UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31, 2003
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11871
COMMODORE APPLIED TECHNOLOGIES, INC.
------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-3312952
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 58th Street, Suite 3238
New York, New York 10155
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 308-5800
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Exchange Act Rule 12b-2). Yes No X
----- -----
The number of shares the common stock outstanding at May 15, 2003 was
85,039,177.
COMMODORE APPLIED TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page No.
PART I FINANCIAL INFORMATION..............................................1
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 2003 and December 31, 2002.......................1
Condensed Consolidated Statement of Operations -
Three months ended March 31, 2003 and
March 31, 2002.............................................3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 2003 and
March 31, 2002.............................................4
Notes to Condensed Consolidated Financial Statements...............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.....................................................17
Item 4. Controls and Procedures...........................................17
PART II OTHER INFORMATION.................................................19
SIGNATURES.................................................................20
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
--------------------
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share data)
March 31, December 31,
ASSETS 2003 2002
----------- ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 62 $ 59
Accounts receivable, net 42 92
Prepaid assets and other current
receivables 109 167
----------- ----------
Total Current Assets 213 318
Property and Equipment, net 308 358
Intangible Assets
Patents and completed technology, net of
accumulated amortization of $50 and
$40 respectively 50 60
----------- ----------
Total Assets $ 571 $ 736
=========== ==========
See notes to condensed consolidated financial statements.
1
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share data)
March 31, December 31,
LIABILITIES AND 2003 2002
STOCKHOLDERS' DEFICIT ----------- ------------
(unaudited)
Current Liabilities:
Accounts payable $ 1,054 $ 1,077
Related party payable 83 80
Current portion of long term debt - -
Line of credit - -
Notes payable 1,010 714
Other accrued liabilities 3,074 2,723
----------- ----------
Total Current Liabilities 5,221 4,594
Long Term Debt - 431
----------- ----------
Total Liabilities 5,221 5,025
Commitments and Contingencies -- --
Stockholders' Deficit
Convertible Preferred Stock, Series E, F &
H Par value $0.001 per share, 5% to 12%
cumulative dividends, Series E And F, 3%
dividends for Series H 1,561,700 authorized,
1,087,200 shares and 1,213,700 shares issued
and outstanding as of March 31, 2003 and
December 31, 2002, respectively. The shares
had an aggregate liquidation value of $4,907
and $6,716 at March 31, 2003 and December 31,
2002 respectively 1 1
Common Stock, par value $0.001 per share,
125,000,000 shares authorized, 79,732,852
and 59,027,062 issued and outstanding, at
March 31, 2003 and December 31, 2002,
respectively 80 59
Additional Paid-in Capital 67,177 67,129
Accumulated Deficit (71,645) (71,215)
----------- ----------
(4,387) (4,026)
Treasury Stock, 3,437,500 shares (263) (263)
----------- ----------
Total Stockholders' Deficit (4,650) (4,289)
----------- ----------
Total Liabilities and Stockholders' Deficit $ 571 $ 736
=========== ==========
See notes to condensed consolidated financial statements.
2
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited - Dollars in Thousands, except per share data)
Three months ended
March 31, March 31,
2003 2002
----------- ----------
Contract revenues $ 164 $ 1,087
Costs and expenses:
Cost of sales 205 939
Research and development 59 77
General and administrative 214 538
Depreciation and amortization 66 63
----------- ----------
Total costs and expenses 544 1,617
----------- ----------
Income (loss) from operations (380) (530)
----------- ----------
Other income (expense):
Interest income -- --
Interest expense (50) (42)
Income taxes -- --
----------- ----------
Net other income (expense) (50) (42)
----------- ----------
Loss before discontinued operations (430) (572)
Discontinued operations -- (402)
----------- ----------
Net loss $ (430) $ (974)
=========== ==========
Loss per share from continuing operations -
basic and diluted $ (.01) $ (.01)
Loss per share from discontinued operations -
basic and diluted $ -- $ (.01)
----------- ----------
Total loss per share - basic and diluted $ (.01) $ (.02)
=========== ==========
Number of weighted average shares outstanding
(in thousands) 69,314 57,356
=========== ==========
See notes to condensed consolidated financial statements.
