<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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 1934
For the transition period from ________ to ________
Commission file number 0-21042
-------
MOLTEN METAL TECHNOLOGY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1659959
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400-2 Totten Pond Road
WALTHAM, MA 02154
----------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 487-9700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE 23,683,673
---------------------------- -----------------------------
Class Outstanding at April 30, 1997
<PAGE> 2
MOLTEN METAL TECHNOLOGY, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997 and December 31, 1996 3
Consolidated Statement of Operations for the quarters ended
March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows for the quarters ended
March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 9-16
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
- ----------
* No information provided due to the inapplicability of item.
2
<PAGE> 3
<TABLE>
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,614,024 $ 19,679,104
Short-term investments 70,156,082 109,388,659
Accounts receivable, net of allowance for doubtful
accounts of $150,000 at March 31, 1997 3,335,540 2,573,306
Unbilled accounts receivable 160,128 --
Accounts receivable from affiliates 6,304,682 5,525,491
Unbilled accounts receivable from affiliates 120,898 798,980
Prepaid expenses and other current assets 6,979,198 6,300,727
------------- -------------
Total current assets 104,670,552 144,266,267
Restricted cash 1,798,282 2,592,925
Fixed assets, net 121,014,109 103,553,945
Intangible assets, net 16,941,349 16,363,201
Other assets 5,936,689 5,968,911
------------- -------------
$ 250,360,981 $ 272,745,249
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,840,023 $ 1,884,486
Accounts payable 15,441,959 19,273,058
Accrued expenses 8,863,995 6,082,746
Accrued interest 3,664,187 2,161,297
Deferred revenue 2,070,907 1,647,472
Deferred income from affiliate 4,504,615 4,586,870
------------- -------------
Total current liabilities 36,385,686 35,635,929
------------- -------------
Long-term debt 164,750,000 164,753,334
------------- -------------
Due to related parties 1,385,889 1,385,889
------------- -------------
Deferred income from affiliate 2,382,369 2,437,500
------------- -------------
Accumulated losses of affiliate in excess of investment 6,000,218 5,020,765
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 3,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.01 par value, 100,000,000 shares
authorized; 23,680,673 shares issued and 23,570,273
outstanding at March 31, 1997 and 23,643,707 shares
issued and 23,603,707 outstanding at December 31, 1996 236,807 236,437
Additional paid-in capital 163,232,684 163,124,587
Valuation allowance for short-term investments (243,497) (86,653)
Accumulated deficit (121,293,739) (97,820,411)
------------- -------------
41,932,255 65,453,960
Less: Treasury stock, 110,400 shares at March 31, 1997
and 40,000 shares at December 31, 1996, at cost (1,251,319) (482,504)
Less: Deferred compensation (1,224,117) (1,459,624)
------------- -------------
Total stockholders' equity 39,456,819 63,511,832
------------- -------------
$ 250,360,981 $ 272,745,249
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Quarter ended March 31,
-------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenue:
Waste services $ 3,944,962 --
Equipment sales 707,361 --
Research and development ("R&D") 200,000 1,257,808
Construction, R&D and consulting from affiliates 120,898 17,365,736
Technology transfer and success fees from affiliate -- 3,750,000
------------ -----------
4,973,221 22,373,544
Operating expenses: ------------ -----------
Cost of revenue - Waste services 7,491,670 --
Cost of revenue - Equipment sales 255,154 --
Cost of revenue - R&D 105,880 1,178,331
Cost of revenue - construction, R&D, consulting,
technology transfer and success fees from affiliates 106,559 15,144,941
R&D 9,131,539 4,708,163
Selling, general and administrative ("SG&A") 6,940,057 2,418,332
------------ -----------
24,030,859 23,449,767
Equity income (loss) from affiliate (3,677,953) 369,312
------------ -----------
Loss from operations (22,735,591) (706,911)
Other income (expense):
Interest income 1,571,237 1,354,729
Interest expense (2,308,974) (432,390)
------------ -----------
Net income (loss) $(23,473,328) $ 215,428
============ ===========
Net income (loss) per share $ (1.00) $ 0.01
============ ===========
