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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended JUNE 30, 1999
Commission File No. 0-23100
RECONVERSION TECHNOLOGIES, INC.
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(Exact name of small business issuer in its charter)
DELAWARE 22-2649848
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 HENDERSONVILLE ROAD, SUITE E, ASHEVILLE, NORTH CAROLINA 28803
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(Address of principal executive office) (Zip Code)
Issuer's telephone number - (828) 255-0307
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<S> <C>
Securities registered under Section 12 (b) of the Exchange Act: COMMON STOCK, $0.0001 PAR VALUE
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(Title of each class)
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NOT APPLICABLE
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(Name of each exchange on which registered)
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 .
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,871,547
As of August 31, 1999, the registrant had outstanding 9,982,053 shares of its
Common Stock, par value of $0.0001, its only class of voting securities. The
aggregate market value of the shares of Common Stock of the registrant held by
non-affiliates on August 31, 1999, was approximately $2,464,000 based on the
average sales price on the OTC:Bulletin Board on that date. (See Item 5).
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit index.
Transitional Small Business Disclosure Format (Check one): Yes ; No X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Reconversion Technologies, Inc. (formerly Horizon Capital Corp.) (the
"Company"), a Delaware corporation organized July 25, 1985, is a holding company
principally engaged in acquiring and developing businesses. The Company had
three wholly owned subsidiaries; Reconversion Technologies of Texas, Inc., a
Texas Corporation, organized on February 24, 1992 ("RETEX"), acquired September
28, 1992, Reconversion Products, Inc. ("RPI"), formerly Thomas Engineering,
Inc., a Georgia Corporation organized on October 9, 1992, acquired January 28,
1994, and Spectrum Recycling Technologies, Inc. ("Spectrum"), a New York
corporation acquired July 27, 1994.
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 , RPI and Spectrum's operations
were ceased with no expectation of reopening the businesses and are, therefore,
no longer consolidated with the Company.
On November 20, 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 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.
The Company is a holding company and has no separate operations. A
discussion of the operations of its wholly owned operating subsidiary, KLI
follows.
KEYSTONE LABORATORIES, INC.
KLI is a forensic urine drug screening and confirmatory testing laboratory
located in Asheville, North Carolina. Urine laboratory tests are used primarily
by employers to detect the use of illegal substances by employees and/or
prospective employees. Tests of this nature are presently performed by certified
forensic laboratories. KLI views the urine laboratory industry as highly
fragmented at present with many local, regional and national laboratory
companies currently in operation.
LABORATORY TESTING OPERATIONS & SERVICES
KLI has one laboratory and one collection station which are both located
within the Asheville facility. In addition to in-house collection services, KLI
provides on-site collection as well as receipt from its customers through
independent couriers. At its facility, each urine specimen and related test
request form is checked for completeness and assigned an identification number,
which ensures that the results are attributed to the correct patient. The test
request forms are then sent to a data entry terminal where a file is established
for each test specimen and the necessary testing and billing information is
entered. Once such billing information is entered into the system, the tests are
performed and the results posted through a computer interface. Test results are
printed and prepared for distribution by service representatives the same day
that routine testing is performed. In addition, results can be faxed to a
dedicated fax. Clients who are tested before 1 p.m. who request that the test
results be communicated by telephone are so notified the same day while the
remainder of the clients are notified of the test results the following business
day.
QUALITY ASSURANCE
KLI considers the quality of its tests to be of critical importance to its
growth and retention of client accounts. Therefore, it has established a
comprehensive quality assurance program for its laboratory designed to help
assure accurate and timely test results. KLI's laboratory also participates in a
number of proficiency testing programs which generally involves the submission
of pre-tested samples to a laboratory to verify the laboratory test results
against a
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known proficiency test value. These proficiency programs are conducted both
independently by KLI and in conjunction with groups such as the College of
American Pathology ("CAP").
The CAP is an independent non-governmental organization of board certified
pathologists which offers an accreditation program to which laboratories may
voluntarily subscribe. The CAP accreditation program involves both on-site
inspections of the laboratory and participation in the CAP's proficiency testing
program for all categories in which the laboratory is accredited by the CAP. A
laboratory's receipt of accreditation by the CAP satisfies the Medicare
requirement for participation in a proficiency testing program administered by
an external source. In addition to these compulsory external inspections and
proficiency programs, KLI has adopted a number of additional quality assurance
checks. The laboratory is equipped with sophisticated testing equipment which is
checked daily in accordance with KLI's preventive maintenance program. In
addition, the laboratory is supervised by a scientific director who possesses a
Doctor of Pharmacy and is a fellow of the American Academy of Clinical
Toxicology as well as an inspector for forensic urine drug testing for the CAP.
The primary role of the scientific director is to ensure the accuracy of the
laboratory's tests.
MARKETS AND MARKETING
The potential customers for KLI's services are primarily small
manufacturing companies, local hospitals and drug abuse treatment centers. The
marketing of KLI's services is accomplished primarily through direct
solicitation by its salesmen who initially meet with each new potential client.
KLI believes that this one-on-one contact has proven invaluable in customer
satisfaction and, in turn, customer retention. At the end of Fiscal 1998 and
1997, KLI had one full-time employee engaged in sales, along with on outside
salesperson who is compensated on a commission only basis. KLI intends to
continue to selectively increase the size of its sales force by expansion in
existing markets as well as by entering into new geographic areas. KLI believes
that sales force productivity is primarily due to KLI's Client Service Program.
Through these coordinators, KLI continuously monitors client activities and
attempts to identify and resolve any potential client dissatisfaction at an
early stage.
KLI has found that the three primary concerns of clients are turnaround
time, price and accuracy. KLI provides rapid turnaround time for its written
reports--24 hours in the case of negative specimens and 48 hours for positive
specimens. KLI believes the price charged for its services is competitive. With
regard to accuracy, KLI routinely performs adulteration tests such as "ph" and
"specific gravity" tests on all specimens verifying that the urine specimens are
valid. Many laboratories either do not perform these tests or charge extra fees
to clients to perform such tests if they are requested. A lack of certification
by the National Institutes on Drug Abuse ("NIDA") prevents KLI from performing
tests for certain governmental agencies. However, KLI believes that the
advantage of NIDA certification would not generate enough additional revenues to
offset the significant additional expenses which would probably be incurred with
NIDA certification.
COMPETITION
The forensic urine drug testing business is characterized by intense
competition. KLI believes that there are several laboratory companies that
provide a broad range of laboratory testing services in the same markets
serviced by KLI. Among KLI's national competitors with larger name recognition
are Lab Corp., Quest Diagnostics, Inc. and SmithKline Beecham Clinical
Laboratories, Inc. According to the Health Care Financing Administration, over
150 certified forensic laboratories are currently operating in the United
States. As mentioned above, competition is based primarily on accuracy of
testing, price and the time required to report results. Finally, in addition to
competition for customers, there is increasing competition for qualified
personnel.
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CUSTOMERS
To date, KLI has focused its marketing efforts primarily on manufacturing
companies whose orders account for approximately 95% of its net sales. The
remaining 5% of net sales is derived from hospital reference testing, nursing
homes, clinics, referrals from other clinical laboratories and other clients.
