<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: SEPTEMBER 30, 1998
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 September 30, 1998 was 10,260,749.
Transitional Small Business Disclosure Format (Check one): Yes No X .
<PAGE> 2
RECONVERSION TECHNOLOGIES, INC.
INDEX
Page
No.
Part I. Financial Information
Item 1. Balance Sheet - September 30, 1998 (unaudited) and June
30, 1998 (audited) 3
Statement of Operations -
Three Months Ended September 30, 1998 and 1997 4
Statement of Stockholders' Deficit -
Three Months Ended September 30, 1998 5
Statements of Cash Flows -
Three Months Ended September 30, 1998 and 1997 6-7
Notes to Financial Statements -
Three Months Ended September 30, 1998 and 1997 8-10
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 11-12
Part II. Other Information 13
2
<PAGE> 3
RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 123,503 $ 124,746
Marketable equity securities less allowance of $44,328 and $46,141 11,593 9,780
Accounts receivable less allowance of $12,000 and $12,000 60,476 90,933
Due from employees 47,605 47,605
Due from related parties 39,000 29,000
Prepaid expenses 9,628 17,128
Deferred income taxes 83,127 61,647
----------- -----------
Total current assets 374,932 380,839
Property and equipment, net 148,124 161,776
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc. 100,000 100,000
Goodwill, less accumulated amortization of $5,240 and $3,668 89,082 90,654
----------- -----------
$ 712,138 $ 733,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 25,572 $ 24,912
Current installments of capital leases payable 113,109 $ 116,450
Accounts payable 129,644 112,476
Unresolved bankruptcy claims 7,951 7,951
Obligations to be paid with common stock 3,226,245 3,226,245
Accrued expenses 26,557 26,557
Deferred gain on sale-leaseback 7,019 17,548
----------- -----------
Total current liabilities 3,536,097 3,532,139
Long-term debt and obligations under capital leases less current installments 65,932 73,269
Deferred income tax liability 29,236 29,236
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 1,026 1,026
outstanding 10,260,749 and 10,260,749 shares
Paid-in capital 615,093 615,093
Retained earnings (deficit) (309,001) (291,249)
Stock issuable under bankruptcy plan (3,226,245) (3,226,245)
----------- -----------
Total stockholders' deficit (2,919,127) (2,901,375)
----------- -----------
$ 712,138 $ 733,269
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
SALES AND REVENUES $ 514,801 $ 429,847
COST OF SALES 136,557 100,098
------------ ------------
GROSS PROFIT 378,244 329,749
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 422,478 286,895
Interest expense 7,340 2,231
Gain on sale-leaseback (10,529) --
------------ ------------
Unrealized (gain) loss on marketable equity securities (1,813) 8,709
------------ ------------
417,476 297,835
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (39,232) 31,914
DEFERRED INCOME TAX EXPENSE (BENEFIT) (21,480) 11,000
------------ ------------
NET EARNINGS (LOSS) (17,752) 20,914
============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.00) $ 0.00
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,260,749 10,243,249
============ ============
</TABLE>
See accompanying notes to financial statements.
4
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 1998
(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)
Net income (loss) (17,752) (17,752)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1998 10,260,749 $ 1,026 $ 615,093 $ (309,001) $(3,226,245) $(2,919,127)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (17,752) $ 20,914
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 15,572 11,250
Deferred income taxes (21,480) 11,000
Amortization of deferred gain on sale-leaseback (10,529) --
Marketable securities (1,813) 8,709
Accounts receivable 30,457 2,963
Prepaid expenses 7,500 --
Accounts payable and accrued expenses 17,167 (22,229)
--------- ---------
Net cash provided by (used in) operating activities 19,122 32,607
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (348) (2,308)
--------- ---------
Net cash provided by (used in) investing activities (348) (2,308)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt and capital leases (10,017) (6,069)
Loans to related parties (10,000) (71,000)
Loans to employees -- (32,000)
--------- ---------
Net cash provided by (used in) financing activities (20,017) (109,069)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,243) (78,770)
CASH AND CASH EQUIVALENTS, beginning of period 124,746 165,285
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 123,503 $ 86,515
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Continued
6
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 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 $ 7,340 $ 2,231
Income taxes $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 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. 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
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(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 September 30, 1998, the Company has an investment in marketable
equity securities that are classified as trading securities. As of
September 30, 1998 the cost of $55,920 exceeded the fair value of the
securities by $44,328. Income in the amount of $1,813 has been
recognized to account for the change in value of the marketable
securities during the three-month period ended September 30, 1998. A
loss in the amount of $8,709 was recognized in the corresponding prior
year period.
