<PAGE> 1
FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: MARCH 31, 1998
Commission File Number: 0-23100
RECONVERSION TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State of Incorporation)
22-2649848
(IRS Employer ID No)
2 HENDERSONVILLE ROAD, SUITE E, ASHEVILLE, NORTH CAROLINA 28803
(Address of principal executive office)
(704) 255-0307
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No X .
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X .
The number of shares outstanding of registrant's common stock, par value $.0001
per share, as of March 31, 1998 was 9,414,043.
Transitional Small Business Disclosure Format (Check one): Yes No X .
<PAGE> 2
RECONVERSION TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
Part I. Financial Information
Item 1. Balance Sheet - March 31, 1998 3
Statement of Operations - 4
Three and Nine Months Ended March 31, 1998 and 1997
Statement of Stockholders' Deficit - 5
Nine Months Ended March 31, 1998
Statements of Cash Flows - 6-7
Nine Months Ended March 31, 1998 and 1997
Notes to Financial Statements - 8-13
Nine Months Ended March 31, 1998 and 1997
Item 2. Managements Discussion and Analysis of Financial Condition 14-15
and Results of Operations
Part II. Other Information 16
</TABLE>
2
<PAGE> 3
RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 72,989 $ 3,900
Marketable equity securities less allowance of $42,101 13,819 -
Accounts receivable 24,552 -
Due from employees 83,195 -
Due from related parties 71,000 -
Prepaid expenses 69,863 -
Deferred income taxes 67,380 -
------------------ -----------------------
Total current assets 402,798 3,900
Property and equipment, net 112,688 -
Prepaid consulting contract 45,000 -
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc. 100,000 100,000
------------------ -----------------------
$ 660,486 $ 103,900
================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 24,269 $ -
Current installments of capital leases payable 115,614
Accounts payable 82,685 371,923
Class 4 Claims - unsecured claims for transfer services - 4,604
Class 5 Claims - administrative convenience small claims - 3,247
Class 6 Claims - allowed unsecured claims - 205,050
Class 6 Claims - disputed unsecured claims - 652,523
Class 7 Claims - disputed unsecured claim of GAIA - 1,670,000
Accrued expenses 28,240 -
Obligations expected to be paid with common stock 2,899,191 -
------------------ -----------------------
Total current liabilities 3,149,999 2,907,347
Long-term debt less current installments 64,837 -
STOCKHOLDERS' DEFICIT
6% Series A nonvoting, cumulative, convertible preferred stock, $2.75 par value. - 3,036,223
Authorized 2,000,000 shares; issued and outstanding 1,104,081 shares, June 1997
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 941 1,137
outstanding 9,414,043 and 11,371,617 shares
Paid-in capital 618,308 10,252,819
Retained earnings (deficit) (274,408) (16,093,626)
Stock subscription receivable (2,899,191) -
------------------ -----------------------
Total stockholders' deficit (2,554,350) (2,803,447)
------------------ -----------------------
$ 660,486 $ 103,900
================== =======================
See accompanying notes to financial statements.
</TABLE>
3
<PAGE> 4
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 384,760 $ 374,559 $ 1,262,708 $ 1,034,346
COST OF SALES 92,658 110,858 307,350 317,780
----------- ----------- ----------- -----------
GROSS PROFIT 292,102 263,701 955,358 716,566
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 296,478 247,558 859,803 775,345
Interest expense 5,120 2,900 13,804 9,150
Miscellaneous income (807) -- (807) --
Unrealized loss on marketable equity securities 2,526 -- 42,101 --
----------- ----------- ----------- -----------
303,317 250,458 914,901 784,495
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (11,215) 13,243 40,457 (67,929)
DEFERRED INCOME TAX EXPENSE (BENEFIT) -- -- 15,000 (20,000)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) (11,215) 13,243 25,457 (47,929)
=========== =========== =========== ===========
NET EARNINGS (LOSS) PER SHARE $ (0.00) $ 0.00 $ 0.00 $ (0.01)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (POST REVERSE-SPLIT) 9,400,710 9,394,043 9,396,265 9,394,043
=========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
4
<PAGE> 5
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Stock
Common Stock Paid-in Accumulated Subscription
Shares Par Value Capital Deficit Receivable Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1997 3,000 $ 10 $ 597,835 $ (299,865) $ -- $ 297,980
Recapitalization, December 1, 1997 2,497,000 240 (240) --
----------- ----------- ----------- ----------- ----------- -----------
2,500,000 250 597,595 (299,865) -- 297,980
Acquire Reconversion
Technologies, Inc. 6,894,043 689 715 (2,899,191) (2,897,787)
Exercise common stock warrants 20,000 2 19,998 20,000
Net income 25,457 25,457
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1998 9,414,043 $ 941 $ 618,308 $ (274,408) $(2,899,191) $(2,554,350)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Shares are post reverse-split amounts.