The largest client of KLI accounts for approximately 5% of net sales. KLI
believes that the loss of any one client would not have an adverse effect on its
financial condition. Payments for services are received directly from the
clients, rather than from insurance companies.
GOVERNMENT REGULATION
KLI is subject to regulation under the Clinical Laboratory Improvement Act.
Under this Act, KLI is subject to periodic inspections of the aspects of its
operations relating to the quality of its laboratory testing results. In
addition, applicable federal and state certification and licensing programs
establish standards for the day-to-day operation of a medical laboratory,
including, but not limited to, personnel and quality control. Compliance with
such standards is verified by periodic inspections by inspectors employed by the
appropriate federal or state regulatory agency. In addition, regulatory
authorities require participation in a proficiency testing program provided by
an external source which involves actual testing of specimens that have been
specifically prepared by the regulatory authority for testing by the laboratory.
As mentioned above in "Quality Assurance", KLI participates in a number of such
programs.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Certain federal and state laws govern the handling and disposal of
infectious and hazardous wastes. Although KLI believes that it is currently in
compliance in all material respects with such federal and state laws, failure to
so comply could subject KLI to fines, criminal penalties and/or other
enforcement actions.
EMPLOYEES
As of June 30, 1999, KLI employed a total of 16 employees, 14 of whom work
full-time and 2 of whom work part-time. KLI has no collective bargaining
agreements with any unions and believes that the overall relations with its
employees are excellent.
YEAR 2000
The Company has identified the software that could be affected by the "Year
2000" issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has been required to make updates to two software programs and expects
to have final implementation completed during November 1999. The total cost of
program modification is expected to be less than $5,000.
ITEM 2. PROPERTIES
The Company and KLI lease 4,602 square feet at its operating facility at 2
Hendersonville Road, Suite E, Asheville, North Carolina. The lease expires on
August 31, 2003.
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ITEM 3. LEGAL PROCEEDINGS
GAIA TECHNOLOGIES, INC. VS. RECONVERSION TECHNOLOGIES, INC., RECONVERSION
TECHNOLOGIES OF TEXAS, INC., RECYCLED PRODUCTS CORPORATION, JAMES E. TURNER,
BETTY ROSE TURNER, GLYN TURNER, PROGRESSIVE CAPITAL CORPORATION, DAVID GORDON,
IRA RIMER, JOEL HOLT AND RICHARD CLARK, PENDING IN THE UNITED STATES DISTRICT
COURT, SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, CASE NO. H-93-3334,
SUBSEQUENTLY RE-NUMBERED AS CASE NO. 94-CV-2256.
This lawsuit was filed on October 20, 1993, and alleges numerous causes of
action against the various defendants, including patent infringement, trademark
infringement, unfair competition, tortious interference with contractual
relations, conspiracy and RICO. The litigation stems from the alleged misconduct
of James E. Turner (Turner) concerning certain intellectual property which
plaintiff claims it bought from the bankruptcy estate of James E. Turner and
Turner's former company, Entek, in 1991. The Company has consistently maintained
the position that its own proprietary processes are demonstrably distinct from
those which plaintiff claims to have acquired in 1991, and that its causes of
action are baseless as it concerns the Company and its subsidiaries. In addition
to monetary gains, Plaintiff seeks a permanent injunction enjoining the Company
from manufacturing products with its technologies.
On March 17, 1995, the Court found that the Company and RETEX as well as
Defendants Progressive Capital Corporation, David Gordon, Ira Rimer, Joel Holt
and Richard Clark were guilty of patent infringement, trademark infringement,
unfair competition, and tortious interference with contractual relations. A
total amount of approximately $21.5 million in actual damages, pre-judgment
interest and attorneys' fees was awarded against the Company, RETEX and
Progressive Capital Corporation. In addition, punitive damages in the amount of
$100,000 were awarded against David Gordon, the former President of the Company.
The Company appealed the judgment to the United States Court of Appeals for
the Federal Circuit. The Federal Circuit reversed and vacated the judgment and
ordered the dismissal of GAIA's patent and trademark claims and also set aside
the state law claims. The Federal Circuit remanded the case back to the District
Court to determine if it had supplemental jurisdiction over the state law
claims.
Following remand, the District Court ruled over the Company's objection,
that it would assert supplemental jurisdiction over the state law claims. On
July 18, 1997, the District Court entered a judgment against the Company and the
other parties for $7,116,405.21, exclusive of interest after July 10, 1997. The
Company promptly perfected its appeal from the judgment. On May 26, 1999, the
United States Court of Appeals for the Fifth Circuit reversed the judgment of
the district court and rendered judgment in favor of the defendants.
The claim had been valued at $1,503,696, the maximum amount allowable under
the Plan based on the current judgment and was accrued in obligations to be paid
in common stock. Upon the May 26, 1999 reversal by the United States Court of
Appeals for the Fifth Circuit and expiration of time allowed for GAIA to appeal,
the Company canceled the shares originally reserved for issuance and removed the
accrued liability of $1,503,696 from the books.
The Company believed the value of the GAIA claims against the Company to be
zero, and further that the Company may have counter claims against GAIA arising
as a result of the GAIA litigation, which potential counter claims are reserved
pending analysis.
RECONVERSION TECHNOLOGIES, INC., DEBTOR IN POSSESSION, CHAPTER 11 PROCEEDING,
UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA, CASE
NO. 95-00821-W.
The Company and its wholly-owned subsidiary, Reconversion Technologies of
Texas, Inc. each filed for Chapter 11 Bankruptcy protection in the United States
Bankruptcy Court for the Northern District of Oklahoma on March 23, 1995. This
action was precipitated by a $21.5 million judgment entered against the Company
and RETEX by the United States District Court for the Southern District of Texas
on March 16, 1995. In order to appeal the
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judgment, the Company had no alternative but to seek protection in the
Bankruptcy Court. The filing of the bankruptcy petition allowed the Company to
reorganize its affairs and pursue its appeal. On November 20, 1997, the
Company's Plan of Reorganization was confirmed with all creditors of the Company
to be paid in either cash or by receipt of the Company's common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended June 30, 1999, there were no matters submitted to a
vote of the security holders of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock was listed on the OTC:Bulletin Board under the
symbol "RTTK".
The following chart shows the quarterly high and low bid prices for the
Company's Common Stock for the last two fiscal years, as reported on the
OTC:Bulletin Board. The prices represent quotations by dealers without
adjustments for retail mark-ups, mark-downs or commissions and may not represent
actual transactions. In the second quarter of 1998 the Company's Common Stock
was suspended from trading on the OTC:Bulletin Board and therefore there was no
market for the Company's stock, pending completion of their re-qualification
procedure. The Company's stock commenced trading on June 7, 1999.
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COMMON STOCK
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BID ASK
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HIGH LOW HIGH LOW
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Calendar Quarters
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1997 Third Quarter .37 .18 .50 .31
1997 Fourth Quarter .13 .06 .37 .25
1998 First Quarter .06 .06 .25 .18
1998 Second Quarter N/A N/A N/A N/A
1998 Third Quarter N/A N/A N/A N/A
1998 Fourth Quarter N/A N/A N/A N/A
1999 First Quarter N/A N/A N/A N/A
1999 Second Quarter .75 .25 .75 .25
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HOLDERS
As of June 30, 1999, there were approximately 419 holders of record of the
Company's common stock, an undetermined number of which represent more than one
individual participant in securities positions with the Company.