3
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Dollars in Thousands, except per share data)
Three months ended
March 31, March 31,
2003 2002
----------- ----------
Cash flows from operating activities:
Net loss $ (430) $ (974)
Add: net loss from discontinued operations - 402
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 66 73
Amortization of debt discount 35 18
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable 50 -
Prepaid assets 58 36
Net assets of component DRM - 931
Accounts payable (23) (708)
Other liabilities 170 (16)
----------- ----------
Net cash used in operating activities (74) (238)
Cash flows from investing activities:
Purchase of equipment (6) -
Advances from (to) related parties, net 3 (19)
----------- ----------
Net cash used in investing activities (3) (19)
Cash flows from financing activities:
Increase in (repayment of) line of credit - 252
Increase in notes and loans payable 120 -
Payments on notes and loans payable (40) (13)
----------- ----------
Net cash provided by financing activities 80 239
Increase (decrease) in cash 3 (18)
Cash, beginning of period 59 170
----------- ----------
Cash, end of period $ 62 $ 152
=========== ==========
See notes to condensed consolidated financial statements.
4
COMMODORE APPLIED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
for Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or
"Applied") have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. The financial
statement information was derived from unaudited financial statements unless
indicated otherwise. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 2002.
Certain prior-year amounts have been reclassified to conform to the
current year presentation.
The accompanying financial statements have been prepared under the
assumption that Applied will continue as a going concern. Such assumption
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. For the period ended March 31, 2003, and for the
years ended December 31, 2002, 2001, and 2000, Applied incurred losses of
$430,000, $5,972,000, $6,554,000 and $11,441,000, respectively. Applied has also
experienced net cash (outflows) inflows from operating activities of $(123,000),
$965,000, and $(2,629,000) for the years ended December 31, 2002, 2001, and
2000, respectively. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary should Applied be unable to continue as
a going concern. Applied's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitability. Potential sources of cash include new contracts, external
debt, the sale of new shares of company stock or alternative methods such as
mergers or sale transactions. No assurances can be given, however, that Applied
will be able to obtain any of these potential sources of cash.
Anticipated losses on contracts are provided for by a charge to income
during the period such losses are identified. Changes in job performance, job
conditions, estimated profitability (including those arising from contract
penalty provisions) and final contract settlements may result in revisions to
cost and income and are recognized in the period in which the revisions are
determined. Allowances for anticipated losses totaled $300,000 and $238,000 at
March 31, 2003 and December 31, 2002, respectively. These allowances are
included in other accrued liabilities in the accompanying financial statements.
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. During the quarter ended March 31, 2003, no expense has been recognized
for the variable options as the fair market value of Applied's common stock at
March 31, 2003 was lower than the exercise price of the variable options.
5
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The preparation of consolidated
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note B - Supplemental cash flow information
During the three months ended March 31, 2003, 109,000 shares of Series
E Preferred Stock and 17,500 shares of Series F Preferred Stock were converted
into 16,136,715 and 2,450,514 shares of common stock, respectively. The company
also paid accrued dividends of $183,000 on Preferred Stock Series E and F
through the issuance of 2,118,560 shares of common stock. The Company accrued
dividends on Preferred Stock Series E and F and H of $114,000, which is included
in Other Accrued Liabilities.
During the three months ended March 31, 2002, 20,000 shares of
Preferred Stock Series F were converted into 1,360,544 shares of common stock.
The company also paid accrued dividends of $120,000 on Preferred Stock Series E
and F through the issuance of 867,392 shares of common stock. The Company
accrued dividends on Preferred Stock Series E and F of $51,000, which is
included in Other Accrued Liabilities.
Note C - Other accrued liabilities
Other accrued liabilities consist of the following:
March 31, December 31,
2003 2002
--------- ------------
Dividend payable $ 1,141 $ 1,210
Compensation and employee benefits 937 842
Loss reserve 300 238
Related party obligation to issue stock for
converted note payable and accrued interest 287 --
Related parties 185 185
Accrued interest 126 155
Other 98 93
-------- --------
$ 3,074 $ 2,723
======== ========
Note D - Liability to issue shares of common stock
During March 2003, a shareholder and officer agreed to convert his
$250,000 note payable and $37,000 of accrued interest due from the Company into
13,189,841 shares of the Company's common stock. As the issuance of the common
stock has not occurred as of March 31, 2003, the Company has included these
amounts in Other Accrued Liabilities at March 31, 2003. The Company anticipates
issuing the shares of common stock when the shares are authorized to be issued.
6
Note E - Segment information
The Company has identified three reportable segments in which it
operates, based on the guidelines set forth in the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131. These
three segments are as follows: (i) Commodore Advanced Sciences, Inc., which
primarily provides various engineering, legal, sampling, and public relations
services to Government agencies on a cost plus basis; (ii) Commodore Solutions,
Inc., which is commercializing technologies to treat mixed and hazardous waste;
and (iii) Corporate overhead and other miscellaneous activities.