5
<PAGE> 6
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 25,457 $ (47,929)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 33,750 70,000
Deferred income taxes 15,000 (20,000)
Marketable securities (12,449) --
Accounts receivable 26,541 163,137
Prepaid expenses 15,000
Accounts payable and accrued expenses (157,549) (88,418)
--------- ---------
Net cash provided by (used in) operating activities (54,250) 76,790
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (2,360) (11,597)
--------- ---------
Net cash provided by (used in) investing activities (2,360) (11,597)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from sale and leaseback transaction 120,000 --
Repayment of long-term debt and capital leases (21,491) (55,826)
Loans to related parties (71,000) --
Loans to employees (83,195) --
Exercise common stock warrants 20,000 --
--------- ---------
Net cash provided by (used in) financing activities (35,686) (55,826)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (92,296) 9,367
CASH AND CASH EQUIVALENTS, beginning of period 165,285 53,929
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 72,989 $ 63,296
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Continued
6
<PAGE> 7
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 13,804 $ 9,150
Income taxes $ -- $ --
Noncash investing and financing activities are as follows:
Issue 2,500,000 shares of common stock to acquire all of the issued common $297,980 $ --
stock of Keystone Laboratories, Inc.
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS - The financial
statement of Reconversion Technologies, Inc. (the "Company") includes
the accounts of Reconversion Technologies, Inc., which is a holding
company principally engaged in acquiring and developing businesses and
the accounts of its wholly owned subsidiary, Keystone Laboratories,
Inc. ("KLI"). Prior to its acquisition of KLI, the Company had three
wholly-owned subsidiaries: Reconversion Technologies of Texas, Inc., a
Texas Corporation, organized on February 24, 1992 ("RETEX"),
Reconversion Products, Inc. ("RPI"), formerly Thomas Engineering, Inc.,
a Georgia Corporation organized on October 9, 1992, and Spectrum
Recycling Technologies, Inc. ("Spectrum"), a New York Corporation.
On March 23, 1995, the Company voluntarily filed for bankruptcy
protection in the United States Bankruptcy Court for the Northern
District of Oklahoma. During the pendency of the bankruptcy, RETEX,
Spectrum and RPI discontinued operations. Spectrum and RPI have been
liquidated and the remaining asset of RETEX, the Brenham Plant
facility, located in Brenham, Texas, is discussed in the Plan of
Reorganization.
On November 13, 1997, the Company was formally reorganized pursuant to
a confirmed Bankruptcy Plan of Reorganization. As a result, the Company
acquired 100% of the issued and outstanding common stock of Keystone
Laboratories, Inc. ("KLI"), a Delaware corporation organized on July
20, 1987. KLI is a forensic urine drug screening and confirmatory
testing laboratory. As a result of their relative sizes, the
transaction was accounted for as a reverse acquisition, whereby the
historical financial results of KLI become the historical financial
results of the Company. The transaction was accounted for effective
December 1, 1997.
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. These
financial statements have not been audited.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Unaudited Annual Report for the year ended
June 30, 1997, which is included in the Company's Form 10-KSB for the
year ended June 30, 1997. The financial data for the interim periods
presented may not necessarily reflect the results to be anticipated for
the complete year. Certain reclassifications of the amounts presented
for the comparative period have been made to conform to the current
presentation.
(2) MARKETABLE EQUITY SECURITIES - Marketable equity securities are
comprised of trading securities held for short-term investment purposes
and are stated at fair value, with the change in fair value during the
period included in earnings.