DIVIDENDS
The Company has never paid cash dividends on its common stock, and intends
to utilize current resources to expand its operations. Therefore, it is not
anticipated that cash dividends will be paid on the Company's common stock in
the foreseeable future.
The Company has not paid a cash dividend on its preferred stock since its
fiscal year ended June 30, 1995. Pursuant to the Bankruptcy Plan of
Reorganization, the outstanding preferred shares are being canceled and new
common shares will be issued on 1.1 for 1 basis.
BANKRUPTCY PLAN
On July 3, 1997, Richard T. Clark and Joel C. Holt 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.
CONCEPT OF PLAN
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 Debtor built around the acquisition by Debtor of Keystone
Laboratories, Inc. ("KLI") and the establishment of a less expensive procedure
for resolutions of RETEK claims.
KLI is engaged in the business of forensic drug testing. KLI's business
affairs, history and financial data are more particularly in the Disclosure
Statement. Currently, all outstanding shares of Common Stock of KLI are owned by
Richard T. Clark, Jr. and Joel C. Holt, Plan Proponents. 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 KLI and the orderly collection of RETEK
Claims proposed herein, Reconversion Technologies of Texas, Inc. ("RETEX"), a
subsidiary of Debtor, will be liquidated through a Liquidating Plan and a RETEX
Liquidating Trust in its pending Chapter 11 case. Debtor 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. Debtor
is the major secured creditor of RETEX, but under this Plan, Debtor will agree
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 Debtor in satisfaction of the
RETEX obligation to Debtor, and Debtor will retain such claim and enforce it
against RETEX for the benefit of Debtor's Creditors and Interest holders.
Following the acquisition of KLI and the liquidation of the principal
assets of RETEX through the RETEX Liquidating Trust and collection on any RETEK
claims. Debtor's only operating asset will be KLI. Debtor will be engaged solely
in the business of forensic drug testing through KLI unless and until Debtor
expands its business activities. Under this Plan:
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(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.
This summary of the Plan, which has been filed in its entirety with the
Company's 8-K dated November 26, 1997. The Plan is binding on RETEK and all
creditors and shareholders of RETEK. The Plan provides for eleven (11) Classes
of Claims and Interests. The Plan provides for the following treatment of these
Claims and Interests:
SUMMARY OF THE PLAN
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 Debtor'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 Debtor 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: DISPUTED SECURED CLAIMS. This Class consists of Creditors who
assert a secured claim against Debtor and its assets. All of such secured claims
are disputed, and all underlying claims are disputed, as they do not arise from
obligations of Debtor but instead represent, if valid, obligations of Retex. It
is believed that the joint administration of the Debtor's case and the Retex
case may have created confusion among Retex creditors who assert secured status
in this case.
CLASS 4 CLAIM: CLAIM OF TRANSFER AGENTS AST AND DEPOSITORY TRUST CO. The
Class 4 claim 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 Debtor pre-petition.
CLASS 5 CLAIMS: ADMINISTRATIVE CONVENIENCE SMALL CLAIMS. Class 5 Claims
consist of all Allowed Unsecured Claims against Debtor to which no objection has
been interposed, 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 Debtor to which no objection has been interposed and
total approximately $412,625.00. Disputed Claims which would otherwise be
included within this Class will not be Allowed until allowed by Final Order of
the Bankruptcy Court. The aggregate amount of Disputed Claims is $1,353,749.00.
Expressly excluded from Class 6 Claims are the Klenda, Gordon, & Getchell
Creditor Claim and the GAIA Claim, which are separately classed
CLASS 7 CLAIM: DISPUTED UNSECURED CLAIM OF GAIA. GAIA is the holder of a
disputed Unsecured Claim against Debtor. On March 17, 1995, GAIA obtained a
judgment against Debtor and certain individuals in the aggregate sum of $22
million dollars in the United States District Court for the Southern District of
Texas styled Gaia
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Technologies, Inc. v. Reconversion Technologies, Inc., et al., Case No.
H-94-2258 and GAIA filed its Proof of Claim in this 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. A copy of the Opinion of the Court of
Appeals are on file in this case. The GAIA Claims is disputed under this 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 Debtor and others as follows:
(a) Judgment against Debtor, 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 Debtor, 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 Debtor, 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 Debtor and other parties is
$7,116,405.21, exclusive of interest after July 10, 1997. Debtor 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. On May 26, 1999, the United States Court
of Appeals for the Fifth Circuit reversed the judgment of the district court and
rendered judgment in favor of the defendants.
The claim had been valued at $1,503,696, the maximum amount allowable under
the Plan based on the current judgment and was accrued in obligations to be paid
in common stock. Upon the May 26, 1999 reversal by the United States Court of
Appeals for the Fifth Circuit and expiration of time allowed for GAIA to appeal,
the Company canceled the shares originally reserved for issuance and removed the
accrued liability of $1,503,696 from the books.
The Company believed the value of the GAIA claims against the Company to be
zero, and further that the Company may have counter claims against GAIA arising
as a result of the GAIA litigation, which potential counter claims are reserved
pending analysis.
CLASS 8 CLAIM: TNRCC CLAIM: The TNRCC Claim against Debtor 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 Debtor. Debtor believes that TNRCC asserts its claim
against Retex, and as set forth in the Disclosure Statement, that Debtor 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 Estate asserted claims against
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Klenda, Gordon & Getchell which on May 22, 1997, resulted in a judgment in
favor of Debtor 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 interests
of the Equity Security Holders who own Pre-Petition Shares of Preferred Stock.
According to information available to Plan Proponents, there were 1,104,081
Pre-Petition Shares of Preferred Stock issued by Debtor and held by
approximately forty-eight (48) entitles or individuals who are listed on Exhibit
E.
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
Debtor. According to information available to Plan Proponents, there are
outstanding 11,807,785 Pre-Petition Shares of Common Stock held by approximately
301 entities or individuals. The owners and their holdings of these shares, as
of November 17, 1994, according to the records of Debtor's stock transfer agent,
AST, are contained in "List of Equity Security Holders" filed in the office of
the United States Bankruptcy Court Clerk for the Northern District of Oklahoma
on or about April 19, 1995.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere herein.
LIQUIDITY AND CAPITAL
Reconversion Technologies, Inc. (formerly Horizon Capital Corp.) (the
"Company"), a Delaware corporation organized July 25, 1985, was a holding
company principally engaged in acquiring and developing businesses related to
the recycling and waste management industries. 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. Prior to the acquisition of RETEX, the Company had no
operations.
On September 28, 1992, the Company acquired 100% of the issued and
outstanding shares of RETEX. RETEX had developed a process whereby waste rubber,
post-consumer and post-industrial petro-chemically derived waste, and other
ingredients, are combined to produce a mixture used to manufacture wood and
concrete replacement products.
On January 28, 1994, the Company acquired 100% of the issued and
outstanding stock of RPI. RPI was an established business involved in the
design, manufacture, installation and sales of material recovery facilities,
conveyors and shredders. Its headquarters were located in Asheville, North
Carolina. RPI was the operator-manager of Ultra Steel, Inc. ("ULTRA"), a
manufacturing company in Travelers Rest, South Carolina, which built and
installed conveyor systems, material recovery facilities and related heavy waste
handling equipment. As part of its agreement with ULTRA, RPI had an option to
purchase ULTRA.