Dispute Resolution Management, Inc. ("DRM"), from August 30, 2000 (date
of acquisition of 81% of DRM by the Company) to May 16, 2002 (date of
dissolution of 81% of DRM by the Company), provided a package of services to
help companies recover financial settlements from insurance policies to defray
costs associated with environmental liabilities. Loss from DRM is recorded in
the discontinued operations section of the segment information.
Applied evaluates segment performance based on the segment's net income
(loss). Applied's foreign and export sales and assets located outside of the
United States are not significant. Summarized financial information concerning
Applied's reportable segments is shown in the following tables.
Three Months Ended March 31, 2003
Corporate
Advanced Overhead
Total Sciences Solution and Other
Contract Revenues $ 164 $ 164 $ -- $ --
Costs and expenses
Cost of Sales 205 205 -- --
Research and Development 59 -- 59 --
General and Administrative 214 76 62 76
Depreciation and Amortization 66 10 56 --
------- -------- -------- ---------
Total costs and expenses 544 291 (177) 76
------- -------- -------- ---------
Income (Loss) from Operations (380) (127) (177) (76)
Interest Income -- -- -- --
Interest Expense (50) (2) -- (48)
------- -------- -------- ---------
Income (Loss) from Continuing (430) (129) (177) (124)
Operations
------- -------- -------- ---------
Net Income (Loss) $ (430) $ (129) $ (177) $ (124)
======= ======== ======== =========
Total Assets $ 571 $ 217 $ 300 $ 54
Expenditures for long-lived assets $ 6 $ 6 $ -- $ --
7
Three Months Ended March 31, 2002
Corporate
Advanced Overhead
Total Sciences Solution And Other
Contract Revenues $ 1,087 $ 1,087 $ -- $ --
Costs and expenses
Cost of Sales 939 939 -- --
Research and Development 77 -- 77 --
General and Administrative 538 210 40 288
Depreciation and Amortization 63 11 52 --
------- -------- -------- ---------
Total costs and expenses 1,617 1,160 169 288
------- -------- -------- ---------
Income (Loss) from Operations (530) (73) (169) (288)
Interest Income -- -- -- --
Interest Expense (42) -- -- (42)
------- -------- -------- ---------
(572) (73) (169) (330)
Loss from discontinued operations (402) -- -- (402)
------- -------- -------- ---------
Net Income (Loss) $ (974) $ (73) $ (169) $ (732)
======= ======== ======== =========
Total Assets $28,114 $ 296 $ 350 $ 27,468
Expenditures for long-lived assets $ -- $ -- $ -- $ --
8
Note F - Net loss per common share
Basic net loss per common share ("Basic EPS") excludes dilution and is
computed by dividing net loss available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted net loss
per common share ("Diluted EPS") reflects the potential dilution that could
occur if stock options or other contracts to issue common stock were exercised
or converted into common stock. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive effect on
net loss per common share.
Options and warrants to purchase 34,274,905 and 26,485,113 shares of
common stock as of March 31, 2003 and 2002, respectively, were not included in
the computation of Diluted EPS. The inclusion of the options would have been
anti-dilutive, thereby decreasing net loss per common share.
Note G - Contingencies
Applied has matters of litigation arising in the ordinary course of
business which in the opinion of management will not have a material adverse
effect on its financial condition or results of operations.
Note H - Subsequent Events
Issuance of Common Stock subsequent to March 31, 2003
The Company issued a total of 5,306,325 shares of its common stock
during the period from March 31, 2003 to May 15, 2003, 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") and the holders of the Company's Series F Convertible Preferred
Stock, par value ($0.001) per share (the "Series F Preferred").
O. Mack Jones named Executive Officer of Applied on April 10, 2003
O. Mack Jones was appointed President and Chief Operating Officer of
Applied on April 10, 2003. Mr. Jones has been serving as Acting President of
Advanced Sciences since February 28, 2001. Mr. Jones also has served as Vice
President of Field Operations since April 1998, managing its field treatability
studies and commercial projects.
