<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended: DECEMBER 31, 1999
Commission File Number: 0-23100
RECONVERSION TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-2649848
(State of Incorporation) (IRS Employer ID No)
30 GARFIELD STREET, SUITE B, ASHEVILLE, NORTH CAROLINA 28803
(Address of principal executive office)
2 HENDERSONVILLE ROAD, SUITE E, ASHEVILLE, NORTH CAROLINA 28803
(Former 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 X No .
The number of shares outstanding of registrant's common stock, par value $.0001
per share, as of December 31, 1999 was 10,607,053.
Transitional Small Business Disclosure Format (Check one): Yes No X .
<PAGE> 2
RECONVERSION TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
Part I. Financial Information
Item 1. Balance Sheet - December 31, 1999 (unaudited) and June 30, 1999 (audited) 3
Statement of Operations - 4
Three and Six Months Ended December 31, 1999 and 1998
Statement of Stockholders' Deficit - 5
Six Months Ended December 31, 1999
Statements of Cash Flows - 6-7
Six Months Ended December 31, 1999 and 1998
Notes to Financial Statements - 8-10
Six Months Ended December 31, 1999 and 1998
Item 2. Managements Discussion and Analysis of Financial Condition 11-12
and Results of Operations
Part II. Other Information 13
</TABLE>
2
<PAGE> 3
RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
(Unaudited) (Audited)
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 106,405 $ 104,968
Marketable equity securities
74,936 23,885
Accounts receivable less allowance of $13,389 and $13,389
47,102 69,184
Due from employees
20,830 20,830
Prepaid expenses
205,878 5,878
Deferred income taxes
50,337 63,591
--------- ---------
Total current assets
505,488 288,336
Property and equipment, net
242,428 185,036
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc.
100,000 100,000
Goodwill, less accumulated amortization of $13,100 and $9,956
81,222 84,366
--------- ---------
$ 929,138 $ 657,738
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 29,142 $ 27,657
Current installments of capital leases payable 132,966 $ 122,931
Accounts payable
122,650 93,077
Unresolved bankruptcy claims
7,951 7,951
Obligations to be paid in common stock
-- 250,535
Accrued expenses
25,372 27,053
--------- ---------
Total current liabilities
318,081 529,204
Long-term debt and obligations under capital leases less current installments
98,310 73,756
Deferred income tax liability
33,166 30,993
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and
1,061 998
outstanding 10,607,053 and 9,982,053 shares
Paid-in capital
913,908 663,971
Retained earnings (deficit)
(435,388) (390,649)
Stock issuable under bankruptcy plan
-- (250,535)
--------- ---------
Total stockholders' deficit
479,581 23,785
--------- ---------
$ 929,138 $ 657,738
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 416,956 $ 468,301 $ 883,623 $ 983,102
COST OF SALES
135,781 104,963 263,858 318,825
------------ ------------ ------------ ------------
GROSS PROFIT
281,175 363,338 619,765 664,277
OTHER EXPENSE (INCOME)
Selling, general and administrative expense
369,009 405,847 667,547 751,020
Interest expense
6,322 7,883 11,473 15,223
Gain on sale-leaseback
-- (7,019) -- (17,548)
Sale of marketable equity securities
(2,002) 4,865 (2,002) 4,865
Other income
-- (332) (332)
Unrealized (gain) loss on marketable equity securities
(22,858) (10,965) (30,911) (12,778)
------------ ------------ ------------ ------------
350,471 400,279 646,107 740,450
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES
(69,296) (36,941) (26,342) (76,173)
INCOME TAX EXPENSE (BENEFIT)
(9,517) (22,877) 18,397 (44,357)
------------ ------------ ------------ ------------
NET EARNINGS (LOSS)
(59,779) (14,064) (44,739) (31,816)
============ ============ ============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.006) $ (0.001) $ (0.004) $ (0.003)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,190,386 10,844,082 10,086,220 10,552,416
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Stock Issuable
Common Stock Paid-in Accumulated Under
Shares Par Value Capital Deficit Bankruptcy Plan Total
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1999 9,982,053 $ 998 $ 663,971 $ (390,649) $ (250,535) $ 23,785
Stock issued under Bankruptcy
Plan 250,535 250,535
Common stock issued for
Director fees 13 49,987 50,000
Common stock issued for
PR contract 50 199,950 200,000
Net income (loss) (44,739) (44,739)
--------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1999 9,982,053 $ 1,061 $ 913,908 $ (435,388) $ -- $ 479,581
========= ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (44,739) $ (31,816)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 32,370 31,144
Deferred income taxes 15,427 (44,357)
Amortization of deferred gain on sale-leaseback -- (17,548)
Common stock issued for services 50,000 35,000
Marketable securities (51,051) (4,132)
Accounts receivable 22,082 26,332
Prepaid expenses -- 11,250
Accounts payable and accrued expenses 27,892 38,804
--------- ---------
Net cash provided by (used in) operating activities 51,981 44,677
