<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, 1999
Commission File Number: 0-23100
RECONVERSION TECHNOLOGIES, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-2649848
-------- ----------
(State of Incorporation) (IRS Employer ID No)
2 HENDERSONVILLE ROAD, SUITE E, ASHEVILLE, NORTH CAROLINA 28803
---------------------------------------------------------------
(Address of principal executive office)
(828) 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 [X] No [ ].
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, 1999 was 11,135,749.
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, 1999 (unaudited) and June 30, 1998 (audited) 3
Statement of Operations - 4
Three and Nine Months Ended March 31, 1999 and 1998
Statement of Stockholders' Deficit - 5
Nine Months Ended March 31, 1999
Statements of Cash Flows - 6-7
Nine Months Ended March 31, 1999 and 1998
Notes to Financial Statements - 8-10
Nine Months Ended March 31, 1999 and 1998
Item 2. Managements Discussion and Analysis of Financial Condition 11-12
and Results of Operations
Part II. Other Information 13
</TABLE>
2
<PAGE> 3
RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 76,341 $ 124,746
Marketable equity securities less allowance of $31,173 and $46,141 10,499 9,780
Accounts receivable less allowance of $12,000 and $12,000 101,768 90,933
Due from employees 42,605 47,605
Due from related parties 37,500 29,000
Prepaid expenses 5,878 17,128
Deferred income taxes 127,435 61,647
----------- -----------
Total current assets 402,026 380,839
Property and equipment, net 191,811 161,776
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc. 100,000 100,000
Goodwill, less accumulated amortization of $8,384 and $3,668 85,938 90,654
----------- -----------
$ 779,775 $ 733,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 26,944 $ 24,912
Current installments of capital leases payable 127,186 $ 116,450
Accounts payable 174,947 112,476
Unresolved bankruptcy claims 7,951 7,951
Obligations to be paid with common stock 1,782,186 3,226,245
Accured expenses 26,557 26,557
Deferred gain on sale-leaseback -- 17,548
----------- -----------
Total current liabilities 2,145,771 3,532,139
Long-term debt and obligations under capital leases less current installments 86,735 73,269
Deferred income tax liability 29,236 29,236
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 1,114 1,026
outstanding 11,135,749 and 10,260,749 shares
Paid-in capital 650,006 615,093
Retained earnings (deficit) (350,901) (291,249)
Stock issuable under bankruptcy plan (1,782,186) (3,226,245)
----------- -----------
Total stockholders' deficit (1,481,967) (2,901,375)
----------- -----------
$ 779,775 $ 733,269
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1999
1999 1998 1999 1998
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 440,415 $ 384,760 $ 1,423,517 $ 1,262,708
COST OF SALES 101,242 92,658 342,763 307,350
------------ ------------ ------------ ------------
GROSS PROFIT 339,173 292,102 1,080,754 955,358
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 381,637 296,478 1,209,962 859,803
Interest expense 7,617 5,120 22,840 13,804
Gain on sale-leaseback -- -- (17,548) --
Sale of marketable securities 1,379 -- 6,244 --
Other income (4) (807) (336) (807)
Unrealized (gain) loss on marketable equity securities (2,189) 2,526 (14,968) 42,101
------------ ------------ ------------ ------------
388,440 303,317 1,206,194 914,901
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (49,267) (11,215) (125,440) 40,457
DEFERRED INCOME TAX EXPENSE (BENEFIT) (21,431) -- (65,788) 15,000
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) (27,836) (11,215) (59,652) 25,457
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.002) $ (0.001) $ (0.006) $ 0.003
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,135,749 9,400,710 10,720,603 9,396,265
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Stock Issuable
Common Stock Paid-in Accumulated Under
Shares Par Value Capital Deficit Bankruptcy Plan Total
------ --------- ------- ------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1998 10,260,749 $1,026 $615,093 $(291,249) $(3,226,245) $(2,901,375)
Common stock transferred for
obligations pursuant to
bankruptcy plan 1,444,059 1,444,059
Common stock issued for
directors fees 875,000 88 34,913 35,001
Net income (loss) (59,652) (59,652)
========== ====== ======== ========= =========== ===========
BALANCE, March 31, 1999 11,135,749 $1,114 $650,006 $(350,901) $(1,782,186) $(1,481,967)
========== ====== ======== ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (59,652) $ 25,457
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 46,716 33,750
Deferred income taxes (65,788) 15,000
Amortization of deferred gain on sale-leaseback (17,548) --
Common stock issued for services 35,000 --
Marketable securities (719) (12,449)
Accounts receivable (10,835) 26,541
Prepaid expenses 11,250 15,000
Accounts payable and accrued expenses 62,470 (157,549)
--------- ---------
Net cash provided by (used in) operating activities 894 (54,250)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (593) (2,360)
--------- ---------