Advanced Sciences and Solutions relocate offices on April 18, 2003
After being headquartered in Albuquerque for over twenty-five years,
the Company decided early in 2003 to relocate Advanced Sciences and Solutions to
Richland, Washington. This move was completed on April 18. The Company is
focusing its technologies and processes on treating mixed wastes for the US
Department of Energy at primary nuclear legacy sites in the United States, and
has offices in Denver (Rocky Flats) and Oak Ridge (Oak Ridge National
Laboratory). This new office in Richland will allow the Company to serve the
government's needs for small business participation in closing the Hanford,
Washington laboratory and operations site.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Overview
Commodore Applied Technologies, Inc. and subsidiaries (the "Company" or
"Applied"), is engaged in providing a range of engineering, technical, and
financial services to the public and private sectors related to (i) remediating
contamination in soils, liquids and other materials and disposing of or reusing
certain waste by-products by utilizing SET; and (ii) providing services related
to, environmental management for on-site and off-site identification,
investigation remediation and management of hazardous, mixed and radioactive
waste.
Applied discontinued the operations of its previously 81% owned
subsidiary DRM, on May 16, 2002 as a result of Applied's inability to meet the
terms and conditions of the Stock Purchase Agreement with DRM. The loss from the
disposition of DRM is recorded at $4,134,000 to Applied. The Company's loss of
the DRM subsidiary may have a material adverse effect on the financial condition
of the Company and its cash flow problems. The Company currently requires
additional cash to sustain existing operations and to meet current obligations
and ongoing capital requirements. Excluding DRM, the Company's current monthly
operating expenses exceed cash revenues by approximately $80,000.
The Company is currently working on the commercialization of these
technologies through development efforts, licensing arrangements and joint
ventures. Through Commodore Advanced Sciences, Inc. ("Advanced Sciences")
formerly Advanced Sciences, Inc., a subsidiary acquired on October 1, 1996, the
Company has contracts with various government agencies and private companies in
the U.S. As some government contracts are funded in one-year increments, there
is a possibility for cutbacks as these contracts constitute a major portion of
Advanced Sciences' revenues, and such a reduction would materially affect the
operations. Advanced Sciences has experienced a significant decrease in revenue
caused by fewer contracts and overall, less work being performed by Advanced
Sciences. However, management believes its existing client relationships will
allow the Company to obtain new contracts in the future.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues were $164,000 for the three months ended March 31, 2003,
compared to $1,087,000 for the three months ended March 31, 2002.
In the case of Advanced Sciences, revenues were $164,000 for the period
ended March 31, 2003 as compared with $1,087,000 for the period ended March 31,
2002. Advanced Sciences has experienced a significant decrease in revenue caused
by fewer contracts and overall, less work being performed by Advanced Sciences.
The revenues from Advanced Sciences consisted of engineering and scientific
services performed for the United States government under a variety of
contracts, most of which provide for reimbursement of cost plus fixed fees.
Revenue under cost-reimbursement contracts is recorded under the percentage of
completion method as costs are incurred and include estimated fees in the
proportion that costs to date bear to total estimated costs. Advanced Sciences
has two major customers, each of which represent more than 10% of total revenue.
The combined revenue for these two customers was $164,000 or 100% of total
revenues for the period ending March 31, 2003. Cost of sales was $205,000 for
the period ending March 31, 2003 compared to $939,000 for the period ending
March 31, 2002. The decrease in cost of sales can be attributed to a decrease in
variable costs caused by fewer contracts and overall, less work being performed
by Advanced Sciences.
10
In the case of Commodore Solution, Inc. ("Solution"), revenues were $0
for the period ended March 31, 2003 as compared with $0 for the period ended
March 31, 2002. There were no revenues recorded for the three-month period ended
March 31, 2003 due to (i) SET processing contracts being completed but not yet
billable under current revenue recognition guidelines, (ii) United States
Environmental Protection Agency (the "USEPA") demonstration of the SL-2 system
at a client location in Oak Ridge, Tennessee for inclusion to the Company's
nationwide permit for PCB destruction; and (iii) the relocations of the SET
equipment to Hanford, Washington. Revenues, when recognized, are primarily from
remediation services performed for engineering and waste treatment companies in
the U.S. under a variety of contracts. There was $0 cost of sales for the
three-month period ended March 31, 2003 and 2002. The cost of sales, when
incurred, is attributable to sales and marketing expenses for the SET
technology. Anticipated losses on engagements, if any, will be provided for by a
charge to income during the period such losses are first identified.
For the three-month period ended March 31, 2003, the Company incurred
research and development costs of $59,000 as compared to $77,000 for the
three-month period ended March 31, 2002. Research and development costs include
salaries, wages, and other related costs of personnel engaged in research and
development activities, contract services and materials, test equipment and rent
for facilities involved in research and development activities. Research and
development costs are expensed when incurred, except those costs related to the
design or construction of an asset having an economic useful life are
capitalized, and then depreciated over the estimated useful life of the asset.
The decrease in research and development expense is due to the continued
commercialization focus of the Company.