Weighted average common and common equivalent
shares outstanding 23,556,029 27,493,890
============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(23,473,328) $ 215,428
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities (net of assets acquired from VECTRA):
Depreciation and amortization 2,896,051 1,316,704
Equity loss (income) from affiliate 3,677,953 (369,312)
Compensation expense related to restricted stock and common stock options 235,507 10,424
Decrease (increase) in accounts receivable (922,362) 696,087
Increase in accounts receivable from affiliate (101,109) (4,631,073)
Decrease (increase) in prepaid expenses and other current assets 176,692 (801,817)
Increase in other assets (92,506) (401,696)
Increase (decrease) in accounts payable (3,831,099) 4,319,840
Increase in accrued expenses 2,781,249 1,250,334
Increase (decrease) in accrued interest 1,502,890 (473,682)
Increase (decrease) in deferred revenue 423,435 (1,750,001)
Increase (decrease) in deferred income from affiliate (137,386) 1,953,445
------------ -----------
Net cash provided by (used in) operating activities (16,864,013) 1,334,681
------------ -----------
Cash flows from investing activities:
Expenditures for fixed assets (17,262,429) (6,544,481)
Purchase of intangible assets (451,810) (498,959)
Cash paid for acquisition of VECTRA assets (3,950,559) --
Cash investments in affiliate (2,698,500) --
Redemption of short-term investments, net 39,075,733 10,934,069
Decrease in restricted cash 794,643 1,736,340
------------ -----------
Net cash provided by investing activities 15,507,078 5,626,969
------------ -----------
Cash flows from financing activities:
Proceeds from issuances of common stock 108,467 1,567,492
Purchase of treasury stock (768,815) --
Principal repayments of long-term debt (47,797) (47,713)
------------ -----------
Net cash provided by (used in) financing activities (708,145) 1,519,779
------------ -----------
Increase (decrease) in cash and cash equivalents (2,065,080) 8,481,429
Cash and cash equivalents at beginning of period 19,679,104 6,644,856
------------ -----------
Cash and cash equivalents at end of period $ 17,614,024 $15,126,285
============ ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Molten Metal Technology, Inc. (the "Company" or "MMT") is an environmental
technology company engaged in the commercialization and continued development of
its proprietary processing technology, Catalytic Extraction Processing ("CEP").
The core of CEP is a molten metal bath into which feedstocks and selected
chemicals can be introduced. The catalytic and solvent effects of the molten
metal bath causes feedstocks to break down into their constituent elements and
dissolve in the molten metal. The addition of various selected chemicals to the
molten metal bath allows feedstocks to reform and be recovered as different
materials which generally can be re-used as a raw material by the feedstock
generator or can be sold to other users.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Net income (loss) per share is determined by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the period. Common share equivalents consist of common stock which may be
issuable upon exercise of outstanding stock options and warrants. Common share
equivalents have been excluded from the weighted average number of common shares
in loss periods since their effect is anti-dilutive. The effect of the assumed
conversion of the convertible debt was anti-dilutive for the periods presented.
In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the quarters ended March 31, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.
Certain reclassifications have been made for consistent presentation. The
reclassifications have no effect on the net loss for the period ended March 31,
1996.
6
<PAGE> 7
The information furnished is unaudited and reflects all adjustments (consisting
of only normal recurring adjustments) which, in the opinion of management, are
necessary for a fair presentation of the financial position and results of
operations for the interim periods. The accompanying financial statements should
be read in conjunction with the Company's audited financial statements and
related footnotes for the year ended December 31, 1996 which are included in the
Company's annual report on Form 10-K for the year ended December 31, 1996. The
results of operations for the quarter ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. EQUITY TRANSACTIONS
During the quarter ended March 31, 1997, 36,966 shares of common stock were
issued upon the exercise of options.