Net cash provided by (used in) investing activities (593) (2,360)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from sale-leaseback transaction -- 120,000
Proceeds from exercise of common stock warrants -- 20,000
Repayment of long-term debt and capital leases (45,206) (21,491)
Repayment of (loans to) related parties (8,500) (71,000)
Repayment of (loans to) employees 5,000 (83,195)
--------- ---------
Net cash provided by (used in) financing activities (48,706) (35,686)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (48,405) (92,296)
CASH AND CASH EQUIVALENTS, beginning of period 124,746 165,285
========= =========
CASH AND CASH EQUIVALENTS, end of period $ 76,341 $ 72,989
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Continued
6
<PAGE> 7
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 22,840 $ 13,804
Income taxes $ -- $ --
Noncash investing and financing activities are as follows:
Common stock transferred for liabilities pursuant to bankruptcy plan $1,444,059
Acquisition of lab equipment in exchange for a capital lease obligation $ 71,442
Issue 2,500,000 shares of common stock to acquire all of the issued common
stock of Keystone Laboratories, Inc. $297,980
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(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. For accounting purposes, the acquisition has been treated as
the acquisition of KLI by the Company with KLI as the acquiror (reverse
acquisition). The historical financial statements prior to December 1,
1997 are those of KLI.
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 Annual Report for the year ended June 30, 1998,
which is included in the Company's Form 10-KSB for the year ended June 30,
1998. 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. MARKETABLE SECURITIES
As of March 31, 1999, the Company has an investment in marketable equity
securities that are classified as trading securities. As of March 31, 1999
the cost of $41,672 exceeded the fair value of the securities by $31,173.
Income in the amount of $14,968 has been recognized to account for the
change in value of the marketable securities during the nine-month period
ended March 31, 1999. A loss in the amount of $42,101 was recognized in
the corresponding prior year period. The Company recognized a loss on the
sale of a portion of their marketable securities in the amount of $6,244
during the nine months ended March 31, 1999.
C. CAPITAL LEASES AND LONG TERM OBLIGATIONS
During the nine months ended March 31, 1999, the Company reduced capital
leases and other long-term obligations by $45,206. During the nine months
ended March 31, 1998, the Company entered into a sale-leaseback
transaction which provided net proceeds in the amount of $120,000. A
payment in the amount of $105,000, including interest in the amount of
$1,132 is due on June 1, 1999 to retire the remaining balance of one
capital lease on which the Company is currently making monthly payments of
$2,000. The Company expects to extend the final payoff of the lease before
it become due.
D. 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.
Income tax expense (benefit) for the nine months ended March 31, 1999 and
1998 consisted of deferred taxes in the amounts of $(65,788) during the
nine months ended March 31, 1999 and $15,000 during the nine months ended
March 31, 1998.
9
<PAGE> 10
Actual income tax expense (benefit) applicable to earnings (loss) before
income taxes is reconciled with the "normally expected" federal income tax
expense (benefit) as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
"Normally expected" income tax (benefit) $(42,650) 13,755
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax effect (9,596) 3,095
Change in valuation allowance (13,542) --
Other -- (1,850)
-------- -------
Actual income tax expense (benefit) $(65,788) 15,000
-------- -------
</TABLE>
The deferred income tax assets and liabilities at March 31, 1999 are
comprised of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
<S> <C> <C>
Allowance for uncollectible accounts receivable $ 4,998 --
Allowance for unrealized loss on marketable
Securities 12,984 --
Net operating loss carryforwards 122,436 1,791,867
----------- ----------
140,418 1,791,867
Less valuation allowance (12,983) (1,791,867)
----------- ----------
Deferred income tax asset 127,435 --
Deferred income tax liability - asset basis -- (29,236)
----------- ----------
Net deferred income tax assets (liabilities) $ 127,435 (29,236)
----------- ----------
</TABLE>
E. RIGHTS TO PURCHASE STOCK
As of March 31, 1999, there were Class A warrants issued which allow the
purchase of 1,624,172 shares of the common stock of the Company at $1.00
per share until March 15, 1999, Class B warrants issued which allow the
purchase of 1,475,973 shares of the common stock of the Company at $1.00
per share until June 15, 1999 and Class C warrants issued which allow the
purchase of 17,500 shares of the common stock of the Company at $1.75 per
share until September 15, 1999. There were no warrants exercised during
the nine months ended March 31, 1999. The Company expects to extend the
date by which the warrants may be exercised for at least sixty days beyond
the date the Company's stock commences trading.