On July 27, 1994, the Company acquired 100% of the issued and outstanding
common stock of Spectrum, and substantially all of the assets of Amplasco
Technologies, Inc., a Virginia corporation ("Amplasco"). Spectrum was an
established business involved in the design, construction and processing of
recycled plastic cleansing operations.
As a result of the GAIA litigation, the Company and RETEX filed for
protection under Chapter 11 of the Bankruptcy Code on March 23, 1995, by filing
a petition in the United States Bankruptcy Court for the Northern District of
Oklahoma. On February 20, 1995, three days after the jury verdict was rendered
against the Company and RETEX in the GAIA litigation, the Company was required
to suspend operations of RETEX at its Brenham, Texas plant. The only
subsidiaries of the Company, which it continued to operate, were RPI and
Spectrum. However, due to the
10
<PAGE> 11
bankruptcy filings, both RPI's and Spectrum's operations were severely hampered,
and both companies were required to cease all operations and liquidate all their
assets to pay creditors. By November 1995, neither the Company nor any of its
subsidiaries had any operations.
On July 3, 1997, Richard T. Clark and Joel C. Holt 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. The concept of the Plan and a Summary of
the Plan are included at Item 5 hereof.
The Company has identified the software that could be affected by the "Year
2000" issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has been required to make updates to two software programs and expects
to have final implementation completed during November 1999. The total cost of
program modification is expected to be less than $5,000.
The Company acquired new gas chromatography/mass spectrometry equipment
which will be used in the test confirmation process during August 1999. The
equipment cost of $68,768 was seller financed over four years.
RESULTS OF OPERATIONS
The operations of the Company now consist solely of the operations of KLI,
which operates as a forensic urine drug screening and confirmatory testing
laboratory and has no other operating segments.
SALES AND COST OF SALES
During the year ended June 30, 1999, the Company increased its revenues by
$181,002 (11%) to $1,871,547 from $1,690,545. Cost of sales during the year
ended June 30, 1999 increased by $129,550 (28%) to $596,890 from $467,340. Gross
profit as a percentage of sales decreased from 72% during the year ended June
30, 1998 to 68% during the year ended June 30, 1999.
The Company's increased revenues are 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 introduced during the latter half of the year ended June 30, 1998. The cost
of the onsite drug test kits increased $137,864 and were thus the cause of the
higher cost of sales. The Company expects its revenues and related costs of
sales to continue at the level experienced during the year ended June 30, 1999.
OTHER COSTS AND EXPENSES
Selling, general and administrative expenses were $1,384,440 (an increase
of $247,620) (22%) during the year ended June 30,1999 as compared to $1,136,820
during the prior year. The selling, general and administrative expense increase
of $247,620 included a $46,065 increase in KLI and a $201,555 increase in
ReTech. The KLI increase (4%) is consistent with the revenue increases
experienced. The ReTech increase includes $102,318 for accounting and audit
fees, which were not included in the prior period. The remainder of the increase
consists primarily of legal fees and additional director fees associated with
completion of the ReTech bankruptcy plan. It is anticipated that the majority of
the costs associated with the bankruptcy plan have been incurred and any
remaining costs associated with the bankruptcy plan should be relatively
nominal.
During the year ended June 30, 1998, the Company entered into a sale and
leaseback transaction of the majority of its equipment. As a part of this
transaction, gain in the amount of $35,095 has been recognized as of June
30,1998 and $17,548 has been recognized during the year ended June 30, 1999. The
proceeds of this transaction were partially used to implement the bankruptcy
plan.
During the year ended June 30, 1999, the Company recognized an unrealized
gain from their investment in marketable equity securities in the amount of
$27,514. During the year ended June 30, 1998, the Company recognized
11
<PAGE> 12
an unrealized loss from their investment in marketable equity securities in the
amount of $46,141. In addition, the Company realized a loss from sale of
marketable securities in the amount of $5,400 during the year ended June 30,
1999.
During the year ended June 30, 1999, the Company had interest expense in
the amount of $29,948 as compared to the year earlier period which amounted to
$16,811. The increase is primarily due to the sale and leaseback transaction
discussed above.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Reconversion Technologies, Inc.
and Subsidiary, together with the report thereon of Guest & Company, P.C. dated
September 23, 1999 for the year ended June 30, 1999 is set forth on pages F-1
through F-20 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and current positions with
the Company held by the Directors, Executive Officers and Significant Employees,
together with the year such positions were assumed. There is no immediate family
relationship between or among any of the Directors, Executive Officers or
Significant Employees, and the Company is not aware of any arrangement or
understanding between any Director or Executive officer and any other person
pursuant to which he was elected to his current position.
<TABLE>
<CAPTION>
Position or Office Date First
Name Age With the Company Elected
- ---- --- ---------------- -------
<S> <C> <C> <C>
Joel C. Holt 68 Director/President 1997
John B. Sams 50 Director/Vice-President 1997
Keystone Laboratories, Inc.
W. Leo Morris 77 Director 1997
Robert Garner 64 Director 1997
J. Clark Bundren, MD 45 Director 1997
</TABLE>
Business experience for the last five years and other information relating
to each Director, Executive Officer and Significant Employee is as follows:
JOEL C. HOLT, was educated at the Medical College of Virginia with B.S.
Degrees in both Physical Therapy and Biology. Prior to attending the Medical
College of Virginia, Mr. Holt served a tour of duty in the U.S. Navy. Mr. Holt
was employed as a physical therapist for 2 years prior to joining a major
pharmaceutical company where he
12
<PAGE> 13
remained in sales and marketing for 30 years. He was instrumental in forming
Keystone Laboratories, Inc. in 1987, and has remained as president to date. He
also served as Chairman of the Board for Proactive Technologies, Inc. during
1995. Director of the Company since November of 1997.
JOHN B. SAMS, has been Vice President of Sales and Marketing of Keystone
Laboratories, Inc. since 1995. He was educated at Montreat-Anderson College with
a B.A. Degree. He has an extensive background in the medical and diagnostic
field. Mr. Sams was employed in marketing and sales management with a major
clinical diagnostic corporation for 19 years. He also spent 4 years in the
pharmaceutical industry. He has served on the board of directors for Proactive
Technologies, Inc. and several other private corporations, and is active with
the American Diabetes Association. Director of the Company since November of
1997.
W. LEO MORRIS, has a degree in Petroleum Engineering from Texas Tech
University. Mr. Morris has served as engineer and Production Superintendent for
Mobile Oil Corporation. He is currently Vice President of Bank of Oklahoma and
has been engaged in the banking business for 40 years, with Bank of Oklahoma and
other local, regional and national banks. Outside director of the Company since
November of 1997
ROBERT GARNER, manages several family companies in the oil and gas business
and other areas as principal of Garner Energy, Inc., and serves as President and
Chief Executive Officer of Excelco Energy, Inc. Formerly, Mr. Garner retired as
Executive Vice President of Occidental Oil and Gas Corporation (1986-1990), Vice
President of Cities Service Company from 1955-1980. Mr. Garner earned a Bachelor
of Science Degree in Petroleum Engineering from the University of Oklahoma in
1955 and has completed graduate work at Emory University, Indiana University and
the University Center at Tulsa. Outside director of the Company since November
of 1997.