C. CAPITAL LEASES AND LONG TERM OBLIGATIONS
During the three months ended September 30, 1998, the Company reduced
capital leases and other long-term obligations by $10,017.
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 three months ended September 30,
1998 and 1997 consisted of deferred taxes in the amounts of $(21,480)
during the three months ended September 30, 1998 and $11,000 during the
three months ended September 30, 1997.
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) $(13,339) 10,851
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax effect (3,001) 2,441
Change in valuation allowance (5,140) --
Other -- (2,292)
-------- --------
Actual income tax expense (benefit) $(21,480) 11,000
-------- --------
</TABLE>
The deferred income tax assets and liabilities at September 30, 1998
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 18,463 --
Deferred gain on sale-leaseback 2,923 --
Net operating loss carryforwards 78,128 1,791,867
----------- -----------
104,512 1,791,867
Less valuation allowance (21,386) (1,791,867)
----------- -----------
Deferred income tax asset 83,126 --
Deferred income tax liability - asset basis -- (29,236)
----------- -----------
Net deferred income tax assets (liabilities) $ 83,126 (29,236)
----------- -----------
</TABLE>
E. RIGHTS TO PURCHASE STOCK
As of September 30, 1998, 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 three months ended September 30,
1998.
F. RELATED PARTY TRANSACTIONS
The Company made loans to a major shareholder in the amount of $10,000
during the three months ended September 30, 1998, which increased the
total due from major shareholders to $39,000 at September 30, 1998.
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.,
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 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 September 30, 1998, the Company had a working capital deficit in
the amount of $3,161,165, which primarily is the result of the
$3,226,245 current obligation, which is to be retired through issuance
of the Company's 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.
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 $84,954 (20%) during the three months ended
September 30, 1998 as compared to the same three-month period ended
September 30, 1997. During the three month period ended September 30,
1998, the Company recognized a gross profit margin of 73% as compared
to 77% 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.
11
<PAGE> 12
OTHER EXPENSE AND INCOME
The selling, general and administrative expenses of the Company
increased $135,583 (47%) during the three months ended September 30,
1998 as compared to the same year earlier period. Approximately $75,000
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 $49,000 during the three months
ended September 30, 1998. Selling, general and administrative expenses
were 82% of revenues during the three-month period ended September 30,
1998 as compared to 67% during the same year earlier period.
Other expense includes interest expense incurred during the three
months ended September 30, 1998 in the amount of $7,340 as compared to
$2,231 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 $10,529 from amortization of the deferred gain
realized in the sale-leaseback transaction during the three months
ended September 30, 1998. The sale-leaseback transaction was entered
into during the quarter ended December 31, 1997.
During the three months ended September 30, 1998, the Company
recognized an unrealized gain from their marketable equity securities
in the amount of $1,813. During the same year earlier period, the
Company recognized a loss in the amount of $8,709.
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: February 24, 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 September 30, 1998 and for the three months then
ended and is qualified in its entirety by reference to such (b) Form 10-QSB for
the three months ended September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 123,503
<SECURITIES> 11,593
<RECEIVABLES> 72,476
<ALLOWANCES> 12,000
<INVENTORY> 0
<CURRENT-ASSETS> 374,932
<PP&E> 252,641
<DEPRECIATION> 104,517
<TOTAL-ASSETS> 712,138
<CURRENT-LIABILITIES> 3,536,097
<BONDS> 0
0
0
<COMMON> 1,026
<OTHER-SE> (2,920,153)
<TOTAL-LIABILITY-AND-EQUITY> 712,138
<SALES> 514,801
<TOTAL-REVENUES> 514,801
<CGS> 136,557
<TOTAL-COSTS> 136,557
<OTHER-EXPENSES> 422,478
<LOSS-PROVISION> (1,813)
<INTEREST-EXPENSE> 7,340
<INCOME-PRETAX> (39,232)
<INCOME-TAX> (21,480)
<INCOME-CONTINUING> (17,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,752)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
