SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Delaware 71-0628061
(State of Incorporation) (I.R.S. Employer Identification No.)
415 East 151st Street
East Chicago, Indiana 46312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219) 397-6261
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock NASD OTC Bulletin Board
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ X ] The mid-market value of the voting stock held by non-affiliates
of the Registrant as of April 21, 1998 is $5,374,670 Number of shares
outstanding of the Registrant's Common Stock as of December 31, 1997 is
38,390,501.
Exhibit Index begins on page 17.
<PAGE>
PART 1
ITEM 1. BUSINESS
CURRENT OPERATIONS
- - ------------------
Metal Recovery Technologies, Inc., a Delaware Corporation, (formerly Malvy
Technology, Inc.), hereafter "the Company" or "MRTI", acquired its wholly owned
subsidiary, Metal Recovery Industries (US), Inc., hereafter "MRI(US)", in April
1995. MRI(US) is engaged in the development of the first commercially viable
means of recovering the zinc coating from steel scrap through a dezincing
process. Over the last 17 years, the steel industry has seen a rapid increase in
the world wide use of galvanized (zinc coated) steel, especially in the
automotive and appliance industries. This increase has created a new problem in
the industry - an ever increasing amount of galvanized steel scrap. The presence
of zinc in the steel scrap supply creates problems in the melting and casting of
new steel and an environmental issue to clean or dispose of zinc laden dusts.
Since the acquisition, MRTI has been involved in the re-commissioning of the
MRI(US) plant in East Chicago, Indiana. The East Chicago Plant began test
production runs in October 1996. MRTI considered these operations as
developmental and, through the end of 1996 and 1997, capitalized all of its
expenditures related to putting the plant into regular production.
The application of zinc to steel to inhibit corrosion has created a rapidly
growing market for zinc over the last two decades. Current world consumption of
zinc is approximately 7,000,000 tons per year, half of which is used to protect
steel.
By far the largest market for galvanized steel scrap is the automotive industry.
Through obsolescence, recycling and the production of prompt scrap from the auto
stamping processes, there is now a rapidly increasing amount of galvanized steel
scrap. This causes problems for the steel mills and foundries, which have a need
for clean black (non-coated) scrap to avoid problems environmentally due to
difficult air or water emissions with zinc coated scrap.
For each ton of galvanized sheet steel supplied to auto stamping plants, 1/4 ton
becomes scrap immediately. Most bundles of such high quality prompt scrap
contain a minimum of 40% coated material.
MRI(US)'s current competition comes from the waste treatment recycling industry
who process or stabilize the wastes generated from the furnace emissions in the
steel and foundry industries.
However any recycling system which does not involve dezincing the steel prior to
melting, allows the production of large quantities of hazardous waste and incurs
punitive recycling and waste disposal costs, as well as exposure to the risk of
future environmental liability penalties.
The Company believes that its technology will allow for the removal of zinc from
scrap metal without the production of hazardous bi-products.
The Company's dezincing process is environmentally benign, but continuous
management of air quality is necessary, and when in full production,
environmental procedures require continuous monitoring. The Company's activities
are subject to a variety of federal, state and local environmental regulations.
<PAGE>
Close attention is paid to compliance with all environmental regulations. The
Company believes that it is in compliance with applicable regulations.
In the early part of 1997 the Company successfully dezinced 1,700 tons of scrap
resulting in sales / revenues of approximately $353,000. However, the East
Chicago plant suffered frequent breakdowns and long periods out of production.
In April 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 plant was under engineered.
The scrap that was dezinced was sold to one of the U.S.'s leading foundries at a
premium price to normal scrap proving the added value performance of the
technology and the zinc that was produced also met specification although due to
the lack of appropriate equipment was heavily oxidized.
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 additional 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 financing. 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. It is hoped that this financing will become unconditional before
the end of April, 1998.
All dezincing by MRI(US) had been carried out as a batch process on different
grades and types of galvanized scrap. A production line had never before been
established for the MRI(US) process. However, although the Company has, since
October, 1996, run production lines on a limited basis, the full-scale
commercial viability of the MRI(US) process remains unproven and there can be no
assurance that the process will be technologically successful, or even if
technologically successful, that the Company will be able to obtain financing on
acceptable terms and in sufficient amounts to bring the process to the point of
commercial success.
The degree to which the Company's process is protected by patents is also
uncertain, although the company's U.S patent application was approved in January
1998. Accordingly, even if successful, the Company's technology may be subject
to appropriation by competition from third parties, having significantly greater
financial resources.
<PAGE>
To date, the Company has obtained the majority of its raw materials directly
from an auto manufacturer. The Company has also obtained materials from other
local broker sources. The Company believes that at such time as the Company's
facility is fully operational, there will be substantial competition among scrap
brokers, metals and mining companies and manufacturers of galvanized steel
product both to provide scrap for dezincing and to purchase both recovered zinc,
in powder and ingot form, and clean "black" scrap. However, there can be no
assurance as to the terms and conditions upon which scrap can be purchased or,
recovered zinc or "black" scrap sold, or whether the Company's operations will
necessarily be profitable.
FINANCING OF BUSINESS
- - ---------------------
The MRI(US) process has been developed in cooperation with the Argonne National
Laboratory ("Argonne") and the US Department of Energy("DOE"). The DOE helped
provide some of the initial capital required for the development of the MRI(US)
process. Since June 1, 1992, the DOE has made available a total of $1,141,411
for research and development respecting the dezincification technology being
developed by MRI(US).
The original collaborative research and development contract estimated a
contribution of $1.4 million from the DOE. The funds have been provided to
Argonne and have been expended, both by MRI(US) and Argonne, on research and
development of the dezincing technology. Further funds will require a new
application by the Company at such time as the Company is capable of putting
such funds to immediate appropriate use. Based upon the Memorandum of
Understanding entered into between the DOE and MRI(US), the Company has a
contingent repayment obligation, equal to 150% of the government's total
payments to the project, which arises if and when the technology developed
becomes commercially feasible. The payments must be made out of the percentage
of future net royalty payments received by the Company from the exploitation of
the technology, if successful.
Development of the dezincing technology to the point of full commercial
application will require substantial funds in addition to those made available
through DOE.
The Company has had no ability to arrange bank financing and has therefore, had
to arrange convertible term loans with a number of private overseas venture
capital investment companies.
As of December 31, 1997, the Company had outstanding the following loan
facilities, having the balances, set forth below; the aggregate balance of these
loans was $3,285,794. Each loan, at the option of the lender, is convertible
into common stock of the Company. Interest is payable at the rate of 10% per
annum; the Company has the option to capitalize the interest (which becomes
convertible into additional shares).
Lender Outstanding Balance
Sundorne Holding SA loan convertible into 9,772,263 781,781
shares of common stock
Plenbrick Ltd loan convertible into 8,263,175 shares 661,054
of common stock
Anthemis Ltd loan convertible into 1,295,675 shares 103,654
of common stock
<PAGE>
Pangea Ltd loan convertible into 6,935,287 shares of 554,823
common stock
Quested Ltd loan convertible into 6,802,538 shares 544,203
of common stock
Dorrrance Ltd loan convertible into 6,584,925 shares 526,794
of common stock
Garcia Ltd loan convertible into 481,062 shares of 38,485
common stock
Accounting Services Ltd loan convertible into 75,000
1,416,668 shares of common stock
3,285,794
=========
The number of common shares into which such loans are convertible is subject to
adjustment pursuant to anti-dilution provisions. During 1996, the Company, and
MRI(US), at the insistence of lenders whose loans were then outstanding, as a
condition to the extension of the maturity of such loans and the waiving of
certain defaults thereunder, entered into a pledge and security agreement with
Plenbrick, Ltd., for itself, and as agent for the other existing lenders,
whereby the loans then outstanding would, together with future loans made with
the approval of a majority in interest of the lenders, be secured by a blanket
lien upon, and security interest in, the assets and shares, of the Company and
MRI(US). The lenders also have the right, under certain contingencies, to
exchange loans for a majority interest in MRI(US). At the present time, the
loans described here have been extended so far to mature on June 30, 1998. Since
December 31, 1997, Accounting Services Ltd loan of $75,000 has been converted
into common stock.
Based on past experience, the Company expects that it will require additional
financing during the current year. There can be no assurance that such financing
will be available, or as to the terms and conditions upon which financing will
be available, or as to the terms and conditions upon which financing, if
available, will be provided. However, the Company anticipates that any financing
will be available only from lenders who will require the right to an equity
participation in the Company, either in the form of convertible loans or loans
with accompanying warrants; and in either case this will likely lead to dilution
of existing shareholders equity.(See "Item 1" Zinc Investments Inc conditional
agreement).
In addition to obtaining required capital from lenders, the Company has also
sought to obtain needed financing through long-term arrangements with industrial
companies interested in the utilization of its technology. These companies
include both those engaged in the mining and processing of zinc for sale to
users, as well as industrial companies (such as automobile manufacturers),
engaged in the manufacture of products utilizing galvanized steel who seek ways
to dispose of the resulting scrap.
<PAGE>
ACQUISITION OF MRI(US)
- - ----------------------
The acquisition of MRI(US) in 1995 was effected as follows:
a). By the issue of 11,000,000 common shares under Regulation S,
having a nominal value of $12,000,000, including 10,000,000 of shares
at an assigned value of $1.20 each, plus 1,000,000 shares representing
the fee to underwriters.
b). An additional 7,000,000 common shares will be issuable only at
such time as the dezincing technology of MRI(US) shall have been
approved by an independent third-party, as evidenced by such party's
entering into a contract with the Company for the processing of a
minimum of 50,000 tons per annum of steel scrap utilizing the
Company's technology, which contract shall be on commercially
reasonable terms consistent with a bona fide arm's-length relationship
between the parties, and, pursuant thereto, processing in commercial
quantities shall have commenced and scrap so processed shall have been
accepted and paid for by such third-party.
c). An additional 7,000,000 Common Shares shall be issuable only at
such time or times as contracts utilizing the dezincing technology of
MRI(US) shall have been entered into with one or more independent
third parties, providing for the processing of an aggregate minimum of
1,000,000 tons per annum of steel scrap, which contracts shall be on
commercially reasonable terms consistent with a bona fide arm's-length
relationship between the parties.
d). $25,000,000 of Convertible Redeemable Preference Shares ("CRP"
Shares), shall be issuable upon the following conditions:
(1) at the rate of $5.00 of CRP Shares for each ton of
capacity in dezincing plants established by the Company or by
any subsidiary (excluding the East Chicago, IN plant) which is
certified as being operable at full capacity and
(2) at the rate of $5.00 of CRP Shares for each ton of such
plant capacity, which achieves normal operation of at least
80% of its specified throughput capacity over an aggregate of
three consecutive months.
These CRP Shares, if issued, will be convertible at the option of the holder
into shares of common stock of the Company, or the Company may be required to
redeem such CPR Shares over a period of four years, commencing on the second
anniversary of issue to the extent of 50% thereof and on each of the third and
fourth anniversaries to the extent of 25% thereof. Issuance of additional common
shares on conversion of CRP Shares, if issued, would result in additional
dilution of shareholders equity.
Determinations as to certification of a plant as being operational, and as to
the attainment of requisite 80% of operational capacity, shall be made by the
Company in its reasonable good faith judgment. Because of delays in bringing the
dezincing process to the point of commercial viability, as well as the need for
substantial amounts of capital beyond that originally anticipated when MRI(US)
was acquired, the Company contemplates seeking to negotiate a modification of
the conditions upon which such additional common and/or CRP shares will be
issued.
<PAGE>
DISCONTINUED OPERATIONS
- - -----------------------
MRTI was from 1993 to the middle 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 through its two foreign
subsidiaries, Malvy Technology S.A. and Malvy Technology (UK) Ltd. This
division, however, went into receivership in October 1995. The Company does not
expect to recover any portion of its investment. 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 operated in Oklahoma. These operations
were disposed of, or written down, during 1994 and 1995. The historical
financial information in the consolidated financial statements, shown in Part
IV, Item 14(a) of this 10-K include historical information from these
discontinued operations.
ITEM 2. PROPERTIES
The Company occupies under license its only facility, in East Chicago, Indiana,
from ASK Corporation (see Item 13 as to Certain Relationships and Related Party
Transactions). The license agreement expired on January 31, 1997, and the
parties to the license have agreed to a three year extension, at the same annual
rental of $60,000 currently payable. (In addition, the Company is responsible
for all real estate taxes, utility costs, and costs of maintenance.)
ITEM 3. LEGAL PROCEEDINGS
In September, 1994, the Company reached a settlement with a former chairman and
chief executive officer of the Company, Jack Alexander, and certain entities
related to him, in respect of amounts claimed to be owed to them by the Company
on accounts of notes payable, loans and the redemption price of preferred stock.
Under the terms of the settlement, Mr. Alexander was to be paid $1.3 million
over a period ending May, 1995. The Company has renegotiated several times, the
terms of payment to Mr. Alexander. At the time of the final settlement the
Company owed Mr Alexander a total of approximately $551,129. Mr. Alexander also
owned all of the shares of a class of preferred stock which gave Mr. Alexander
the right to elect the majority of the board of directors of the Company.
During 1996, Mr Alexander assigned his interest in the settlement, including the
shares of preferred stock to an entity identified as "Morton Blue" (with an
address in the British Virgin Islands). During 1997,the Company, having no
ability to settle the amount owed to Morton Blue in cash, negotiated an
agreement with Morton Blue to settle the liability and redeem the "Series A"
Preferred shares. This occurred in 1997 by the issuance of 2,550,000 shares of
the Company's common stock under Regulation S of the Securities and Exchange
Commission and is reflected in the financial statements.
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 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.
Without admitting liability, the Company has reluctantly agreed to settle these
actions. The decision was primarily 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 by the Company's subsidiary, Metal Recovery Industries (US), Inc.
The agreed settlement was $3.25 million payable as follows:
- - - $500,000 in cash to be paid on October 15, 1997 (the effective date).
- - - $500,000, in the form of cash or unrestrictive common stock of the
Company, to be paid on the effective date. If the Company elects in its
sole discretion not to make this payment in the form of cash, the
number of shares of unrestricted common stock of the Company necessary
to satisfy the obligation of this subparagraph shall be determined by
dividing $550,000 by the market price of the Company's common stock.
The market price of the Company's common stock will be deemed to be the
average of the closing bid prices of that stock during the ten trading
days preceding the effective date. Should the effective date not have
occurred by October 15, 1997, the Company will deposit into escrow on
that date an amount of stock equal to twice its payment obligation.
Should the Company's stock thereafter decline by 30% or more from the
market price, the escrow agent, as promptly as possible without
depressing the price of the Company's stock, will liquidate sufficient
shares to yield the sum of $550,000 in cash, whereupon the balance of
the shares will be returned to the Company. The funds obtained shall be
held in escrow, bearing interest for the benefit of the class, until
the effective date.
- - - The Company will pay the remaining $2.2 million in four annual
installments in the amount of $550,000, beginning on the first
anniversary of the effective date. The Company shall have the option,
in its sole discretion, to satisfy all or any portion of the
installment payment obligation in the form of cash, shares of
unrestricted common stock of the Company, or any combination thereof.
If the Company decides not to satisfy the installment payment
obligation solely with cash, then the Company shall be obligated to pay
in the form of unrestricted common stock of the Company the amount of
the installment obligation less the amount paid in cash (the "Non-Cash
Obligation"). The number of shares of unrestricted common stock of the
Company necessary to satisfy the Non-Cash Obligation shall be
calculated as follows: (a) if the unrestricted common stock of the
Company is less than $1 per share, then the Non-Cash Obligation divided
by the market price; (b) if the market price of the unrestricted common
stock is equal to or greater than $1, but in no event greater than
$1.4545, then the product of the Non-Cash Obligation divided by $1 per
share; or (C) if the market price is greater than $1.4545, then the
product of the Non-Cash Obligation and 1.4545 divided by the market
price. The market price of the Company's stock will be deemed to be the
average of the closing bid prices of that stock during the ten trading
days preceding each installment payment date.
The Company has reflected the provision of these arrangements in the financial
statements. The Company is in default in making the first installment under the
agreement and is currently renegotiating the payment schedule.
The Company is involved in other maters of litigation 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 financial statements.
The Company maintains insurance in an amount which management believes to cover
its risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since August 1995, the Company's Common Stock has been quoted under MRTI on the
over-the-counter market system of the Bulletin Board (NASD OTC BB).
The following table sets forth the range of high and low closing bid quotations
for the Common Stock as reported by NASD OTC BB Monthly Statistical Report for
the periods indicated. Such quotations represent inter-dealer prices without
retail markup, markdown, or commission, and may not necessarily represent actual
transactions.
Calendar Years by Quarter Closing Bid Price
- - ------------------------- -----------------
(in US Dollars)
High Low
---- ---
1996 First 1.09375 0.43
Second 1.35 0.46
Third 1.12 0.51
Fourth 0.875 0.30
1997 First 0.76 0.38
Second 0.45 0.19
Third 0.31 0.11
Fourth 0.38 0.06
As of December 31, 1997, the Company had in excess of 2,000 common shareholders
of record.
The Company has not paid cash dividends to date on its Common Stock and intends,
for the foreseeable future, to continue its policy of retaining earnings that
may otherwise be available for such dividends.
The Company has outstanding a number of loans convertible into common stock as
well as warrants to purchase its common stock. Information on these loans and
warrants is more fully described in Notes 5 & 11 of the financial statements
found in Part IV, Item 14 (a) of this filing. See also "Item 1- Business",
regarding such convertible loans and shares of common stock that may be issuable
in connection with the acquisition of MRI(US).
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA ($,000's omitted)
Year Ended December 31
For the Year Ended: 1997 1996 1995 1994
---- ---- ---- ----
Revenues $ - $ - $ - $ -
Net Income (loss)
from operations (622.5) (1,046.8) (177.2) (4,976.6)
Income (loss) from
operations per
common share (0.0212) (0.0617) (3.1670) (0.2065)
At year ended:
Total assets 20,187.9 $ 17,833.0 $ 14,832.2 $ 35,068.3
Long-term debt 2,155.0 509.2 505.0 302.4
Total liabilities 9,450.3 5,410.8 3,548.8 1,888.5
Working Capital
(deficiency) (7,233.7) (4,732.1) (2,819.0) 338.6
Stockholders equity 10,737.6 12,422.2 11,284.0 33,179.8
(Footnote 4)
Pro forma financial
information
Revenues $ - $ - $ 1044.8
Net income (loss)
from operations (622.5) (1,046.8) (177.2) (4,976.6)
Income (loss) from
operations per
common share (0.0212) (0.0617) (3.1670) (0.2065)
(Footnotes 2 and 3)
Footnotes:
1. The selected financial data presented are not necessarily
indicative of future financial position or results from future
operations.