8
<PAGE> 9
(3) MACHINERY AND EQUIPMENT - Owned machinery and equipment are stated
at cost and depreciated using the straight-line method over the
estimated useful lives of the respective assets. Machinery and
equipment under capital leases are stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or
fair value at the inception of the lease and are amortized over the
lesser of the lease term or the estimated useful lives of the related
assets.
(4) INCOME TAXES - Deferred income taxes are recognized for income and
expense items that are reported for financial purposes in different
years than for income tax purposes.
(5) NET EARNINGS PER SHARE - Net earnings per share amounts are
computed using the weighted average number of shares outstanding during
the period. Fully diluted earnings per share is presented if the
assumed conversion of common stock equivalents results in material
dilution.
B. SUMMARY OF PLAN OF REORGANIZATION
On July 3, 1997, Richard T. Clark and Joel C. Holt, shareholders and
creditors of the Company, filed a Disclosure Statement and Plan of
Reorganization ("Plan"). On November 13, 1997, the Plan was confirmed
pursuant to 11 U.S.C. Section 1126 and filed with the Securities and
Exchange Commission on Form 8-K dated November 13, 1997.
The Plan is premised on the concept that the Claims and Interests of
Creditors and Equity Security Holders are best served by an orderly
reorganization of the Company built around the acquisition by the
Company of Keystone Laboratories, Inc. and the establishment of a less
expensive procedure for resolutions of the claims of the Company.
KLI is engaged in the business of forensic drug testing. Currently,
Richard T. Clark, Jr. and Joel C. Holt, Plan Proponents own all
outstanding shares of Common Stock of KLI. Under this Plan, Messrs.
Holt and Clark will exchange their shares in KLI for 2,500,000 shares
of New Common Stock in Reorganized Debtor. The shares of New Common
Stock issued for KLI do not include other shares of New Common Stock to
be received by Messrs. Clark and Holt pursuant to this Plan in their
capacities as either Equity Security Holders of Common Stock and
Preferred Stock or as Creditors.
In addition to the acquisition of Keystone and the orderly collection
of claims of the Company proposed in the Plan, RETEX will be liquidated
through a Liquidating Plan and a RETEX Liquidating Trust in its pending
Chapter 11 case. The Company is the principal secured creditor of
RETEX. The principal asset of RETEX is the Brenham Plant facility in
Brenham, Texas ("Brenham Plant"). Pursuant to the Liquidating Trust,
the Brenham Plant would be sold. No sale is expected in the near
future. The Company is the major secured creditor of RETEX, but under
the Plan, the Company agreed to subordinate its allowed secured claim
against RETEX in the amount of $5,000,000 to the extent of up to
$200,000 of the first dollars received from the sale to permit payment
of RETEX's allowed claims and administrative expenses. The balance of
all funds or assets of RETEX (after the lesser of the amounts required
to pay RETEX's allowed priority claims and allowed claims, or $200,000)
will be paid by the Liquidating Trust to the Company in satisfaction of
the RETEX obligation to the Company.
Following the acquisition of Keystone, the liquidation of the principal
assets of RETEX through the RETEX Liquidating Trust and the collection
of any claims of the Company, the Company's only operating asset will
be KLI. The Company will be engaged solely in the business of forensic
drug testing through Keystone unless and until the Company expands its
business activities. Under the Plan:
9
<PAGE> 10
(a) All Pre-Petition shares of common stock will be
subject to a one-for-eight reverse stock split such
that each holder of Pre-Petition shares of common
stock will receive the number of shares of New Common
Stock equal to the number of shares of Pre-Petition
common stock held by the holder, divided by eight;
(b) All Pre-Petition shares of preferred stock will be
reclassified as New Common Stock and the holders of
preferred stock will receive a pro rata share of
1,274,172 shares of New Common Stock in exchange for
Pre-Petition preferred shares;
(c) Certain creditor claims may be converted into New
Common Stock; and
(d) Warrants to purchase New Common Stock will be issued
to certain holders of interests.