During the quarter ended March 31, 1997, the Company repurchased 70,400 shares
of its common stock for $768,815 and placed the shares in treasury.
NOTE 3. ACCUMULATED LOSSES OF M4 IN EXCESS OF INVESTMENT
The Company accounts for its investment in M4 Environmental L.P. ("M4") using
the equity method. Under the M4 limited partnership agreement, the Company and
its partner, Lockheed Martin Corporation ("LMC"), share equally in M4's revenues
and other income and all expenses are allocated to LMC until the capital
accounts of the Company and LMC are equal. Thereafter, the Company and LMC share
equally in the profits or losses of M4. The capital accounts became equal in the
fourth quarter of 1996 and, as such, the Company recognized one half of M4's net
loss for the quarter ended March 31, 1997.
Summarized income statement information of M4 for the quarter ended March 31,
1997 is presented below:
<TABLE>
<CAPTION>
Quarter ended
March 31, 1997
--------------
<S> <C>
Revenue $ 8,734,000
Other income 7,000
Expenses (16,097,000)
------------
Net loss $ (7,356,000)
============
The Company's share of M4's net loss $ (3,678,000)
</TABLE>
7
<PAGE> 8
NOTE 5. PROPOSED RESTRUCTURING OF M4
In March 1997, the Company and LMC executed a letter of intent to restructure
their relationship currently embodied in M4. The letter of intent contemplates
the following: (1) LMC would have the exclusive right to lead and pursue
contracts for the clean up of the US Department of Energy's ("DOE") tanked waste
site in Hanford, Washington, and the Company would provide directly to LMC
certain construction and development services with respect to CEP. (2) The
Company would have the exclusive right to lead and pursue the worldwide
opportunities for processing UF6 and LMC would have the right to participate in
this market on a case-by-case basis, subject to mutual agreement of the parties.
(3) The Company and LMC would form a new limited liability company to be their
exclusive vehicle to pursue the processing of chemical weapons worldwide. (4)
Retech would be transferred to LMC. (5) The Company would become the sole owner
of M4. After giving effect to the restructuring, M4's principal asset would be
the Technology Center in Oak Ridge, Tennessee (the "M4 Technology Center"). The
Company would be responsible for the operation of the M4 Technology Center and
would be entitled to all future revenue from such operations. The Company and
LMC have agreed to share equally the debt service of the $38 million of bonds
issued by the Industrial Development Board of Oak Ridge relating to the M4
Technology Center. (6) LMC would forgive $15 million outstanding on M4's line of
credit, and the Company would contribute outstanding accounts receivable of
$14.6 million to M4's capital. This amount is included in accumulated losses of
affiliate in excess of investment at March 31, 1997 and December 31, 1996. (7)
LMC and the Company generally would share equally in substantially all of the
costs of the restructuring. (8) All existing agreements between the Company, LMC
and M4 would be terminated, including the CEP license to M4. (9) LMC and the
Company would establish a first offer process pursuant to which they will
jointly discuss new market opportunities within the DOE and US Department of
Defense ("DoD") markets prior to pursuing them individually.
NOTE 6. ACQUISITION
On January 29, 1997, MMT of Tennessee Inc., a wholly-owned subsidiary of the
Company ("MMT Tennessee"), acquired certain low-level radioactive waste
processing assets of VECTRA Technologies, Inc. ("VECTRA"), a spent nuclear fuel
and radioactive waste services company located in San Ramon, California. MMT
Tennessee paid $3.9 million in cash for the VECTRA waste-handling assets, which
include machinery, equipment, spare parts, intellectual property and customer
contracts. The acquisition was accounted for as a purchase and, accordingly,
operating results of this business subsequent to the date of acquisition were
included in the Company's consolidated financial statements. In accordance with
APB Opinion No. 16, the purchase price was allocated to the net assets acquired
based upon their estimated fair values.
