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: JUNE 30, 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 June 30,
1998 73,572,844
The Securities and Exchange commission has not approved or disapproved the Form
10-Q, or passed on the accuracy or adequacy of this report.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - Financial Data
Item 1 -- Financial Statements:
Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997 1
Consolidated Statement of Operations:
for the Three (3) Months ended June 30, 1998 & 1997 3
Consolidated Statement of Cash Flows for the Six (6) Months
ended June 30, 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 9
Item 3 -- Defaults on Senior Securities 10
Item 4 - Submissions of Matters to a Vote of Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 10
Item 27 - Financial Data Schedule 10
<PAGE>
<TABLE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
June 30, 1998 and December 31, 1997
<CAPTION>
June 30 Dec 31
1998 1997
(Unaudited)
ASSETS:
Current Assets:
<S> <C> <C>
Cash & equivalents $ 65,319 $ 43,247
Accounts Receivable - -
Inventories 18,372 18,372
----------------------------------
Total current assets 83,691 61,619
----------------------------------
Property & equipment:
Leasehold improvements 537,601 537,601
Equipment and Construction in-progress 2,488,687 2,435,654
Furniture & Fixtures 33,845 33,845
----------------------------------
Total property and equipment 3,060,133 3,007,100
Less accumulated depreciation, depletion
and amortization - -
----------------------------------
Net property & equipment 3,060,133 3,007,100
----------------------------------
Other assets:
Concessions, rights, patents, goodwill 12,906,606 12,906,606
Organization costs 4,740,555 4,198,149
Other assets 14,400 14,400
----------------------------------
Total other assets 17,661,561 17,119,155
----------------------------------
TOTAL ASSETS $ 20,805,385 $ 20,187,874
==================================
</TABLE>
-1-
<PAGE>
<TABLE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
<CAPTION>
June 30 Dec 31
1998 1997
(Unaudited)
LIABILITIES:
Current liabilities:
<S> <C> <C>
Current maturities of long-term indebtedness $ 205,000 $
[Legal Settlement] 1,635,000
Notes payable 41,241 39,184
Accounts payable 2,405,904 2,328,330
Convertible loans 2,698,959 3,285,794
----------------------------------
Total current liabilities 5,351,104 7,288,308
----------------------------------
Long-term liabilities:
DOE Grant 505,000 505,000
Legal settlement (See Part II, Item 1(b)) 2,200,000 1,650,000
Capital lease 6,975 6,975
----------------------------------
Total long-term liabilities 2,711,975 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; 73,572,844 and
38,390,501 issued and outstanding at June 30, 1998 73,572 38,390
and December 31, 1997, respectively
Additional paid-in capital 67,457,288 65,031,531
Retained deficit (54,832,927) (54,376,703)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 12,742,306 10,737,591
----------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 20,805,385 $ 20,187,874
==================================
See accompanying notes which are an integral part of these statements
</TABLE>
-2-
<PAGE>
<TABLE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Three (3) Months ended June 30, 1998 & 1997
<CAPTION>
June 30 June 30
1998 1997
(Unaudited)
<S> <C> <C> <C>
Sales (See Part I, Item 2, "Statement of Operations") $ - $ -
Cost of sales - -
----------------------------------
Gross profit - -
----------------------------------
Operating expenses:
Selling, general & administrative 147,474 305,188
Total operating expenses 147,474 305,188
Loss from operations (147,474) (305,188)
Non operating income (expense):
----------------------------------
Legal Settlement - (3,250,000)
----------------------------------
Interest expense - (13,442)
----------------------------------
Total non operating expense - (3,263,442)
----------------------------------
Net loss $ (147,474) $ (3,568,630
==================================
Weighted average number of
Common shares outstanding 54,046,666 26,567,879
(Loss) per share $ (0.0027) $ (0.1343)
See accompanying notes which are an integral part of these statements
</TABLE>
-3-
<PAGE>
<TABLE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statements of Cash Flows
for the
Six (6) Months ended June 30, 1998 & 1997
<CAPTION>
June 30 June 30
1998 1997
(Unaudited)
Cash flows provided by (used for)
operations:
<S> <C> <C>
Net loss $ (456,224) $ (3,894,829)
Net changes in current assets and liabilities
excluding long-term indebtedness 77,574 1,142,591
-----------------------------------
Net cash provided by (used for)
operating activities (378,650) (2,752,238
-----------------------------------
Cash flows provided by (used for)
investment activities:
Increase in Plant & equipment and
additions to Organization costs (53,033) (74,162)
Additions to Organizational costs (542,406) (1,538,632)
-----------------------------------
Decrease in Other assets - 27,278
-----------------------------------
Net cash used by investing activities (595,439) (1,585,516)
-----------------------------------
Cash flows provided by (used for)
financing activities:
Increase (decrease) in long term debt (880,000) 3,247,766
Increase (decrease) in convertible debt (586,835) (179,665)
Increase (decrease) in notes payable 2,057 (12,922)
Redemption of "Series A" Preferred Stock - (469,650)
Issued common stock 35,182 8,158
Received from additional paid-in capital 2,425,757 1,742,997
-----------------------------------
Net cash provided by financing activities 996,161 4,336,684
-----------------------------------
Increase (decrease) in cash 22,072 (1,070)
Cash & equivalents at beginning of year 43,247 6,778
-----------------------------------
Cash & equivalents at June 30, 1998 & 1997 $ 65,319 $ 5,708
===================================
See accompanying notes which are an integral part of these statements
</TABLE>
-4-
<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 during the first
half of 1998. All labor costs associated with administration, construction at
East Chicago and technical development are also included.
(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.
