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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1935
FOR THE TRANSITION PERIOD FROM N/A to N/A
----------------------
Commission File No.: 0-15543
METAL RECOVERY TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
415 East 151st Street, East Chicago, Indiana 46312
Telephone: (219) 397-6261
A Delaware Corporation Employer Identification No.: 71-0628061
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1939
during the proceeding 12 months (or for such shorter period that the Registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days:
Yes (X) No ( )
Number of shares outstanding of the Registrant's Common Stock as of September
30, 1998: 90,289,629.
The Securities and Exchange commission has not approved or disapproved the Form
10-Q, or passed on the accuracy or adequacy of this report.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - Financial Data
Item 1 -- Financial Statements:
Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 1
Consolidated Statement of Operations:
for the Three (3) Months ended September 30, 1998 & 1997 3
Consolidated Statement of Operations:
for the Nine (9) Months ended September 30, 1998 & 1997 4
Consolidated Statement of Cash Flows for the Nine (9) Months
ended September 30, 1998 & 1997 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 10
Item 27 - Financial Data Schedule 10
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets
as of
September 30, 1998 and December 31, 1997
Sep 30 Dec 31
1998 1997
(Unaudited)
ASSETS:
Current Assets:
<S> <C> <C>
Cash & equivalents $3,082 $43,247
Accounts Receivable - -
Inventories 18,372 18,372
----------------------------------
Total current assets 21,454 61,619
----------------------------------
Property & equipment:
Leasehold improvements 673,980 537,601
Equipment and Construction in-progress 2,890,059 2,435,654
Furniture & Fixtures 33,845 33,845
----------------------------------
Total property and equipment 3,597,884 3,007,100
Less accumulated depreciation, depletion
And amortization - -
----------------------------------
Net property & equipment 3,597,884 3,007,100
----------------------------------
Other assets:
Concessions, rights, patents, goodwill 12,906,606 12,906,606
Organization costs 4,801,433 4,198,149
Other assets 14,400 14,400
----------------------------------
Total other assets 17,722,439 17,119,155
----------------------------------
TOTAL ASSETS $21,341,777 $20,187,874
==================================
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
METAL RECOVERY TECHNOLOGIES, INC
Consolidated Balance Sheets - continued
Sep 30 Dec 31
1998 1997
(Unaudited)
LIABILITIES:
Current liabilities:
<S> <C> <C>
Current maturities of long-term indebtedness $175,000 $1,635,000
[Legal Settlement]
Notes payable 41,241 39,184
Accounts payable 2,953,686 2,328,330
Convertible loans 2,592,459 3,285,794
----------------------------------
Total current liabilities 5,762,386 7,288,308
----------------------------------
Long-term liabilities:
DOE Grant 505,000 505,000
Legal settlement (See Part II, Item 1(b)) 2,200,000 1,650,000
Capital lease 6,975 6,975
----------------------------------
Total long-term liabilities 2,711,975 2,161,975
----------------------------------
TOTAL LIABILITIES 8,474,361 9,450,283
----------------------------------
STOCKHOLDERS' EQUITY:
"Series B" Preferred stock, $10 par value
2,500,000 shares authorized, 21,375
Shares outstanding 44,373 44,373
Common stock, par value of $.001;
100,000,000 shares authorized; 90,289,629 and
38,390,501 issued and outstanding at September 30, 90,289 38,390
1998 and December 31, 1997, respectively
Additional paid-in capital 67,702,071 65,031,531
Retained deficit (54,969,317) (54,376,703)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 12,867,416 10,737,591
----------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $21,341,777 $20,187,874
==================================
</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, 1998 & 1997
Sep 30 Sep 30
1998 1997
(Unaudited)
<S> <C> <C> <C>
Sales (See Part I, Item 2, "Statement of Operations") $- $-
Cost of sales - -
----------------------------------
Gross profit - -
----------------------------------
Operating expenses:
Selling, general & administrative 136,390 207,904
----------------------------------
Total operating expenses 136,390 207,904
----------------------------------
Loss from operations (136,390) (207,904)
----------------------------------
Non operating income (expense):
Interest expense - -
----------------------------------
Total non operating expense - -
----------------------------------
Net loss (136,390) (207,904)
==================================
Weighted average number of
Common shares outstanding 83,746,381 29,764,050
(Loss) per share $(0.0016) $(0.0069)
</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, 1998 & 1997
Sep 30 Sep 30
1998 1997
(Unaudited)
<S> <C> <C> <C>
Sales (See Part I, Item 2, "Statement of Operations") $- $-
Cost of sales - -
----------------------------------
Gross profit - -
----------------------------------
Operating expenses:
Selling, general & administrative 592,614 826,351
----------------------------------
Total operating expenses 592,614 826,351