J. CLARK BUNDREN, MD, is a tenured Associate Professor of Gynecology and
Obstetrics in the College of Medicine at the University of Oklahoma Health
Sciences Center - Tulsa, where he directs the division of Reproductive
Endocrinology and Infertility. He actively conducts medical teaching, research
and private practice. He is active in the Oklahoma oil and gas industry with
numerous working interests and is a member of the OIPA. He has been an active
shareholder since April 1996 in the Tulsa internet transaction company of City
Surf, Inc. doing business as BuyItNow. Outside director of the Company since
November of 1997.
13
<PAGE> 14
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the cash compensation of the Company's chief
executive officer and each officer whose total cash compensation exceeded
$100,000, for the three fiscal years ended June 30, 1999. The Company has no
long-term compensation plans.
<TABLE>
<CAPTION>
Name and Fiscal Other All
Principal Year Annual Other
Position Ended Salary($) Bonus($) Compensation Compensation
-------- ----- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joel C. Holt 6/30/97 N/A N/A N/A N/A
President/ 6/30/98 $ 70,000 0 $18,500 0
Director 6/30/99 $120,000 0 $ 9,000 0
Since 1997
</TABLE>
Joel C. Holt receives no salary as President of the Company. The salary
above represents the amount paid Mr. Holt during the year ended June 30, 1999
and during the seven months ended June 30, 1998 for his services as president of
KLI. The other annual compensation represents the value of the shares granted as
director compensation pursuant to the Bankruptcy Plan and as a part of the
restricted common stock grant discussed below.
There were no Option/SAR grants during the last fiscal year.
There were no Option/SAR exercises during the last fiscal year, and there
were no fiscal year-end Options/SAR's outstanding.
There were no long term incentive plan awards during the last fiscal year.
On August 6, 1998, the directors granted themselves an award of the
restricted common stock of the Company in the amount of 50,000 shares for each
outside director and in the amount of 100,000 shares for each inside director.
On October 30, 1998 the directors granted themselves an award of the
restricted common stock of the Company in the amount of 50,000 shares for each
outside director and in the amount of 125,000 shares for each inside director.
As a part of the bankruptcy plan, each of the inside directors was granted
75,000 shares of restricted common stock and each of the outside directors was
granted 150,000 shares of restricted common stock for director compensation. The
shares were to be issued one-half at the beginning of their first year of
service and one-half at the end of the first year of service.
14
<PAGE> 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates all persons who, as of August 31, 1999, the
most recent practicable date, are known by the Company to own beneficially more
than 5% of any class of the Company's voting securities and all Directors of the
Company and all Officers who are not Directors of the Company, as a group.
Percent of class for all beneficial owners assumes that all options and warrants
have been exercised and the Preferred Stock has been converted. As of August 31,
1999 there were 9,982,053 shares of the Company's common stock outstanding.
<TABLE>
<CAPTION>
NAME & ADDRESS AMOUNT & NATURE
TITLE OF BENEFICIAL OF BENEFICIAL %OF
OF CLASS OWNER OWNERSHIP IN NUMBER CLASS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Joel C. Holt 1,276,832 12.79%
2 Hendersonville Rd. Ste. E
Asheville, NC 28803
Common John Sams 337,500 3.38%
2 Hendersonville Rd. Ste. E
Asheville, NC 28803
Common W. Leo Morris 329,500 3.30%
5875 South Joplin
Tulsa, OK 74135
Common J. Clark Bundren 252,500 2.53%
5555 E. 71st St., Ste. 6220
Corporate Oaks, Bldg. 6
Tulsa, OK 74136
Common Robert Garner 274,850 2.75%
427 South Boston, Ste. 1207
Tulsa, OK 74103
Common Marianne Smith 177,420 1.78%
2 Hendersonville Rd. Ste. E
Asheville, NC 28803
Common Rick Clark (1) 1,125,678 11.28%
7633 E 63rd Place, Ste 210
Tulsa, OK 74133
Common G. David Gordon (2) 1,279,230 12.82%
7633 E 63rd Place, Ste 210
Tulsa, OK 74133
Common All officers and directors as a 2,648,602 26.53%
Group (six persons)
</TABLE>
(1) Includes 715,678 shares held directly, 100,000 held by his wife and 310,000
shares in trust for his minor children.
(2) Includes 461,471 shares held directly, 734,423 held by his wife and 83,333
shares, which represents his proportionate interest in 100,000 shares held
by a corporation in which he owns 83.33% of the outstanding common stock.
15
<PAGE> 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of June 30, 1999 and 1998 KLI had amounts due from related parties in
the following amounts:
1999 1998
Joel C. Holt, Director and President $ - 26,717
Marianne Smith, Secretary to the Board 20,830 20,888
Rick Clark - 15,000
G. David Gordon - 14,000
16
<PAGE> 17
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS - See Exhibit Index at page 18.
(b) REPORTS ON FORM 8-K - The Company did not file any reports on Form 8-K
during the three months ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 11,1999 By /S/ Joel C. Holt
-----------------------------
Joel C. Holt, President and
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Date: October 11,1999 /s/ Joel C. Holt
-------------------------------
Joel C. Holt
Director
Date: October 11,1999 /s/ John B. Sams
-------------------------------
John B. Sams
Director
Date: October 11,1999 /s/ W. Leo Morris
-------------------------------
W. Leo Morris
Director
Date: October 11,1999 /s/ J. Clark Bundren
-------------------------------
J. Clark Bundren
Director
Date: October 11,1999 /s/ Robert Garner
-------------------------------
Robert Garner
Director
17
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Reconversion Technologies, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Reconversion
Technologies, Inc. and subsidiary as of June 30, 1999 and the consolidated
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Reconversion Technologies, Inc. and subsidiary at June 30, 1999 and the
consolidated results of their operations and their cash flows for the years
ended June 30, 1999 and 1998 in conformity with generally accepted accounting
principles.
/s/ Guest & Company, P.C.
