. 1-11871).
(22) Incorporated by reference and filed as an Exhibit to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 31, 2001 (File No. 1-11871).
(23) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001
filed with the Securities and Exchange Commission on April 15, 2002
(File No. 1-11871).
(24) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002
filed with the Securities and Exchange Commission on April 15, 2003
(File No. 1-11871).
(25) Incorporated by reference and filed as an Exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2003
filed with the Securities and Exchange Commission on April 15, 2004
(File No. 1-11871).
78
Reports on Form 8-K:
- --------------------
1. The Company filed a Current Report on Form 8-K, dated March 16, 2005,
regarding a press release issued by the Company announcing the
Company's subsidiary, CASI, progress on the eDAM contract in Oak
Ridge, TN, CASI was awarded a one year contract from WESKEM of Oak
Ridge to support their sampling efforts with the Waste Disposition
Services Project, and the protest of the award of the FFTF contract is
ongoing.
2. The Company filed a Current Report on Form 8-K, dated April 15, 2004,
regarding a press release issued by the Company announcing its 2003
year end earnings.
3. The Company filed a Current Report on Form 8-K, dated May 19, 2004,
regarding a press release issued by the Company announcing its 2004
1st quarter earnings.
4. The Company filed a Current Report on Form 8-K, dated August 16, 2004,
regarding a press release issued by the Company announcing its 2004
2nd quarter earnings.
5. The Company filed a Current Report on Form 8-K, dated September 2,
2004, regarding a press release issued by the Company announcing its
subsidiary CASI was awarded the eDAM contract in Oak Ridge, TN.
6. The Company filed a Current Report on Form 8-K, dated November 12,
2004, regarding a press release issued by the Company announcing its
2003 annual meeting date, the SBA challenge to the Company's
subsidiary, CASI, eDAM contract award, and the protest of the award of
the FFTF contract by the losing teams, one of which the Company was a
member.
7. The Company filed a Current Report on Form 8-K, dated November 16,
2004, regarding a press release issued by the Company announcing its
2004 3rd quarter earnings.
8. The Company filed a Current Report on Form 8-K, dated December 17,
2004, regarding a press release issued by the Company announcing that
its subsidiary, CASI, has started the eDAM contract in Oak Ridge, TN,
rescheduled its 2003 annual meeting date to February 8, 2005, CASI was
awarded a one year contract from Duratek Federal Services in Oak
Ridge, TN, and the protest of the award of the FFTF contract to the
GAO is ongoing.
79
SIGNATURES
Pursuant to the requirements to Section 13 or 15(d) 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: April 15, 2005 COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ James M. DeAngelis
---------------------------------------
James M. DeAngelis, Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Shelby T. Brewer Chairman of the Board and Chief April 15, 2005
- ----------------------------- Executive Officer (principal executive
Dr. Shelby T. Brewer officer)
/s/ James M. DeAngelis Senior Vice President and Chief April 15, 2005
- ----------------------------- Financial Officer (principal financial
James M. DeAngelis officer)
/s/ Bentley J. Blum Director April 15, 2005
- -----------------------------
Bentley J. Blum
/s/ Frank E. Coffman Director April 15, 2005
- -----------------------------
Dr. Frank E. Coffman
/s/ Paul E. Hannesson Director April 15, 2005
- -----------------------------
Paul E. Hannesson
/s/ O. Mack Jones Director April 15, 2005
- -----------------------------
O. Mack Jones
/s/ Michael P. Kalleres Director April 15, 2005
- -----------------------------
VADM Michael P. Kalleres
/s/ William A. Wilson Director April 15, 2005
- -----------------------------
Ambassador William A. Wilson
80
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
The Company sent to its security holders an annual report and proxy
material during the 2004 fiscal year.
81