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (13,723) (593)
--------- ---------
Net cash provided by (used in) investing activities (13,723) (593)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt and capital leases (36,821) (31,370)
Loans to related parties -- (10,000)
--------- ---------
Net cash provided by (used in) financing activities (36,821) (41,370)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,437 2,714
CASH AND CASH EQUIVALENTS, beginning of period 104,968 124,746
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 106,405 $ 127,460
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Continued
6
<PAGE> 7
RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 11,473 $ 7,340
Income taxes $ 2,470 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for liabilities to be paid in stock $250,535 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS - The financial
statement of Reconversion Technologies, Inc. (the "Company") includes
the accounts of Reconversion Technologies, Inc., which is a holding
company principally engaged in acquiring and developing businesses and
the accounts of its wholly owned subsidiary, Keystone Laboratories,
Inc. ("KLI"). Prior to its acquisition of KLI, the Company had three
wholly-owned subsidiaries: Reconversion Technologies of Texas, Inc., a
Texas Corporation, organized on February 24, 1992 ("RETEX"),
Reconversion Products, Inc. ("RPI"), formerly Thomas Engineering, Inc.,
a Georgia Corporation organized on October 9, 1992, and Spectrum
Recycling Technologies, Inc. ("Spectrum"), a New York Corporation.
On March 23, 1995, the Company voluntarily filed for bankruptcy
protection in the United States Bankruptcy Court for the Northern
District of Oklahoma. During the pendency of the bankruptcy, RETEX,
Spectrum and RPI discontinued operations. Spectrum and RPI have been
liquidated and the remaining asset of RETEX, the Brenham Plant
facility, located in Brenham, Texas, is currently held for sale and the
Company's share of the proceeds has been valued at $100,000.
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,
1999, which is included in the Company's Form 10-KSB for the year ended
June 30, 1999. The financial data for the interim periods presented may
not necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
(2) MARKETABLE EQUITY SECURITIES - Marketable equity securities are
comprised of trading securities held for short-term investment purposes
and are stated at fair value, with the change in fair value during the
period included in earnings.
8
<PAGE> 9
(3) MACHINERY AND EQUIPMENT - Owned machinery and equipment are stated
at cost and depreciated using the straight-line method over the
estimated useful lives of the respective assets. Machinery and
equipment under capital leases are stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or
fair value at the inception of the lease and are amortized over the
lesser of the lease term or the estimated useful lives of the related
assets.
(4) INCOME TAXES - Deferred income taxes are recognized for income and
expense items that are reported for financial purposes in different
years than for income tax purposes.
(5) NET EARNINGS PER SHARE - Net earnings per share amounts are
computed using the weighted average number of shares outstanding during
the period. Fully diluted earnings per share is presented if the
assumed conversion of common stock equivalents results in material
dilution.
B. MARKETABLE SECURITIES
As of December 31, 1999, the Company has an investment in marketable
equity securities that are classified as trading securities whose fair
value of $74,096 exceeded the cost of the securities by $12,285. Income
in the amount of $30,911 has been recognized to account for the change
in value of the marketable securities during the six-month period ended
December 31, 1999. Income in the amount of $12,778 was recognized in
the corresponding prior year period.
C. CAPITAL LEASES AND LONG TERM OBLIGATIONS
During the six months ended December 31, 1999, the Company leased a gas
chromatography/mass spectrometry unit with a total capitalized value of
$72,894 and reduced capital leases and other long-term obligations by
$36,821. A capital lease with a balloon payment due on December 1, 1999
in the amount of $98,000 was extended for an additional six months with
monthly payments due in the amount of $2,000. On June 1, 2000, the
final payment in the amount of $90,655 will be due.
D. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. SFAS No. 109 requires that a valuation allowance be
established to reduce deferred tax assets to the amount that is more
likely than not to be realized.
Deferred income taxes result primarily from temporary differences in
recognizing net operating losses for tax and financial reporting
purposes.
Income tax expense (benefit) for the six months ended December 31, 1999
and 1998 consisted of current state income taxes in the amount of
$2,970 and deferred income taxes in the amount of $15,427 during the
six months ended December 31, 1999 and deferred income tax in the
amount of $(44,357) during the six months ended December 31, 1998.