-5-
<PAGE>
(f) Convertible Loans
- --- -----------------
Continued operations have, and will (see "Liquidity" below), require loans from
various entities who hold security under a collateral agreement with Plenbrick
Ltd. During 1996, 1997 and 1998 MRTI issued convertible debt in exchange for
funds used to administer and construct its operations. As of June 30, 1998, this
indebtedness was $2,698,959. These loans contain anti-dilution provisions, and
are secured, pro rata, by liens on the shares of MRI(US), as well as its assets.
On April 22nd 1998 MRTI entered into a contract with Zinc Investments Inc of
Geneva Switzerland to provide in stages the sum of $3,000,000 to finance an
engineering upgrade of the company's plant at East Chicago.
In order to facilitate the investment the assets of MRI(US) were transferred
with the approval of Plenbrick Ltd (MRTI's chief collateral lender) to Zinc
Recovery (East Chicago) Inc, a newly formed wholly owned subsidiary of MRTI.
This enabled Zinc Investments Inc to also take security over the assets of the
corporation at its facility in East Chicago.
The signing of the agreement with Zinc Investments Inc encouraged members of the
Plenbrick syndicate to make further loans of $111,000 during the reporting
quarter. However, the weak share price is currently causing concern and may
result in terms being renegotiated. (See below)
-6-
<PAGE>
PART I - Financial Information
ITEM 2
Management's Discussion and Analysis of
Consolidated Financial Condition and Statement of Operations
Financial Condition
-------------------
There was an increase in property and equipment and other assets at June 30,
1998,of $53,033 compared to December 31, 1997. (See "Liquidity" below).
Liquidity
---------
At December 31, 1997, and June 30, 1998 the Company had unused convertible loan
facilities of $950,000 and $644,000 respectively. However the company's weak
share price has meant that members of the Plenbrick Ltd syndicate have been
resistant to making further loans without changing their conversion terms. Their
attitude is also affected by the fact that under new securities regulations the
loans cannot be converted into shares of MRTI for 1 year and thereafter can only
be sold in accordance with rule 144 (17CFR230.144) of the Securities and
Exchange Commission. 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.
On April 22nd 1998 MRTI entered into a contract with Zinc Investments Inc of
Geneva, Switzerland to provide in stages the sum of $3,000,000 to finance an
engineering upgrade of the company's plant at East Chicago. The proposed loan of
$3,000,000 is secured on the company's assets at East Chicago as described in 1f
above. During the current reporting quarter the company had drawn down loans of
$392,000 from Zinc Investments Inc.
During the current reporting period, loans totaling $1,305,940 were converted
into 21,765,675 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 capital 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 commenced in April 1998 and are
proceeding satisfactorily with a target for completion and return to production
of October / November 1998. Completion of the improvements is entirely dependent
on the willingness of Plenbrick Ltd and Zinc Investments Inc to continue to make
loans.
-7-
<PAGE>
Statements of Operations
Three Months Ended June 30,1998 vs.
Three Months Ended June 30,1997
-------------------------------
There was no change in "Revenues" compared to the same period a year ago.
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 1997 quarters "non operating" expense of $3,263,442
relates to the settlement of the Class Action Lawsuit. (See Part 11 - other
information) of $3,250,000 and interest payable of $13,442. 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 June 30,1998, the costs associated with capitalized equipment and
organization costs amounted to $298,985 compared to a figure of $804,556 for the
same period during 1997.
The Company reported a net loss for the three months of $0.0027 per weighted
average number of shares outstanding compared to a loss of $0.1343 per weighted
average number of shares outstanding for the same period the previous year.
-8-
<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 financing arrangements which are essential for the
development of the company's facility at East Chicago.
The agreed settlement, which was finalized during 1997, 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 did not make the initial payment negotiated in the
agreement and renegotiated the terms and conditions originally agreed upon. It
is likely that the final settlement will be an amount of $3.45m payable as
follows:
An initial payment of $25,000
12 million shares of the company's common stock placed into escrow to satisfy
$1,050,000
A payment of $175,000 payable prior to the 8/31/98.
Four annual installments of $550,000 commencing one year from the effective
date.
During the current reporting period the company paid the initial $25,000 and
placed 12 million shares in escrow. The 12 million shares have been recorded in
the accounts at a price of 9c per share ($1,333,333) being the closing bid price
of the company's shares at the June 30 1998. This amount is subject to future
adjustment determined on the actual share price achieved when the shares are
eventually sold.
With the exception of the first $175,000 payable prior to August 31, 1998, 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 above 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.
A group of creditors owed approximately $300,000 has recently threatened to push
the company into bankruptcy unless a schedule of payments is agreed and adhered
to. An initial payment of $10,000 was made in August 1998 pending agreement of
the settlement terms.
-9-
<PAGE>
Item 3 - Defaults upon Senior Securities
- ----------------------------------------
As of June 30,1998, 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 three reports on Form 8-K,
which are hereby incorporated by reference.
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: _______August 14, 1998_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _______August 14, 1998_________
-10-
<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 SECOND QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796117
<NAME> Metal Recovery Technologies, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18
<CURRENT-ASSETS> 84
<PP&E> 3060
<DEPRECIATION> 0
<TOTAL-ASSETS> 20805
<CURRENT-LIABILITIES> 5351
<BONDS> 0
0
44
<COMMON> 74
<OTHER-SE> 67457
<TOTAL-LIABILITY-AND-EQUITY> 20805
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (147)
<INCOME-TAX> 0
<INCOME-CONTINUING> (147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147)
<EPS-PRIMARY> (0.003)
<EPS-DILUTED> 0<F1>
<FN>
<F1> ANTI-DILUTIVE
</FN>
</TABLE>
