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| CXIA.OB > SEC Filings for CXIA.OB > Form 10-Q on 19-Nov-2008 | All Recent SEC Filings |
19-Nov-2008
Quarterly Report
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy. Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, those listed below in Part II, Item 1A of this Quarterly Report on Form 10-Q under "Risk Factors" and elsewhere in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our most recent Annual Report on Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.
OVERVIEW
The Company is engaged in providing a range of environmental remediation and technical services to the public and private sectors related to (i) providing services related to environmental management for on-site and off-site identification, investigation remediation and management of hazardous, mixed and radioactive waste; and (ii) remediating contamination in soils, liquids and other materials and disposing of or reusing certain waste by-products.
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 the Company's revenues, and such a reduction would materially affect operations. However, management believes the Company's existing client relationships will allow it to obtain new contracts in the future. The Company has access to 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.
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. ("Advanced Sciences"), which primarily provides various environmental sampling, analysis and data management services to government agencies on a lump sum and fixed cost basis; and Commodore Solutions, Inc. ("Solutions"), which is commercializing technologies to treat mixed and hazardous waste through the Company's SET technology, as described more fully in the Company's filing of Form 10-KSB for the year ended December 31, 2007. While Commodore Solutions does not have any revenue or expense activities for the quarter ended September 30, 2008, the Company has multiple quotes and selling efforts currently under consideration by departments of the U.S. government which may re-invigorate this segment in late 2008 or early 2009.
RESULTS OF OPERATIONS
Quarter ended September 30, 2008 compared to Quarter ended September 30, 2007
Service revenues for the three months ended September 30, 2008 were $748 thousand compared to $736 thousand for the three months ended September 30, 2007. Service revenues for the most recent quarter were primarily from environmental remediation and scientific services performed for the United States government under two contracts similar to those in place in 2007. Revenues for the three months ended September 30, 2008 remained consistent with the prior year. In October 2007, Bechtel Jacobs Company LLC of Oak Ridge, TN
In September 2008, BJC awarded Commodore a two-year contract extension with an additional two-year renewal option on the Environmental Sampling Activities (ESA) contract, effective October 1, 2008. This award extends the contract through September 2010 with an option to extend through September 2012. The contract extension included an increase in the billable fee structure to compensate for Commodore's increased costs in performing the sampling work. As a result, the Company expects to achieve improved gross margins from the contract. The Company will begin to see the effects of this increase in its fourth quarter of 2008. The ESA contract scope of work includes environmental sampling, shipping and filed data management at all three U.S. Department of Energy sites (ETTP, ORNL, Y-12) located in Oak Ridge, TN. Commodore has performed on more than 101 Work Releases (Task Orders) during the four contract period that ended September 30, 2008. Commodore has maintained a perfect safety record of zero accident or injuries and no regulatory compliance violations.
Cost of service revenues for the three months ended September 30, 2008 were $618 thousand compared to $409 thousand for the three months ended September 30, 2007. The increase in cost of service revenues is attributable to an increased cost related to employee benefits, liability insurance and a small increase in labor expense. Revenues and associated expenses in relation to the EDAM contract for calendar year 2009 are expected to be comparable to 2008 based on the current backlog.
In the third quarter of 2007, the Company acquired substantially all of the finished good inventory from one of Advanced Sciences main suppliers. The supplier provided materials regularly used by the Company's environmental service personnel in the performance of their duties under environmental service contracts. The creation of Commodore Sales Solution ("CSS") was to provide the Company with an additional revenue stream which would be complementary to the Company's current service offering and provided for a reliable supply of resources used by Applied Sciences on a regular basis.
In the third quarter, management reviewed the performance of CSS for twelve months ended June 30, 2008 and determined that CSS did not generate sufficient sales volumes and operating margins to justify continued operations given the Company's current liquidity issues. The Company terminated CSS operations in August 2008 and management began the process of liquidating assets and settling all outstanding accounts payable. Accounts receivable and inventory from CSS for the period ended September 30, 2008 were $32 thousand and $40 thousand, respectively. Subsequent to the end of the quarter, management completed the liquidation of inventory, collected all accounts receivable and converted substantially all of the current assets attributable to CSS to cash.
General and administrative expenses for the three months ended September 30,
2008 were $308 thousand compared to $370 thousand for the three months ended
September 30, 2007. General and administrative costs include executive salaries
and other corporate operating costs of the Company which are fixed in nature.