----------------------------------
Loss from operations (592,614) (826,351)
----------------------------------
Non operating income (expense):
Legal settlement (see Part II, Item 1) - (3,250,000)
Interest expense - (26,381)
----------------------------------
Total non operating expense (592,614) (3,276,381)
----------------------------------
Net loss (592,614) (4,102,732)
==================================
Weighted average number of
Common shares outstanding 76,228,888 26,527,177
(Loss) per share $(0.0078) $(0.1547)
</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, 1998 & 1997
Sep 30 Sep 30
1998 1997
(Unaudited)
Cash flows provided by (used for)
Operations:
<S> <C> <C>
Net loss $(592,614) $(4,102,732)
Net changes in current assets and liabilities
Excluding long-term indebtedness (1,525,922) 1,596,084
-----------------------------------
Net cash provided by (used for)
operating activities (2,118,536) (2,506,648)
-----------------------------------
Cash flows provided by (used for)
Investment activities:
Increase in Leasehold Improvements,
Equipment & Contruction in Progress &
Additions to Organization costs (1,194,068) (2,327,070)
Decrease in Other assets - 39,000
-----------------------------------
Net cash used by investing activities (1,194,068) (2,288,070)
-----------------------------------
Cash flows provided by (used for)
Financing activities:
Increase in long term debt 550,000 3,241,238
Issued common stock 51,899 11,465
Redemption of "Series A" preferred shares - (469,650)
Received from additional paid-in capital 2,670,540 2,016,438
-----------------------------------
Net cash provided by financing activities 3,272,439 4,799,491
-----------------------------------
(decrease)/ increase in cash (40,165) 4,773
Cash & equivalents at beginning of year 43,247 6,778
-----------------------------------
Cash & equivalents at September 30, 1998 & 1997 $3,082 $11,551
===================================
</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 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 1998. All labor costs associated with administration, construction at
East Chicago and technical development are also included.
(e) Depreciation and Amortization
Metal Recovery Industries (US), Inc. is in the developmental stage and therefore
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 who hold security under a collateral agreement with Plenbrick
Ltd. During 1996, 1997 and 1998 MRTI issued convertible debt in exchange for
funds used to administer and construct its operations. As of September 30, 1998,
this indebtedness was $2,592,459 These loans contain anti-dilution provisions,
and are secured, pro rata, by liens on the shares of MRI(US), as well as its
assets. On April 22nd 1998 MRTI entered into a contract with Zinc Investments
Inc of Geneva Switzerland to provide in stages the sum of $3,000,000 to finance
an engineering upgrade of the company's plant at East Chicago.
In order to facilitate the investment the assets of MRI(US) were transferred
with the approval of Plenbrick Ltd (MRTI's chief collateral lender) to Zinc
Recovery (East Chicago) Inc, a newly formed wholly owned subsidiary of MRTI.
The signing of the agreement with Zinc Investments Inc encouraged members of the
Plenbrick syndicate to make further loans of $125,000 during the reporting
quarter. However, the weak share price is currently causing concern and may
result in terms being renegotiated.
PART I - Financial Information
ITEM 2
Management's Discussion and Analysis of
Consolidated Financial Condition and Statement of Operations
Financial Condition
There was an increase in property and equipment and other assets at September
30, 1998,of $590,784 compared to December 31, 1997. (See "Liquidity" below).
Liquidity
At December 31, 1997, and September 30, 1998 the Company had unused convertible
loan facilities of $950,000 and $519,000 respectively. However the company's
weak share price has meant that members of the Plenbrick Ltd syndicate have been
resistant to making further loans without changing their conversion terms. Their
attitude is also affected by the fact that under new securities regulations the
loans cannot be converted into shares of MRTI for 1 year and thereafter can only
be sold in accordance with rule 144 of the Securities and Exchange Commission.
The Company believes it can resolve these difficulties and is working diligently
to do so. Without additional funding, the Company will not have sufficient
working capital available to allow the Company to reach full production and to
pay off trade creditors.
On April 22nd 1998 MRTI entered into a contract with Zinc Investments Inc of
Geneva, Switzerland to provide in stages the sum of $3,000,000 to finance an
engineering upgrade of the company's plant at East Chicago. The proposed loan of
$3,000,000 is secured on the company's assets at East Chicago as described in 1f
above.
During the current reporting period, loans totaling $261,500 were converted into
8,716,785 shares of the Company's common stock.
-7-
<PAGE>
During 1997, Leon Lohman was appointed Vice President of engineering and
production and he determined along with the assistance of SSOE (a leading A & E
partnership) that the technology was proven but the East Chicago plant was under
engineered.