General and administrative expenses for the three-month period ended
March 31, 2003 were $214,000 as compared to $538,000 for the three-month period
ended March 31, 2002. This difference is due to the decreased level of staffing
and the associated office equipment, travel, expenses and supplies needed to
operate for the three-month period ended March 31, 2003.
In the case of Advanced Sciences, general and administrative costs
decreased from $210,000 for the three-month period ended March 31, 2002 to
$76,000 for the three-month period ended March 31, 2003. This decrease reflects
the impact of some restructuring steps in Advanced Sciences (including
principally a reduction in personnel) the Company made throughout 2002 and 2003
due to the inability to replace certain completed contracts. Solution incurred
general and administrative costs of $62,000 for the three-month period year
ended March 31, 2003 as compared with $40,000 for the three-month period ended
March 31, 2002. This increase was primarily due to (i) expenses associated with
relocating Solutions operations to Advanced Sciences' new location in Hanford,
Washington; (ii) expenses associated with a USEPA demonstration of the SL-2
system at a client location in Oak Ridge, Tennessee for inclusion to the
Company's nationwide permit for PCB destruction; and (iii) increased sales and
marketing effort for Solution's services, which may result in contracts that
will produce revenue in 2003.
Interest income was $0 for the three-month period ended March 31, 2003
and the three-month period ended March 31, 2002. The Company did not have a
material amount of monies on deposit to generate interest income for these
periods.
Interest expense for the three months ended March 31, 2003 was $50,000
as compared to $42,000 for the three months ended March 31, 2002. The increase
in interest expense is due to an increase in discounts on debts for warrants
amortized into interest expense during the three months ended March 31, 2003 as
compared to the three months ended March 31, 2002.
11
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003 and December 31, 2002 Advanced Sciences had a $0 and
$0 outstanding balance, respectively, on its revolving lines of credit.
For the three-month period ended March 31, 2003, the Company incurred a
net loss of $430,000 as compared to a net loss of $974,000 for the three-month
period ended March 31, 2002. For the three-month period ended March 31, 2003,
and for the years ended December 31, 2002, 2001, and 2000, Applied incurred
losses of $430,000, $5,972,000, $6,554,000 and $11,441,000, respectively.
Applied has also experienced net cash (outflows) inflows from operating
activities of $(123,000), $965,000, and $(2,629,000) for the years ended
December 31, 2002, 2001, and 2000, respectively.
During the three-month period ended March 31, 2003, the Company
converted 109,000 shares of Series E Preferred and 17,500 shares of Series F
Preferred for 16,136,715 and 2,450,514 shares of the Company's common stock,
respectively. Additionally, the Company issued 1,566,989 and 551,571 shares of
the Company's common stock, respectively, in satisfaction of all accrued
dividends pertaining to the Series E and Series F Preferred conversions through
February 20, 2003.
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 Company's 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 "OTCBB"), where it is currently traded under the symbol CXII.
The Company's loss of the DRM subsidiary effective May 16, 2002 has
had, and may continue to have, a material adverse effect on the financial
condition of the Company and its cash flow problems. 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 at March 31,
2003.
In November 1999, the Company completed $2.5 million in financing
through private placement. The Company issued 335,000 shares of a new Series E
Convertible Preferred Stock (the "Series E Preferred"), convertible into common
stock at the market price, after September 30, 2000 and up through April 30,
2004 at which time it automatically converts to common stock. The Series E
Preferred has a variable rate dividend averaging 8.15% over the term of the
security. There are 169,000 shares of Series E Preferred with a face value of
$1,690,000 outstanding as of March 31, 2003. There is $707,141 of accrued
dividends payable on the Series E Preferred as of March 31, 2003.
In March 2000, the Company completed $2.0 million in financing through
private placement. The Company issued 266,700 shares of a new Series F
Convertible Preferred Stock (the "Series F Preferred"), convertible into common
stock at the market price, after September 30, 2000 and up through April 30,
2004 at which time it automatically converts to common stock. The Series F
Preferred has a variable rate dividend averaging 8.15% over the term of the
security. There are 118,200 shares of Series F Preferred with a face value of
$1,182,000 outstanding as of March 31, 2003. There is $421,266 of accrued
dividends payable on the Series F Preferred as of March 31, 2003.
In September 2000, the Company completed $500,000 in financing in the
form of a loan (the "Brewer Note") from S. Brewer Enterprises, Inc. ("SB
Enterprises"), which is owned by one of its officers and directors, Shelby T.