September 23, 1999
Tulsa, Oklahoma
F-1
<PAGE> 19
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 104,968
Accounts receivable, less allowance for doubtful
accounts of $13,389 69,184
Due from employees 20,830
Marketable securities, less unrealized loss of $18,627 (note 1) 23,885
Other prepaid expenses 5,878
Deferred income tax asset (note 7) 63,591
-----------
Total current assets 288,336
-----------
Machinery and equipment (note 6):
Lab machinery and equipment 212,470
Computer equipment 91,015
Furniture and fixtures 20,843
-----------
324,328
Less accumulated depreciation and amortization 139,292
Net machinery and equipment 185,036
Due from Liquidating Trust of Reconversion Technologies
of Texas, Inc. (note 2) 100,000
Goodwill, less accumulated amortization of $9,956 84,366
-----------
$ 657,738
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 20
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet, Continued
June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Current installments of long-term debt (note 6) $ 27,657
Current installments of obligations under capital leases (note 5) 122,931
Accounts payable 93,077
Unresolved bankruptcy claims (note 2) 7,951
Obligations to be paid in common stock (note 2) 250,535
Accrued expenses 27,053
-----------
Total current liabilities 529,204
-----------
Long-term debt, excluding current installments (note 6) 30,705
Obligations under capital leases, excluding current
installments (note 5) 43,051
Deferred income tax liability (note 7) 30,993
-----------
Total liabilities 633,953
-----------
Stockholders' equity (notes 2, 4, 8 and 9):
Common stock, $.0001 par value. Authorized
200,000,000 shares; issued 9,982,053 shares 998
Additional paid-in-capital 663,971
Deficit (390,649)
Stock issuable under bankruptcy plan (250,535)
-----------
Total stockholders' equity 23,785
Commitments and contingencies (notes 2, 5, 9, 10 and 11)
-----------
$ 657,738
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 21
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 1,871,547 1,690,545
Cost of sales 596,890 467,340
----------- -----------
Gross profit 1,274,657 1,223,205
Selling, general, and administrative expenses 1,384,440 1,136,820
----------- -----------
Operating income (loss) (109,783) 86,385
----------- -----------
Other income (deductions):
Gain on sale-leaseback (note 5) 17,548 35,095
Gain (loss) on investment (note 1) 22,114 (46,141)
Interest expense (29,948) (16,811)
Miscellaneous income 482 57
----------- -----------
10,196 (27,800)
----------- -----------
Net income (loss) before income taxes (99,587) 58,585
Income tax expense (benefit) (note 7) (187) 49,969
----------- -----------
Net income (loss) $ (99,400) 8,616
=========== ===========
Net income (loss) per common share $ (.01) .00
=========== ===========
Weighted average common shares (post-reverse split) 9,320,409 10,249,098
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 22
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
STOCK STOCKHOLDERS'
ADDITIONAL ISSUABLE UNDER EQUITY
COMMON STOCK PAID-IN BANKRUPTCY (NOTES 2, 4,
SHARES * AMOUNT CAPITAL DEFICIT PLAN 8 AND 9)
----------- ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 2,500,000 $ 250 $ 597,595 $ (299,865) $ - $ 297,980
Acquire Reconversion Technologies,
Inc. 7,743,249 774 - - (3,226,245) (3,225,471)
Exercise common stock warrants 17,500 2 17,498 - - 17,500
Net income - - - 8,616 - 8,616
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1998 10,260,749 1,026 615,093 (291,249) (3,226,245) (2,901,375)
Stock issued to creditors per plan - - - - 1,444,060 1,444,060
Directors shares issued 875,000 87 34,913 - - 35,000
Stock issued per court order - - - - 27,954 27,954
Directors shares authorized 350,000 35 13,965 - - 14,000
GAIA judgment overturned (note 2) (1,503,696) (150) - - 1,503,696 1,503,546
Net loss - - - (99,400) - (99,400)
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1999 9,982,053 $ 998 $ 663,971 $ (390,649) $ (250,535) $ 23,785
=========== =========== =========== =========== =========== ===========
</TABLE>
* Post-reverse split
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 23
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended June 30, 1999 and 1998
DECREASE IN CASH
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,875,748 1,603,609
Cash paid to suppliers and employees (1,859,032) (1,655,275)
Interest paid (29,948) (16,811)
----------- -----------
Net cash used by operating activities (13,232) (68,477)
----------- -----------
Cash flows from investing activities:
Proceeds from sale-leaseback of equipment - 120,000
Capital expenditures (593) (2,476)
----------- -----------
Net cash provided (used) by investing
activities (593) 117,524
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (24,913) (22,936)
Repayment of capital leases (36,815) (7,545)
Stock warrants exercised - 17,500
Proceeds from (loans to) related parties 29,000 (29,000)
Proceeds from (loans to) employees 26,775 (47,605)
----------- -----------
Net cash used by financing activities (5,953) (89,586)
----------- -----------
Net decrease in cash (19,778) (40,539)
Cash, beginning of year 124,746 165,285
----------- -----------
Cash, end of year $ 104,968 124,746
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 24
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Statements of Cash Flows, Continued
Years Ended June 30, 1999 and 1998
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
USED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $ (99,400) 8,616
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation 48,774 56,320
Amortization of goodwill 6,288 3,668
Amortization of deferred gain on sale-leaseback (17,548) (35,095)
Judgment reversal (150) -
Common stock issued for services 49,000 -
Deferred income taxes (187) 49,969
(Increase) decrease in accounts receivable 21,749 (39,841)
Increase in marketable securities (14,105) (8,409)
Decrease in prepaid expenses 11,250 22,736
Decrease in accounts payable (19,399) (132,709)
Increase (decrease) in accrued expenses 496 (1,683)
Increase in unresolved bankruptcy claims - 7,951
----------- -----------
Net cash used by operating activities $ (13,232) (68,477)
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock for the common stock
of KLI $ - 297,980
Acquisition of assets under capital leases 71,442 138,900
Issuance of common stock for liabilities to be
paid in stock 1,472,014 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 25
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Reconversion Technologies, Inc. (the Company), and its wholly-owned
subsidiary, Keystone Laboratories, Inc. (KLI). All material
intercompany accounts and transactions have been eliminated.
(b) ORGANIZATION
Prior to the acquisition of KLI, the Company had three wholly-owned
subsidiaries: Reconversion Technologies of Texas, Inc. (Retex), a Texas
Corporation, organized on February 24, 1992, 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, a plant facility, located in Brenham, Texas, is
discussed in Note 2.
On November 13, 1997, the Company was formerly reorganized pursuant to
a confirmed Bankruptcy Plan of Reorganization. As a result, effective
December 1, 1997, the Company acquired all of the issued and
outstanding common stock of KLI, a Delaware corporation organized on
July 20, 1987. 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.
(c) NATURE OF BUSINESS
The Company is a holding company principally engaged in acquiring and
developing businesses. KLI is a forensic drug screening and
confirmatory testing laboratory.
(d) MARKETABLE SECURITIES
Marketable 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. At June
30, 1999 and 1998, the unrealized loss on marketable securities was
$18,627 and $46,141, respectively. For the years ended June 30, 1999
and 1998, the amounts recognized as other income (expense) for
unrealized gains (losses) on marketable securities were $27,514 and
$(46,141).
F-8
<PAGE> 26
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) PROPERTY 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 the 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.
(f) 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.
(g) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted
average number of shares outstanding during the period. Fully diluted
net income (loss) per common share is presented if the assumed
conversion of common stock equivalents result in material dilution.
(h) USE OF ESTIMATES
The process of preparing consolidated financial statements in
conformity with generally accepted accounting principles requires the
use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily relate to
unsettled transactions and events as of the date of the consolidated
financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
(i) FAIR VALUE DETERMINATION
Financial instruments consist of cash, accounts receivable, accounts
payable, accrued liabilities, notes payable, long-term debt and capital
lease obligations. The carrying amount of these financial instruments
approximates fair value due to their short-term nature or the current
rates which the Company could borrow funds with similar remaining
maturities.
(j) RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform to current
classifications.
