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: MARCH 31, 1998
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 March 31,
1998 39,807,169
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 March 31, 1998 and December 31, 1997 1
Consolidated Statement of Operations:
for the Three (3) Months ended March 31, 1998 & 1997 3
Consolidated Statement of Cash Flows for the Three (3) Months
ended March 31, 1998 & 1997 4
Notes to consolidated financial statements 5
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 8
Item 3 -- Defaults on Senior Securities 8
Item 4 - Submissions of Matters to a Vote of Security Holders 8
Item 6 - Exhibits and Reports on Form 8-K 8
Item 27 - Financial Data Schedule 8
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<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
March 31, 1998 and December 31, 1997
March 31 Dec 31
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash & equivalents $ 20,399 $ 43,247
Accounts Receivable - -
Inventories
18,371 18,372
----------------------------------
Total current assets 38,770 61,619
----------------------------------
Property & equipment:
Leasehold improvements 537,601 537,601
Equipment and Construction in-progress 2,435,654 2,435,654
Furniture & Fixtures 33,845 33,845
----------------------------------
Total property and equipment 3,007,100 3,007,100
Less accumulated depreciation, depletion
and amortization - -
----------------------------------
Net property & equipment 3,007,100 3,007,100
----------------------------------
Other assets:
Concessions, rights, patents, goodwill 12,906,606 12,906,606
Organization costs 4,494,603 4,198,149
Other assets 14,400 14,400
----------------------------------
Total other assets 17,415,609 17,119,155
----------------------------------
TOTAL ASSETS $ 20,461,479 $ 20,187,874
==================================
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<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
March 31 Dec 31
1998 1997
(Unaudited)
<S> <C> <C>
LIABILITIES:
Current liabilities:
Current maturities of long-term indebtedness $ 1,835,000 $ 1,635,000
[Legal Settlement]
Notes payable 39,184 39,184
Accounts payable 2,440,280 2,328,330
Convertible loans 3,481,200 3,285,794
----------------------------------
Total current liabilities 7,795,664 7,288,308
----------------------------------
Long-term liabilities:
DOE Grant 505,000 505,000
Legal settlement (See Part II, Item 1(b)) 1,650,000 1,650,000
Capital lease 6,975 6,975
----------------------------------
Total long-term liabilities 2,161,975 2,161,975
----------------------------------
STOCKHOLDERS' EQUITY:
"Series B" Preferred stock, $10 par value
2,500,000 shares authorized, 21,375
shares outstanding
44,373 44,373
Common stock, par value of $.001;
100,000,000 shares authorized; 39,807,169 and
38,390,501 issued and outstanding at March 31 1998 39,807 38,390
and December 31, 1997, respectively
Additional paid-in capital 65,105,113 65,031,531
Retained deficit (54,685,453) (54,376,703)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 10,503,840 10,737,591
----------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 20,461,479 $ 20,187,874
==================================
See accompanying notes which are an integral part of these statements
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<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Three (3) Months ended March 31, 1998 & 1997
March 31 March 31
1998 1997
(Unaudited)
<S> <C> <C>
Sales (See Part I, Item 2, "Statement of Operations") $ $
- -
Cost of sales - -
----------------------------------
Gross profit - -
----------------------------------
Operating expenses:
Selling, general & administrative 108,750 313,260
----------------------------------
Total operating expenses 108,750 313,260
----------------------------------
Loss from operations (108,750) (313,260)
----------------------------------
Non operating income (expense):
Interest expense (200,000) (12,939)
----------------------------------
Total non operating expense (200,000) (12,939)
----------------------------------
Net loss $ (308,750) $ (326,199)
==================================
Weighted average number of
Common shares outstanding 38,862,333 23,249,603
(Loss) per share $ (0.0079) $ (0.0140)
See accompanying notes which are an integral part of these statements
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<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statements of Cash Flows
for the
Three (3) Months ended March 31, 1998 & 1997
March 31 March 31
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows provided by (used for)
operations:
Net loss $ (308,750) $ (326,199)
Net changes in current assets and liabilities
excluding long-term indebtedness 107,537 (2,921)
-----------------------------------
Net cash provided by (used for)
operating activities 198,787 (329,120)
-----------------------------------
Cash flows provided by (used for)
investment activities:
Increase in Plant & equipment and
additions to Organization costs (296,454) (804,556)
Decrease in Other assets - 30,500
-----------------------------------
Net cash used by investing activities (296,454) (774,056)
-----------------------------------
Cash flows provided by (used for)
financing activities:
Increase (decrease) in long term debt
Issued common stock - (1,104)
1,417 4,928
Received from additional paid-in capital 73,582 1,095,109
-----------------------------------
Net cash provided by financing activities 74,999 1,098,933
-----------------------------------
Increase (decrease) in cash (22,848) (4,243)
Cash & equivalents at beginning of year 43,247 6,778
-----------------------------------
Cash & equivalents at March 31, 19987 & 1997 $ 20,399 $ 2,535
===================================
See accompanying notes which are an integral part of these statements
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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 during the first
quarter of 1998.