Brewer. The Brewer Note bears a 9.75% interest rate, payable monthly, with a
balloon principal payment at the end of the term. The Brewer Note was due and
payable on March 15, 2001 and was extended under the same terms and conditions
until December 31, 2001. The Brewer Note was convertible into Common Stock at
the market price up through December 31, 2001.
12
On March 15, 2001, SB Enterprises executed an Amended and Restated
Promissory Note (the "Restated Brewer Note"), which extended the maturity date
of the note until December 31, 2001. Additionally, the conversion price feature
of the Restated Brewer Note was changed to the 5-day average closing price of
the Company's common stock prior to a conversion notice. On April 9, 2001, SB
Enterprises issued a conversion notice for $250,000 of the outstanding principal
of the Brewer Restated Note. The conversion price was calculated based upon the
previous 5-day average of the closing price of the Company's common stock, and
the Restated Brewer Note was converted into 1,041,667 shares of the Company's
common stock. . The Company believes that this transaction is exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), under Section 4(2) thereof as a transaction not involving any
public offering of securities.
On December 12, 2002, SB Enterprises executed an Amended and Restated
Promissory Note Extension (the "Restated Brewer Note Extension"), which extended
the maturity date of the Restated Brewer Note until January 1, 2004. In
connection with the Restated Brewer Note Extension, the Company issued SB
Enterprises a 2-year warrant for 1,000,000 shares of the Company's common stock
at an exercise price of $0.05 per share. On March 14, 2003, SB Enterprises
issued a conversion notice for the remaining principal balance of $250,000 plus
accrued interest of $36,563. The conversion price was calculated based upon the
previous 5-day average of the closing price of the Company's common stock, and
the Restated Brewer Note was converted into 13,189,842 shares of the Company's
common stock. These shares have not been issued to SB Enterprises as of May 15,
2003 and are recorded as a liability for $286,563. 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.
In October 2001, Advanced Sciences refinanced their line of credit with
Commerce Funding Corporation (the "Commerce Credit Line"). The Commerce Credit
Line is not to exceed 85 percent of eligible receivables or $1,000,000 and is
due October 2002, and subsequently extended until November 2003, with interest
payable monthly at prime plus 2 percent (6.75 percent as of December 31, 2002).
The Commerce Credit Line is collateralized by the receivables of Advanced
Sciences and is guaranteed by the Company. The Commerce Credit Line contains
certain financial covenants and restrictions including minimum ratios that
Advanced Sciences must satisfy. Advanced Sciences was in compliance with the
covenants of the Commerce Credit Line at April 15, 2003.
In addition, the Commerce Credit Line agreement stipulates that no
payments shall be made by Advanced Sciences to the Company other than monthly
scheduled payments of principal with respect to the $8,280,000 subordinated
indebtedness owed by Advanced Sciences to the Company (which is eliminated in
consolidation) and intercompany indebtedness not to exceed $20,000 in any month.
In addition, Advanced Sciences shall not incur indebtedness in excess of
$25,000, other than trade payables, the above subordinated indebtedness and
other contractual obligations to suppliers and customers incurred in the
ordinary course of business.
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; $75,000
of which was borrowed from the son of Paul E. Hannesson, our former President
and Chief Executive Officer, and $25,000 of which was borrowed from Stephen A.
Weiss, a shareholder of Greenberg Traurig, LLP, our former corporate and
securities counsel. The Weiss Group Note bears interest at 12% per annum, was
due and payable on February 12, 2001, and is secured by the first $500,000 of
loans or dividends that the Company may receive from DRM. As consideration for
such loan, Environmental, one of the Company's principal stockholders owning
approximately 16.58% of the Company's common stock, transferred to the investors
a total of 1,000,000 shares of the Company's common stock. The current principal
balance of the Weiss Group Note is $254,231 and remains unpaid as of May 15,
2003. All have granted payment extensions until January 1, 2004.
13
Effective April 16, 2001, the Company issued warrants to purchase
1,000,000 shares of its common stock at an exercise price of $0.22 per share
(the closing price of our common stock on the AMEX on such date) to all holders
of the Weiss Group Note in consideration of the extension of the due date of the
Weiss Group Note from February 12, 2001 to June 30, 2001. 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.
Effective January 24, 2002, the Company issued warrants to purchase
500,000 shares of its common stock at an exercise price of $0.15 per share (the
closing price of our common stock on the AMEX on such date) to all holders of
the Weiss Group Note in consideration of the extension of the due date of such
loans by such persons from June 30, 2001 to May 31, 2002. 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.