F-9
<PAGE> 27
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION
On July 3, 1997, Richard T. Clark, Jr. and Joel C. Holt, shareholders and
creditors of the Company, filed a Disclosure Statement and Plan of
Reorganization (the 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. (KLI) 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. Prior to December
1, 1997, Richard T. Clark, Jr. and Joel C. Holt (the Plan Proponents) owned
all outstanding shares of common stock of KLI. Under this Plan, the Plan
Proponents exchanged their shares in KLI effective December 1, 1997, for
2,500,000 shares of new common stock in the reorganized debtor. These
shares of new common stock issued for KLI do not include other shares of
new common stock to be received by the Plan Proponents pursuant to the Plan
in their capacities as either equity security holders of common stock and
preferred stock or as creditors.
Under the Plan, in addition to the acquisition of Keystone and the orderly
collection of claims of the Company, the Company's former wholly-owned
subsidiary Reconversion Technologies of Texas, Inc. (Retex) will be
liquidated in its pending Chapter 11 case utilizing a liquidating trust .
The Company is the principal secured creditor of Retex. The principal asset
of Retex is a plant facility in Brenham, Texas (the Brenham Plant).
Pursuant to the liquidating trust, the Brenham Plant will be sold; however,
a sale is not expected in the near future. Under the Plan, the Company
agreed to subordinate $200,000 of its $5,000,000 allowed secured claim
against Retex 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. Due to
the fact that property taxes continue to accrue and expected deterioration
of the facility due to non-usage, the Company has determined that the
expected benefit from the sale of the Brenham Plant will be approximately
$100,000.
F-10
<PAGE> 28
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION, CONTINUED
Following the acquisition of Keystone, the liquidation of the principal
assets of Retex through the 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 KLI unless and until the Company expands its business activities.
The Plan also includes the following:
a. All pre-petition shares of common stock are 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 11 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 (1)
allowed but unpaid attorneys' fees on the effective date for the
Company's counsel, Riggs, Abney, Neal, Turpen, Orbison & Lewis, and (2)
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. All class 1 claims have been paid as of
June 30, 1999.
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.
F-11
<PAGE> 29
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION, CONTINUED
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 CLAIMS: CLAIMS 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 $3,554 and of the
pre-petition unsecured claim of Depository Trust Co. in the amount of
$1,050. Both claims were incurred for stock transfer services rendered
to the Company pre-petition. As of June 30, 1999, the outstanding
balance of the class 4 claims is $1,050.
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. As of June 30, 1999,
the outstanding balance of the class 5 claims is $750.
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 $412,625 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 $1,353,749. The allowed claims have been
valued at 40 percent of their face amount, based upon the amount to be
paid to settle the claims. The disputed claims have also been valued at
40 percent of their face amount pending their ultimate disposition. As
of June 30, 1999, the outstanding balance of unresolved class 6 claims
is $6,151. Obligations to class 6 creditors to be paid in common stock
are included in the accompanying balance sheet as obligations to be
paid in common stock.
F-12
<PAGE> 30
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION, CONTINUED
CLASS 7 CLAIM: DISPUTED UNSECURED CLAIM OF GAIA. GAIA was 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 $22,000,000 in the U.S. 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 was
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 U.S. 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:
1. Judgment against the Company, Retex, Progressive Capital
Corporation, G. David Gordon, Ira Rimer, Joel C. Holt and Richard
T. Clark, Jr., jointly and severally, for:
a. $4,350.000;
b. Pre-judgment interest of $2,130,193;
2. Judgment against the Company, Retex and Progressive Capital
Corporation, jointly and severally, for:
a. $125,000;
b. Pre-judgment interest of $61,212;
3. Judgment against G. David Gordon, Ira Rimer, Joel C. Holt and
Richard T. Clark, Jr. for $100,000 each, in the nature of
punitive damages;
4. Attorney's fees of $450,000 against the Company, Retex,
Progressive Capital Corporation, G. David Gordon, Ira Rimer, Joel
C. Holt and Richard T. Clark, Jr., jointly and severally; and
5. Post-judgment interest after July 10, 1997, at 5.65%.
F-13
<PAGE> 31
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION, CONTINUED
The aggregate amount of the judgment against the Company and the other
parties was $7,116,405.21, exclusive of interest after July 10, 1997.
The Company promptly perfected its appeal from the judgment. The appeal
was briefed and orally argued, and reversed in a decision by the United
States Court of Appeals for the Fifth Circuit on May 26, 1999.
The claim had been valued at $1,503,696, the maximum amount allowable
under the Plan based on the current judgment and was accrued in
obligations to be paid in common stock. Upon the May 26, 1999 reversal
by the United States Court of Appeals for the Fifth Circuit and
expiration of time allowed for GAIA to appeal, the Company canceled the
shares originally reserved for issuance and removed the accrued
liability from the books.
Plan Proponents believed the value of the GAIA claims against the
Company to be zero, and further, that the Company may have counter
claims against GAIA arising as a result of the GAIA litigation, which
potential counter claims are reserved pending analysis.
CLASS 8 CLAIM: TEXAS NATURAL RESOURCES CONSERVATION CORPORATION (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 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. The class 9 claim has been settled as of June 30,
1999.
CLASS 10 INTERESTS: PREFERRED STOCK. This class consists of the equity
security holders who own pre-petition shares of preferred stock.
According to information available to Plan Proponents, there were
1,104,081 pre-petition shares of preferred stock issued by the Company
and held by approximately 48 entities or individuals.
F-14
<PAGE> 32
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF PLAN OF REORGANIZATION, CONTINUED
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 11,807,785 pre-petition shares of common stock
outstanding held by approximately 301 entities or individuals.
(3) RELATED PARTY TRANSACTIONS
Related party transactions are as follows:
The Company's legal counsel repaid $14,000 which was advanced by KLI in
1998.
A corporation controlled by a majority shareholder of the Company
repaid $15,000 which was advanced by KLI in 1998.
The Company has determined that pursuant to certain indemnity obligations
that Richard T. Clark, G. David Gordon and Joel C. Holt have expended in
excess of $1,074,978 regarding certain litigation matters which the Company
was responsible and were reimbursed through the issuance of 2,099,999
shares of the Company's common stock.
(4) PREPAID CONSULTING CONTRACT
On November 14, 1997, the Company entered into a two-year public relations
contract. Under the contract, the Company issued 500,000 shares of common
stock to a public relations firm in November 1998 for the first year of
service. The Company is committed to issue another 500,000 shares for an
additional year of service. The contract was recorded using a per share
price of $.06.
F-15
<PAGE> 33
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) LEASES
The Company leases equipment under capital leases which expire over the
next four years.