The Plan is binding on the Company and all creditors and shareholders
of the Company. The Plan provides for treatment of the following eleven
classes of claims and interest:
CLASS 1 CLAIMS: ALLOWED ADMINISTRATIVE CLAIMS. Allowed Claims
under Section 503(b) of the Bankruptcy Code. The Class 1
Claims include (i) allowed but unpaid attorneys' fees on the
Effective Date for the Company's counsel, Riggs, Abney, Neal,
Turpen, Orbison & Lewis, and (ii) allowed but unpaid
professional fees due to Neal Tomlins, Examiner, and his
counsel, and fees and expenses not yet presented for payment,
and therefore, not yet approved.
CLASS 2 CLAIMS: ALLOWED PRIORITY CLAIMS. Allowed Unsecured
Claims entitled to priority pursuant to Section 507(a) of the
Bankruptcy Code. The Company has scheduled priority claims
owing in unknown amounts to the Internal Revenue Service and
the Securities and Exchange Commission. The Plan Proponents
believe that there is no liability to either of the agencies
included in this Class.
CLASS 3 CLAIMS: DISPUTED SECURED CLAIMS. This Class consists
of Creditors who assert a secured claim against the Company
and its assets. All of such secured claims are disputed, and
all underlying claims are disputed, as they do not arise from
obligations of the Company but instead represent, if valid,
obligations of RETEX. It is believed that the joint
administration of the Company's case and the RETEX case may
have created confusion among RETEX creditors who asserted
secured status in the Company's case.
CLASS 4 CLAIM: CLAIM OF TRANSFER AGENTS AST AND DEPOSITORY
TRUST CO. This Class consists of the pre-petition unsecured
claim of American Securities Transfer ("AST") in the amount of
$3,553.66 and of the pre-petition unsecured claim of
Depository Trust Co. in the amount of $1,050.00. Both claims
were incurred for stock transfer services rendered to the
Company pre-petition.
CLASS 5 CLAIMS: ADMINISTRATIVE CONVENIENCE SMALL CLAIMS. This
class consists of all allowed unsecured claims against the
Company which are $1,000 or less in amount, and shall include
Class 6 creditors who elect to reduce their claim for Class 5
participation.
CLASS 6 CLAIMS: UNSECURED CLAIMS. Class 6 claims consist of
allowed unsecured claims against the Company to which no
objection has been interposed and total approximately $513,668
and disputed claims, which would otherwise be included within
this Class, but will not be allowed until allowed by Final
Order of the Bankruptcy Court. The aggregate amount of
disputed claims is $1,631,308. The allowed claims have been
valued at 40%
10
<PAGE> 11
of their face amount or $205,050 in the accompanying balance
sheet, based upon the amount to be paid to settle the claims.
The disputed claims have also been valued at 40% of their face
amount pending their ultimate disposition.
CLASS 7 CLAIM: DISPUTED UNSECURED CLAIM OF GAIA. GAIA is the
holder of a disputed unsecured claim against the Company. On
March 17, 1995, GAIA obtained a judgment against the Company
and certain individuals in the aggregate sum of $22 million in
the United States District Court for the Southern District of
Texas styled Gaia Technologies, Inc. v. Reconversion
Technologies, Inc., et al., Case No. H-94-2258 and GAIA filed
its Proof of Claim in the case for $23,043,276.21. On August
19, 1996, the U.S. Court of Appeals for the Federal Circuit
reversed and vacated the judgment entirely and remanded the
matter to the U.S. District Court for the Southern District of
Texas. The GAIA claim is disputed under the Plan. An objection
to the GAIA claim was filed seeking a determination of the
value of the GAIA claim through the claim estimation process
pursuant to 11 U.S.C. Section 502(c). After the objection was
filed, the United States District Court for the Southern
District of Texas (to which the appeals court had remanded the
matter after vacating and reversing the judgment) entered
judgment in favor of GAIA and against the Company and others
as follows:
(a) Judgment against the Company, RETEX,
Progressive Capital Corporation, David
Gordon, Ira Rimer, Joel C. Holt and Richard
T. Clark, Jr., jointly and severally, for:
(i) $4,350,000;
(ii) pre-judgment interest of
$2,130,192.79;
(b) Judgment against the Company, RETEX and
Progressive Capital Corporation, jointly and
severally, for:
(i) $125,000;
(ii) pre-judgment interest of
$61,212.42;
(c) Judgment against David Gordon, Ira Rimer,
Joel C. Holt and Richard T. Clark, Jr. for
$100,000 each, in the nature of punitive
damages;
(d) Attorney's fees of $450,000 against the
Company, RETEX, Progressive Capital
Corporation, David Gordon, Ira Rimer, Joel
C. Holt and Richard T. Clark, Jr., jointly
and severally; and
(e) Post-judgment interest after July 10, 1997,
at 5.65%.