2. The computations of earning (loss) per common share considers the
weighted average number of shares outstanding during the year,
plus any common stock options and warrants if dilutive.
3. The weighted average number of shares reflects the twenty to one
share consolidation, which occurred in February 1995.
4. Shareholders' equity of $10,737,592 includes goodwill, patents,
etc. of $12,906,606.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS
1997 vs. 1996
- - -------------
Because the East Chicago, Indiana, processing plant was not in commercial
operation, but was in the process of being commissioned, through the end of
1996, The Company had sales in 1997 of $353,000 which were offset against
capitalized costs in accordance with the Company's election to capitalize all
organizational costs during the development stage. The Selling, General and
Administrative expenses for 1997 and 1996 were $622,488 and $1,046,761
respectively. The reduction in 1997 is primarily due to the company scaling back
operations. (See item 1 Business). The Non Operating expenses increased from
$64,512 in 1996 to $3,286,517 in 1997 due to the Class Action settlement
described in "Item 3" Legal Proceedings.
During 1997 and 1996, the Company spent $2,500,897 and $3,001,766, respectively
on the commissioning of the plant in East Chicago, Indiana. These costs include
equipment purchase and installation, development and testing of its technology,
obtaining customers, suppliers, and financing, installing and testing equipment,
and administrative activities, all of which were capitalized and included as
assets on the accompanying financial statements.
Commencing in late 1996, and continued through the early part of 1997 the
dezincing process was, for the first time, successfully carried out on a limited
production basis, and the Company believes that the process is technologically
sound. The Company has, however, experienced problems in its ability to operate
the production line continuously, and without interruptions, largely, it
believes, because of unforeseen mechanical problems, as distinct from
infirmities in the basic technology itself. There is the need for significant
improvements, upgrades and plant and equipment expansions if the process is to
become commercially viable.
The commercial viability of the MRI(US) process will necessarily remain unproven
until a point in time where production targets are achieved to verify the
Company's projections. The degree to which the Company's process is protected by
patents is also uncertain. Patent applications in the U.S have been approved and
worldwide patents have been made and are pending. Even if successful, the
Company's technology may be subject to appropriation by and competition from
third parties, having significantly greater financial resources.
The Company has experienced favorable interest in its technology from the steel
industry. Several major corporations are in various stages of investigation of
using the Company's technology. Initial sales of the product in 1997 have
substantiated the ability to obtain premium prices for the non-coated "black"
scrap produced by dezincing.
Because of the commissioning of the East Chicago plant, the Company has incurred
operating losses over the last two years from its on-going business activities.
For the last several years the Company has not generated positive cash flows
from its operations. At December 31, 1997, the Company had negative working
capital of $7,233,663. The Company's independent auditors have qualified their
opinion on the Company's financial statements for the fiscal year ended December
31, 1997, to the effect that there is substantial doubt about the ability of the
Company to continue as a going concern.
<PAGE>
Requirement for Additional Financing
- - ------------------------------------
The Company presently has, in addition to its existing cash on hand, unused loan
facilities aggregating approximately $950,000
Financing will be required both to fund production-line improvements and to
defray operating expenses pending sufficient revenues from commercial
production. Because of the unavailability of conventional financing due to the
lack of historical positive cash flow to repay loans, the Company is dependent
upon other sources. In the past, it has raised funds from the placement of
convertible loans with overseas investors. It anticipates that it will be able
to do so, although there can be no assurance. The Company is also engaged in
negotiations with potential users of the Company's dezincing services, and
potential purchasers of its end products of clean "black" scrap and recovered
zinc, respecting possible long-term commercial agreements, as well as direct
investments, which would provide needed capital, although there can be no
assurance that such negotiations will be successful.
1996 vs. 1995
The majority of differences in the financial performance of the Company from
1995 to 1996 stems from operations which were discontinued over various times in
1995.
MINING OPERATIONS (DISPOSED FEBRUARY 1995), The property was actively
marketed for sale and eventually sold in February 1995, for $425,000. This
adjustment was made in the December, 1994 consolidated financial
statements, which resulted in a loss on disposal of $407,748.
GAS PIPELINE D/B/A SPHINX INTERNATIONAL PETROLEUM CO. (DISPOSED JUNE 1995)
-- Gross revenues from the sale of gas were $171,371 in 1995.The Company
disposed of this subsidiary for a nominal amount in June 1995.. After
writing down the assets and liabilities of the subsidiary to zero, this
resulted in a net loss at December 1995 of $7,841.
MALVY TECHNOLOGY SA & UK - Though sales commenced in 1994 ($181,371), it
was difficult in 1995 for this division to become profitable. During the
first few months of 1995, sales were slow, as the ability to sell was
hampered by the inability of the French hub manufacturer to supply enough
of a variety of hubs. Prospects seemed to be improving after a new hub
manufacturer was located in the UK. A franchise network was set up in
France and the UK, in anticipation of the manufacturer being able to
overcome the problem. As the year passed by, however, it became more and
more obvious that the technology could not be converted into more sales
without a substantial amount of further capital investment. The board
considered this option, but with the limited financial resources available,
had no alternative but to allow the subsidiaries to be forced into
liquidation following petitions filed by its creditors. As a result of
this, the assets and liabilities of Malvy were eliminated from the
Company's 1995 balance sheet, resulting in the write off of concessions,
rights, patents & goodwill of $33,883,238, together with an operating loss
of $725,562.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth in Part IV, Item
14(a) hereof.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements between the Company and its auditors that would
warrant disclosure pursuant to this item.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company has three directors, who are also executive officers of the Company.
The following table sets forth the names and ages of all executive officers of
the Company, all positions and offices presently held by them, the year each
person first became an officer and the term of each person office.
Name Age Office Principal Occupation Officer Since
Michael S. Lucas 50 Chairman, Chairman, October 1994
President & Chief President & Chief
Executive Officer Executive Officer
Roy Pearce 37 Chief Financial Chief Financial April 1993
Officer, Director Officer
Dr. William Morgan 68 Executive Vice Executive Vice May 1995
President, Director President
Mr. Lucas joined the Company on October 14, 1994, for five years prior thereto,
Mr. Lucas was Chairman Executive President of BGMB (USA), Inc. (an investment
group), and prior thereto was Chairman of BOM Holdings, a public company
registered in Great Britain. Mr. Pearce joined the Company on April 26, 1993.
For five years prior thereto, he was Treasurer of Sharedane Limited, an
investment and property company registered in Great Britain. Dr. Morgan joined
the Company on May 10, 1995. For five years prior thereto, Dr. Morgan was
Chairman of MDZ Recycling Corporation, an environmental process development
company incorporated in Canada.
ITEM 11. EXECUTIVE COMPENSATION
Compensation - During 1997, Michael Lucas, Director, Chairman and CEO was paid
$240,000 and was the Company's most highly paid executive. Roy Pearce, Director
and CFO was paid $150,000, and Dr. William Morgan was paid $105,000.
During 1997 the Company paid on behalf of Michael Lucas $2,622 in premiums on a
term-life insurance policy.
Stock Option Compensation - As of the fiscal year ended December 31, 1997, there
were no outstanding employee stock options in existence.
No employees are employed pursuant to employment contract. No director's fees
have been paid to date and the Company does not intend to pay directors fees
during the current fiscal year.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Michael Lucas, President, Chairman & Chief Executive Officer of the Company has
a direct interest in 20,000 shares of common stock, or 0.05% of the outstanding
shares. Mr. Lucas also has a contingent interest in 1,000,000 common shares
(representing 2.6% of the outstanding shares) in the Company owned by a family
trust, of which Mr. Lucas' four children are beneficiaries. Mr. Lucas disclaims
beneficial ownership of the shares or the power to direct the disposition
thereof.
Roy Pearce, currently Chief Financial Officer has a direct interest in 10,000
shares of common stock, or 0.03% of the outstanding shares.
Dr. William Morgan, a director, owns or has interest in 75% of MDZ Recycling
Corporation, a company that may in the future receive CRP shares of the Company
of a face value of up to $12,500,000, dependent on the success of the
dezincification technology. The obligation to issue such shares was assumed by
the Company in connection with its initial acquisition of MRI(US); see "Item 1 -
Business". Such CPR Shares, if issued, are convertible into common shares of the
Company.
Subsequent to December 31, 1997, Accounting Services Ltd located at Harbour
House, South Esplanade, St Peter Port, Guernsey, C.I. a lender to the Company,
converted their loan of $75,000 into 1,416,668 common shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MRI(US) occupies under license an 11 acre site and building for its plant
facility at East Chicago, Indiana from a corporation of which Dr. William
Morgan, a director of the Company, has an indirect interest of 30.75%. The
Company pays an annual rental of $60,000, plus additional expenses relating to
the property. See "Item 2 Property". MDZ Recycling Company, in which Dr. Morgan
holds a direct and indirect interest of 75%, is entitled to receive royalty
payments of $1.00 per ton on the annual "throughput" of all dezincing plants
operated by MRI(US), other than the East Chicago, Indiana plant, pursuant to
arrangement in effect at the time the Company acquired MRI(US). See "Item 1 -
Business". To date, no such payments have become due.
See also Note 13 of the audited financial statements in Part IV, Item 14(a) of
this filing, with respect to related party transactions in which the Company
participated.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1 The following financial statements and supplementary data are filed as part
of this Annual Report on Form 10-K:
Page
Consolidated Financial Statements
Independent Auditor's Report F-1 - F-2
Consolidated Balance sheets at December 31, 1997 and 1996 F-3-F4
Consolidated Statements of operations for each of the
three years in the period ended December 31, 1997 F-5 - F-6
Consolidated Statements of stockholders' equity for each of
the three years in the period ended December 31, 1997 F7-F8
Consolidated Statements of cash flows for each of the three
years in the period ended December 31, 1997 F-9
Notes to Consolidated financial statements F-10 - F-26
Exhibits
3(i) Certificate of Incorporation of Registrant (incorporated by reference to
Exhibit 3(i) to form 10-K for the year ended December 31, 1990).
3(ii) Certificates of Amendment of Preferred Stock Designation (incorporated
by reference to Exhibit 3(ii) to Form 10-K for the year ended December
31, 1996), as follows:
(A) January 28, 1991
(B) July 5, 1991
(C) September 23, 1991
(D) October 20, 1992
(E) November 2, 1992
(F) March 19, 1993
(G) April 15, 1993
(H) June 17, 1993
4 Instruments Defining the Rights of Security Holders are included under the
items listed in Exhibit 3(ii) above and therefore are incorporated by reference
to the Form 10-k for the year ended December 31, 1995.
<PAGE>
10(ii). Material Contracts -- Convertible loan agreements have been entered into
with the following lenders:
1. Sovereign Trust Services, Limited
2. Sundorne Holdings, Limited
3. Osbourne, Limited
4. Plenbrick, Limited
5. Alcaria Investments, Limited
6. Jepherson Limited
7. Antheims Limited
8. Pangea Limited
9. Quested Limited
10. Garcia Ltd
The lenders are parties to a pledge and security agreement with the
Company and MRI(US), dated February 1, 1996, whereby such loans, together with
future loans, are secured by a pledge of and security interest in all assets of
the Company (including the shares of MRI(US)) and of MRI(US).
11. Computation of per share earnings is included in the Consolidated Statements
of Operations found on page F-5 of this filing
13. Form 10-Q for the periods ending March 31, June 30, and September 30, 1997
are attached hereto.
21. Subsidiary of the Registrant:
1. Metal Recovery Industries (US), Inc. a Delaware corporation.
27. Financial Data Schedule
All other schedules have been omitted because either
the required information is not present, or it is not present in amounts
sufficient to require submission of the schedule, or because the information is
included in the consolidated financial statements and notes thereto.
<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.
BY: /s/ Michael S. Lucas
--------------------
Michael S. Lucas
President, Chairman & CEO
Date: April 21, 1998
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 date indicated.
NAME CAPACITIES DATE
- - ---- ---------- ----
/s/ Michael S. Lucas Chairman, President & CEO April 21, 1998
- - -------------------------
/s/ Roy Pearce Chief Financial Officer April 21, 1998
- - -------------------------
/s/ William A. Morgan Executive Vice President April 21, 1998
- - -------------------------
<PAGE>
METAL RECOVERY TECHNOLOGIES, INC.
Consolidated Financial Statements
METAL RECOVERY TECHNOLOGIES, INC.
<PAGE>
Part IV
Item 14. Consolidated Financial Statements and Financial
Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form
10-K:
Reference
Page
Consolidated Financial Statements
Independent Auditor's Report F-1 - F-2
Consolidated Balance sheets at December 31, 1997 and 1996 F-3-F4
Consolidated Statements of operations for each of the
three years in the period ended December 31, 1997 F-5 - F-6
Consolidated Statements of stockholders' equity for each of
the three years in the period ended December 31, 1997 F7-F8
Consolidated Statements of cash flows for each of the three
years in the period ended December 31, 1997 F-9
Notes to Consolidated financial statements F-10 - F-26
<PAGE>
Independent Auditor's Report
- - ----------------------------
Board of Directors and Stockholders
Metal Recovery Technologies, Inc.
We have audited the consolidated balance sheets of Metal Recovery Technologies,
Inc. (MRTI), as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ending December 31, 1997, 1996 and 1995. The consolidated financial statements
are the responsibility of MRTI's management. Our responsibility is to express an
opinion on the 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
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MRTI, as of December
31, 1997 and 1996, and the results of their operations, stockholders' equity and
cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that MRTI will continue as a going concern. As shown in the consolidated
financial statements, MRTI's current assets are $61,619 while current
liabilities total $7,295,282. MRTI incurred a net operating loss and is in
default of a material settlement agreement with former shareholders for the year
ended December 31, 1997. These conditions raise substantial doubt about MRTI's
ability to continue as a going concern. Management's plan in regard to these
matters is also discussed in Note 18. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
MRTI is involved with the development of a dezincing process and the success of
the development is dependent on future operating market conditions, acceptance,
and operating efficiancy. The ultimate outcome of these uncertainties cannot
presently be determined. As discussed in Notes 1,3, and 15, the recovery for
intangible costs for concessions, rights, patents, and goodwill totaling
$12,906,606 and $12,905,749, the recovery of property and equipment totaling
$3,007,100 and $2,591,985, and the recovery of costs for organizational costs
totaling $4,198,149 and $2,112,367 for 1997 and 1996, respectively, is dependent
on future profitable operations. Accordingly, the consolidated financial
statements do not include any adjustment that might result from the outcome of
these uncertainties.
F1
<PAGE>
Board of Directors and Stockholders
Metal Recovery Technologies, Inc. continued
As discussed in Note 17, MRTI is a defendant in several lawsuits and other
matters. The ultimate outcome of the lawsuits and other matters is not presently
determinable. Accordingly, no provisions for liability if any has been made in
the financial statements for any potential lawsuits or other liabilities that
may arise.
As shown in the financial statements and discussed in Note 13 and elsewhere in
the financial statements, MRTI has engaged in various substantive business
activities and agreements with related parties.
March 31, 1998
F2
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
<S> <C> <C>
---- ----
Current assets:
Cash (note 14) 43,247 6,778
Inventories
18,372 65,370
Other current assets
-- 97,355
----------- -----------
Total current assets
61,619 169,503
----------- -----------
Property and equipment (note 3) ......................................................... 2,591,985
----------- -----------
3,007,100
Other assets:
Concessions, rights, patents and goodwill (note 15) ................................ 12,906,606 12,905,749
Organizational costs, net of amortization (note 15) ................................ 2,112,367
4,198,149
Other assets
14,400 53,400
----------- -----------
Total other assets .............................................................. 17,119,155 15,071,516
----------- -----------
$20,187,874 17,833,004
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilties:
Current maturities of long-term debt (note 4)
1,635,000 4,580
Notes payable (note 6)
39,184 49,894
Accounts payable
2,172,270 1,432,128
Payable to former officer and director (note 13)
- 55,098
Notes to others (note 5)
3,285,794 3,288,010
Payroll and related liabilities 163,034 71,863
-------- ------
Total current liabilities 7,295,282 4,901,573
Long-term liabilities:
Long-term debt (note 4) 2,155,000 505,000
Capital lease (note 4) - 4,182
---- -----
Total long-term liabilites 2,155,000 509,182
---------- -------
Total liabilites 9,450,282 5,410,755
Stockholders' equity (notes 8 and 9):
"Series A" preferred stock, $10 par value,
100,000 shares authorized; 0 and 46,965 shares
outstanding for 1997 and 1996 - 469,650
"Series B" preferred stock, $10 par value, 2,500,000 shares authorized;
21,375 shares issued and outstanding for 1997 and 1996 44,373 44,373
Common stock, par value of $ .001; 100,000,000 shares authorized;
38,390,501 and 20,707,597 shares issued and outstanding for 1997 and 1996 38,390 20,707
Additional paid-in capital 65,031,530 62,355,161
Deficit accumulated during the development stage (note 2) (5,274,467) (1,365,408)
Deficit accumulated prior to development stage (49,102,234) (49,102,234)
------------ ------------
Total stockholders' equity 10,737,592 12,422,249
------------ ----------
$ 20,187,874 17,833,004
=============== ==========
</TABLE>
See accompanying notes which are an integral part of these financial statements.