Effective October 29, 2002, the lenders under the Weiss Group Note
voluntarily cancelled all warrants, issued on April 16, 2001, to purchase
1,000,000 shares at an exercise price of $0.22 per share of the Company's common
stock in connection with the Weiss Group Note. Effective October 29, 2002, the
lenders under the Weiss Group Note voluntarily cancelled all warrants, issued on
January 24, 2002, to purchase 500,000 shares at an exercise price of $0.15 per
share of the Company's common stock in connection with the Weiss Group Note.
Effective October 29, 2002, the Company issued warrants to purchase
1,500,000 shares of its common stock at an exercise price of $0.05 per share
(the closing price of our common stock on the AMEX on such date) 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 1, 2004. The Company
believes that this transaction is exempt from the registration requirements of
the Securities Act, under Section 4(2) thereof as a transaction not involving
any public offering of securities.
On June 13, 2001, the Company issued and sold to Milford Capital
Management, Inc. and the Shaar Fund, Ltd. (hereinafter known as "Milford/Shaar")
one-year, 15% Senior Secured Promissory Notes (the "Milford/Shaar Bridge Loan
Notes") in the aggregate principal amount of $1,000,000. In connection with the
Milford/Shaar Bridge Loan Notes, the Company issued to Milford/Shaar a five-year
warrant for 333,334 shares of the Company's common stock at an exercise price of
$0.22 per share. The Company pledged its equipment and SET related intellectual
property as collateral for the Milford/Shaar Bridge Loan Notes. The Company
shall 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
August 13, 2002. 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 current principal balance of the Milford/Shaar Bridge Loan Notes
is $782,283 and remains unpaid as of May 15, 2003. Additionally, as of May 15,
2003, there is $119,173 in accumulated forbearance fees and $100,000 due in exit
fees on the Milford/Shaar Bridge Loan Notes. The Company has not been notified
of a default of the Milford/Shaar Bridge Loan Notes as of May 15, 2003.
14
On October 2, 2002, Mr. Bentley Blum, a director of the Company, had
previously loaned the Company $125,000 in 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 under the conversion feature of the Blum Loan, based upon
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 continues
to provide cash installments in the form of a demand note ("Blum Demand Note")
to the Company. The Blum Demand Note bears interest at 9% per annum. The current
principal balance of the Blum Demand Note is $132,032 and remains unpaid as of
May 15, 2003. 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 August 30, 2000, the Company entered into a Stock Purchase Agreement
(the "Agreement") Applied completed a stock purchase agreement with Dispute
Resolution Management, Inc. (DRM) and its two shareholders, William J. Russell
("Russell") and Tamie B. Speciale ("Speciale").
On May 16, 2002, William J. Russell and Tamie B. Speciale (the
"Pledgees") issued a Notice of Default and Right to Pursue Remedies (the
"Notice") to the Company claiming that the Company is in default under the
Agreement and the related Stock Pledge Agreement (the "Stock Pledge"). As of May
16, 2002, the Company no longer owned an 81% interest in DRM.
On August 19, 2002, the Company entered into a settlement agreement
with DRM (the "DRM Settlement Agreement"). Under terms of the DRM Settlement
Agreement, the Company acknowledged that it had previously received back
4,750,000 shares of its common stock from DRM and its shareholders. As part of
the DRM Settlement Agreement, the Company received an additional 1,187,500
shares of its common stock from DRM and its shareholders.
Under the DRM Settlement Agreement, as of September 30, 2002, the
Company also issued 800,000 shares of Series H Preferred stock, par value $0.001
per share (the "Series H Preferred Stock"), each such share of Series H
Preferred Stock having a stated value of $1.00 per share, to DRM, Russell and
Speciale in satisfaction of the remaining liabilities relating to the purchase
and working capital of DRM. The Series H Preferred Stock has the following
rights, privileges, and limitations:
a) No Series H Preferred Stock may be converted prior to June 30,
2003. Until July 31, 2005, only 80,000 shares of the Series H
Preferred Stock shall be convertible in any calendar quarter. The
balance of any unconverted shares of Series H Preferred Stock may
be converted at any time on or after August 1, 2005.
b) The conversion price of the Series H Preferred Stock 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.
c) The Series H Preferred Stock shall have a non-cumulative annual
dividend of 3%, payable in cash or shares of Series H Preferred
Stock within 30 days of the end of the Company's fiscal year, at
the Company's election.
d) The Series H Preferred Stock shall not be transferable.
There are 800,000 shares of Series H Preferred with a face value of
$800,000 outstanding as of March 31, 2003. There is $14,762 of accrued dividends
payable on the Series H Preferred as of March 31, 2003.