The aggregate amount of the judgment against the Company and
the other parties is $7,116,405.21, exclusive of interest
after July 10, 1997. The Company and Plan Proponents have
initialized an appeal of the judgment, which it is believed
was rendered in contravention of the mandate from the Court of
Appeals, which vacated the earlier judgment of $23,043,276.31.
The Company and Plan Proponents will vigorously prosecute the
appeal.
Plan Proponents believe the value of the GAIA claim against
the Company will ultimately be determined to be zero, and
further that the Company may have claims against GAIA arising
as a result of the GAIA litigation, which potential claim is
reserved pending analysis. The claim has been valued at
$1,670,000 in the accompanying balance sheet.
CLASS 8 CLAIM: TNRCC CLAIM. The TNRCC claim against the
Company arises, if at all, in connection with certain
environmental claims, which are asserted by TNRCC against
RETEX from operation of the RETEX plant in Brenham, Texas.
TNRCC has not filed a claim against the Company. The Company
believes that if TNRCC asserts its
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claim against RETEX, and as set forth in the Disclosure
Statement, that the Company has no liability to TNRCC.
CLASS 9 CLAIM: KLENDA, GORDON & GETCHELL CREDITOR CLAIM. This
Class consists of the Claim of Klenda, Gordon & Getchell
asserting an unsecured claim in the amount of $128,439.37. The
Company asserted claims against Klenda, Gordon & Getchell,
which on May 22, 1997, resulted in a judgment in favor of the
Company against Klenda, Gordon & Getchell for $98,625,
together with interest at 6.72% from June 21, 1996, until
paid.
CLASS 10 INTERESTS: PREFERRED STOCK. This Class consists of
the interest of the Equity Security Holders who own
Pre-Petition Shares of Preferred Stock. According to
information available to Plan Proponents, there were 1,145,250
Pre-Petition shares of preferred stock issued by the Company
and held by approximately forty-eight (48) entities or
individuals.
CLASS 11 INTERESTS: COMMON STOCK. This Class consists of the
interests of the Equity Security Holders who own Pre-Petition
shares of common stock of the Company. According to
information available to Plan Proponents, there were
outstanding 11,371,617 Pre-Petition shares of common stock
held by approximately 301 entities or individuals.
C. ACQUISITION
Effective December 1, 1997 and pursuant to the Plan of Reorganization
outlined in note B above, in a purchase transaction accounted for as a
reverse acquisition, the Company acquired for 2,500,000 shares of its
common stock all of the issued and outstanding common shares of
Keystone Laboratories, Inc. No goodwill was recognized in the
transaction.
Since the Company has had no operations since 1995, the operating
results of the combined companies would not have differed significantly
from those presented in the statement of operations.
D. MARKETABLE SECURITIES
As of March 31, 1998, the Company has an investment in marketable
equity securities that are classified as trading securities. As of
March 31, 1998 the cost of $55,920 exceeded the fair value of the
securities by $42,101. A loss in this amount has been recognized during
the current period.
E. CAPITAL LEASES AND LONG TERM OBLIGATIONS
During the nine months ended March 31, 1998, the Company entered into a
sale and leaseback transaction, which resulted in net proceeds to the
Company in the amount of $120,000. The Company reduced capital leases
and other long-term obligations by $21,491 during the nine months ended
March 31, 1998.
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<PAGE> 13
E. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. SFAS No. 109 requires that a valuation allowance be
established to reduce deferred tax assets to the amount that is more
likely than not to be realized.
