FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1935
FOR THE TRANSITION PERIOD FROM N/A to N/A
----------------------
Commission File No.: 0-15543
METAL RECOVERY TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
415 East 151st Street, East Chicago, Indiana 46312
Telephone: (219) 397-6261
A Delaware Corporation Employer Identification No.: 71-0628061
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1939
during the proceeding 12 months (or for such shorter period that the Registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days:
Yes (X) No ( )
Number of shares outstanding of the Registrant's Common Stock as of September
30, 1997: 32,171,665
The Securities and Exchange commission has not approved or disapproved the Form
10-Q, or passed on the accuracy or adequacy or of this report.
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TABLE OF CONTENTS
PAGE
PART I - Financial Data
Item 1 -- Financial Statements:
Consolidated Balance Sheets
as of September 30, 1997 and December 31,1996 1
Consolidated Statement of Operations:
for the Three (3) Months ended September 30, 1997 & 1996 3
Consolidated Statement of Operations:
for the Nine (9) Months ended September 30, 1997 & 1996 4
Consolidated Statement of Cash Flows for the Nine(9) Months
ended September 30, 1997 & 1996 5
Notes to consolidated financial statements 6
Item 2 - Management's discussion and analysis of
financial condition and results of operations. 7
PART II - Other Information
Item 1 - Legal Proceedings 8
Item 2 - Changes in Securities 9
Item 3 -- Defaults on Senior Securities 9
Item 4 - Submissions of Matters to a Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 9
Item 27 - Financial Data Schedule 11
<PAGE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
September 30, 1997 and December 31, 1996
Sep 30 Dec 31
1997 1996
(Unaudited)
ASSETS:
Current Assets:
Cash & equivalents ................... $ 11,551 $ 6,778
Accounts Receivable .................. -- --
Inventories .......................... 18,372 65,370
Other current assets ................. -- 97,355
----------- -----------
Total current assets ........... 29,923 169,503
----------- -----------
Property & equipment:
Leasehold improvements ............... 348,255 348,255
Equipment and Construction in-progress 2,245,395 2,178,823
Vehicles ............................. 8,136 31,062
Furniture & Fixtures ................. 33,845 33,845
----------- -----------
Total property and equipment ............... 2,635,631 2,591,985
Less accumulated depreciation, depletion
and amortization ............... -- --
----------- -----------
Net property & equipment ....... 2,635,631 2,591,985
----------- -----------
Other assets:
Concessions, rights, patents, goodwill 12,905,749 12,905,749
Organization costs ................... 4,395,791 2,112,367
Other assets ......................... 14,400 53,400
----------- -----------
Total other assets ............. 17,315,940 15,071,516
----------- -----------
TOTAL ASSETS .................. $19,981,494 $17,833,004
----------- -----------
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<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
Sep 30 Dec 31
1997 1996
(Unaudited)
LIABILITIES:
<S> <C> <C>
Current liabilities:
Current maturities of long-term indebtedness . $ 1,050,000 $ 4,580
[Legal Settlement]
Notes payable ................................ 37,943 49,894
Accounts payable ............................. 3,097,249 1,503,991
Due to former officer & director ............. -- 55,098
Convertible loans ............................ 3,213,532 3,288,010
------------ ------------
Total current liabilities .............. 7,398,724 4,901,573
------------ ------------
Long-term liabilities:
DOE Grant .................................... 505,000 505,000
Legal settlement (See Part II, Item 1(b)) .... 2,200,000 --
Capital lease ................................ -- 4,182
------------ ------------
Total long-term liabilities ............ 2,705,000 509,182
------------ ------------
TOTAL LIABILITIES ...................... 10,103,724 5,410,755
------------ ------------
STOCKHOLDERS' EQUITY:
"Series A" Preferred stock, $10 par value
100,000 shares authorized 46,965
shares outstanding at December 31, 1996 -- 469,650
"Series B" Preferred stock, $10 par value
2,500,000 shares authorized, 21,375
shares outstanding ..................... 44,373 44,373
Commonstock, par value of $.001;
100,000shares authorized; 32,171,665
and 20,707,597 issued and
outstanding at September 30, ........... 32,172 20,707
1997 and December 31, 1996, respectively
Additional paid-in capital ................... 64,371,599 62,355,161
Retained deficit ............................. (54,570,374) (50,467,642)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................... 9,877,770 12,422,249
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ..... $ 19,981,494 $ 17,833,004
============ ============
===========
</TABLE>
See accompanying notes which are an integral part of these statements
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<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Three (3) Months ended September 30, 1997 & 1996
Sep 30 Sep 30
1997 1996
(Unaudited)
<S> <C> <C>
Sales (See Part I, Item 2, "Statement of Operations") $ -- $ --
Cost of sales -- --
------------ ------------
Gross profit .................................. -- --