15
The financial information included in the accompanying form 10Q for the
period ending March 31, 2003 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's loss of the DRM subsidiary has
had, and may continue to have, a material adverse effect on the financial
condition of the Company and its cash flow problems. 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.
The Company's auditor's opinion on our fiscal 2002 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 is negotiating with a lender to obtain debt
financing, to supplement funds generated from operations, to meet the Company's
cash needs over the next 12 months. The Company intends to meet its long term
capital needs through obtaining additional contracts that will generate funds
from operations and obtaining additional debt or equity financing as necessary
or engaging in merger or sale transactions. There can be no assurance that such
sources of funds will be available to the Company or that it will be able to
meet its short or long term capital requirements.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carryforwards (the "NOLs") of
approximately $32,000,000, which expire in the years 2002 through 2022. The
amount of NOLs that can be used in any one year will be limited by the
applicable tax laws that are in effect at the time such NOLs can be utilized.
The unused NOLs balances may be accumulated and used in subsequent years. A full
valuation allowance has been established to offset any benefit from the net
operating loss carryforwards. There can be no assurance that the Company will be
able to generate sufficient taxable income in the future to utilize any of the
NOLs.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Quarterly Report are "forward-looking
statements" intended to qualify for the safe harbors from liability established
by Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These forward-looking statements
can generally be identified as such because the context of the statement will
include words such as the Company "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements.
Such statements may address future events and conditions concerning,
among other things, the Company's results of operations and financial condition;
the consummation of acquisition and financing transactions and the effect
thereof on the Company's business; capital expenditures; litigation; regulatory
matters; and the Company's plans and objectives for future operations and
expansion. Any such forward-looking statements would be subject to the risks and
uncertainties that could cause actual results of operations, financial
condition, acquisitions, financing transactions, operations, expenditures,
expansion and other events to differ materially from those expressed or implied
in such forward-looking statements. Any such forward-looking statements would be
subject to a number of assumptions regarding, among other things, future
economic, competitive and market conditions generally. Such assumptions would be
based on facts and conditions as they exist at the time such statements are made
as well as predictions as to future facts and conditions, the accurate
prediction of which may be difficult and involve the assessment of events beyond
the Company's control.
16
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;
o the ability to generate profitable operations from a large scale
remediation project;
o the ability of the Company to renew its nationwide permit to treat
PCBs;
o the ability of the Company to implement its waste processing
operations, including obtaining commercial waste processing
contracts and processing waste under such contracts in a timely
and cost effective manner; 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 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 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable.
ITEM 4. Controls and Procedures
-----------------------
(a) Evaluation of disclosure controls and procedures. As required by
Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of
the Company's management, including the Company's President and
Chief Executive Officer, and the Company's Chief Financial Officer
and Chief Accounting Officer. Based upon that evaluation, the
Company's President and Chief Executive Officer, and Chief
Financial Officer and Chief Accounting Officer have concluded that
the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the
Company required to be included in the Company's periodic SEC
filings. Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required
to be disclosed in Company reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commission's rule and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in Company
reports filed under the Exchange Act is accumulated and
communicated to management, include the Company's Chief Executive
Officer, and Chief Financial Officer and Chief Accounting Officer
as appropriate, to allow timely decisions regarding required
disclosures.
17
(b) Changes in internal controls. There have been no changes in
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no material legal proceedings to which the Company is a
party which have not been disclosed in previous filings with the Securities and
Exchange Commission. There are no material developments to be reported in any
previously reported legal proceedings.
ITEM 2. Change in Securities
Not applicable
ITEM 3. Defaults among Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Events
Not applicable.
ITEM 6. Exhibits and Reports on Form 8 - K
(a) Exhibits -
1. 99.1 - Certification pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
2. 99.2 - Certification pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
1. The Company filed a Current Report on Form 8-K, dated April 16,
2003, announcing its 2002 Fiscal Year End earnings.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2003 COMMODORE APPLIED TECHNOLOGIES, INC.
(Registrant)
By /s/ James M. DeAngelis
--------------------------------
James M. DeAngelis - Senior Vice
President and Chief Financial
Officer (as both a duly authorized
officer of the registrant and the
principal financial officer of the
registrant)
20
SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Shelby T. Brewer, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Commodore Applied
Technologies, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Shelby T. Brewer
------------------------------------
Chairman and Chief Executive Officer
21
SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, James M. DeAngelis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Commodore Applied
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ James M. DeAngelis
---------------------------
Chief Financial Officer and
Treasurer
22