8
<PAGE> 9
NOTE 7. LITIGATION
In February and March 1997, purchasers of the Company's common stock filed five
purported class action suits against the Company and certain of its present and
former directors and executive officers in the United States District Court for
the District of Massachusetts. The complaints variously allege that defendants
made false and misleading statements and disseminated financial statements not
prepared in accordance with generally accepted accounting principles, in
violation of federal securities laws and state law, in order to enhance the
value of the Company's common stock and to enable the Company to issue
securities and the individual defendants to sell shares of the Company's common
stock at inflated prices. Each of the suits seeks compensatory damages for
unspecified alleged losses during the class periods, the longest of which
extends from September 26, 1995 through October 21, 1996. These actions are at
an early procedural stage. While the Company has not yet filed answers to the
complaints, the Company intends to deny liability with respect to these actions.
However, the ultimate outcome cannot be determined at present. As such, no
provision for liability from these suits has been made in the financial
statements as of March 31, 1997.
The Company has certain contingent liabilities resulting from other litigation
and claims incident to the ordinary course of business. Management believes that
the probable resolution of such contingencies will not materially affect the
financial condition or results of operations of the Company.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues for the first quarter of 1997 decreased to $4,973,000 from $22,374,000
in the first quarter of 1996. The following table compares sources of revenue
for the quarters ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Waste services $ 3,945,000 $ -
Equipment sales 707,000 -
Engineering and construction 121,000 16,485,000
R&D and consulting 200,000 2,139,000
Technology transfer and success fees - 3,750,000
----------- -----------
$ 4,973,000 $22,374,000
=========== ===========
</TABLE>
Waste services revenue is from processing, managing and handling radioactive
wastes through the Company's nuclear waste services division based in Oak Ridge,
Tennessee. The first quarter of 1997 marked the commercial start-up of the
Company's Quantum CEP Facility in Oak Ridge, Tennessee ("Q-CEP Facility") and
the commencement of commercial CEP operations. The Company also began operations
of its newly acquired waste service business from The Scientific Ecology Group,
Inc. ("SEG") and VECTRA. The Company expects that revenue from plant operations
will continue to increase in future periods as operations at the Q-CEP Facility
ramp up and as commercial operations commence at additional facilities in Oak
Ridge, Tennessee and Bay City, Texas.
Equipment sales are from the sale of waste storage and processing equipment for
commercial low-level radioactive waste. The sales are a result of operations
related to the acquisitions from SEG and VECTRA.
During the quarter ended March 31, 1996, the Company recognized $16.5 million in
revenue related to the engineering, design and construction of M4's Technology
Center. During the quarter ended March 31, 1997, the Company recorded no such
revenue. The Company expects engineering and construction revenue to increase in
the next few quarters due to activities related to engineering, design and
construction of an initial CEP system for the joint venture with Nichimen
Corporation and NKK Plant Engineering Corporation for the processing of fly ash
in Japan.
During the quarter ended March 31, 1996, the Company recognized $2.1 million in
revenue related to research and development and consulting contracts with M4 and
the US government. During the quarter ended March 31, 1997, the Company recorded
no
10
<PAGE> 11
such revenue from M4 or the US government. The Company expects to continue with
research and development projects, some of which will be funded by third parties
and some of which will be funded from the Company's working capital. The Company
anticipates that the amount of both internally and externally funded research
and development will decrease over the next year.
There were no technology transfer and success fees for the first quarter of
1997. Technology transfer and success fees for the first quarter of 1996
resulted from the recognition of a portion of the original $14 million license
fee from M4 and from plant start-up fees from M4. Part of the Company's strategy
is to license its technology under arrangements which provide for up-front
technology transfer fees, ongoing tolling fees, license fees or royalties and
the Company expects such revenues to increase in future periods over the first
quarter of 1997.