F4
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, and 1995
Cumulative
from Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
<S> <C> <C> <C> <C>
Operating expenses - Selling, general and administrative $ 1,846,429 622,488 1,046,761 177,180
Nonoperating expense:
Loss associated with legal settlement (note 17) (3,250,000) (3,250,000) - -
Interest expense (178,038) (36,571) (64,512) (76,955)
--------- -------- -------- --------
Total nonoperating expense (3,428,038) (3,286,571) (64,512) (76,955)
----------- -----------
Loss before discontinued operations (5,274,467) (3,909,059) (1,111,273) (254,135)
Loss on discontinued operations:
Seminole pipeline - - - (7,841)
Malvy France and Malvy UK - - - (725,562)
Loss on disposal of discontinued operations:
Malvy France and Malvy UK (note 16) - - - (33,883,238)
----- ----- ----- ------------
Net loss $(5,274,467) (3,909,059) (1,111,273) (34,870,776)
=========== =========== =========== ============
</TABLE>
F5
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Statements of Operations, continued
Cumulative
from
Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
<S> <C> <C> <C> <C>
Primary loss per share:
Loss before discontinued operations $ (0.2764) (0.1334) (0.0655) (0.0232)
======== ======== ======== ========
Loss from operations of discontinued segment
- - - (0.0668)
Loss on disposal
- - - (3.0878)
---- ---- ---- --------
Net loss $ (0.2764) (0.1334) (0.0655) (3.1778)
======== ======== ======== ========
Fully diluted loss per share * * * *
Weighted average number of common shares outstanding:
Primary 19,084,708 29,312,984 16,968,009 10,973,132
Fully diluted * * * *
</TABLE>
* Anti-Dilutive
F6
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
Series A Series B
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 46,965 $ 469,650 21,375 $ 44,373 49,879,195 $ 49,879
Reverse split 20 for 1 - - - -
Common stock issued:
February 1995 - - - - 250
April 1995 for MRI(US) - - - -
Cumulative foreign
currency translation adjustment - - - - - -
Net loss - - - - - -
---- ------- ---- ------- ------- ------
Balance, December 31, 1995 46,965 469,650 21,375 44,373 13,764,653 13,764
Common stock issued
(note 9)
April 1996 - - - - 1,335
May 1996 - - - - 1,500
August 1996 - - - - 500
September 1996 - - - - 1,164
October 1996 - - - - 2,444
Net loss - - - - - -
---- ------- ---- ------- ---- ----
Balance, December 31, 1996 46,965 469,650 21,375 44,373 20,707,597 20,707
Preferred Series A redeemed (46,965) (469,650) 2,550,000 2,550
Common stock issued (note 9)
January 1997 - - - - 571
February 1997 - - - - 1,555
April 1997 - - - - 3,482
September 1997 - - - - 3,306
October 1997 - - - - 4,454
November 1997 - - - - 1,765
Net loss - - - - - -
---- ------- ---- ------- ---- ---
Balance, December 31, 1997 $ 21,375 $ 44,373 38,390,501 $ 38,390
============ === ======= ========= =========== ============
</TABLE>
F7
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Statements of Stockholders' Equity, Continued
Retained
Earnings
(Deficit)
Foreign Accumulated
Additional Currency Retained Durting the
Paid-In Translation Earnings Deveolopment
Capital Adjustment (Deficit) Stage Total
(note 2)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 46,676,883 $ 424,599 $ (14,485,593) - $ 33,179,791
Reverse split 20 for 1 47,365 - - - -
Common stock issued:
February 1995 199,750 - - - 200,000
April 1995 for MRI(US) 13,189,000 13,200,000
Cumulative foreign
currency translation adjustment - (424,599) - - (424,599)
Net loss - - (34,616,641) (254,135) (34,870,776)
------------- ------------ ------------ --------- ------------
Balance, December 31, 1995 60,112,998 (49,102,234) (254,135) 11,284,416
-
Common stock issued
(note 9)
April 1996 521,731 - - - 523,066
May 1996 411,000 - - - 412,500
August 1996 146,985 - - - 147,485
September 1996 464,847 - - - 466,011
October 1996 697,600 - - - 700,044
Net loss - - - (1,111,273) (1,111,273)
------- ------ ------ ----------- -----------
Balance, December 31, 1996 62,355,161 (49,102,234) (1,365,408) 12,422,249
-
Preferred Series A redeemed 548,579 - - - 81,479
Common stock issued (note 9)
January 1997 199,429 - - - 200,000
February 1997 218,445 - - - 220,000
April 1997 776,545 - - - 780,027
September 1997 273,441 - - - 276,747
October 1997 490,745 - - - 495,199
November 1997 169,185 - - - 170,950
Net loss - - - (3,909,059) (3,909,059)
------ ------ ------ ----------- -----------
Balance, December 31, 1997 $ 65,031,530 $ (49,102,234) (5,274,467) $ 10,737,592
=============== ================= ============ =========== ==============
</TABLE>
See accompanying notes which are an integral part of these financial statements.
F8
<PAGE>
<TABLE>
<CAPTION>
Metal Recovery Technologies, Inc.
Consolidated Statements of Cash Flows-Years Ended December 31, 1997, 1996 & 1995
Cumulative
from Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
<S> <C> <C> <C> <C>
Cash flows provided used by operations:
Net loss $ (5,274,467) (3,909,059) (1,111,273) (34,870,776)
Adjustments to reconcile net loss
to net cash provided used by
operating activities:
Common stock issued in exchange for
services or reduction of debt 2,966,157 2,104,189 662,218 -
Change in foreign currency
translation adjustment - - - (424,599)
Net changes in current assets and
liabilities excluding long-term debt 310,871 975,666 405,969 616,430
-------- ------- ------- -------
Net cash used by operating activities (1,997,439) (829,204) (43,086) (34,678,945)
----------- --------- -------- ------------
Cash flows provided used by
investing activities:
Reserve for pipeline cleanup - - - (60,787)
Net changes to property and equipment (3,007,100) (415,115) (1,431,466) (222,853)
Net changes in organization cost (4,198,149) (2,085,782) (1,557,945) (554,422)
(Additions) deletions to concessions,
rights, patents and goodwill (12,906,606) (857) (12,355) 19,086,253
Decrease (increase) in other assets (14,400) 39,000 (53,400) 214,639
-------- ------- ------ -------
Net cash used by investing (20,126,255) (2,462,754) (3,055,166) 18,462,830
------------ ------------- ----------- -----------
activities
Cash flows provided (used by)
financing activities:
Increase (decrease) in notes payable (15,914) (65,808) (86,309) 136,203
Increase in long-term debt 3,790,000 3,276,238 8,762 275,028
Increase (decrease) in notes to investors 3,285,794 (2,216) 1,394,834 1,893,176
Issuance (reduction) of common stock 11,529) 17,683 6,943 (36,115)
Received from additional stock and
paid-in capital issues 13,436,115 - - 13,436,115
Reduction in Series A preferred stock (469,650) (469,650) - -
Cash received for common stock issued 2,152,125 572,180 1,579,945 -
Net cash provided by financing activities 22,166,941 3,328,427 2,904,175 15,704,407
---------- --------- --------- ----------
Increase (decrease) in cash 43,247 36,469 (194,077) (511,708)
Cash at beginning of year - 6,778 200,855 712,563
------------ ----- ------- -------
Cash at end of year $ 43,247 43,247 6,778 200,855
======= ======= ====== =======
Supplemental Information:
Cash paid for interest $ 148,010 23,129 47,926 76,955
------- ------ ------ ------
Cash paid for income taxes $ - - - -
==== ==== ======= ======
</TABLE>
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
PRINCIPAL ACTIVITIES
METAL RECOVERY TECHNOLOGIES, INC. (MRTI)
During 1990, Sphinx Mining, Inc. (Sphinx), originally a Canadian
corporation, reorganized and became a U.S. corporation incorporated
in the state of Delaware. In 1991, Sphinx formally changed its name
to Sphinx Natural Resources, Inc. In June, 1993 the Company's name
was changed to Malvy Technology, Inc. (Malvy) and in July 1995, the
Company changed its name to Metal Recovery Technologies, Inc.
MRTI has a wholly-owned subsidiary, Metal Recovery Industries, (US),
Inc. (located in East Chicago, Indiana) a developmental stage
company that intends to market the service of dezincing scrap metal.
METAL RECOVERY INDUSTRIES, (US), INC. (MRI(US))
MRTI acquired MRI(US), in April 1995 for $12,000,000 which was raised
by the offshore sale under a placing and escrow agreement of
10,000,000 shares of MRTI's stock, together with a fee of 1,000,000
shares. The shares were placed at a value of $1.20 per share. In
addition, $25,000,000 of convertible redeemable preference shares,
and 14,000,000 common shares may be issued contingent upon several
factors, including, but not limited to, the building of subsequent
plants and the achievement of production goals of said plants. The
acquisition has been accounted for using the purchase method with
the excess of cost over assets acquired being attributed to
concessions, rights, patents, and goodwill. As of December 31, 1997
and 1996, the value of concessions, rights, patents, and goodwill
was $12,906,606 and $12,905,749, respectively. The ultimate value of
these assets depends on future profitable operations and market
conditions for the MRI(US) dezincing process. As of December 31,
1997, MRI(US) is still in the developmental stage and expenses are
being capitalized as incurred.
DISCONTINUED AND DISPOSED OF OPERATIONS
SPHINX INTERNATIONAL PETROLEUM COMPANY (SIPCO), (A WHOLLY SUBSIDIARY OF
SPHINX)
In December 1992, SIPCO, a wholly owned subsidiary of Sphinx, acquired
a pipeline operation (Seminole Pipeline) located in Oklahoma in
exchange for 143,750 shares of Malvy Series B preferred stock.
(Footnote 8) The acquisition was accounted for using the purchase
method and accordingly, the acquired assets were recorded at their
fair value at the date of acquisition. In 1994, 143,750 of preferred
Series B shares were redeemed for 7,137,731 shares of common stock.
As further discussed in note 16, in 1995, SIPCO was sold for a
nominal price.
F-10
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS,CONTINUED
MALVY TECHNOLOGY S.A., A FRENCH CORPORATION (MALVY FRANCE)
In 1993, Malvy agreed to acquire 100% of the capital stock of Malvy
Technology S.A., a French corporation. 100% ownership was completed
January 15, 1994. The acquisition price of $32,500,000 was raised by
the offshore sale of 16,250,000 shares of MRTI's common stock. The
acquisition has been accounted for using the purchase method with
the excess of cost over assets acquired being attributed to
concessions, rights, patents and goodwill. The ultimate value of
these assets depended on future profitable operations and market
conditions for the Malvy automobile anti-theft device.
In October, 1995, Malvy France was placed into liquidation under the
control of a government liquidator. As of December 31, 1995, as
further explained in note 16, a loss on disposal of assets was
recorded.
MALVY TECHNOLOGY UK, LIMITED, A BRITISH CORPORATION (MALVY UK)
Malvy UK was incorporated November 15, 1993, as a wholly-owned
subsidiary of Malvy Technology, Inc. There was no activity in 1993.
Malvy UK was established to aid in business development and sales of
the anti-theft device in the United Kingdom. As further discussed in
note 16, in October, 1995, Malvy UK was placed in liquidation under
the control of a government liquidator. A loss on disposal of assets
was recorded.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The1997 and 1996 consolidated balance sheets and related statements of
operations, stockholders' equity, and cash flows consist of the
accounts of MRTI and MRI(US). The 1995 statements of operations,
stockholders' equity, and cash flows consist of the accounts of
MRTI, MRI(US) and the results of the discontinued and disposed of
operations for Malvy France, Malvy UK and SIPCO. All significant
inter-company balances and transactions have been eliminated.
DEVELOPMENT STAGE OPERATIONS
Development operations consisting of raising capital, obtaining
financing, locating and acquiring equipment, obtaining customers and
suppliers, installing and testing equipment and certain
administrative activities have been capitalized in property,
equipment, and organizational costs.
CUMULATIVE FROM INCEPTION TOTALS
Financial statement information that reports cumulative from inception
totals and retained deficit accumulated during the development stage,
includes the results of operations from the purchase date of MRI(US)
and not the disposed of operations of Malvy France, Malvy UK, and
SIPCO.
F-11
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CASH
Cash includes cash on hand and cash in checking accounts.
INVENTORIES
Inventories for MRI(US) consist of steel scrap, zinc bearing solutions,
and other chemicals valued at lower of cost or market.
PROPERTY AND EQUIPMENT
Assets are recorded at historical cost. Depreciation is computed using
the straight-line method based on the estimated useful lives of the
related assets. Expenditures for maintenance and repairs are charged
to expense as incurred whereas expenditures for renewals and
betterments are capitalized. The cost and related accumulated
depreciation of assets sold or otherwise disposed of during the
period are removed from the accounts. (note 3.)
INTANGIBLE ASSETS
Intangible assets will be amortized using the straight line method over
the estimated life of the related assets as follows:
Concessions, rights, patents, and goodwill 15 Years
Organizational costs 5 Years
(note 15.)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided using the straight-line
method over the useful lives of the related assets.
F-12
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOSS PER SHARE
Thecomputation of earnings (loss) per common share considers the
weighted average number of shares outstanding during the year.
Common stock options, and warrants, if dilutive, are considered in
the computation of earnings per share (unless anti-dilutive). The
treasury method of accounting for the dilutive outstanding common
stock options and warrants is used in the earnings per share
calculation.
INCOME TAXES
MRTI files consolidated federal and state income tax returns. MRTI
computes provisions for income taxes if any in the consolidated
financial statements using the liability method of accounting
prescribed by Financial Accounting Standards Board Statement No.
109.
BASIS FOR PRESENTATION
MRTI presents all financial statements in United States dollars and
under generally accepted accounting principles as practiced in the
United States.
FOREIGN CURRENCY TRANSLATION
Foreign entities translate monetary assets and liabilities at year end
exchange rates while non-monetary items are translated at historical
rates. Revenue and expense accounts are translated at the average
rates in effect during the year. Gains and losses from changes in
exchange rates are recognized in consolidated income (loss) in the
year of occurrence. Adjustments resulting from translation of assets
and liabilities are reflected in the stockholders' equity section
titled "Cumulative foreign currency translation adjustment."
RECLASSIFICATIONS
Certain amounts for prior years may have been reclassified to conform
with the current year presentation.
F-13
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RISKS AND UNCERTAINTIES
Thepreparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
<TABLE>
<CAPTION>
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1997 1996
------------------------------ -----------------------
Accumulated Book Accumulated Book
Cost Depreciation Value Cost Depreciation Value
<S> <C> <C> <C> <C> <C> <C>
MRI(US):
Equipment and capitalized expenses$ 2,435,654 - 2,435,654 2,178,823 - 2,178,823
Furniture and fixtures 33,845 - 33,845 33,845 - 33,845
Leasehold improvements 537,601 - 537,601 348,255 - 348,25
Vehicles - - - 31,062 - 31,062
$ 3,007,100 - 3,007,100 2,591,985 - 2,591,985
========= ======= ========= ========= ======= =========
</TABLE>
MRI(US) is in the developmental stage and therefore, no depreciation was
taken in 1996 or 1997.
F-14
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
(4) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 was as follows:
1997 1996
---- ----
<S> <C> <C>
MRTI
In a settlement with former shareholders, MRTI agreed $ 3,285,000 -
to pay $3.25 million dollars plus administrative fees
in cash and common stock. Payments scheduled
include $1,050,000 on the effective date
of the agreement (October 15, 1997) and future
annual payments of $550,000 over the next four
years. As further discussed in note 17, MRTI
is currently in default of this agreement.
MRI(US)
United States Department of Energy (D.O.E.), 505,000 505,000
provided a research grant to the Argonne
National Laboratory of $1,400,000 to conduct research
and pilot plant work on the dezincing of steel. The total
benefits of this work to accrue to MRI(US). Of this amount,
MRI(US) was paid $505,000 and under a Memorandum of
Understanding with D.O.E., will be responsible to repay
1.5 times the amount received, i.e., $2,100,000 to D.O.E.
out of future royalty receipts from the process. Management
anticipates no repayment funds will be paid in 1998.
Equipment capital lease; principal and interest - 8,762
payments due monthly for 24 months with a $1 buyout
option at end of lease.
3,790,000 513,762
Less current installments 1,635,000 4,580
---------- --------
Long-term debt, net of current maturities $ 2,155,000 509,182
========== =======
</TABLE>
F-15
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(5) CONTINUING OPERATIONS - LIQUIDITY
Continued operations require continuing loans from various entities. At
December 31, 1997 and 1996, the balance of these loans totaled
$3,285,794 and $3,288,010, respectively. The balance of 1997 loans
are scheduled to be converted into common shares on June 30, 1998.
Conversion of notes is subject to anti-dilution provisions and
interest of 10% per annum. Following is a schedule of these notes:
F16
<PAGE>
<TABLE>
<CAPTION>
Note 1997 1996
---- ---- ----
<S> <C> <C>
Sovereign Trust Services loan converted into
2,801,191 shares common stock in April 1997 $ - 680,036
Osbourne Ltd. loan converted into
1,555,271 shares of common stock in February 1997 - 220,000
Jepherson Ltd. loan converted into
1,301,725 shares of common stock in October 1997 - 98,521
Alcaria Investments, Ltd. loan converted into
1,325,775 shares of common stock in October 1997 - 100,398
Dorrance Ltd. loan convertible into 6,935,287
shares of common stock 526,794 -
Sundorne Holdings, SA loan convertible into
9,772,263 shares of common stock 781,781 715,154
Garcia Ltd. loan convertible into 481,062
shares of common stock 38,485 -
Plenbrick Ltd. loan convertible into 8,263,175
shares of common stock 661,054 604,688
Antheims Ltd. loan convertible into 1,295,675
shares of common stock 103,654 96,384
Pangea Ltd. loan convertible into 6,935,287
shares of common stock 554,823 504,706
Quested Ltd. loan convertible into 6,802,538
shares of common stock 544,203 268,123
Accounting Services Ltd. loan convertible into
1,416,668 shares of common stock 75,000 -
----------- ----------
$ 3,285,794 3,288,010
========= =========
</TABLE>
Interest payments for 1997 and 1996 of $280,394 and $229,673, respectively,
were capitalized.
F-17
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(6) NOTE PAYABLE
Thenote payable consists of a MRI(US) loan obtained from American
National Bank & Trust Co. of Chicago prior to acquisition. The
balance of this note was $39,184 and $49,894 for 1997 and 1996,
respectively. MRI(US) is currently in default of this agreement.
(7) INCOME TAXES
As of December 31, 1997, MRTI has income tax net operating loss
carryforwards available to offset future federal taxable income,
which expire in future years. The use of these operating losses are
dependent upon MRTI having taxable net earnings.
MRTI's unused net operating loss carryforwards available to offset
future taxable income for income tax reporting purposes expire as
follows:
Years Ending Net Operating Loss
------------ ------------------
2002 208,223
2003 55,337
2004 694,177
2005 128,994
2006 232,623
2007 291,834
2008 1,746,945
2009 1,682,025
2010 1,111,273
2011 3,909,059
Neither MRTI nor its subsidiaries had any taxable net income in 1997,
1996, or 1995. Management has elected not to recognize any value for
operating loss carryforwards for income tax purposes in the financial
statements.