------------ ------------
Operating expenses:
Selling, general & administrative ............. 207,904 70,421
------------ ------------
Total operating expenses ................ 207,904 70,421
------------ ------------
Loss from operations .................... (207,904) (70,421)
------------ ------------
Non operating income (expense):
Interest expense .............................. -- (20,350)
------------ ------------
Total non operating expense ............. -- (20,350)
------------ ------------
Net loss ................................ $ (207,904) $ (90,771)
============ ============
Weighted average number of
Common shares outstanding ..................... 29,764,050 14,758,319
(Loss) per share .............................. $ (0.0069) $ (0.0061)
</TABLE>
See accompanying notes which are an integral part of these statements
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<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Nine (9) Months ended September 30, 1997 & 1996
Sep 30 Sep 30
1997 1996
(Unaudited)
<S> <C> <C>
Sales (See Part I, Item 2,"Statement of Operations") $ -- $ --
Cost of sales ...................................... -- --
----------- -----------
Gross profit ................................. -- --
----------- -----------
Operating expenses:
Selling, general & administrative ............ 826,351 222,218
----------- -----------
Total operating expenses ............... 826,351 222,218
----------- -----------
Loss from operations ................... (826,351) (222,218)
----------- -----------
Non operating income (expense):
Legal settlement (see Part II, Item 1) ....... (3,250,000) --
Interest expense ............................. (26,381) (47,850)
----------- -----------
Total non operating expense ............ (3,276,381) (47,850)
----------- -----------
Net loss ............................... $(4,102,732) $ (270,068)
=========== ===========
Weighted average number of
Common shares outstanding 26,527,177 14,410,875
(Loss) per share $ (0.1547) $ (0.0187)
</TABLE>
See accompanying notes which are an integral part of these statements
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<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statements of Cash Flows
for the
Nine (9) Months ended September 30, 1997 & 1996
Sep 30 Sep 30
1997 1996
(Unaudited)
<S> <C> <C>
Cash flows provided by (used for)
operations:
Net loss ............................................ $(4,102,732) $ (270,068)
Net changes in current assets and liabilities
excluding long-term indebtedness .............. 1,596,084 995,946
----------- -----------
Net cash provided by (used for)
operating activities ....................... (2,506,648) 725,878
----------- -----------
Cash flows provided by (used for)
investment activities:
Increase in Plant & equipment and
additions to Organization costs ............... (2,327,070) (1,971,839)
Decrease in Other assets ............................ 39,000 --
----------- -----------
Net cash used by investing activities ......... (2,288,070) (1,971,839)
----------- -----------
Cash flows provided by (used for)
financing activities:
Increase in long term debt .......................... 3,241,238 --
Issued common stock ................................. 11,465 3,899
Redemption of "Series A" preferred shares ........... (469,650) --
Received from additional paid-in capital ............ 2,016,438 1,245,170
----------- -----------
Net cash provided by financing activities ..... 4,799,491 1,249,069
----------- -----------
Increase (decrease) in cash ................... 4,773 3,108
Cash & equivalents at beginning of year ....... 6,778 200,855
----------- -----------
Cash & equivalents at September 30, 1997 & 1996 $ 11,551 $ 203,963
=========== ===========
</TABLE>
See accompanying notes which are an integral part of these statements
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<PAGE>
METAL RECOVERY TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
Metal Recovery Technologies, Inc., ("MRTI") presents all financial statements in
United States dollars and under generally accepted accounting principles as
practiced in the United States.
Metal Recovery Technologies, Inc. (formerly Malvy Technology, Inc. - the
Company), was from 1993 to the latter part of 1995 primarily engaged in the
development and testing of the Malvy anti-theft device and the marketing of the
Malvy device concept to the public and automotive manufacturers. This division,
however, went into receivership in October, 1995. Prior thereto, the Company was
engaged primarily in the business of mining and developing precious metals in
Alaska, the production of oil and gas in Oklahoma and New Mexico and the
transmission of gas through a pipeline operating in Oklahoma. These operations
were disposed of during 1995.
On April 27, 1995, the Company completed the acquisition of all of the capital
of Metal Recovery Industries (International), Inc. and its wholly owned
subsidiary, Metal Recovery Industries (US), Inc. (hereafter referred to as
"MRI(US)"), a US corporation engaged in the recovery of zinc from galvanized
steel. To reflect the importance of the acquisition of this business, the
company's name was changed from Malvy Technology, Inc. to Metal Recovery
Technologies, Inc. Dr. William Morgan, the inventor of the process, joined the
Board of Directors on May 10, 1995.