The existence and timing of revenues related to the Company's commercial
operations will depend on a number of factors, including the ability of the
Company and its affiliates to successfully market, permit and build CEP systems
on a timely and economic basis for their target markets, customer acceptance of
the technology, and competition from other companies in the Company's target
markets, and no assurances can be made in this regard.
Cost of revenues for the quarter ended March 31, 1997 decreased to $7,959,000
from $16,323,000 in the quarter ended March 31, 1996. The decrease is primarily
attributable to a reduction in cost reimbursement contracts for R&D and
engineering and construction activities.
R&D expenses increased to $9,132,000 for the quarter ended March 31, 1997 from
$4,708,000 for the quarter ended March 31, 1996. The increase reflects a lower
absorption of R&D expenses into cost of revenue due to a reduction in cost
reimbursement contracts. The Company expects that R&D costs will decrease during
1997 as efforts become more directed toward commercial operations. SG&A expenses
increased to $6,940,000 for the quarter ended March 31, 1997 from $2,418,000 for
the quarter ended March 31, 1996. The increase reflects a lower absorption of
SG&A expenses into cost of revenue due to a reduction in cost reimbursement
contracts. The Company is making efforts to decrease SG&A expenses in future
periods. The classification of expenses between cost of revenue, R&D and SG&A
will depend on the number and amount of future cost reimbursement contracts and
the related absorption of R&D and SG&A expenses into cost of revenue.
The Company accounts for its investment in M4 using the equity method and
recorded an equity loss of $3,678,000 in the first quarter of 1997 compared to
equity income of $369,000 in the first quarter of 1996. Under the M4 limited
partnership agreement, the Company and LMC share equally in M4's revenues and
other income and all expenses are allocated to LMC until the capital accounts of
the Company and LMC are equal. During the first quarter of 1996, the Company's
and LMC's capital accounts were not
11
<PAGE> 12
equal and the Company recorded its share of revenues and other income from M4
without recognizing any expenses from M4. This resulted in the Company having
equity income from M4 for the quarter ended March 31, 1996. In the fourth
quarter of 1996, the Company's and LMC's capital accounts became equal and the
Company began to share in the recognition of expenses from M4. As such, the
Company recognized one half of the net loss of M4 for the quarter ended March
31, 1997, which resulted in a net equity loss of $3,678,000. The Company expects
to continue to incur equity losses from M4 until the ongoing restructuring is
completed, which is expected during the second quarter of 1997.
Interest income increased to $1,571,000 for the first quarter of 1997 from
$1,355,000 in the first quarter of 1996. The increase is due to interest earned
on the net proceeds from the issuance of convertible debt in May 1996. The
Company expects interest income to decline in the coming year as cash and
short-term investments are used to fund initial commercial operations and
continued investment activities, including expenditures for fixed assets.
Interest expense increased to $2,309,000 for the first quarter of 1997 from
$432,000 in the first quarter of 1996. The increase is due to interest on the
convertible debt issued in May 1996.
Inflation is not expected to have a material effect on future results of
operations.
The Company's results of operations have varied significantly in the past and
may continue to vary significantly in the future. The Company's future
profitability is dependent upon its ability to commercialize successfully its
CEP technology and to find alternative sources of revenue. There can be no
assurance that the Company will generate sufficient revenue to achieve
profitability.
In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the quarters ended March 31, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling $87.8 million compared to $129.1 million at December 31,
1996. The decrease was primarily a result of cash used in operations and for the
acquisition of fixed assets. During 1997, the Company expects to incur
significant additional expenditures related to the engineering, construction and
start-up of commercial CEP systems owned by itself and through joint ventures.
The Company expects that its total capital expenditures for 1997 will be
approximately $83 million.