(e) Depreciation and Amortization
Metal Recovery Industries (US), Inc. is in the developmental stage and therefore
neither depreciation nor amortization was taken in the accounting periods shown
in this report.
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(f) Convertible Loans
Continued operations have, and will (see "Liquidity" below), require loans from
various entities. During 1996, 1997 and 1998 MRTI issued convertible debt in
exchange for funds used to administer and construct its operations. As of March
31, 1998, this indebtedness was $3,016,344, plus accrued interest of $464,856,
for a total amount payable of $3,481,200. These loans 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
There was no increase in property and equipment and other assets at March 31,
1998, compared to December 31, 1997. (See "Liquidity" below).
Liquidity
At December 31, 1997, and March 31, 1998 the Company had unused convertible loan
facilities of $950,000 and $755,000 respectively. 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 $75,000, were converted into
1,416,668 shares of the Company's common stock.
During 1997, Leon Lohman was appointed Vice President of engineering and
production and he determined along with the assistance of SSOE (a leading A & E
partnership) that the technology was proven but the East Chicago plant was under
engineered.
Following the results of an internal production review the company determined
that an additional investment of circa $2,000,000 would be necessary to achieve
an annual production target of 110,000 tons of scrap. 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 created operational difficulties. Accordingly, the company
curtailed its operations with the intention of making major operational and
processing additions and improvements to its plant operating equipment. These
improvements will last approximately four to five months once they are
commenced.
The disappointments concerning production created significant financial
problems. Existing lenders were reluctant to commit substantial further funds
and it was difficult to find new sources of finance. However in March 1998, the
company entered into a conditional agreement with Zinc Investments Inc to
provide in stages the sum of $3,000,000 to finance the engineering upgrade at
East Chicago. This agreement became unconditional in April 1998 and the
engineering upgrade is expected to commence at the beginning of June 1998.
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Statements of Operations
Three Months Ended March 31,1998 vs.
Three Months Ended March 31,1997
There was no change in "Revenues" compared to the same period a year ago. The
company had sales/revenues of $108,945 during the first quarter 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 decrease in the 1998 quarters "operating expenses" compared to the 1997
quarter is mainly due to the reduction in litigation expenses, and a reduction
in general overheads. The 1998 quarters "non operating" expense of $200,000
relates to an increase in the settlement of the Class Action Lawsuit. (See Part
11 other information) The Company has adopted the policy of capitalizing all
costs associated with the development of its East Chicago facility until the
plant reaches full production levels. These costs include the development,
marketing, installing and testing of equipment and administrative activities.
Owing to delays and problems with production, the Company has continued, for
1998, its policy of capitalizing costs associated with the commissioning of the
plant in East Chicago, Indiana. For the quarter ended March 31,1998, the costs
associated with capitalized equipment and organization costs amounted to
$296,454 compared to a figure of $804,556 for the same period during 1997.
The Company reported a net loss for the three months of $0.0079 per weighted
average number of shares outstanding compared to a loss of $0.0140 per weighted
average number of shares outstanding for the same period the previous year.
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<PAGE>
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-K for the period ended December 1997, and are hereby
incorporated by reference. However, the Company has not made the initial payment
negotiated in the agreement and is currently renegotiating the terms and
conditions originally agreed upon. It is likely that the final settlement will
now be for $3.45m payable as follows:
An initial payment of $25,000
A further payment of $175,000 one month after making the initial payment.
Four annual installments of $550,000 commencing one year from the effective
date.
With the exception of the first $200,000 payment, the Company has the option in
its sole discretion to satisfy all or any portion of its payment obligations in
the form of cash, shares of unrestricted stock of the Company or any combination
thereof.
The Company has reflected the provision of the current negotiations in the
financial statements presented herein.
(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 3 - Defaults upon Senior Securities
As of March 1998, 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.
Item 27 - Financial Data Schedule
-8-
<PAGE>
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: _______May 13, 1998_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _______May 13, 1998_________
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF METAL RECOVERY TECHNOLOGIES INC. FOR ITS
FISCAL FIRST QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796117
<NAME> Metal Recovery Technologies, Inc.
<MULTIPLIER> 1000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<SECURITIES> 0
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