F-18
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(8) PREFERRED STOCK
SERIES A PREFERRED
DESCRIPTION
TheSeries A stock confers the following rights: (1) A preference upon
liquidation, (2) a 12% dividend payable at MRTI's discretion either
in additional preferred stock, common shares, cash, or gold, (3) MRTI
has the right to redeem at any time upon notice to the preferred
holder, (4) the right to convert into common shares at a ratio of
12.5 common shares for each preferred one, and (5) the holders of the
Series A preferred shares have the right to elect a majority of the
Board of Directors and can vote the total number of common shares
into which the Series A can be converted.
During 1997, the total of Series A preferred stock outstanding was
redeemed in exchange for a negotiated number of common shares. (See
note 13.)
SERIES B PREFERRED
DESCRIPTION
TheSeries B stock confers the following rights: (1) A preference upon
liquidation, except not as to the Series A preferred stock, (2) an 8%
cumulative cash dividend, (3) the Corporation has the right to redeem
at any time upon notice to the preferred holder and subject to
certain other conditions, (4) the right to convert into common shares
at a ratio of 6 common shares for each preferred share, which ratio
is subject to adjustment in certain events, and (5) the holders of
the Series B preferred shares shall as a class elect one member of
the Board of Directors and have other voting rights as granted by
law.
At December 31, 1997 and 1996, there were 21,375 Series B preferred
shares outstanding. Management is pursuing the future retirement of
these shares.
(9) COMMON STOCK
REVERSE SPLIT
On February 21, 1995 MRTI announced a 20 for 1 reverse split effective
immediately. This reduced the number of shares outstanding by
47,364,542.
PURCHASE OF MRI(US)
In April 1995, as more fully described in note 1, MRTI issued 11,000,000
shares to an underwriter to be placed with offshore investors. The
proceeds were used for the acquisition of MRI(US).
F-19
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
COMMON STOCK, CONTINUED
Reconciliation of outstanding MRTI common stock is as follows:
Outstanding shares of Common Stock
as of December 31
1997 1996
Beginning balance 20,707,597 13,764,653
Shares issued 17,682,904 6,942,944
----------- ---------
Total outstanding
common stock 38,390,501 20,707,597
========== ==========
In 1997, MRTI issued stock for the following purposes:
Month Shares Purpose
----- ------ -------
January571,428Shares sold in private placement
February 1,555,271 Conversion of debt
April 2,801,191 Conversion of debt
April 680,451 Shares sold in private placement
June 2,550,000 Redemption of preferred shares
September 3,305,727 Conversion of debt
October 3,537,500 Conversion of debt
October 916,668 Shares sold in private placement
November 916,668 Shares sold in private placement
November 728,000 Conversion of debt
November 120,000 Employee incentives
-------
Total 17,682,904
==========
(10) KEY EMPLOYEE QUALIFIED INCENTIVE STOCK OPTION PLAN
There is currently no formal key employee incentive stock plans. In
1997, under an informal stock incentive plan, MRTI issued common
stock worth $17,000 to employees.
F-20
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
(11) WARRANTS OUTSTANDING
Warrants outstanding as of December 31, 1997, are as follows:
Date Number Price
Holder Issued Life Expires of Shares Per Share
------ --------- ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sovereign Trust Services, Ltd. February, 1995 3 years January, 1998* 125,000 $ 0.80
Sundorn Holding, S.A. February, 1995 3 years January, 1998* 125,000 0.80
Accounting Services, Ltd. September, 1995 3 years August, 1998 500,000 0.50
Vistaquest, Inc. January, 1996 5 years December, 2001 1,000,000 0.30
R.G. Advisory Services September, 1995 3 years August, 1998 250,000 0.50
Accounting Services, Ltd. July, 1995 3 years June, 1998 500,000 0.50
Elwin Smith International September, 1995 3 years August, 1998 100,000 0.50
Venaus August, 1996 2 years August, 1998 100,000 0.35
-------
Total 2,700,000
=========
</TABLE>
*As of report date warrants have expired.
F21
<PAGE>
(12) SUPPLEMENTAL CASH FLOW INFORMATION
Thefollowing provides additional information concerning the
supplemental disclosures of cash flow activities for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
NONCASH INVESTING AND FINANCING ACTIVITIES
Theeffects on the balance sheets of noncash investing and financing
activities for the years ended December 31, 1997, 1996 and 1995,
consist of the following:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Loss on disposal of assets $ - - 33,883,238
Foreign currency translation
adjustment - - (424,599)
Issued common stock
for debt 1,651,831 413,269 199,750
Issued common stock in exchange
for goods or services 452,358 248,949 -
Reserve for pipeline
cleanup adjustment $ - - 60,787
</TABLE>
Management has shown net amounts in the Consolidated Statement of Cash
Flows.
F-22
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(13) RELATED PARTY TRANSACTIONS
PAYMENTS TO JACK ALEXANDER
In 1995, MRTI reached a settlement with a former officer and director
(Mr. Jack Alexander), and certain related entities in respect of
amounts claimed to be owed to them by MRTI for notes payable, loans,
and the redemption price of MRTI's Series A preferred stock. Payments
of $275,316 and $150,000 were made in 1995 and 1996, respectively. At
December 31, 1996, there was an amount due in respect to notes
payable and interest of $55,098 together with an amount due of
$469,650 to redeem the Series A preferred stock. Mr. Alexander had
assigned beneficial ownership of all interest described herein to an
entity named Morton Blue.
During 1997, an agreement with Morton Blue to settle the liability and
redeem the Series A preferred shares was reached. This occurred by
the issuance of 2,550,000 shares of MRTI's common stock under
Regulation S.
PLANT FACILITY
MRI(US) leases its plant facility from an entity in which one of the
MRTI directors has a partial beneficial interest. Lease expenses
amounted to $60,000 in 1997 and 1996. The annual lease payment is
$60,000 and expires on January 31, 2000.
OFFICER AND DIRECTOR COMPENSATION
During the years ended December 31, 1997 and 1996 compensation expense
for current officers and directors was $522,526 and $985,000,
respectively. At December 31, 1997 and 1996, MRTI had accrued
expenses of zero and $219,958 payable to officers and directors,
respectively.
LOANS TO OFFICERS AND DIRECTORS
In the past, MRTI has made loans to officers and directors. At
December 31, 1997 and 1996 the balance of these loans was zero and
$74,966, respectively.
OFFICER AND DIRECTOR FINANCIAL INTEREST
Current officers and directors have direct and contingent interest in
approximately 1,030,000 shares of common stock. Further, one director
owns an interest in the company that may receive the convertible
redeemable preference shares more fully discussed in note 1.
F-23
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(14) CASH
At December 31, the cash balances were:
1997 1996
---- ----
Cash in checking accounts $ 43,247 6,778
====== =====
Balances are insured up to FDIC insured limits. At December 31, 1997,
MRTI did not exceed these limits.
<TABLE>
<CAPTION>
(15) INTANGIBLE ASSETS
CONCESSIONS, RIGHTS, PATENTS AND GOODWILL
Concessions, rights, patents and goodwill relate to the purchase of
MRI(US) and patent development as follows:
Balance at Balance at
December 31, 1997 Accumulated December 31,
1996 Additions Amortization 1997
---- --------- ------------ ----
<S> <C> <C> <C> <C>
MRI(US)
Concessions, rights, patents
and goodwill $ 12,905,749 857 - 12,906,606
========== ============= ============== ==========
MRI(US) is in the developmental stage and therefore no amortization was
taken in 1996 or 1997.
ORGANIZATIONAL COSTS
Organizational costs consisted of the following at December 31:
Balance at Balance at
December 31, 1997 Accumulated December 31,
1996 Additions Amortization 1997
---- --------- ------------ ----
MRI(US)
Organizational cost $ 2,112,367 2,085,782 - 4,198,149
========= ========= ============== =========
</TABLE>
MRI(US) is in the developmental stage and therefore no depreciation was
taken in 1996 or 1997. Organizational costs consists of raising
capital, obtaining financing, locating and acquiring equipment,
obtaining customers and suppliers, installing and testing equipment
and certain administrative activities.
F-24
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(16) DISCONTINUED OPERATIONS
SIPCO
In December 1992, SIPCO acquired a pipeline operation (Seminole
Pipeline) located in Oklahoma, in exchange for 143,750 shares of MRTI
Series B preferred stock. In 1994, 143,750 preferred Series B shares
were redeemed for 7,137,731 shares of common stock. In 1995, SIPCO
was sold for a nominal price, and the result of this transaction is
reflected in the 1995 statement of operations.
MALVY FRANCE AND MALVY UK
The success of Malvy France and Malvy UK depended solely on the success
of the Malvy auto anti-theft device. In September, 1995, it was
determined that without substantial future investment the device was
not marketable. Malvy France was closed and turned over to French
government liquidators and Malvy UK was closed. MRTI does not expect
to receive any funds from this liquidation. A loss on disposal of
assets was recorded for $33,883,238 in 1995.
(17) CONTINGENCIES
At December 31, 1997, MRTI was involved in several matters of
litigation, regarding past and present business activities. These
matters were initiated by creditors and former employees. Some of the
matters involving creditors and former employees were settled or
ruled in favor of MRTI and are provided for in the accompanying
financial statements. It is the opinion of management that the
ultimate outcome of the remaining litigation would not be material to
the financial statements except as described below. The outcome of
these cases is unknown at this time and, accordingly, no provision
for any liability that might result has been made in the accompanying
financial statements.
In 1995, an action initiated by a shareholder, was made against MRTI and
certain present and former directors. In 1996, this action became a
"class-action" suit. The action alleges that breaches of the federal
securities laws occurred, by reason of alleged material
misrepresentations by MRTI and MRTI's alleged failure to make timely
disclosure relating to its Malvy auto anti-theft device operations.
During 1997, MRTI negotiated a settlement in the amount of $3.25
million, payable in cash and unrestricted common stock to be paid
over the next four years. The resulting liability was provided for in
the accompanying financial statements. Currently, MRTI has not met
the obligations as agreed and is in default of the settlement. The
result of this is unknown at this time and, accordingly, no provision
for any additional liability that might result has been made in the
accompanying financial statements.
F-25
<PAGE>
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
CONTINGENCIES, CONTINUED
In 1997, MRI(US) settled a lawsuit with the National Labor Relations
Board. While a portion of the payments were made, MRI(US) is in
default of the agreement. A related liability in the amount of
$35,000 has been recorded in the financial statements. The result of
the default is unknown at this time and, accordingly, no provision
for any additional liability that might result has been made in the
accompanying financial statements.
During 1997, MRTI did not make all of the required federal and state
deposits related to payroll withholding taxes. At December 31, 1997
MRTI has recorded a liability of $157,386 for the withholding taxes
and penalties and interest that have been determined. However,
additional fines and penalties resulting from this action are unknown
and accordingly, no provision for any additional liability that might
result has been made in the accompanying financial statements.
(18) GOING CONCERN
As shown in the accompanying financial statements, MRTI incurred
substantial net losses in 1997, 1996 and 1995. At December 31, 1997,
current liabilities exceeded current assets by $7,233,663. Operations
for 1998 will consist of further development and administrative costs
which will be funded from conditional convertible loans with existing
and new entities (note 5). Further, in March 1998, MRTI has signed a
conditional agreement for a $3 million convertible loan. Under the
terms of the agreement, MRTI will form a new operating company to be
called Zinc Recovery Inc. which will be a wholly-owned subsidiary of
MRTI. The operating assets of MRTI and MRI(US) will be transferred to
the new company. The loan will be used for the purpose of an
engineering upgrade and bringing into production the plant located at
East Chicago, Indiana. Absent receiving new financing and generating
new revenue, there is substantial uncertainty about MRTI's ability to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
F-26
EXHIBIT 10(A) - MATERIAL CONTRACTS
- - ----------------------------------
LOAN AGREEMENT
1. BORROWER: Metal Recovery Technologies, Inc. (MRTI) (hereinafter called
"Borrower"), a Delaware corporation.
2. LENDER (hereinafter called "Lender")
3. AMOUNT: a loan not exceeding US ( US Dollars) to assist MRTI (Borrower) to
finance its subsidiary MRIUS, Inc.
4. SECURITY:
a) The borrower will grant to the lender a first secured interest in
100% of the share capital of its subsidiary MRI(US), Inc. The
borrower will provide the share certificate of its subsidiary to
the lender together with a signed transfer of its 100% interest in
the shares of its subsidiary prior to any loans being made.
b) The borrower will, upon receipt of any loan from the lender, enter
into a loan agreement with its subsidiary MRI(US), similar to this
agreement. The subsidiary, MRI(US) will have loan obligations to
its parent company equal to those of MRTI to the lender. MRTI will
as part of this agreement assign the rights to collect such loan
to the lender with the express purpose of giving the lender a
secured interest in the assets of the subsidiary MRI(US), Inc.
5. DRAWDOWN: Drawdown to be denominated in US Dollars and to be in such amounts
as are agreed from time to time the Lender and the Borrower (subject to the
maximum herein before specified). Each drawdown shall be treated as a separate
advance and shall be repayable not later than twelve (12) months after the date
of drawdown of such particular advance.
6. INTEREST:
a) The interest rate for each advance shall be 10% per annum and shall
be deemed to accrue from day to day.
b) Interest shall be payable annually, on the anniversary hereof.
c) Any interest period which would otherwise terminate on a day which
is not a business day shall be extended to the next following business
day.
d) Interest will be calculated on the basis of a 365-day year.
e) Overdue advances will be rolled over on a day to day basis after
the maturity date following which interest will be charged at 12% per
annum.
7. NOTICE OF DRAWDOWN: The Borrower shall give at least 24 hours notice of
drawdown in writing or by telefax which shall be irrevocable unless the
Lender agrees otherwise.
8. PAYMENTS: All payments by the Borrower of principal and interest will be
made no later than 11 a.m. on the day on which repayment should be effected
to an account specified by the Lender.
9. WARRANTIES: The Borrower warrants that:
a) It has the power to borrow and its subsidiary MRI(US), Inc. has the
power to borrow and has taken all necessary action to authorize the
borrowing upon the terms and conditions of this loan agreement and that
drawings made hereunder will not exceed authorized limits.
b) It is not in default under any agreement, document or other
obligations where such default might have a material adverse affect on
its business, assets or trading conditions taken as a whole.
c) It has obtained all necessary consents to the borrowing and the
borrowing will not constitute a breach of any restrictions contained in
its by-laws of certificate and incorporation.
d) The acceptance of this offer by the Borrower constitutes a legally
binding obligation on the Borrower enforceable in accordance with its
terms and there are no actual, pending or threatened actions or
proceedings that may materially adversely affect its financial
condition or operation.
These warranties are deemed to be given in respect of each drawdown of the
facility hereby granted.
10. TERMINATION: The Lender shall have the right to terminate this facility and
demand repayment of advances and payment of accrued interest if:
a) the Borrower makes any default in any payments hereunder;
b) any advance to the Borrower becomes repayable at a date earlier
than its normal due date;
c) the warranties prove inaccurate in a material way; or
d) a default as specified in clause 11 shall occur.
11. COVENANTS: The Borrower hereby covenants and undertakes with the Lender
that until all amounts whether in respect of principal or interest due or
to become due under this facility have been paid in full to the Lender:
a) to furnish to the Lender as soon as practicable and in any event
not later than 90 days after the close of each annual accounting
period a copy of its audited consolidated accounts for each period;
b) to furnish to the Lender as soon as practicable and in any event
not later than 45 days after the close of each quarterly accounting
period a copy of its management accounts together with quarterly
management reports;
c) not to enter into any transaction which in the reasonable opinion
of the Lender would or might materially adversely affect its business,
property, assets, operation, financial condition or the Borrower's
ability to perform its obligations hereunder; or
d) will not amend its corporate charter in a manner which in the
reasonable opinion of the Lender would be prejudicial to the interest
of the Lender.
e) not to use any of the loaned funds for any purpose other than for
investment in its subsidiary MRI(US), Inc. Under no circumstances are
any of the funds to be invested in Malvy Technology, or for the
repayment of any liabilities the corporation has to Jack Alexander to
redemption of A Preference shares or payments to entities connected
with Jack Alexander or any other obligations of the corporation.
f) will retain corporate separation of the MRI(US) subsidiary and will
not permit guarantees, cross guarantees or any other confusion to
occur which would give rise to any creditors of MRTI having any claim
over the assets of MRI(US), Inc.
12. EVENTS OF DEFAULT: Each of the following shall constitute an event of
default:
a) If the Borrower defaults in the repayment of the principal or
interest due on the advances and such default continues for five (5)
business days after notice.
b) If any indebtedness or obligation of the Borrower for payment of
borrowed money becomes due and payable and is demanded by the lender
thereof prior to the specified maturity date thereof, due to any
default on the part of the Borrower or is otherwise not paid when due.
c) If any representation or warranty made by Borrower proves to have
been materially untrue and inaccurate.
d) Borrower files a voluntary petition for relief under any chapter of
the U.S. Bankruptcy Code, or under any state debtor's act law, or if
such a petition is filed against Borrower under the Code or any such
law and is not stayed or dismissed within 30 days.
e) If the Borrower ceases or threatens to cease to carry on its
business or any part thereof or changes the nature of its business or
any part thereof material to the Borrower which would in the opinion
of the Lender affect its ability to discharge its commitments under
this facility.
f) If any distress, execution, sequestration attachment or other
process is levied or enforced upon or sued out against the Borrower
for an amount in excess of $25,000 and is not discharged or bonded
within seven days.
g) If the Borrower enters into any arrangement or composition with its
creditors.
h) If encumbrances take possession of or a receiver or trustee is
appointed over any material portion of the assets of the Borrower.
i) If in the opinion of the Lender there has occurred a material or
adverse change in circumstances affecting the Borrower which would in
the Lender's sole opinion affect the ability of the Borrower to
discharge its commitments under this facility.
j) The Lender reserves the right to review or revoke the maintenance
of this facility herein contained should further information material
to the facility and which might be prejudicial to the Lender's
interest become available.
13. CONVERSION OPTION:
a) The Lender shall on the occasion of each drawdown of the facility
have the option of subscribing for common shares of the Borrower at a
conversion price of one share for each $___ of loan previously
advanced or to be advanced, which price shall be paid by reducing
Borrower's then outstanding indebtedness to Lender, as set forth
below.
b) The said option may be exercisable at any time during the period
when this facility shall remain extant or the indebtedness incurred
hereunder shall remain outstanding and unpaid.
c) The said option may be exercised by notice in writing from the
Lender to the Borrower to that effect specifying the amount of
advances to be paid by issuance to Lender of shares of common stock of
the Borrower.
d) Such shares shall be issued pursuant to Regulation S of the U.S.