The decrease in general and administrative expense is the result of cost
cutting measures undertaken by management, which includes reducing executive
compensation and other expenses for marketing, investor relations and
professional service.
Interest expense increased to $240 thousand for the three months ended September 30, 2008 from $212 thousand for the three months ended September 30, 2007, an increase of 13.2%. This is the result of an increase in interest bearing debt, which includes $8.82 million in borrowings under the terms of the New Shaar Note.
For the three months ended September 30, 2008, the Company incurred a net loss of $517 thousand compared to a net loss of $333 thousand for the three months ended September 30, 2007. The decrease in general and
LIQUIDITY AND CAPITAL RESOURCES
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 $75 thousand at September 30, 2008. 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 $564 thousand in loans that are currently due or are payable on demand as of September 30, 2008. The Company is currently in negotiations with note holders to settle these debts with partial payments or extended terms on the balances. No agreements have been reached and the Company is currently in default on these loans.
The Company has experienced a decrease in total assets for the nine months ended September 30, 2008 attributable to decreases in cash, inventory and depreciable or amortizable assets. Inventory decreased due to a reduction in purchases after the Company discontinued it supplies distribution business in August. The decrease in the carrying value of property, plant and equipment and intangible assets is due to regular depreciation and amortization. The Company recognized depreciation and amortization expense of $62 thousand for the nine months ended September 30, 2008.
The report of the Company's independent registered public accounting firms on its fiscal 2007 and 2006 consolidated financial statements contains a "going concern" qualification in which they express substantial doubt about the Company's ability to continue in business. The Company currently requires additional cash to sustain existing operations and to meet current obligations and ongoing capital requirements.
As shown in the Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 and 2007, the Company incurred net losses applicable to common shareholders of $1.84 and $1.61 million, respectively. The Company has also experienced net cash outflows from operating activities of $791 thousand for the nine months ended September 30, 2008 compared to net cash outflows from operating activities of $1.48 million for the nine months ended September 30, 2007.
The Company had net cash inflows from financing activities of $697 thousand for the nine months ended September 30, 2008 compared to $1.39 million for the nine months ended September 30, 2007. Cash inflows from long-term debt and notes payable of $805 thousand during the period ended September 30, 2008 were reduced by $108 thousand of payments on long-term debt and other obligations. For the nine months ended September 30, 2007, cash inflows from long-term debt and notes payable of $1.50 million were reduced by $108 thousand of payments on long term debt and other obligations.
At September 30, 2008 and December 31, 2007, the Company had stockholders' deficit of $16.31 million and $14.47 million, respectively. The Company's net increase in stockholders' deficit from December 31, 2007 to September 30, 2008 is due to the losses incurred for the nine months ended September 30, 2008. At September 30, 2008 and December 31, 2007 the Company had working capital deficit of $7.65 million and $6.68 million, respectively. The increase in the working capital deficit is mainly due to a decrease in cash, inventory and other assets along with increases in accrued interest on long term borrowings, preferred dividends payable and deferred wages, which were somewhat offset by decreases in accounts payable other accrued liabilities and current notes payable.
The Company has significant interest, dividend and principal payments due within the 12 months following the quarter ended September 30, 2008, most of which is due to the Shaar Fund, either as interest or preferred
During the quarter ended September 30, 2008, the Company deferred an additional $68 thousand of compensation, representing a portion of the total compensation for certain of its executive officers. At September 30, 2008, the Company had deferred a total of $2.28 million of compensation for three officers.
The Company has placed multiple quotes to perform services under contract with several U.S. Department of Energy installations. To achieve long-term stability, profitability and positive cash flows from operations, the Company will need to land significant additional contract revenues in the months following in 2008 and 2009.
Stockholder Deficit
The current principal balance of the New Shaar Note is $8.82 million as of September 30, 2008 and remains unpaid as of November 19, 2008. Both the Note and associated accrued and unpaid interest are convertible into shares of the Company's common stock, subject to 5% maximum ownership limitations by the holder of the convertible note.
Cumulative unpaid dividends on all series of preferred stock as of September 30, 2008 are $1.51 million. Both the dividend payable and the preferred stock are convertible into shares of the Company's common stock, subject to 5% maximum ownership limitations by the holder of the preferred shares.
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