Following is a summary of machinery and equipment held under capital
leases:
<TABLE>
<S> <C>
Lab machinery and equipment $ 191,442
Computer equipment 18,900
--------
210,342
Less accumulated amortization (52,745)
---------
$ 157,597
=========
</TABLE>
Future minimum lease payments under noncancelable capital leases and
noncancelable operating leases having terms in excess of one year as of
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ---------
<S> <C> <C>
Years ended June 30:
2000 $132,219 72,926
2001 28,213 67,465
2002 15,236 67,943
2003 3,761 54,355
-------- --------
Total future minimum lease payments 179,429 262,689
Less amount representing interest 13,447
---------
Present value of the minimum lease payments 165,982
Less current installments 122,931
---------
Capital lease obligation, less current installments $ 43,051
=========
</TABLE>
F-16
<PAGE> 34
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) LEASES, CONTINUED
During the year ended June 30, 1998, KLI entered into a sale-leaseback
agreement under which KLI sold certain laboratory equipment and leased it
back for a period of 13 months. The lease is accounted for as a capital
lease. The gain of $52,643 on this transaction was amortized over the term
of the lease.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to bank with interest at 2.0% above the prime rate as
published in the Wall Street Journal (7.75% at June 30, 1999), payable
in monthly installments of $2,707 plus accrued interest with unpaid
principal balance due June 14, 2001; secured by certain equipment of
KLI $ 58,362
Less current installments 27,657
------
Long-term debt, excluding current installments $ 30,705
======
</TABLE>
The aggregate maturities of long-term debt for the periods ending June 30,
2001 are as follows: 2000, $27,657 and 2001, $30,705.
(7) INCOME TAXES
Income tax expense (benefit) for the years ending June 30, 1999 and June
30, 1998 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1999:
Federal $ - (153) (153)
State - (34) (34)
---------- -------- --------
$ - (187) (187)
========== ======= =======
1998:
Federal - 40,791 40,791
State - 9,178 9,178
---------- ------- -------
$ - 49,969 49,969
========== ====== ======
</TABLE>
F-17
<PAGE> 35
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) INCOME TAXES, CONTINUED
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>
1999 1998
---- ----
<S> <C> <C>
"Normally expected" income tax expense
(benefit) $(33,911) 19,919
Increase (decrease) in taxes resulting from:
Utilization of net operating loss carryforward - 35,409
State income taxes, net of Federal income
tax effect 11,127 8,476
Deduction of items in different periods for
financial accounting and income tax
purposes 21,477 (14,682)
Nondeductible meals 1,120 847
-------- --------
Actual income tax expense (benefit) $ (187) 49,969
======== ========
</TABLE>
The deferred income tax assets and liabilities at June 30, 1999 are
comprised of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
------- ----------
<S> <C> <C>
Allowance for uncollectible accounts receivable $ 5,576 -
Marketable securities unrealized loss 7,758 -
Net operating loss carryforwards 58,015 4,136,290
Capital loss carryforwards - 145,704
---------- ----------
71,349 4,281,994
Less valuation allowance (7,758) (4,281,994)
---------- ----------
Deferred income tax assets 63,591 -
Deferred income tax liability - asset basis - (30,993)
---------- ----------
Net deferred income tax assets (liabilities) $ 63,591 (30,993)
=========== =======
</TABLE>
The Company has available unused net operating loss carryforwards of
approximately $12,300,000 which will expire in various periods from 2001 to
2019.
F-18
<PAGE> 36
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) ACQUISITION
Effective December 1, 1997, the Company acquired all of the issued and
outstanding common shares of KLI in exchange for 2,500,000 shares of the
Company's common stock. For accounting purposes, the acquisition has been
treated as a reverse acquisition. Due to the limited activity of the
Company since filing bankruptcy in March 1995, pro forma financial
information is not presented.
(9) RIGHTS TO PURCHASE STOCK
Under the bankruptcy plan, the Company issued the following warrants to
purchase the Company's common stock which are exercisable within 1 year
after June 7, 1999:
Class A warrants were issued to pre-petition preferred shareholders and
creditors which allow the purchase of 1,624,172 shares of common stock.
The warrants are exercisable at $1.00 per share.
Class B warrants were issued to pre-petition common shareholders which
allow the purchase of 1,475,973 shares of common stock. The warrants
are exercisable at $1.00 per share.
Upon the exercise of a Class B warrant, a Class C warrant will be
issued allowing the purchase of the number of shares of common stock
equal to the number of shares purchased upon the exercise of the Class
B warrants. Class C warrants are exercisable at $1.75 per share. During
the year ended June 30, 1998, 17,500 Class C warrants were issued.
Of the warrants mentioned above, 17,500 Class B warrants were exercised
during the year ended June 30, 1998. At June 30, 1999, there are warrants
for 3,100,145 common shares outstanding at an average exercise price of
$1.00 per share.
(10) CONCENTRATION OF CREDIT RISK
At June 30, 1999, KLI maintained a cash balance within a financial
institution which exceeded the insured limits of the Federal Deposit
Insurance Corporation.
F-19
<PAGE> 37
RECONVERSION TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) CONTINGENCY
The Company has started the process of identifying computer systems and
software that could be affected by the "Year 2000" issue. The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. The Company will have to
update two software programs and expects to have final implementation
completed during November 1999. The total cost of the program modification
is expected to be less than $5,000.
F-20
<PAGE> 38
EXHIBITS HAVE BEEN OMITTED FROM THIS COPY. COPIES OF EXHIBITS MAY BE OBTAINED
FROM RECONVERSION TECHNOLOGIES, INC., UPON REQUEST AND PAYMENT OF THE COSTS OF
FURNISHING SUCH COPIES. COPIES MAY ALSO BE OBTAINED FROM THE SECURITIES AND
EXCHANGE COMMISSION FOR A SLIGHT CHARGE. (The foregoing is not applicable to the
original(s) hereof.)
EXHIBIT INDEX
SECURITIES
AND EXCHANGE
COMMISSION
<TABLE>
<CAPTION>
EXHIBIT NO. TYPE OF EXHIBIT PAGE NUMBER
- ----------- --------------- -----------
<S> <C> <C>
2 Plan of Acquisition, Reorganization, N/A
Arrangement, Liquidation or Succession
3 Articles of Incorporation and Bylaws - N/A
Incorporated herein by reference to
Form 10-K for Fiscal year ended
June 30, 1987, filed October 15, 1987.
4 Instruments defining the rights of security N/A
holders, including indentures
9 Voting Trust Agreement N/A
10 Material Contracts N/A
11 Statement regarding Computation of Per N/A
Share Earnings
13 Annual Report to Security Holders N/A
16 Letter on Change in Certifying Accountant N/A
18 Letter regarding Change in Accounting Principles N/A
21 Subsidiaries of the Registrant Item 1
22 Published Report Regarding Matters Submitted N/A
to Vote of Security Holders
23 Consents of Experts and Counsel N/A
24 Power of Attorney N/A
27 Financial Data Schedule N/A
99 Additional Exhibits N/A
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Financial
Statements as of June 30, 1999 and for the year then ended and is qualified in
its entirety by reference to such Form 10-KSB for the year ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 104,968
<SECURITIES> 23,885
<RECEIVABLES> 82,573
<ALLOWANCES> 13,389
<INVENTORY> 0
<CURRENT-ASSETS> 288,336
<PP&E> 324,328
<DEPRECIATION> 139,292
<TOTAL-ASSETS> 657,738
<CURRENT-LIABILITIES> 529,204
<BONDS> 0
0
0
<COMMON> 998
<OTHER-SE> 22,787
<TOTAL-LIABILITY-AND-EQUITY> 657,738
<SALES> 1,871,547
<TOTAL-REVENUES> 1,871,547
<CGS> 596,890
<TOTAL-COSTS> 596,890
<OTHER-EXPENSES> 1,384,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,948
<INCOME-PRETAX> (99,587)
<INCOME-TAX> (187)
<INCOME-CONTINUING> (99,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,400)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