Securities and Exchange Commission, and subject to all terms and
conditions thereof.
<PAGE>
14. NOTICES:
The address of the Borrower for purposes of serving all notices hereunder shall
be the address set forth above, unless and until Borrower notifies Lender of
another address by written notice given by certified U.S. mail, postage prepaid,
return receipt requested.
Should the terms and conditions of this offer be acceptable to you please
evidence your acceptance by signing the form of acceptance endorsed on the copy
of this letter enclosed and returning it to us together with:
1) Certified copy of the Certificate of Incorporation of the Borrower.
Yours faithfully,
- - ----------------------------------------------------------------------------
Accepted: Metal Recovery Technologies, Inc. For and on behalf of
By: ___________________________
Dated: ________________________
EXHIBIT 10(B) - MATERIAL CONTRACTS
- - ----------------------------------
PLEDGE AND SECURITY AGREEMENT, dated as February 1, 1996, by and among
METAL RECOVERY TECHNOLOGIES, INC., a Delaware corporation, having an address at
415 E. 151st Street, East Chicago IN 46312 (herein referred to as "MRTI" or
"Debtor"), PLENBRICK, LTD., having an address at The Creche Building, Upper Main
Street, P.O. Box 116 Road Town, Tortola B.V.I., individually and as agent for
certain other parties, and METAL RECOVERY INDUSTRIES (U.S.), INC., a Delaware
corporation, having an address at 415 E. 151st Street, East Chicago, IN 46312
(herein referred to as "MRIUS"), and the Secured Parties (as hereinafter
defined) identified on Exhibit A hereto.
WITNESSETH:
WHEREAS, Debtor owns all of the issued and outstanding capital stock of
MRIUS, a Delaware corporation (herein referred to as "MRIUS" or the
"Subsidiary"); and
WHEREAS, the Secured Parties (as hereinafter defined) have made, or
have agreed to make, certain loans to Debtor which are convertible into shares
of common stock of Debtor; and
WHEREAS, Debtor wishes to extend the maturities of such loans; and
WHEREAS, the Secured Parties are concerned about continuing delays in
the completion and operation of the Debtor's dezincification facility located in
East Chicago, Indiana (the "Facility") and desire, as a condition of extending
their loans and the maturities thereof, to be assured as to the timely
completion of the Facility and against changes in the control and management of
Debtor; and
WHEREAS, the Secured Parties also desire that repayment of their loans
be secured; and WHEREAS, Debtor is willing, in order to induce the
Secured Parties (i) to make or extend loans to
Debtor, and (ii) to make loans and extend credit to Subsidiary, the repayment of
which will be guaranteed by Debtor, to grant to the Collateral Agent (as
hereinafter defined), for the pro rata benefit of the Secured Parties, a
security interest under the Uniform Commercial Code in all of Debtor's assets
and properties, tangible and intangible, now existing or hereafter acquired, for
the purpose of securing (x) the timely repayment by Debtor of all such loans and
extensions of credit and (y) the full and complete performance by Debtor of
Debtor's obligations under guarantees by Debtor of the timely repayment of loans
and extensions of credit made to Subsidiary; and
WHEREAS, Debtor is also willing to provide certain protections to the
Secured Parties against changes in the control and management of MRIUS; and
WHEREAS, Plenbrick, Ltd. has agreed to hold the Collateral under this
Agreement for itself and as agent for all other Secured Parties (Plenbrick,
Ltd., in such capacity, being herein referred to as the "Collateral Agent"), as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
1. Loans.
(a) The parties whose names and addresses are set forth on
Exhibits A and B have heretofore made loans to MRTI or have agreed to make loans
to MRTI. Exhibit A sets forth the names of parties having made, or having agreed
to make, loans, the respective amounts lent or to be lent, and the maturities,
interest rates and conversion rights with respect thereto. All of the foregoing
parties are hereinafter sometimes referred to as the "Secured Parties." The
Secured Parties have designated Plenbrick, Ltd. as the Collateral Agent
hereunder, with the rights, powers and obligations set forth in this Agreement.
(b) Debtor has requested, and the Secured Parties have agreed,
that the terms of their existing loans or commitments referred to on Exhibit A,
shall be modified as set forth on Exhibit A. In order to induce the Secured
Parties to enter into the loan amendments or modifications described on Exhibit
A, Debtor has agreed to execute and deliver this Agreement, to grant and create
the security interest granted and arising hereunder, and to create certain
rights in favor of the Secured Parties respecting the exchange of indebtedness
of Debtor to the Secured Parties for shares of common stock of MRIUS, all as
more particularly set forth. New promissory notes or other evidences of
indebtedness may be issued to the Secured Parties to evidence the modified terms
of such loans, but the failure to do so shall not affect the validity or
enforceability of the loans as so modified hereby.
(c) The Secured Parties and Debtor hereby agree that, with the
consent of Debtor and of either the Collateral Agent or of Secured Parties at
the time owning a majority in interest of the aggregate principal amount of
indebtedness owed by Debtor to all Secured Parties, parties hereafter making
loans or advances, or renewals thereof, to Debtor may become entitled to the
benefits of this Agreement and in such event shall be deemed to be Secured
Parties hereunder with the same force and effect as though they were Secured
Parties as of the date of this Agreement. The Secured Parties identified on
Exhibit A and all other persons or entities who hereafter make loans or extend
credit to Debtor and become entitled to the benefits of this Agreement are
hereinafter collectively referred to as Secured Parties, and individually as a
Secured Party.
2. Right to Convert Loans.
In order to induce the Secured Parties to extend, modify or renew their
existing loans to Debtor, or to extend new loans to Debtor or to Subsidiary (the
said loans being herein individually and collectively termed "Indebtedness"),
the Debtor hereby agrees that, in addition to any rights which a Secured Party
may have to convert Indebtedness into common shares of MRTI ("MRTI Shares"), the
Collateral Agent, acting on behalf of the Secured Parties, shall have the
additional rights hereinafter set forth in the event that (i) holders of Class A
Preferred Stock of MRTI exercise, or threaten or purport to exercise, the right
to elect a majority of the directors of MRTI, or (ii) Collateral Agent shall
determine that any litigation now or hereafter pending against Debtor would, if
adversely determined have a material adverse affect on Debtor's financial
condition or business. Following the occurrence of such an event (an "Exchange
Event") and during its continuance, the Collateral Agent, on behalf of the
Secured Parties, shall have a one-time right (the "Exchange Right"), exercisable
by written notice to Debtor, to exchange Indebtedness having an aggregate
principal amount of not less than $2,000,000 for that number of fully-paid and
non-assessable shares of the common stock of MRIUS ("MRIUS Shares") as shall
represent a majority of all then issued and outstanding shares of MRIUS (giving
effect to the issuance of MRIUS Shares hereunder). The Collateral Agent shall
exercise the Exchange Right on behalf of Secured Parties so electing, provided
that Secured Parties owning a majority in principal amount of the Indebtedness,
but not less than $2,000,000, so direct. A Secured Party may not elect to
exercise the Exchange Right as to less than all Indebtedness owned by it.
Exchange of Indebtedness for MRIUS Shares shall be effected by the
Collateral Agent (acting for such purpose as agent for Debtor) causing to be
issued and delivered, free and clear of the security interest created hereby, to
the Secured Parties so electing, the respective number of MRIUS Shares to which
each is entitled, which shall be pro rata to their respective shares of the
total Indebtedness outstanding, calculated as of the date when the Exchange
Right is exercised. The Indebtedness owned by a Secured Party shall be deemed
canceled upon delivery to it of MRIUS Shares hereunder, and the Secured Party
shall so confirm in writing.
Following the occurrence of an Exchange Event, the MRIUS Shares, if not
required to be issued to the Collateral Agent, shall continue to be held in
pledge by the Collateral Agent, upon all of the terms and conditions hereof.
MRTI and Debtor each covenant that they shall, at their sole cost and
expense, take all corporate and other actions, including all necessary filings
with the SEC and any other regulatory authorities, required in order that there
shall be issued to each party hereto the number of MRIUS Exchange Shares to
which such Secured Party is entitled as aforesaid, in consideration of the
cancellation of the Indebtedness. The Collateral Agent, acting on behalf of the
Secured Parties, may enforce the provisions hereof by appropriate action for
equitable relief. MRIUS hereby appoints the Collateral Agent as the agent and
attorney-in-fact of MRIUS, with power of substitution, for purposes of doing all
acts and things, and executing all documents, necessary or convenient to effect
the exercise of the Exchange Right and the transfer of the MRIUS shares into the
names of the Exchange Agent and of the Secured Parties. Such agency shall be
deemed coupled with an interest and irrevocable until payment in full of the
Indebtedness. Debtor shall reimburse the Collateral Agent for all costs and
expenses incurred in enforcing the provisions hereof and the Collateral Agent
shall retain a security interest to secure Debtor's obligations for
reimbursement hereunder.
3. Debtor's Grant of Security Interest in Collateral.
Debtor hereby grants to the Collateral Agent, for its benefit and for
the benefit of all of the Secured Parties, as security for the repayment of the
Indebtedness, including all interest due or to become due thereon and of all
other sums payable hereunder and the performance of (a) all obligations of
Debtor under this Agreement (b) the payment and performance of all obligations
arising under and pursuant to any loans or extensions of credit which, by their
terms, are entitled to the benefit hereof and (c) the payment and performance of
all obligations arising under any guarantees by Debtor of loans or extensions of
credit made to Subsidiary which, by their terms, are entitled to the benefits
hereof (all such obligations and indebtedness being herein collectively referred
to as the "Obligations") a security interest in all of the Debtor's right, title
and interest in the following described property (collectively referred to as
the "Collateral"):
(i) (A) All shares of the capital stock of the Subsidiary and
of any other corporations which are subsidiaries of Debtor (the
"Pledged Securities"), together with any additional securities or other
property hereafter issued by way of a dividend or distribution thereon
and any proceeds thereof and any securities issued in exchange for the
Pledged Securities; and
(B) All other proceeds or other distributions in
respect of any or all of the Pledged Securities or any replacements or
substitutions thereto or therefor and all proceeds generated by the
sale or disposition thereof.
(ii) all of Debtor's personal property and fixtures, wherever
located, whether now owned or hereafter acquired or created, including,
without limitation, all of Debtor's right, title and interest in and to
the items and types of property described below and the products and
proceeds thereof:
(A) all accounts, accounts receivable, all rights to
receive the payment of money or other consideration under
present or future contracts or by virtue of services rendered,
merchandise sold or leased, advances made or other
consideration given, whether or not earned by performance and
whether or not evidenced by or set forth in or arising out of
any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy, instrument,
document or general intangible, and all extensions and
renewals of any thereof, all rights under or arising out of
present or future contracts, agreements or general
intangibles, including, without limitation, all payments under
licensing agreements or arrangements, and all claims for tax
refunds, if any, all claims or causes of action which it may
now or hereafter have whether arising in connection with or
under any agreement or document or by operation of law or
otherwise, including, without limitation, all present and
future indebtedness and obligations of any affiliate or
subsidiary to it, including specifically, but without
limitation, indebtedness of the Subsidiary to the Debtor
arising pursuant to loans or advances made to the Subsidiary
from the proceeds of the Indebtedness wherever any of the
foregoing may be located and whether the same are owned by the
Debtor on the date hereof or are hereafter acquired or
created;
(B) all inventories of every nature, including,
without limitation, all goods held for sale or lease or
furnished or to be furnished under contracts of service, all
raw materials, work in process and finished goods, and all
supplies, materials and products of every nature and
description used or usable, consumed or consumable in
connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of such goods and
all right, title and interest in merchandise which gives rise
to any or all of the foregoing, wherever any of the foregoing
may be located and whether the same are owned by the Debtor on
the date hereof or are hereafter acquired or created;
(C) all equipment, machinery, apparatus, chattels,
tools, dies, jigs, molds, parts, machine tools, trucks,
automobiles, vehicles, rolling stock, furniture, furnishings,
fixtures and supplies, of every nature, wherever any of the
foregoing may be located and whether the same are owned by the
Debtor on the date hereof or are hereafter acquired or
created, and all additions, accretions and accessories thereto
and substitutions and replacements of any of the foregoing and
all parts and equipment which may be attached to or usable in
any way in connection with or which are necessary for the
operation and use of such personal property wherever any of
the foregoing may be located and whether the same are owned by
the Debtor on the date hereof or are hereafter acquired or
created;
(D) all documents and chattel paper, wherever any of
the foregoing may be located and whether the same are owned by
the Debtor on the date hereof or are hereafter acquired or
created;
(E) all general intangibles of every nature,
including, without limitation, patents, patent applications,
trademarks, licensing agreements, royalty payments,
copyrights, service names, service marks, logos, goodwill and
rights of indemnification, whether the same are owned by the
Debtor on the date hereof or are hereafter acquired or
created;
(F) all books, correspondence, credit files, customer
lists, records and other documents relating to the
above-described types of property, including, without
limitation, all tapes, cards, runs and other papers and
documents in the possession or control of the Debtor, or any
affiliate or subsidiary of the Debtor or any computer service
bureau, wherever any of the foregoing may be located and
whether the same are owned by the Debtor on the date hereof or
are hereafter acquired or created;
(G) all rights in, to and under policies of insurance
of every kind and nature covering the Collateral, including,
without limitation, claims or rights to payment and proceeds
heretofore or hereafter arising therefrom with respect to the
above-described types of property, whether the same are owned
by the Debtor on the date hereof or are hereafter acquired or
created;
(H) all fixtures;
(I) all rights in and to any proceeds from any
condemnation, in whole or in part, of all or any of the above
-described property; and
(J) all proceeds, product, offspring, rents or
profits of any or all of the property described above in
clauses (A) through (I) of this Subsection (ii) and any
replacements, additions, accessions or substitutions thereto
or therefor, afteracquired property in respect thereof and
proceeds generated by the sale, casualty loss or disposition
thereof.
The Security interest created hereunder shall be held by the Collateral Agent
for the respective pro rata benefit of all parties who are from time to time
Secured Parties hereunder, determined based on the respective principal amounts
of Indebtedness held by all such Secured Parties at any time and from time to
time; and the pro rata interests of all such Secured Parties shall be pari passu
in priority of payment.
4. Delivery of Pledged Securities.
The Pledged Securities shall be evidenced by certificates, all of which
shall be delivered to and held in the possession of the Collateral Agent or such
other person as the Collateral Agent may designate. In the event that the
Collateral Agent so designates any such person to take possession of the Pledged
Securities, such person shall be entitled to all rights and benefits of the
Collateral Agent contained in this Pledge and Security Agreement, and all
references herein to the "Collateral Agent" shall be deemed to include
references to such other person. Upon delivery to the Collateral Agent, any
Pledged Securities in certificated form shall be in suitable form for transfer
by delivery or shall be accompanied by duly executed instruments of transfer or
assignment in blank, with signatures appropriately guaranteed, all in form and
substance satisfactory to the Collateral Agent. All other property comprising
part of the Collateral shall be accompanied by proper instruments of assignment
duly executed by the Debtor and such other instruments or documents as the
Collateral Agent may reasonably request.
5. Warranties, Covenants and Agreements of the Debtor and the
Cooperative Corporation. Debtor warrants, covenants and agrees that:
(a) Except for the security interest granted hereby, the
Debtor is, and as to the collateral acquired after the date hereof the
Debtor shall and will be at the time of acquisition, the owner and
holder of the Collateral free from any adverse claim, security
interest, encumbrance, lien, charge, or other right, title or interest
of any person other than the Collateral Agent and covenants that at all
times the Collateral will be and remain free of all such adverse
claims, security interests or other liens or encumbrances; the Debtor
has full power and lawful authority to enter into this Pledge and
Security Agreement and to sell, assign and transfer the Collateral to
the Collateral Agent and to grant to the Collateral Agent a first and
prior security interest therein as herein provided, all of which have
been authorized by all necessary corporate action; the execution and
delivery and the performance hereof are not in contravention of any
charter or by-law provision or of any indenture, agreement or
undertaking to which the Debtor is a party or by which its property or
the Pledged Securities are bound; this Pledge and Security Agreement
constitutes the legal, valid and binding obligation of the Debtor,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Debtor will defend the Collateral against all
claims and demands of all persons at any time claiming the same or any
interest therein. Any officer, agent or representative acting for or on
behalf of the Debtor in connection with this Pledge and Security
Agreement or any aspect hereof, or entering into or executing this
Pledge and Security Agreement on behalf of the Debtor, has been duly
authorized so to do, and is fully empowered to act for and represent
the Debtor in connection with this Pledge and Security Agreement and
all matters related thereto or in connection therewith.
(b) (i) As long as any amount remains unpaid on the
Indebtedness, (a) the Debtor will not enter into or execute any
security agreement or any financing statement covering the Collateral,
other than those security agreements and financing statements in favor
of the Collateral Agent hereunder, and further (b) there will not be on
file in any public office any financing statement or statements (or any
documents or papers filed as such) covering the Collateral, other than
financing statements in favor of the Collateral Agent hereunder, unless
in any case the prior written consent of the Collateral Agent shall
have been obtained.
(ii) Debtor hereby authorizes the Collateral Agent to
file, in its discretion, in jurisdictions where this authorization will
be given effect, a financing statement signed only by the Collateral
Agent covering the Collateral, and hereby appoints the Collateral Agent
as the Debtor's attorney-in-fact to sign and file any such financing
statements covering the Collateral. At the request of the Collateral
Agent, the Debtor will join the Collateral Agent in executing such
documents as it may determine, from time to time, to be reasonably
necessary or desirable under provisions of the Indiana Uniform
Commercial Code or of any law in any other jurisdiction which the
Collateral Agent deems applicable to the Collateral; without limiting
the generality of the foregoing, the Debtor agrees to join the
Collateral Agent, at its request, in executing one or more financing
statements in form satisfactory to it, and the Debtor will pay the
costs of filing or recording the same, or of filing or recording this
Pledge and Security Agreement, in all public offices at any time and
from time to time, whenever filing or recording of any such financing
statement or of this Pledge and Security Agreement is deemed by the
Collateral Agent to be necessary or desirable. In connection with the
foregoing, it is agreed and understood between the parties hereto (and
the Collateral Agent is hereby authorized to carry out and implement
this agreement and understanding and the Debtor hereby agrees to pay
the costs thereof) that the Collateral Agent may, at any time or times,
file as a financing statement any counterpart, copy or reproduction of
this Pledge and Security Agreement. The Debtor hereby acknowledges that
the duties of the Collateral Agent with respect to the collateral are
ministerial in nature and, notwithstanding anything in this Pledge and
Security Agreement to the contrary, neither the Collateral Agent nor
any of its employees, directors, or agents shall be liable to any party
whatsoever in respect of any duties hereunder absent willful misconduct
or gross negligence.