9
<PAGE> 10
Actual income tax expense (benefit) applicable to earnings (loss)
before income taxes is reconciled with the "normally expected" federal
income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
"Normally expected" income tax (benefit) $ (8,956) $(25,898)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax effect 6,567 (7,170)
Adjust state net operating loss carryforward 10,656 --
Nondeductible meals and entertainment 759 --
Change in valuation allowance 9,371 (11,289)
-------- --------
Actual income tax expense (benefit) $ 18,397 $(44,357)
======== ========
</TABLE>
The deferred income tax assets and liabilities at December 31, 1999 are
comprised of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
----------- -----------
<S> <C> <C>
Allowance for uncollectible accounts receivable $ 5,576 --
Allowance for unrealized loss (gain) on marketable
securities (5,117) --
Capital loss carryforwards 5,117 139,753
Net operating loss carryforwards 44,761 4,159,369
----------- -----------
50,337 4,299,122
Less valuation allowance -- (4,299,122)
----------- -----------
Deferred income tax asset 50,337 --
Deferred income tax liability - asset basis -- (33,166)
----------- -----------
Net deferred income tax assets (liabilities) $ 50,337 (33,166)
=========== ===========
</TABLE>
E. RIGHTS TO PURCHASE STOCK
As of December 31, 1999, there were Class A warrants issued which allow
the purchase of 1,624,172 shares of the common stock of the Company at
$1.00 per share, 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
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. The warrants all
expire on June 7, 2000.
Upon the exercise of a Class B warrant, a Class C warrant will be
issued allowing the purchase of a like number of shares at $1.75 per
share. There were no warrants exercised during the six months ended
December 31, 1999.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
On March 23, 1995, Reconversion Technologies, Inc., 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 December 31, 1999, the Company had working capital in the amount
of $187,407, as compared to a working capital deficit at June 30, 1999
in the amount of $240,868. The Company issued the remaining shares due
pursuant to their bankruptcy plan, which retired the balance of the
obligations to be paid in common stock, in the amount of $250,535 and
issued common stock valued at $200,000 as consideration for a prepaid
one-year financial consulting contract. The contract will expire on
December 31, 2000. These items account for the main working capital
improvement. 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. The Company installed new gas chromatography/mass
spectrometry equipment, which will be used in the test confirmation
process during October 1999. The equipment cost of $72,894 was seller
financed over four years.
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 decreased $99,479 (10%) during the six months ended
December 31, 1999 as compared to the same six-month period ended
December 31, 1998. During the six month period ended December 31, 1999,
the Company recognized a gross profit margin of 70% as compared to 75%
during the same year earlier period.
The Company's decreased revenue is primarily the result of the
Company's customers experiencing less employment turnover. A large
portion of the Company's revenue is based upon initial test procedures
performed for new employees of its customers. 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
decreased $83,473 (11%) during the six months ended December 31, 1999
as compared to the same year earlier period. Approximately $66,000 of
this decrease is from a reduction in the legal, accounting and other
professional service costs associated with completion of the bankruptcy
plan. The remaining decrease is a result of lower administrative costs
at the lab. Selling, general and administrative expenses were 76% of
revenues during the six-month period ended December 31, 1999 during the
same year earlier period.
Other expense includes interest expense incurred during the six months
ended December 31, 1999 in the amount of $11,473 as compared to $15,223
in the same year earlier period.
Other income includes $17,548 from amortization of the balance of the
deferred gain realized in the sale-leaseback transaction during the six
months ended December 31, 1998. The sale-leaseback transaction was
entered into during the quarter ended December 31, 1997.
During the six months ended December 31, 1999, the Company recognized
an unrealized gain from their marketable equity securities in the
amount of $30,911. During the same year earlier period, the Company
recognized a gain in the amount of $12,778. During the six months ended
December 31, 1999, the Company recognized a gain of $2,002 from the
sale of marketable securities.
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 10, 2000 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 DECEMBER 31, 1999 AND FOR THE SIX MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FORM 10-QSB FOR THE
SIX MONTHS ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 106,405
<SECURITIES> 74,936
<RECEIVABLES> 60,491
<ALLOWANCES> 13,389
<INVENTORY> 0
<CURRENT-ASSETS> 505,488
<PP&E> 410,945
<DEPRECIATION> 168,517
<TOTAL-ASSETS> 929,138
<CURRENT-LIABILITIES> 318,081
<BONDS> 0
0
0
<COMMON> 10,607,053
<OTHER-SE> 483,520
<TOTAL-LIABILITY-AND-EQUITY> 929,138
<SALES> 883,623
<TOTAL-REVENUES> 883,623
<CGS> 263,858
<TOTAL-COSTS> 263,858
<OTHER-EXPENSES> 667,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,473
<INCOME-PRETAX> (26,342)
<INCOME-TAX> 18,397
<INCOME-CONTINUING> (44,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,739)
<EPS-BASIC> (0.004)
<EPS-DILUTED> (0.004)
</TABLE>