(b) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, the
consolidated financial statements do not include all the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In management's opinion, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of results to be expected for the full year. While the Company
believes that the disclosures presented are adequate to make the information not
misleading, it is suggested that these consolidated financial statements be read
in conjunction with the latest audited financial statements and notes included
in the Company's Form 10-K.
(c) INVENTORIES
Inventories consist of scrap steel, zinc bearing solutions and other chemicals
at the company's plant in East Chicago, Indiana.
(d) ORGANIZATION COSTS
The company has elected to continue its practice of capitalizing all of its
expenses associated with the raising of capital, obtaining financing, locating
and acquiring equipment, obtaining customers and suppliers, installing and
testing equipment, and certain other administrative activities through the third
quarter of 1997.
(e) DEPRECIATION AND AMORTIZATION
Metal Recovery Industries (US), Inc. is in the
developmental stage and therefore no depreciation nor amortization was taken in
the accounting periods shown in this report.
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<PAGE>
(f) CONVERTIBLE LOANS
Continued operations have, and will (see "Liquidity" below), require loans from
various entities. During 1995, 1996 and 1997 MRTI issued convertible debt in
exchange for funds used to administer and construct its operations. As of
September 30, 1997, this indebtedness was $2,851,360, plus accrued interest of
$362,172, for a total amount payable of $3,213,532. These loans are exercisable
at various rates and at various times, and contain anti-dilution provisions, and
are secured, pro rata, by liens on the shares of MRI(US), as well as its assets.
PART I - Financial Information
ITEM 2
Management's Discussion and Analysis of
Consolidated Financial Condition and Statement of Operations
FINANCIAL CONDITION
The increase in property and equipment and other assets at September 30, 1997,
compared to December 31, 1996 is due to additional cash expended in the
development of the Company's facility in East Chicago.
LIQUIDITY
At June 30, 1997, the Company had unused convertible loan facilities of $1.1
million, however, there have been ongoing negotiations with lenders over
conversion terms owing to the weakness in the Company's share price which has
meant delays in receiving funds. The Company believes it can resolve these
difficulties and is working diligently to do so. Without additional funding, the
Company will not have sufficient working capital available to allow the Company
to reach full production and to pay off trade creditors.
During the current reporting period, loans totaling $275,000, plus commissions,
were converted into 3,305,727 shares of the Company's common stock.
During the current reporting period, the Company entered into an agreement with
Olympic Continental Resources, LLC (OCR). OCR is a joint venture between Olympic
Steel, Inc. (NASDAQ:ZEUS), Atlas, Inc., and Uwe Schmidt (OCR's president). This
five year exclusive purchase/buying agreement will provide up to $3,000,000 in
credit towards the future purchase of scrap. In addition OCR will provide a
comprehensive range of support and services. The Company is also negotiating
with OCR regarding the Company's current financing needs for the East Chicago
and other facilities. The details of the OCR agreement are shown in the
Company's Form 8-K filing dated September 17, 1997 which is incorporated by
reference herein.
Subsequent to this reporting period, but prior to the filing of this document,
4,454,168 shares of common stock were issued as a conversion of $495,200 of debt
to equity.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS.
NINE MONTHS ENDED SEPTEMBER 30, 1996
There was no change in "Revenues" compared to the same period a year ago. The
company had sales/revenues of $352,585 during the first three quarters of 1997,
but because of the election to capitalize all organization costs during the
development stage of the Company, these revenues were offset against the costs
capitalized.
The increase in year to date "operating expenses" is mainly due to litigation
expenses, the non-capitalized expenditures of the officers, and the costs
associated with public relation activities. The Company has adopted the policy
of capitalizing all costs associated with the development of its East Chicago
facility until the plant
-7-
<PAGE>
reached full production levels. These costs include the development, marketing,
installing and testing of equipment and administrative activities. Because the
officers are involved in matters other than those costs applicable to be
capitalized, an increase in the operating expenses has occurred. Owing to delays
and problems with production, the Company has continued, for all of 1997, its
policy of capitalizing costs associated with the commissioning of the plant in
East Chicago, Indiana. For the quarters ended March 31, June 30, and September
30, 1997 the costs associated with capitalized equipment and organization costs
amounted to $804,556, $808,238, and $714,276, respectively. Management will
continually review this policy but has set a target for the first quarter of
1998 to discontinue this policy when the plant is processing steel scrap on an
operational basis.