(c) All dividends, payments of interest or principal and other
distributions of every character made upon or in respect of the
Collateral or any part thereof shall be deemed to be Collateral and
shall be paid directly to and shall be held by the Collateral Agent as
additional Collateral pledged under and subject to this Pledge and
Security Agreement.
(d) The chief executive offices of and other places of
business of the Debtor are located, and the books and records relating
to the Collateral are located, as of the date hereof, at the address
set forth, and the Debtor will not change any of the same or its name
without 30 days' prior written notice to and consent of the Collateral
Agent (which consent will not be unreasonably withheld);
(e) All Uniform Commercial Code filings required to perfect
the security interest (to the extent perfectable by such filings) of
the Collateral Agent in the Collateral have been made or will be made
within one day of the date hereof, and evidence thereof has been or
will be delivered to the Collateral Agent within seven days of the date
received by Debtor.
6. Events of Default.
(a) The occurrence of any one of the following events shall constitute
a default ("Event of Default") by Debtor under this Agreement: (a) if Debtor
fails or neglects to perform, keep or observe any term, provision, condition,
covenant, warranty or representation contained in this Agreement or in the Other
Agreements, which is required to be performed, kept or observed by Debtor; (b)
if the Collateral Agent or any Secured Party demands payment when due under any
note or other evidence of indebtedness representing indebtedness executed by
Debtor, a true copy of which shall have been delivered to Collateral Agent; (c)
if Debtor fails to pay any of Debtor's liabilities, when due and payable or
declared due and payable; (d) if the Collateral or any other of Debtor's assets
are attached, seized, subjected to a writ of distress warrant, or are levied
upon, or become subject to any lien, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors; (e) if
Debtor or any Guarantor of Debtor's liabilities becomes insolvent or generally
fails to pay, or admits in writing its inability to pay, debts as they become
due, if a petition under Title 11, United States Code or any similar law or
regulation shall be filed by or against Debtor or if Debtor shall make an
assignment for the benefit of its creditors or if any case or proceeding is
filed by or against Debtor for its dissolution or liquidation or if Debtor is
enjoined, restrained or in any way prevented by court order from conducting all
or any material part of its business affairs; (f) if a notice of lien, levy or
assessment is filed of record or given to Debtor with respect to all or any of
Debtor's assets by any federal, state or local department or agency; (g) if a
contribution failure occurs with respect to any pension plan maintained by
Debtor or any corporation, trades or business that is, along with Debtor, a
member of a controlled group of corporations or controlled group of tracks or
businesses (as described in Section 414(b) and (c) of the Internal Revenue Code
of 1986 or Section 4001, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") sufficient to give rise to a lien under Section 302(f) of
ERISA; (h) if Debtor is in default in the payment of any obligations;
indebtedness or other liabilities to any third parties and such default is
declared and is not cured within the time, if any, specified therefor in any
agreement governing the same; (i) the death or incompetency of Debtor, or the
appointment of a conservator for all or any portion of Debtor's assets; (j) the
reasonable insecurity of the Collateral Agent; (k) the failure of Debtor (A) to
complete the Facility on or before April 15, 1996, or (B) to commence active
operations at the Facility on or before May 1, 1996, unless Debtor shall,
immediately upon demand of the Collateral Agent, take all steps necessary and
effective, in the reasonable judgment of the Collateral Agent, forthwith to
remedy the circumstances giving rise to any such failure; or (l) a "change of
control" of Debtor (as hereinafter defined) shall occur; or (m) Collateral Agent
shall determine that any litigation now or hereafter pending against Debtor
would, if adversely determined, have a material adverse affect on debtor's
financial condition or business.
(b) As used herein, the following terms shall have the following
meanings:
(i) "Change of Control" shall mean a change in control of a
nature that would be required to be reported by Debtor in response to either (i)
Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or (ii) Item 1(a) of a
Current Report on Form 8-K, each as in effect on the date hereof; provided that,
without limitation, a Change in Control shall be deemed to have occurred if,
while any of the Indebtedness is outstanding:
(A) there shall be consummated (i) any consolidation, merger, or
recapitalization of MRTI or any similar transaction involving MRTI, in which
MRTI is not the continuing or surviving corporation or pursuant to which shares
of MRTI's common stock ("Common Stock"), would be converted into cash,
securities or other property, other than a merger of MRTI in which the holders
of MRTI's Common Stock immediately prior to the merger have the same proportion
and ownership of common Stock of the surviving corporation immediately after the
merger, (ii) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, of the assets of
MRTI, (iii) the adoption of a plan of complete liquidation of MRTI (whether or
not in connection with the sale of all or substantially all of MRTI's assets) or
a series of partial liquidations of MRTI that is de jure or de facto part of a
plan of complete liquidation of MRTI, or (iv) any other transaction after which
Common Stock is no longer to be publicly traded, provided (x) that the
divestiture of less than substantially all of the assets of MRTI in one
transaction or a series of related transactions, whether effected by sale,
lease, exchange, spin-off, sale of the stock or merger of a subsidiary or
otherwise, or (y) a transaction solely for the purpose of reincorporating MRTI
in another jurisdiction, shall not constitute a Change in Control; (iv) if a
majority of the members of the Board of Directors of MRTI shall consist of
persons who were not elected either (A) by vote of the holders of the requisite
number of shares of common stock of MRTI entitled to vote for the election of
directors (i) acting at a meeting called for such purpose or (ii) acting by
written consent, or (B) by the then acting directors of MRTI; or (v) an Exchange
Event of the type defined in clause (i) of Section 2 hereof shall occur.
(B) any "person" or "group", within the meaning of Sections 13(d) and 14(d)
(2) of the Exchange Act, (i) becomes the "beneficial owner" as defined in Rule
13d-3 under the Exchange Act of 50% or more of the combined voting power of the
then outstanding voting securities of MRTI, otherwise than through a transaction
or transactions arranged by, or consummated with the prior approval of, the
Board of Directors of MRTI, or (ii) acquires by proxy or otherwise, 50% or more
of the combined voting securities of MRTI, granting the right to vote for the
election of directors of MRTI, for any merger or consolidation of MRTI or for
any other matter or question other than through an arrangement or arrangements
consummated with the prior approval of the Board of Directors of MRTI.
(ii) an "Affiliate" of a specified person shall mean a person
who directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. 7. Rights
of the Collateral Agent and the Debtor Related to Collateral.
Upon the occurrence and during the continuance of an Event of Default
after the expiration of any grace period applicable thereto hereunder:
(a) The Collateral Agent shall be entitled to exercise against
any account debtor or obligor, any or all rights, power and remedies of
an obligee under any deferred payment obligation or account, accounts
receivable, note, document, instrument or general intangible
constituting part of the Collateral, including, without limitation, the
right to notify such account debtor or obligor to make all payments
under such account, account receivable, note, document, instrument or
general intangible directly to Collateral Agent and to exercise such
other rights and remedies as are provided for herein, at law, in equity
or under the Uniform Commercial Code, or to restrain from doing so; and
shall be entitled to prosecute any action, suit or proceeding with
respect to such accounts, accounts receivable, documents, instruments
or general intangibles, settle, compromise or release, in whole or in
part, any amounts owing on any such account, account receivable,
document, instrument or general intangible or any property securing the
payment of same, make allowances thereon and adjustments thereto, file
proofs of claim with respect thereto and take such other steps as the
Agent, in its sole and absolute discretion, deems to be necessary in
order to realize thereon, and
(b) shall be entitled to exercise in respect of the
Collateral, in addition to all other rights, powers and remedies
specifically provided for herein, all rights and remedies of a secured
party on default under the Uniform Commercial Code and under any other
applicable law as in effect in any relevant jurisdiction, all without
liability except to account for property actually received by it,
but the Collateral Agent shall have no duty to exercise, and the Secured Parties
shall have no duty to request the exercise of, any of the aforesaid rights,
privileges or options and neither the Collateral Agent nor any Secured Party
shall be responsible for any failure to do so or delay in so doing.
Unless an Event of Default then exists, or unless otherwise provided by
the provisions of the Credit Agreement, the Debtor shall have the right to
receive all income from or dividends (other than dividends arising out of a
complete or partial liquidation of the payor thereto) on or interest or
principal payment on the Collateral, and if the Collateral Agent receives any
such income or dividends or interest or principal payment prior to the
occurrence of an Event of Default, the Collateral Agent shall pay the same
promptly to the Debtor, except that in the case of securities or other property
distributed by way of a dividend or otherwise with respect to the Collateral,
such securities or other property shall be promptly delivered to the Collateral
Agent in the manner described in Section 2 hereof to be held as Pledged
Securities or other Collateral hereunder. Upon the occurrence and during the
continuance of an Event of Default, the Debtor will not demand or receive any
income from or dividends or interest or principal payment on the Collateral, and
if the Debtor receives any such income or interest or principal payment without
any demand by it, the same shall be held by the Debtor in trust for the
Collateral Agent in the same medium in which received, shall not be commingled
with any assets of the Debtor and shall be delivered to the Collateral Agent in
the form received, properly endorsed to permit collection, not later than the
next business day following the day of its receipt. The Collateral Agent may
apply the net cash received from such income or interest or principal payment to
payment of the Obligations, provided that the Collateral Agent shall account for
and pay over to the Debtor any such income or interest remaining after payment
in full of the Obligations then outstanding.
8. Collateral Agent's Appointment as Attorney-in-Fact.
The Debtor hereby irrevocably constitutes and appoints the Collateral
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Debtor and in the name of the Debtor or in its own
name, from time to time in the Collateral Agent's discretion, for the purpose of
carrying out the terms of this Pledge and Security Agreement, to take any and
all appropriate action and, provided that Debtor's obligations are not thereby
enlarged beyond those contained herein or required to protect Collateral Agent's
rights hereunder, to execute any and all document and instruments which may be
necessary or desirable to accomplish the purposes of this Pledge and Security
Agreement. Without limiting the generality of the foregoing, Debtor hereby gives
the Collateral Agent the power and right, on behalf of the Debtor, without
notice to or assent by the Debtor to do the following:
(i) To ask, demand, collect, receive and give acquittances and
receipts for any and all monies due and to become due under any
Collateral and, in the name of the Debtor or its own name, the name of
its nominee, or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other instruments for
the payment of monies due under any Collateral and to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Collateral Agent for the purpose of
collection any and all such monies due under any Collateral whenever
payable;
(ii) To pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the
terms of this Pledge and Security Agreement and to pay all or any part
of the premiums therefor and the costs thereof; and
(iii) (A) To direct any party liable for any payment under any
of the Collateral to make payment of any and all monies due and to
become due thereunder directly to the Collateral Agent or as the
Collateral Agent shall direct;
(B) In addition to other rights provided for herein,
to receive payment of and receipt or any and all monies, claims and
other amounts due and to become due at any time in respect of or
arising out of any Collateral;
(C) To sign and endorse any assignments and notices
in connection with accounts and other documents relating to the
Collateral;
(D) To commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral;
(E) To defend any suit, action or proceeding brought
against such Debtor with respect to any Collateral;
(F) To settle, compromise or adjust any suit, action
or proceeding described above and, in connection therewith, to give
such discharges or releases as the Collateral Agent may deem
appropriate;
(G) To assign, license or, to the extent permitted by
an applicable license, sublicense, whether general, special or
otherwise, and whether on an exclusive or nonexclusive basis any
copyright, service mark, patent or trademark owned by the Debtor (along
with the goodwill of the business to which such trademark pertains),
throughout the world for such term or terms, on such conditions, and in
such manner, as the Collateral Agent shall in its reasonable discretion
determine; and
(H) Generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral
in such manner as is consistent with the Uniform Commercial Code or
applicable law and as fully and completely as though the Collateral
Agent were the absolute owner thereof for all purposes and to do, at
the Collateral Agent's option and the Debtor's expense, at any time, or
from time to time, all acts and things which the Collateral Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Collateral Agent's security interest therein, in order to effect the
intent of this Pledge and Security Agreement, all as fully and
effectively as the Debtor might do. The Collateral Agent agrees to
forbear from exercising the power granted by the Debtor under this
Section 6 as long as no Event of Default shall have occurred and be
continuing. The Debtor hereby ratifies all that said attorney-in-fact
shall lawfully and without violation of the rights of any third party
do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable until full and
indefeasible payment and satisfaction of the Obligations.
(a) The powers conferred on the Collateral
Agent hereunder are solely to protect its interests in the
Collateral and shall not impose any duty upon it to exercise
any such powers. The Collateral Agent shall be accountable
only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its
officers, directors, employees or agents shall be responsible
to the Debtor for any act or failure to act, except for their
own gross negligence or willful misconduct.
(b) The Debtor also authorizes the
Collateral Agent, at any time from and after the occurrence
and during the continuation of an Event of Default, (i) to
communicate in its own name with any party to any contract,
agreement or arrangement to which the Debtor is a party and
which constitutes Collateral with regard to the continuation,
amendment, assignment, notation, discharge or termination
thereof and other matters relating thereto and (ii) to
execute, in connection with any sale provided for in this
Pledge and Security Agreement, any endorsements, assignments
or other instruments of conveyance or transfer with respect to
the Collateral.
(c) If the Debtor fails to perform or comply
with any of its agreements contained herein and the same
continues after notice of Collateral Agent's intention to do
so, and the Collateral Agent, as provided for by the terms of
this Pledge and Security Agreement, may itself perform or
comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Collateral Agent incurred
in connection with such performance or compliance (together
with interest thereon from and after the date of payment of
such expenses by the Collateral Agent at the Default Rate
(hereinafter defined) shall be payable by the Debtor to the
Collateral Agent on demand and shall constitute Obligations
secured hereby.
9. Special Provisions for Pledged Securities, etc.
The Debtor hereby acknowledges that the sale by the Collateral Agent of
any Pledged Securities pursuant to the terms hereof in compliance with the
Securities Act of 1933 (as now in effect or as hereafter amended), or any
similar stature hereafter adopted with similar purpose or effect (the
"Securities Act"), as well as applicable blue sky or other state securities
laws, may require strict limitations as to the manner in which the Collateral
Agent or any subsequent transferee of the Pledged Securities may dispose of such
securities. The Debtor acknowledges that to the extent the Pledged Securities
are sold in a private sale, the sales price therefor may be less than a sales
price that might have been otherwise obtainable. The Debtor acknowledges the
reasonableness of a sale in such a manner under such circumstances.
10. Further Assurances.
The Debtor agrees to take such actions and to execute such stock or
bond powers and such other or different instruments and writings as the
Collateral Agent may request (and irrevocably authorizes the Collateral Agent to
execute such writings as the Debtor's agent and attorney-in-fact) further to
perfect, confirm and assure the Collateral Agent's security interest in the
Collateral and to assist the Collateral Agent's realization thereon in
accordance with the terms of this Pledge and Security Agreement, including,
without limitation the right to receive, endorse, and collect all instruments
made payable to the Debtor representing any dividend, interest payment or other
distribution in respect of the Collateral or any part thereof.
11. Rights and Remedies of the Collateral Agent upon Default. If an Event
of Default shall have occurred and be continuing:
(a) The Collateral Agent shall have and may exercise with
reference to the Collateral and the Obligations, in addition to all other
rights, powers and remedies provided for in this Agreement, any or all of the
rights and remedies of a secured party under the Uniform Commercial Code in
effect in the State of Indiana, and as otherwise granted herein or under any
other applicable law or under any other agreement now or hereafter in effect
executed by the Debtor, including, without limitation, the right and power to
sell, at public or private sale or sales, or otherwise dispose of, or otherwise
utilize the Collateral and any part or parts thereof in any manner authorized or
permitted under said Uniform Commercial Code after default by a debtor, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorney's fees and expenses thereby incurred by the Collateral Agent and toward
payment of the Obligations. Specifically and without limiting the foregoing, the
Collateral Agent shall have the right to take possession of all or any part of
the Collateral or any security therefor and all books, records, papers and
documents of the Debtor or in the Debtor's possession or control relating to the
Collateral which are not already in the Collateral Agent's possession, and for
such purpose may enter upon any premises upon which any of the Collateral or any
security therefor or any of said books, records, papers and documents are
situated and remove the same therefrom without any liability for trespass or
damages thereby occasioned. The Debtor agrees that, to the extent permitted by
law, notice given in the manner provided in Paragraph ___ hereof at least thirty
(30) days before the time of the sale or disposition of any of the Collateral
(or any agreement related thereto) shall be deemed reasonable and shall fully
satisfy any requirement for giving of said notice, such notice being intended to
permit the Debtor an opportunity for it or any of its designees to bid on and
purchase any such Collateral or to otherwise cure the Event of Default hereunder
precipitating such proposed sale or disposition. The Collateral Agent shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale.
(b) The Collateral Agent or its nominee or nominees shall have
the sole and exclusive right (but not obligation) to exercise all voting and
consensual powers pertaining to the Collateral or any part thereof and may
exercise such powers in such manner as the Collateral Agent may elect.
(c) All dividends, payments of interest or principal and other
distributions of every character made upon or in respect of the Collateral or
any part thereof shall be deemed to be Collateral and shall be paid directly to
and shall be held by the Collateral Agent as additional Collateral pledged under
and subject to this Pledge and Security Agreement.
(d) All rights to marshaling assets of the Debtor, including
any such right with respect to the Collateral, are hereby waived by the Debtor.
(e) All recitals in any instrument of assignment or any other
instrument executed by the Collateral Agent incident to sale, transfer,
assignment or other disposition of the Collateral or any part thereof hereunder
shall be full proof of the matters stated therein and no other proof shall be
requisite to establish full legal propriety of the sale or other action taken by
the Collateral Agent or of any fact, condition or thing incident thereto and all
prerequisites of such sale or other action or of any fact, condition or thing
incident thereto shall be presumed conclusively to have been performed or to
have occurred.