F. RELATED PARTY TRANSACTIONS
The Company made loans to a major shareholder in the amount of $10,000 and
received repayment of $1,500 during the nine months ended March 31, 1999.
10
<PAGE> 11
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. ("RETEK"), a Delaware
corporation, filed a 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 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 December 31, 1998, the Company had a working capital deficit in the
amount of $1,743,745, which primarily is the result of the $1,782,186
current obligation, which is to be retired through issuance of the
Company's common stock. During the three months ended December 31, 1998,
$1,444,059 of the obligations were retired upon transfer of the related
common stock. The Company's working capital deficit at June 30, 1998 was
$3,151,300. The Company expects to utilize earnings to provide its other
working capital requirements.
The Company's capital expenditure requirements are not significant and can
be met from the working capital generated by net earnings and lease
financing. During the nine months ended March 31, 1999, the Company had
capital expenditures in the amount of $593 and acquired lab equipment in
the amount of $71,442 in exchange for a capital lease obligation.
The Company has a capital lease obligation which matures on June 1, 1999
in the amount of $105,000. The Company expects to extend the obligation
for at least six months with monthly payments of $2,000.
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 $160,809 (13%) during the nine months ended March
31, 1999 as compared to the same nine-month period ended March 31, 1998.
Total revenues increased $55,655 (14%) during the three months ended March
31, 1999 as compared to the same three-month period ended March 31, 1998.
The Company realized gross profit margins of 76% during the nine months
ended March 31, 1999 and 1998.
The Company's revenue increase 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.
11
<PAGE> 12
OTHER EXPENSE AND INCOME
The selling, general and administrative expenses of the Company increased
$350,159 (41%) during the nine months ended March 31, 1999 as compared to
the same year earlier period. Approximately $233,000 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 onsite
drug kits increased selling, general and administrative costs by an
additional $136,000 during the nine months ended March 31, 1999. Selling,
general and administrative expenses were 85% of revenues during the
nine-month period ended March 31, 1999 as compared to 68% during the same
year earlier period.
Other expense includes interest expense incurred during the nine months
ended March 31, 1999 in the amount of $22,840 as compared to $13,804 in
the same year earlier period. The increase is due primarily to the
additional debt associated with the sale-leaseback transaction completed
at the end of 1997.
Other income includes $17,548 from amortization of the deferred gain
realized in the sale-leaseback transaction during the six months ended
December 31, 1998. The sale-leaseback transaction was entered into during
the quarter ended December 31, 1997.
During the nine months ended March 31, 1999, the Company recognized an
unrealized gain from their marketable equity securities in the amount of
$14,968. During the same year earlier period, the Company recognized a
loss in the amount of $42,101. In addition, the Company sold a portion of
their marketable equity securities during the nine months ended March 31,
1999 and realized a loss in the amount of $6,244.
12
<PAGE> 13
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: May 12, 1999 By: /s/ Joel C. Holt
------------------------------
Joel C. Holt, President and
Principal Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from (a)
Financial Statements as of March 31, 1999 and for the nine months then ended and
is qualified in its entirety by reference to such (b) Form 10-QSB for the nine
months ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 76,341
<SECURITIES> 10,499
<RECEIVABLES> 113,768
<ALLOWANCES> 12,000
<INVENTORY> 0
<CURRENT-ASSETS> 402,026
<PP&E> 324,328
<DEPRECIATION> 132,517
<TOTAL-ASSETS> 779,775
<CURRENT-LIABILITIES> 2,145,771
<BONDS> 0
0
0
<COMMON> 1,114
<OTHER-SE> (1,483,081)
<TOTAL-LIABILITY-AND-EQUITY> 779,775
<SALES> 1,423,517
<TOTAL-REVENUES> 1,423,517
<CGS> 342,763
<TOTAL-COSTS> 342,763
<OTHER-EXPENSES> 1,209,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,840
<INCOME-PRETAX> (125,440)
<INCOME-TAX> (65,788)
<INCOME-CONTINUING> (59,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,652)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0.00
</TABLE>