Deferred income taxes result primarily from temporary differences in
recognizing net operating losses for tax and financial reporting
purposes.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
On March 23, 1995, Reconversion Technologies, Inc.,
Debtor-in-Possession ("RETEK"), a Delaware corporation filed voluntary
petition for relief under Chapter 11 of the United States Bankruptcy
Code.
On July 3, 1997, Richard T. Clark and Joel C. Holt, shareholders and
creditors of the Company, filed a Disclosure Statement and Plan of
Reorganization ("Plan"). On November 13, 1997, the Plan was confirmed
pursuant to 11 U.S.C. Section 1126 and has been filed with the
Securities and Exchange Commission on Form 8-K dated November 13, 1997.
This Plan, which is summarized in Note B to the financial statements,
is premised on the concept that the Claims and Interests of Creditors
and Equity Security Holders are best served by an orderly
reorganization of the Company built around the acquisition of Keystone
Laboratories, Inc. and the establishment of a less expensive procedure
for resolution of RETEK claims. KLI was acquired effective December 1,
1997.
As of March 31, 1998, the Company had a working capital deficit in the
amount of $2,747,201, which primarily is the result of the $2,899,191
current obligation, which is expected to be retired through issuance of
the Company's common stock. The Company expects to utilize earnings to
provide its working capital requirements.
The Company's capital expenditure requirements are not significant and
can be met from the working capital generated by net earnings.
B. RESULTS OF OPERATIONS
The Company operates solely as a forensic urine drug screening and
confirmatory testing laboratory and has no other operating segments.
SALES AND COST OF SALES
Total revenues increased $228,362 (22%) during the nine months ended
March 31, 1998 as compared to the same nine-month period ended March
31, 1997. Total revenues increased $10,201 (3%) during the three months
ended March 31, 1998 as compared to the same three-month period ended
March 31, 1997. During the nine month period ended March 31, 1998, the
Company recognized a gross profit margin of 76% as compared to 69%
during the same year earlier period. During the three month period
ended March 31, 1998, the Company recognized a gross profit margin of
76% as compared to 70% during the same year earlier period.
The Company's increased revenues is the result of (1) an increase in
drug testing charges, which had been under pressure from outside
competition the previous two years; and (2) the marketing and sales of
an onsite drug test which was recently introduced. As a result there
have been only nominal cost increases. The Company expects its
operations to continue at the current levels.
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<PAGE> 15
OTHER COSTS AND EXPENSES
The selling, general and administrative expenses of the Company
increased $84,458 (11%) during the nine months ended March 31, 1998 as
compared to the same year earlier period. Two-thirds of this increase
is associated with the costs of maintaining a public company, as well
as, legal costs associated with completion of the bankruptcy plan. The
remaining increase is related to the costs associated with the onsite
drug test discussed above. Selling, general and administrative expenses
were 68% of revenues during the nine-month period ended March 31, 1998
as compared to 75% during the same year earlier period.
Other costs and expenses include an unrealized loss from the decline in
market value of marketable equity securities in the amount of $42,101
during the nine month period ended March 31, 1998, $2,526 of which was
recognized during the three month period ended March 31, 1998.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - None during the current quarter.
SIGNATURE
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.
RECONVERSION TECHNOLOGIES, INC.
Date: October 23, 1998 By: /s/ Joel C. Holt
-------------------------------
Joel C. Holt, President and
Principal Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF MARCH 31, 1998 AND FOR THE NINE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB FOR THE NINE MONTHS
ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 72,989
<SECURITIES> 13,819
<RECEIVABLES> 24,552
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 402,798
<PP&E> 549,166
<DEPRECIATION> 436,478
<TOTAL-ASSETS> 660,486
<CURRENT-LIABILITIES> 3,149,999
<BONDS> 0
0
0
<COMMON> 941
<OTHER-SE> (2,561,598)
<TOTAL-LIABILITY-AND-EQUITY> 660,486
<SALES> 1,262,708
<TOTAL-REVENUES> 1,262,708
<CGS> 307,350
<TOTAL-COSTS> 307,350
<OTHER-EXPENSES> 859,803
<LOSS-PROVISION> 42,101
<INTEREST-EXPENSE> 13,804
<INCOME-PRETAX> 40,457
<INCOME-TAX> 15,000
<INCOME-CONTINUING> 25,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,457
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