So long as no Event of Default shall have occurred and be continuing:
(a) The Debtor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Securities or any
part thereof for any purpose not inconsistent with the terms of this Pledge and
Security Agreement; and
(b) The Collateral Agent shall execute and deliver (or cause
to be executed and delivered) to the Debtor all such proxies and other
instruments as the Debtor may reasonably request for the purpose of enabling the
Debtor to exercise the voting and other rights which it is entitled to exercise
pursuant to this Paragraph 9.
12.Usury, etc.
Nothing in this Agreement or in any agreement governing or applicable
to the Indebtedness between any Secured Party and the Debtor shall require the
Debtor to pay, or the Collateral Agent to accept, interest in an amount which
would exceed the maximum rate permitted under applicable law or which would
subject the Collateral Agent to any penalty or forfeiture under applicable law.
In the event that the payment of any charges, fees or other sums due hereunder
or under any such other agreement, which are held to be in the nature of
interest would subject the Collateral Agent to any penalty or forfeiture under
applicable law, then, ipso facto, the obligations of Debtor or the Debtor to
make such payment shall be reduced to the highest rate authorized under
applicable law. Should the Collateral Agent receive any payment which is or
would be in excess of the highest rate authorized under law, such payment shall
have been, and shall be deemed to have been, made in error, and shall
automatically be applied to reduce the outstanding principal balance of the
Indebtedness.
13. Right to Assign.
The Collateral Agent has the right to assign this Agreement and the
Collateral Agent's security interest in the Collateral without consent of
Debtor.
14. No Right to Redeem.
Debtor shall have no right to redeem the Collateral after a sale, and
Debtor absolutely and irrevocably specifically waives and releases any such
right.
15. Repayment of Expenses.
The Collateral Agent has the right, upon a default hereunder, to make
payments on Debtor's behalf or to take any action needed to protect the
Collateral or to defend any of the Collateral Agent's rights under this
Agreement. If Collateral Agent makes any payments or incurs any expenses in
taking such action, which may include reasonable attorney's fees, the Debtor
shall repay the Collateral Agent with interest at the lesser of (i) the maximum
rate of interest which can lawfully be charged to Debtor and (ii) the rate of
15% per annum (the "Default Rate"). Debtor shall be obligated to repay to
Collateral Agent upon demand all such payments and expenses, and the obligation
to do so shall constitute additional obligations ("Obligations") hereunder,
repayable to Collateral Agent from the proceeds of any sale of the Collateral.
If the principal balance of the Indebtedness or any other Obligation is not paid
when due, whether at maturity or by acceleration after a default or otherwise
the outstanding balance shall bear interest from the due date to the date of
payment at the Default Rate.
16. Application of Proceeds by the Collateral Agent.
In the event the Collateral Agent sells or otherwise disposes of the
Collateral in the course of exercising the remedies provided herein, any amounts
held, realized or received by the Collateral Agent pursuant to the provisions
hereof, including the proceeds of the sale of any of the Collateral or any part
thereof, shall be applied by the Collateral Agent, first, toward the payment of
any costs and expenses incurred by the Collateral Agent in enforcing this Pledge
and Security Agreement, in realizing on or protecting any Collateral and in
enforcing or collecting the Obligations, including, without limitation, the
reasonable attorneys' fees and expenses incurred by the Collateral Agent, all of
which costs and expenses are secured by the Collateral and all of which costs
and expenses the Debtor agrees to pay; second, to all accrued and unpaid
interest on the Indebtedness; third, to the unpaid principal of the
Indebtedness; fourth, to any other unpaid Obligations; and, fifth, to the Debtor
or to whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct. Any amounts and any Collateral remaining
after such application and after payment to the Collateral Agents of all of the
Obligations in full shall be paid or delivered to the Debtor, its successor or
assigns, or as a court of competent jurisdiction may direct.
The Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property, it being understood, without
limitation that the Collateral Agent shall not have any responsibility for
taking any necessary steps to preserve rights against any parties with respect
to any Collateral.
17. Absolute Interest.
(a) All rights of the Collateral Agent hereunder, and all
obligations of the Debtor hereunder, shall be absolute and unconditional
irrespective of (i) any lack of validity or enforceability of any agreement with
respect to the Indebtedness; (ii) any change in the time, manner or place of
payment of or in any other term of, any payment required hereby or by any
promissory note evidencing the Indebtedness or any part thereof, or any other
amendment or waiver of or any consent to any departure from any agreement or
instrument; (iii) any exchange, release or non-perfection of any Collateral, or
any release or amendment or waiver of or any consent to or departure from, any
guarantee for all or part of the Obligation; (iv) any other circumstance which
might constitute a defense available to, or a discharge of, the Debtor or the
Debtor in respect of the Indebtedness or any part thereof or this Pledge and
Security Agreement.
(b) This Pledge and Security Agreement shall not be construed
as relieving the Debtor from full liability on the Obligations and for any
deficiency thereon.
(c) The Collateral Agent is hereby subrogated to all of the
Debtor's interests, rights and remedies in respect to the Collateral and all
security now or hereafter existing with respect thereto and all guaranties and
endorsement thereof and with respect thereto, but only to the extent necessary
to satisfy the Obligations in accordance with the terms of this Pledge and
Security Agreement.
18. Additional Information.
The Debtor agrees to furnish the Collateral Agent from time to time
with such additional information and copies of such documents relating to this
Pledge and Security Agreement, the Collateral, the Obligations and their
respective financial condition as the Collateral Agent may reasonably request,
and upon request, to certify the amount of the Indebtedness at the time
outstanding, including both interest and principal.
19. Notices.
Any communication, notice or demand to be given hereunder shall be duly
given if delivered or mailed by certified or registered mail at the applicable
address set forth on the first page of this Pledge and Security Agreement, or
such other address as shall be designated by any party hereto to the other
parties hereto in a written notice delivered in accordance with the terms
hereof.
20. Indemnity and Expenses.
The Debtor agrees to indemnify the Collateral Agent, the Secured
Parties and their officers, directors and employees from and against any and all
claims, losses and liabilities growing out of or resulting from this Pledge and
Security Agreement (including, without limitation, enforcement of this Pledge
and Security Agreement and all claims and demands of all persons at any time
claiming the Collateral or any interest therein), except claims, losses or
liabilities resulting from the Collateral Agent's or its officers', directors',
or employees' or agents gross negligence or willful misconduct. The Debtor
agrees to pay on demand all out-of-pocket expenses (including the reasonable
fees and expenses of the Collateral Agent or its officers, directors, employees,
counsel, or agents) relating to the enforcement or protection of the rights of
the Collateral Agent or the Secured Parties hereunder, and further agrees that
the Collateral secures such payment.
21. No Waiver; Cumulative Rights.
No failure on the part of Collateral Agent to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Collateral Agent of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy and power hereby
granted to the Collateral Agent or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the
Collateral Agent from time to time.
22. Governing Law.
This Pledge and Security Agreement and the rights and obligations of
the parties hereunder shall be governed by, and construed in accordance with,
the internal laws of the State of New York except as otherwise specifically
provided herein.
23. Termination.
This Pledge and Security Agreement shall terminate upon the repayment
in full of the Obligations (which term shall include, without limitation, the
Indebtedness) at which time the Collateral Agent shall reassign and deliver to
the Debtor such of the Collateral (if any) as shall not have been sold or
otherwise applies pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
24. Execution in Counterparts.
This Pledge and Security Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
25. Definitions.
All non-capitalized terms used herein which are defined in the Uniform
Commercial Code of the State of Indiana shall have the meanings ascribed thereto
herein.
26. Successors and Assigns.
This Pledge and Security Agreement shall inure to the benefit of any
successors and assigns of the Secured Parties and the Collateral Agent.
27. Rights of the Collateral Agent.
(a) The Collateral Agent shall have no duties or responsibilities
except those expressly set forth in this Pledge and Security Agreement. The
Collateral Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of Debtor or and Secured Party and nothing in this
Agreement, expressed or implied, is intended to or shall be construed as to
impose upon the Collateral Agent any obligations in respect of this Pledge and
Security Agreement except as expressly set forth herein.
(b) The collateral Agent shall not be responsible to any Secured Party
for any recitals, statements, information, representations or warranties herein
or in any agreement, document, certificate or a statement delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Pledge and Security
Agreement, or be required to make any inquiry concerning either the performance
or observance of any of the terms, provisions or conditions of this Pledge and
Security Agreement, or the existence of any Event of Default or any condition,
event or act which, with notice or lapse of time or both, would constitute such
and Event of Default. The Collateral Agent may resign on thirty days' written
notice to each of the Secured Parties (a copy of which notice shall be provided
to Debtor but shall not be a condition to resignation) and upon such resignation
Secured Parties holding a majority of the outstanding principal amount of the
Indebtedness (the "Required Secured Parties") will designate a successor
Collateral Agent.
(c) If the Collateral Agent shall request instructions from the Secured
Parties with respect to any act or action (including failure to act) in
connection with this Agreement, the Collateral Agent shall be entitled to
refrain from such act or taking such action unless and until the Collateral
Agent shall have received instructions from the Required Secured Parties; and
the Collateral Agent shall not incur liability to any person by reason of so
refraining. Without limiting the foregoing, no Secured Party shall have any
right of action whatsoever against the Collateral Agent as a result of its
acting or refraining from acting hereunder in accordance with the instructions
of the Required Secured Parties.
(d) The Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Pledge and Security Agreement and its
duties hereunder, upon advice of counsel selected by it (including, without
limitation, special counsel to the Collateral Agent).
(e) To the extent the Collateral Agent is not reimbursed and
indemnified by the Debtor, the Secured Parties will reimburse and indemnify the
Collateral Agent in proportion to the outstanding amounts of the Notes held by
them, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Collateral Agent in performing its duties hereunder, or in any way
relating to or arising out of this Pledge and Security Agreement; provided that
no Secured Party shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Collateral Agent's gross negligence
or willful misconduct.
(f) With respect to the rights of the Collateral Agent as a holder of
Indebtedness and of any note issued to Debtor by the Collateral Agent, the
Collateral Agent shall have the same rights and powers hereunder as any other
Secured Party and as if it were not performing the duties as Collateral Agent
specified herein; and the terms "Secured Party" or "holders of Indebtedness" or
any similar terms shall, unless the context clearly otherwise indicates, include
the Collateral Agent in its individual capacity.
IN WITNESS WHEREOF, the parties have caused this Pledge and Security
Agreement to be duly executed as of the date first above written.
METAL RECOVERY TECHNOLOGIES, INC.
By: /s/
Title:
Address:
PLENBRICK, LTD., as
Collateral Agent and in its individual capacity
By: /s/
Title:
Address:
METAL RECOVERY INDUSTRIES
(U.S.), INC.
By: /s/
Title:
Address:
ALCARIA, LTD.
By: /s/
Title:
Address:
ANTHEMIS, LTD.
By: /s/
Title:
Address:
JEPHERSON LTD.
By: /s/
Title:
Address:
SUNDORNE HOLDINGS S.A.
By: /s/
Title:
Address:
SOVEREIGN TRUST SERVICES, LTD.
By: /s/
Title:
Address:
OSBOURNE LTD.
By: /s/
Title:
Address:
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
---------
To be Present Interest Conversion
Lender Loaned Loaned Maturity Rate Price
- - ------ ------ ------ -------- ----- -----
<S> <C> <C> <C> <C> <C>
Alcaria, Ltd. $250,000 2/28/97 10% $0.25
Anthemis, Ltd. $250,000 12/31/96 10% $0.25
Jepherson Ltd. $250,000 2/28/97 10% $0.25
Sundorne
Holdings S.A. $650,000 6/30/96
Sovereign Trust
Services, Ltd. $116,523 9/30/96
Osbourne Ltd. $200,000 10/31/96
Plenbrick,
Ltd. $550,000 11/30/96
</TABLE>
All loans have been extended so as to mature March 31, 1997
EXHIBIT 13(A) - FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 1997
- - --------------------------------------------------------------
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, 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 March 31,
1997: 25,635,487
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.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - Financial Data
Item 1 -- Financial Statements:
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 1
Consolidated Statement of Operations:
for the Three (3) Months ended March 31, 1997 & 1996 3
Consolidated Statement of Cash Flows for the Three (3) Months
ended March 31, 1997 & 1996 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 9
Item 3 -- Defaults on Senior Securities 9
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 11
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
March 31, 1997 and December 31, 1996
Mar 31 Dec 31
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash & equivalents $ $
2,535 6,778
Accounts Receivable
30,801 -
Inventories 291,106
65,370
Other current assets
- 97,355
----------------------------------
Total current assets 324,442 169,503
----------------------------------
Property & equipment:
Leasehold improvements 348,255 348,255
Equipment 2,239,858 2,178,823
Vehicles
31,062 31,062
Furniture & Fixtures
33,845 33,845
----------------------------------
Total property and equipment 2,653,020 2,591,985
Less accumulated depreciation, depletion
and amortization
- -
----------------------------------
Net property & equipment 2,653,020 2,591,985
----------------------------------
Other assets:
Concessions, rights, patents, goodwill 12,905,749 12,905,749
Organization costs 2,855,888 2,112,367
Other assets
22,900 53,400
----------------------------------
Total other assets 15,784,537 15,071,516
----------------------------------
TOTAL ASSETS $ 18,761,999 $ 17,833,004
==================================
</TABLE>
-1-
<PAGE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
<TABLE>
<CAPTION>
Mar 31 Dec 31
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES:
Current liabilities:
Current maturities of long-term indebtedness $ $
4,550 4,580
Notes payable
36,026 49,894
Accounts payable 2,050,180 1,503,991
Due to Former officer & director
68,037 55,098
Convertible loans 2,899,011 3,288,010
----------------------------------
Total current liabilities 5,057,804 4,901,573
----------------------------------
Long-term liabilities:
Long-term debt 505,000 505,000
Capital lease
3,108 4,182
----------------------------------
Total long-term liabilities 508,108 509,182
----------------------------------
TOTAL LIABILITIES 5,565,912 5,410,755
----------------------------------
STOCKHOLDERS' EQUITY:
"Series A" Preferred stock, $10 par value
100,000 shares authorized 46,965
shares outstanding 469,650 469,650
"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; 100,000,000 shares authorized;
25,635,487 and 20,707,597 issued and outstanding at March 31, 1997
and December 31, 1996, respectively
25,635 20,707
Additional paid-in capital 63,450,270 62,355,161
Retained deficit (50,793,841) (50,467,642)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,196,087 12,422,249
----------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 18,761,999 $ 17,833,004
==================================
</TABLE>
See accompanying notes which are an integral part of these statements
-2-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Three (3) Months ended March 31, 1997 & 1996
Mar 31 Mar 31
1997 1996
(Unaudited)
<S> <C> <C>
Sales $ $
- -
Cost of sales
- -
----------------------------------
Gross profit
- -
----------------------------------
Operating expenses:
Selling, general & administrative 313,260 88,678
----------------------------------
Total operating expenses 313,260 88,678
----------------------------------
Income (loss) from operations (313,260) (88,678)
----------------------------------
Non operating income (expense):
Interest expense
(12,939) (13,750)
----------------------------------
Total non operating income (expense)
(12,939) (13,750)
----------------------------------
Net Income (loss) $ (326,199) $ (102,428)
==================================
Weighted average number of
Common shares outstanding 23,249,603 13,764,653
(Loss) per share $ (0.0140) $ (0.0074)
</TABLE>
See accompanying notes which are an integral part of these statements
-3-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statements of Cash Flows
for the
Three (3) Months ended March 31, 1997 & 1996
Mar 31 Mar 31
1997 1996
(Unaudited)
Cash flows provided by (used for)
operations:
<S> <C> <C>
Net loss $ (326,199) $ (102,428)
Net changes in current assets
and liabilities excluding long-term indebtedness
(2,921) 35,581
----------------------------------
Net cash used by operating activities (329,120) (66,847)
----------------------------------
Cash flows provided by (used for)
investment activities:
Net changes to plant & equipment (61,035) (327,387)
Additions, deletions to concessions,
rights, patents & goodwill
- -
Additions, deletions to Organization costs (743,521)
Decrease (increase) in Other assets
30,500 -
----------------------------------
Net cash used by investing activities (774,056) (327,387)
----------------------------------
Cash flows provided by (used for)
financing activities:
Increase (decrease) in long term &
convertible debt (1,104) 207,209
Issued common stock
4,928 -
Received from additional
paid-in capital 1,095,109
-
----------------------------------
Net cash provided by financing activities 1,098,933 207,209
----------------------------------
Decrease in cash (4,243) (187,025)
Cash & equivalents at beginning of year 6,778 200,855
----------------------------------
Cash & equivalents at March 31, 1997 & 1996 $ 2,535 $ 13,830
==================================
</TABLE>
See accompanying notes which are an integral part of these statements
-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 zinc bearing solutions, other chemicals and scrap steel
at the company's plant in East Chicago.
(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 first
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.
-5-
<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 March
31, 1997, this indebtedness, including interest, amounted to $2,899,011. These
loans are exercisable at various rates, from 25 cents to 43.33 cents per share,
and at various times. They also contain anti-dilution provisions and are
secured, pro rata, by liens on the shares of MRI(US), as well as its assets.
During the reporting quarter, $850,000 of convertible debt and $65,036 of
accrued interest was converted into 4,356,462 shares of stock.
<TABLE>
<CAPTION>
At March 31, 1997 the convertible loans consisted of the following:
Loan Conversion
Lender Amount Price Interest Subtotal Converted Total
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sovereign Trust Services $ 650,000 $ 0.3900 $ 43,606 $ 693,606 $(693,606) $
-
Sundorn Holding, SA 650,000 0.4333 83,032 733,032 733,032
Osbourne Ltd. 200,000 0.2000 21,430 221,430 (221,430)
-
Plenbrick Ltd. 550,000 0.2750 69,805 619,805 619,805
Alcaria Investments, Ltd. 83,334 0.2500 19,574 102,908 102,908
Jepherson Ltd. 83,334 0.2500 17,650 100,984 100,984
Antheims Ltd. 83,334 0.2500 15,460 98,794 98,794
Pangea Ltd. 500,000 0.3000 17,323 517,323 517,323
Quested Ltd. 500,000 0.3000 6,703 506,703 506,703
Dorrance Ltd. 219,462 0.3000 219,462 219,462
-
$3,519,464 $294,583 $3,814,047 $(915,036) $2,899,011
</TABLE>
All of the foregoing loans are secured, pro-rata, by liens on the shares of
Metal Recovery Industries (US), Inc., as well as its assets and are protected by
anti-dilution provisions.