Following the results of an internal production review the company determined
that an additional investment of circa $2,000,000 would be necessary to achieve
an annual production target of 110,000 tons of scrap. The ability to produce
high quality black scrap and marketable zinc products has been demonstrated by
the existing facility but the need to optimize the current facility while
continuing to produce created operational difficulties. Accordingly, the company
curtailed its operations with the intention of making major operational and
processing additions and improvements to its plant operating equipment. These
improvements have commenced although completion of the improvements is entirely
dependent on the willingness of Plenbrick Ltd and Zinc Investments Inc to make
loans.
Statements of Operations
Three Months Ended September 30,1998 vs.
Three Months Ended September 30,1997
There was no change in "Revenues" compared to the same period a year ago.
The decrease in the 1998 quarters "operating expenses" compared to the 1997
quarter is mainly due to the reduction in general overheads. The Company has
adopted the policy of capitalizing all costs associated with the development of
its East Chicago facility until the plant reaches full production levels. These
costs include the development, marketing, installing and testing of equipment
and administrative activities. Owing to delays and problems with production, the
Company has continued, for 1998, its policy of capitalizing costs associated
with the commissioning of the plant in East Chicago, Indiana. For the quarter
ended September 30,1998, the costs associated with capitalized equipment and
organization costs amounted to $598,629 compared to a figure of $714,276 for the
same period during 1997.
The Company reported a net loss for the three months of $0.0016 per weighted
average number of shares outstanding compared to a loss of $0.0069 per weighted
average number of shares outstanding for the same period the previous year.
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.
-8-
<PAGE>
Without admitting liability, the Company has reluctantly agreed to settle these
actions. This decision was taken to avoid mounting legal costs, to free
management from the burdensome time involved in dealing with this matter, and to
achieve certainty as to the outcome of the proceedings. The uncertainty of these
proceedings has been negatively affecting or delaying potential business
transactions, including financing arrangements which are essential for the
developments of the company's facility at East Chicago.
The agreed settlement, which was finalized during 1997 was for $3.25 million.
The payment terms were over a four year period as detailed in the Form 10-K for
the period ended December 1997, and are hereby incorporated by reference.
However, the Company did not made the initial payment negotiated in the
agreement and renegotiated the terms and conditions originally agreed upon. The
final settlement is being renegotiated and is expected to be an amount of $3.45m
payable as follows:
An initial payment of $25,000
20 million shares of the company's common stock placed into escrow to satisfy
$1,050,000
A further payment of $175,000.
Four annual installments of $550,000 commencing one year from the effective
date.
During the previous reporting period the company paid the initial $25,000 and
placed 12 million shares in escrow. During the current reporting period, due to
the company's declining share price the company placed an additional 8 million
shares in escrow. The 20 million shares have been recorded in the accounts at
$1,050,000 being the amount due.This amount, however, is subject to further
adjustment determined on the actual share price achieved when the shares are
eventually sold.
With the exception of the first $200,000 payment, the Company has the option in
its sole discretion to satisfy all or any portion of its payment obligations in
the form of cash, shares of unrestricted stock of the Company or any combination
thereof.
The Company has reflected the provision of the current negotiations in the
financial statements presented herein.
(b) Other litigation
The Company is involved in other matters of litigation related to outstanding
balances with creditors and in the normal course of business. Management
believes that none of these matters, upon their ultimate resolution, will
involve amounts material to the Company's statements.
A group of creditors owed approximately $400,000 has recently threatened to push
the company into bankruptcy unless a schedule of payments is agreed and adhered
to. An initial payment of $10,000 was made in August 1998 and negotiations are
continuing..
Item 3 - Defaults upon Senior Securities
As of September 30,1998, the Company was not involved in any material default in
the payment of principal or interest with respect to any senior indebtedness.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
covered by this report.
-9-
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
During the current reporting period the Company filed six reports on Form 8-K,
which are hereby incorporated by reference.
Item 27 - Financial Data Schedule
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Metal Recovery Technologies, Inc.
\s\ Michael S. Lucas
By: ________________________________
Michael S. Lucas, Chairman and CEO
Date: _____18th November, 1998_________
\s\ Roy Pearce
By: _________________________________
Roy Pearce, Chief Financial Officer
Date: _____18th November, 1998_________
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Metal Recovery Technologies Inc. for its
fiscal third quarter ended September 30, 1998 and if qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000796117
<NAME> Metal Recovery Technologies Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18
<CURRENT-ASSETS> 21
<PP&E> 3598
<DEPRECIATION> 0
<TOTAL-ASSETS> 21342
<CURRENT-LIABILITIES> 5762
<BONDS> 0
0
44
<COMMON> 90
<OTHER-SE> 67702
<TOTAL-LIABILITY-AND-EQUITY> 21342
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.002)
<EPS-DILUTED> 0<F1>
<FN> ANTI-DILUTIVE
</FN>
</TABLE>