The Company reported a net loss for the nine months of $0.1547 per weighted
average number of shares outstanding compared to a loss of $0.0187 per weighted
average number of shares outstanding for the same period the previous year.
Besides the increased operating expenses from the previous year, the Company
settled a lawsuit in the amount of $3,250,000 which is reflected in the nine
month Income Statement. Details concerning this lawsuit are found in Part II,
Item 1. The loss per share excluding the lawsuit settlement would have been
$0.0321 per share.
During the prior reporting period, the Company announced that the results of an
internal production review showed that an additional investment of $2,000,000
would be necessary to achieve a monthly production target of 9,000 tons of
scrap, and that the East Chicago, Indiana facility can become profitable as soon
as production reaches 45% of capacity. The ability to produce high quality black
scrap and marketable zinc products has been demonstrated by the existing
facility but the need to optimize the current facility while continuing to
produce creates operational difficulties. Accordingly, the Company has scaled
back its operations with the intention of making some major operational and
processing additions and improvements to its plant operating equipment. These
improvements will last approximately four to five additional months, once they
are commenced. During this retrofit and capacity expansion the plant will have
little to no operating activity while major equipment installation or renovation
occurs. The lack of liquidity has hindered the progress of these improvements
and caused continued delays in progressing as planned.
PART II - Other Information
ITEM 1 - LEGAL PROCEEDINGS
(a) LEVINE/CLASS ACTION
On November 6, 1995, an action entitled Levine vs. Metal Recovery Technologies,
Inc., was filed in the United States District Court of Delaware by a shareholder
against the Company and certain present and former directors, alleging breaches
of the federal securities laws, by reason of alleged material misrepresentations
by the Company and the Company's alleged failure to make timely disclosure
relating to its Malvy operations. In November, 1996, the Court certified the
proposed class. On October 31, 1996, a second action was commenced by the same
plaintiff against the same defendants and others, including a number of
brokerage firms and their representatives, alleging a conspiracy to inflate
prices at which the shares of the Company's common stock traded during the
period specified therein. The Company has vigorously denied the allegations.
Without admitting liability, the Company has reluctantly agreed to settle these
actions. This decision was taken to avoid mounting legal costs, to free
management from the burdensome time involved in dealing with this matter, and to
achieve certainty as to the outcome of the proceedings. The uncertainty of these
proceedings has been negatively affecting or delaying potential business
transactions, including new financing arrangements by the Company and its
subsidiary, Metal Recovery Industries (US), Inc.
The agreed settlement, which was finalized during the prior reporting period,
was for $3.25 million. The payment terms were over a four year period as
detailed in the Form 10-Q for the period ended March 31, 1997, and are hereby
incorporated by reference. The Company has reflected the provisions of these
agreements in the financial statements presented herein.
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<PAGE>
The Company has not made the initial payment negotiated in the agreement and is
currently renegotiating the terms and conditions originally agreed upon.
(b) OTHER LITIGATION
The Company is involved in other matters of litigation related to outstanding
balances with creditors and in the normal course of business. Management
believes that none of these matters, upon their ultimate resolution, will
involve amounts material to the Company's statements.
ITEM 2 - CHANGES IN SECURITIES
During the prior reporting period, the Company redeemed all of its outstanding
"A Series" preferred stock. The holders of the "A Series" preferred stock had
the right to elect the Board of Directors. The redemption of this class of stock
improved the rights of the holders of the remaining classes of registered
securities.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As of September 30, 1997, the Company was not involved in any material default
in the payment of principal or interest with respect to any senior indebtedness.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
covered by this report.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K During the current reporting period
the Company filed two reports on Form 8-K, which are hereby incorporated by
reference. (Note: a third 8-K submission was made in error on July 3, 1997 -
this transaction was re-filed October 14, 1997)
ITEM 27 - FINANCIAL DATA SCHEDULE
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.
Metal Recovery Technologies, Inc.
\s\ Michael S. Lucas
By: ________________________________
Michael S. Lucas, Chairman and CEO
Date: _______October XX, 1997_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _______October XX, 1997_________
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF METAL RECOVERY TECHNOLOGIES, INC. FOR ITS
FISCAL THIRD QUARTER ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18
<CURRENT-ASSETS> 30
<PP&E> 2,636
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,981
<CURRENT-LIABILITIES> 7,399
<BONDS> 0
0
44
<COMMON> 32
<OTHER-SE> 64,372
<TOTAL-LIABILITY-AND-EQUITY> 19,981
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 826
<OTHER-EXPENSES> 3,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (4,103)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,103)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,103)
<EPS-PRIMARY> (0.16)
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<FN>
<F1> ANTI-DILUTIVE
</FN>
</TABLE>