-6-
<PAGE>
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 March 31, 1997,
compared to December 31, 1996 is due to additional cash expended in the
development of the Company's facility in East Chicago.
Liquidity
---------
As of December 31, 1996, the Company had, in addition to its existing cash on
hand, unused convertible loan facilities aggregating approximately $1.2 million.
During the reporting quarter, $520,000 of this unused facility was draw down and
used to administer and construct the Company's operations. Additionally,
$200,000 was raised by a subscription under Regulation S resulting in the
issuance of 571,428 shares at $0.35 per share to an offshore entity. The Company
believes that it has sufficient working capital, existing, or proposed new
facilities available to allow the Company to reach full production and to pay
off all trade creditors.
Statements of Operations
Three Months Ended March 31, 1997 vs.
Three Months Ended March 31, 1996
---------------------------------
There was no change in "Revenues" compared to the same period a year ago. The
company had sales/revenues of $108,945 during the current reporting period 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 "operating expenses" is mainly due to litigation expenses and
the non-capitalized expenditures of the officers. The Company had adopted the
policy of capitalizing all costs associated with the development of its East
Chicago facility until the plant reached full production levels. These costs
included the development, marketing, installing and testing equipment and
administrative activities. Because the officers are involved in matters other
than those costs applicable to be capitalized, an increase in the current
period's operating expenses has occurred.
Owing to delays and problems with production, the Company has decided to
continue, for the first quarter of 1997, its policy of capitalizing costs
associated with the commissioning of the plant in East Chicago. For the three
month's ended March 31, 1997 these organization costs amounted to $743,521.
Management will review this policy on an ongoing basis but has set a target for
the second quarter of 1997 to discontinue this policy when the plant is
processing steel scrap at an operating level of 1,000 tons per month.
The Company reported a net loss for the three months of $0.014 per weighted
average number of shares outstanding compared to a loss of $0.0074 per weighted
average number of shares outstanding for the same period the previous year.
During the first three months of 1997, the Company capitalized $61,035 of
equipment relating to the recommissioning of the plant at East Chicago.
-7-
<PAGE>
PART II - Other Information
Item 1 - Legal Proceedings
(a) Mr. Jack Alexander and "Morton Blue"
In September, 1994, the Company reached a settlement with a former chairman and
chief executive officer of the Company, Jack Alexander, and certain entities
related to him, in respect of amounts claimed to be owed to them by the Company
on accounts of notes payable, loans and the redemption price of preferred stock.
Under the terms of the settlement, Mr. Alexander was to be paid $1.3 million
over a period ending May, 1995. The Company has renegotiated several times the
terms of payment to Mr. Alexander. At March 31, 1997, the Company owed Mr.
Alexander a total of approximately $537,687 regarding this settlement. Mr.
Alexander also owned all of the shares of a class of preferred stock which gave
Mr. Alexander the right to elect the majority of the board of directors of the
Company.
During 1996, Mr. Alexander assigned his interest in the settlement, including
the shares of preferred stock to an entity identified as "Morton Blue" (with an
address in the British Virgin Islands). During the first quarter of 1997,
"Morton Blue" demanded that the Company call a shareholders' meeting at which a
majority of the directors are to be elected by the holder of the said shares of
preferred stock. The Company does not believe that Mr. Alexander, or his
assignee, has the right to call such a meeting (although the holder of such
shares of preferred stock may be entitled to designate a majority of the
directors).
The Company's convertible debt lenders, under the pledge and security agreement,
have the right, should Mr. Alexander or his assignee continue to assert a right
to control the Company, to exchange such loans, provided they aggregate at least
$2 million in principal amount, for outright ownership of a majority of the
common shares of MRI(US). The amount owed to Morton Blue is $537,687 and
$524,748 at March 31, 1997 and December 31, 1996, respectively. The amounts owed
to the convertible debt lenders are $2,899,011 and $3,288,010 for the same
periods, respectively.
The Company has no ability to settle the amount owed to Morton Blue in cash.
Therefore, after extensive negotiations an agreement has now been reached
between the Company and Morton Blue to settle the liability and redeem the A
Preferred shares. This will occur by the issuance of 2,550,000 shares of the
Company's common stock under Regulation S of the Securities and Exchange
Commission. This amounts to approximately 21 per share. Based on the total
number of shares outstanding at March 31, 1997, Morton Blue will hold
approximately 9% of the Company's issued share capital.
Completion of this agreement has not yet taken place.
(b) 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.
Without admitting liability, the Company has reluctantly agreed to settle these
actions. This decision was primarily 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 by the Company's subsidiary, Metal Recovery Industries
(US), Inc.
-8-
<PAGE>
The agreed settlement is $3.25 million payable as
follows:
$500,000 in cash to be paid on October 15, 1997 (the effective date).
$550,000, in the form of cash or unrestricted common stock of the
Company, to be paid on the effective date. If the Company elects in
its sole discretion not to make this payment in the form of cash , the
number of shares of unrestricted common stock of the Company necessary
to satisfy the obligation of this subparagraph shall be determined by
dividing $550,000 by the market price of the Company's common stock.
The market price of the Company's common stock will be deemed to be
the average of the closing bid prices of that stock during the ten
trading days preceding the effective date. Should the effective date
not have occurred by October 15, 1997, the Company will deposit into
escrow on that date an amount of stock equal to twice its payment
obligation. Should the Company's stock thereafter decline by 30% or
more from the market price, the escrow agent, as promptly as possible
without unduly depressing the price of the Company's stock, will
liquidate sufficient shares to yield the sum of $550,000 in cash,
whereupon the balance of the shares will be returned to the Company.
The funds obtained shall then be held in escrow, bearing interest for
the benefit of the class, until the effective date.
The Company will pay the remaining $2.2 million in four annual
installments in the amount of $550,000, beginning on the first
anniversary of the effective date. The Company shall have the option,
in its sole discretion, to satisfy all or any portion of the
installment payment obligation in the form of cash, shares of
unrestricted common stock of the Company, or any combination thereof.
If the Company decides not to satisfy the installment payment
obligation solely with cash, then the Company shall be obligated to
pay in the form of unrestricted common stock of the Company the amount
of the installment payment obligation less the amount paid in cash
(the "Non-Cash Obligation"). The number of shares of unrestricted
common stock of the Company necessary to satisfy the Non-Cash
Obligation shall be calculated as follows: (a) if the market price of
the unrestricted common stock of the Company is less than $1 per
share, then the Non-Cash Obligation divided by the market price; (b)
if the market price of the unrestricted common stock is equal to or
greater than $1, but in no event greater than $1.4545, then the
Non-Cash Obligation divided by $1 per share; or (c) if the market
price is greater than $1.4545, then the product of the Non-Cash
Obligation and 1.4545 divided by the market price. The market price of
the Company's stock will be deemed to be the average of the closing
bid prices of that stock during the ten trading days preceding each
installment payment date.
Completion of this agreement has not yet taken place.
The Company has made no provisions in the financial statements presented with
this filing for either of the legal matters presented above. Upon final signing
of these agreements, expected to occur subsequent to the filing of this
document, the Company will reflect these settlements in its financial
statements.
The Company is involved in other matters of litigation 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
The Company did not have any transactions which materially modified the rights
of any holders of any class of registered securities
Item 3 - Defaults upon Senior Securities
The Company has not been involved in any material default in the payment of
principal or interest with respect to any indebtedness.
-9-
<PAGE>
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
The Company did not file any reports on Form 8-K during the three month period
ended March 31, 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: _______April 12, 1997_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _______April 12, 1997_________
-10-
EXHIBIT 13(B) - FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1997
- - -------------------------------------------------------------
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, 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 June 30,
1997: 28,865,938
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.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - Financial Data
Item 1 -- Financial Statements:
Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996 1
Consolidated Statement of Operations:
for the Three (3) Months ended June 30, 1997 & 1996 3
Consolidated Statement of Operations:
for the Six (6) Months ended June 30, 1997 & 1996 4
Consolidated Statement of Cash Flows for the Six (6) Months
ended June 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>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
June 30, 1997 and December 31, 1996
Jun 30 Dec 31
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash & equivalents $ 5,708 $ 6,778
Accounts Receivable 9,213 -
Inventories 62,600 65,370
Other current assets 9,137 97,355
----------------------------------
Total current assets 86,658 169,503
----------------------------------
Property & equipment:
Leasehold improvements 348,255 348,255
Equipment and Construction-in-progress 2,275,911 2,178,823
Vehicles 8,136 31,062
Furniture & Fixtures 33,845 33,845
----------------------------------
Total property and equipment 2,666,147 2,591,985
Less accumulated depreciation, depletion
and amortization
- -
----------------------------------
Net property & equipment 2,666,147 2,591,985
----------------------------------
Other assets:
Concessions, rights, patents, goodwill 12,905,749 12,905,749
Organization costs 3,650,999 2,112,367
Other assets 26,122 53,400
----------------------------------
Total other assets 16,582,870 15,071,516
----------------------------------
TOTAL ASSETS $ 19,335,675 $ 17,833,004
==================================
</TABLE>
-1-
<PAGE>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
<TABLE>
<CAPTION>
Jun 30 Dec 31
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES:
Current liabilities:
Current maturities of long-term indebtedness $ 1,054,128 $ 4,580
Notes payable 36,972 49,894
Accounts payable 2,619,905 1,503,991
Due to Former officer & director - 55,098
Convertible loans 3,108,345 3,288,010
--------------------------------------
Total current liabilities 6,819,350 4,901,573
--------------------------------------
Long-term liabilities:
DOE Grant 505,000 505,000
Legal settlement (See Item 1(b) in Part II) 2,200,000 -
Capital lease 2,400 4,182
--------------------------------------
Total long-term liabilities 2,707,400 509,182
--------------------------------------
TOTAL LIABILITIES 9,526,750 5,410,755
--------------------------------------
STOCKHOLDERS' EQUITY:
"Series A" Preferred stock, $10 par value; 100,000 shares
authorized; zero and 46,965 shares outstanding at
June 30, 1997 and December 31,1996, respectively - 469,650
"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; 28,865,938 and
20,707,597 issued and outstanding at June 30, 1997
and December 31, 1996, respectively 28,865 20,707
Additional paid-in capital 64,098,158 62,355,161
Retained deficit (54,362,471) (50,467,642)
--------------------------------------
TOTAL STOCKHOLDERS' EQUITY 9,808,925 12,422,249
--------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 19,335,675 $ 17,833,004
======================================
</TABLE>
See accompanying notes which are an integral part of these statements
-2-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Three (3) Months ended June 30, 1997 & 1996
Jun 30 Jun 30
1997 1996
(Unaudited)
<S> <C> <C>
Sales (see Part I, Item 2,
"Statement of Operations") $ - $ -
Cost of sales - -
---------------------------------
Gross profit
- -
---------------------------------
Operating expenses:
Total operating expenses 305,188 57,756
---------------------------------
Loss from operations (305,188) (57,756)
---------------------------------
Non operating income (expense):
Legal settlement (see Item 1(b) in Part II) (3,250,000) -
Interest expense (13,442) (13,750)
---------------------------------
Total non operating expense (3,263,442) (13,750)
---------------------------------
Net loss $ (3,568,630) $ (71,506)
=================================
Weighted average number of
Common shares outstanding 26,567,879 14,709,653
Loss per share $ (0.1343) $ (0.0048)
</TABLE>
See accompanying notes which are an integral part of these statements
-3-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statement of Operations
for the
Six (6) Months ended June 30, 1997 & 1996
Jun 30 Jun 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 618,448 146,434
-----------------------------------
Total operating expenses 618,448 146,434
-----------------------------------
Loss from operations (618,448) (146,434)
-----------------------------------
Non operating income (expense):
Legal settlement (see Item 1(b) in Part II) (3,250,000) -
Interest expense (26,381) (27,500)
-----------------------------------
Total non operating expense (3,276,381) (27,500)
-----------------------------------
Net loss $ (3,894,829) $ (173,934)
===================================
Weighted average number of
Common shares outstanding 24,908,741 14,237,153
Loss per share $ (0.1564) $ (0.0122)
</TABLE>
See accompanying notes which are an integral part of these statements
-4-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Statements of Cash Flows
for the
Six (6) Months ended June 30, 1997 & 1996
Jun 30 Jun 30
1997 1996
(Unaudited)
Cash flows provided by (used for)
operations:
<S> <C> <C>
Net loss $ (3,894,829) $ (173,934)
Net changes in current assets
and liabilities excluding long-term indebtedness 1,142,591 (121,064)
------------------------------------
Net cash used by operating activities (2,752,238) (294,998)
------------------------------------
Cash flows provided by (used for)
investment activities:
Net changes to plant & equipment (74,162) (927,029)
Additions, deletions to Organization costs (1,538,632) -
Decrease in Other assets 27,278
-
------------------------------------
Net cash used by investing activities (1,585,516) (927,029)
------------------------------------
Cash flows provided by (used for)
financing activities:
Increase in long-term debt 3,247,766 -
Increase (decrease) in convertible debt (179,665) 431,384
Decrease in notes payable (12,922) (68,500)
Redemption of "Series A" Preferred Stock (469,650) -
Issued Common stock 8,158 2,835
Received from Additional Paid-in Capital 1,742,997 930,733
------------------------------------
Net cash provided by financing activities 4,336,684 1,296,452
------------------------------------
Increase (decrease) in cash (1,070) 74,425
Cash & equivalents at beginning of year 6,778 200,855
------------------------------------
Cash & equivalents at June 30, 1997 & 1996 $ 5,708 $ 275,280
====================================
</TABLE>
See accompanying notes which are an integral part of these statements
-5-
<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 zinc bearing solutions, other chemicals and scrap steel
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
second 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.
-6-
<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 June
30, 1997, this indebtedness was $2,814,409, plus accrued interest of $293,936,
for a total amount payable of $3,108,345. Loans with principal balances
amounting to $2,699,409 are exercisable at rates ranging from 25 to 43.33 per
share, at various times, 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 June 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
---------
As of December 31, 1996, the Company had, in addition to its existing cash on
hand, unused convertible loan facilities aggregating approximately $1.7 million.
During the first quarter of this year, $520,000 of this unused facility was
drawn down and used to administer and construct the Company's operations. At
June 30, 1997, the Company had unused convertible loan facilities of $1.2
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 that it will have sufficient working capital, existing, or
proposed new facilities available to allow the Company to reach full production
and to pay off trade creditors.
During the current reporting period, two additional convertible loans of
$100,000 each were entered into with two offshore entities. Both loans are
convertible at any time prior to December 31, 1997, into common shares of the
Company under Regulation S at varying conversion prices.
An additional $100,000 was raised during the reporting quarter under a
subscription agreement resulting in the issuance of 500,000 shares at $0.20 per
share.
During the prior reporting period, $200,000 was raised by a subscription
agreement under Regulation S resulting in the initial issuance of 571,428 shares
at $0.35 per share to an offshore entity. The amount of shares issued under this
agreement was based however on the lower of $0.35 per share or a 30% reduction
of the closing bid price of the Company's common stock on March 3, 1997. This
resulted in the issuance of an additional 180,451 shares during the current
reporting period for a per share price of $0.266.
Statements of Operations
Six Months Ended June 30, 1997 vs.
Six Months Ended June 30, 1996
------------------------------
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 and $207,801
during the second 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.
-7-
<PAGE>
The increase in "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 had adopted the policy of capitalizing
all costs associated with the development of its East Chicago facility until the
plant reached full production levels. These costs included the development,
marketing, installing and testing equipment and administrative activities.
Because the officers are involved in matters other than those costs applicable
to be capitalized, an increase in the current period's operating expenses has
occurred.
Owing to delays and problems with production, the Company has continued, for the
first and second quarter of 1997, its policy of capitalizing costs associated
with the commissioning of the plant in East Chicago, Indiana. For the quarter
ended March 31, 1997 and the quarter ended June 30, 1997, the costs associated
with capitalized equipment and organization costs amounted to $804,556 and
$808,238, 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 six months of $0.1564 per weighted
average number of shares outstanding compared to a loss of $0.0122 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 current
operating period's Income Statement. Details concerning this lawsuit are found
in Part II, Item 1(b).
During the 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 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.
PART II - Other Information
Item 1 - Legal Proceedings
(a) Mr. Jack Alexander and "Morton Blue"
In September, 1994, the Company reached a settlement with a former chairman and
chief executive officer of the Company, Jack Alexander, and certain entities
related to him, in respect of amounts claimed to be owed to them by the Company
on accounts of notes payable, loans and the redemption price of preferred stock.
Under the terms of the settlement, Mr. Alexander was to be paid $1.3 million
over a period ending May, 1995. The Company had re-negotiated the terms of
payment to Mr. Alexander several times. At the time of the final settlement the
Company owed Mr. Alexander a total of approximately $551,129. Mr. Alexander also
owned all of the shares of a class of preferred stock which gave Mr. Alexander
the right to elect the majority of the board of directors of the Company.
During 1996, Mr. Alexander assigned his interest in the settlement, including
the shares of preferred stock to an entity identified as "Morton Blue" (with an
address in the British Virgin Islands). The Company, having no ability to settle
the amount owed to Morton Blue in cash, negotiated an agreement with Morton Blue
to settle the liability and redeem the "Series A" Preferred shares. This
occurred by the issuance of 2,550,000 shares of the Company's common stock under
Regulation S of the Securities and Exchange Commission. Based on this
settlement, Morton Blue holds 8.8% of the total number of shares outstanding at
June 30, 1997.
-8-
<PAGE>
(b) 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.
Without admitting liability, the Company has reluctantly agreed to settle these
actions. This decision was primarily 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 by the Company's subsidiary, Metal Recovery Industries
(US), Inc.
The agreed settlement, which was finalized during the current reporting period,
is $3.25 million. The payment terms are over a four year period, are 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.
The Company is involved in other matters of litigation 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 current 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
materially modified the rights of the holders of the remaining classes of
registered securities.
Item 3 - Defaults upon Senior Securities
The Company has not been 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
-9-
<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: _______August 11, 1997_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _______August 11, 1997_________
-10-
EXHIBIT 13(C) - FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1997
- - ------------------------------------------------------------------
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.
<PAGE>
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
----------- -----------
-1-
<PAGE>
<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
-2-
<PAGE>
<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
-3-
<PAGE>
<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
-4-
<PAGE>
<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
-5-
<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.
-6-
<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
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<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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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF METAL RECOVERY TECHNOLOGIES INC. FOR ITS
FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> Metal Recovery technologies, Inc.
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