In March 1997, the Company and LMC announced that they had executed a letter of
intent to restructure their relationship with respect to commercialization of
CEP for the government waste market. The objective of the restructuring is to
enable MMT and LMC to access target markets more efficiently by eliminating many
of the organizational redundancies associated with the current M4 structure. LMC
and MMT believe that the contemplated restructuring also will enable them to
better leverage LMC's expertise in systems integration and MMT's ability to
provide its CEP technology to target markets. After the completion of the
restructuring, LMC and MMT each would be free to pursue projects formerly
governed by the existing joint venture agreements, subject to the requirements
established by the proposed new arrangements. The letter of intent contemplates
five principal changes in the companies' relationship: (1) LMC would have the
exclusive right to lead and pursue contracts for the clean up of the DOE's
tanked waste site in Hanford, Washington, and MMT would provide directly to LMC
certain construction and development services with respect to CEP, (2) the
Company and LMC would form a new limited liability company to be their exclusive
vehicle to deliver processing services to customers in the chemical
demilitarization market worldwide, (3) MMT would have the exclusive right to
lead and pursue worldwide opportunities for processing DUF6, (4) the Company
would become the sole owner of M4, which will continue to own and operate its
primary remaining asset, the M4 Technology Center, and (5) the Retech division
of M4, which provides plasma arc technology, would be transferred to LMC.
In connection with the Hanford project, the Company would deliver a pilot-scale,
demonstration CEP plant to LMC in 1997 for a fixed price of $5 million. In
addition, if the LMC team is awarded a contract under Phase 1B of the Hanford
cleanup program and CEP is used in the Phase 1B performance, LMC would pay the
Company a fee of $15 million and order a CEP production plant meeting agreed
upon criteria at a price to be negotiated. $5 million of this fee would be
payable on award of the contract and the remaining $10 million would be payable
upon timely delivery and acceptance of the CEP production plant. The Company
also would be entitled to an on-going royalty of 3.5% of all revenues generated
from the processing of waste in equipment supplied by the Company under the
Hanford contract. Pursuant to discussions between MMT and LMC in connection with
the negotiation of definitive agreements with respect to the restructuring, it
is anticipated that LMC would fund certain development work with
13
<PAGE> 14
respect to the Company's Quantum-CEP technology ("Q-CEP") for possible
application to the Hanford project. There can be no assurances that Q-CEP will
prove to be satisfactory to the DOE for processing the Hanford waste or that,
even if satisfactory, the DOE will award a Phase 1B contract to the LMC team.
There also can be no assurances that LMC will submit a bid for Phase 1B. In
addition, LMC is considering the use of other waste processing technologies, in
lieu of or in addition to Q-CEP, for all or part of any Phase 1B contract. LMC
may elect to include Q-CEP in the initial or later portions of any Phase 1B
contract if Q-CEP meets certain technical criteria, to be established by MMT and
LMC. There can be no assurances that Q-CEP will be able to meet such criteria or
that LMC will include Q-CEP in any portion of any Phase 1B contract.
The limited liability company to be formed by the Company and LMC would have
exclusive worldwide rights to commercialize CEP for the chemical weapons
demilitarization market. The limited liability company would be owned 50/50 by
LMC and the Company. The Company would be entitled to success fees of up to an
aggregate of $25 million in connection with the successful deployment of CEP
systems to process chemical weapons. The limited liability company would have an
initial term of five years.
As sole owner of M4, the Company would be responsible for the future operations
of the M4 Technology Center, and would be entitled to all future revenues from
such operations. Under the terms of the letter of intent, the $38 million
aggregate principal amount of bonds issued by the Industrial Development Board
of Oak Ridge relating to the M4 Technology Center would remain outstanding,
LMC's guarantee of these bonds would remain in place, and each of LMC and the
Company would be jointly responsible for the principal, interest and other costs
relating to these bonds.
In addition to the changes described above, the Company and LMC have agreed in
the letter of intent that the Company would have the exclusive right to lead and
pursue worldwide opportunities for processing DUF6. LMC would have the right to
participate in this market on a case-by-case basis, subject to mutual agreement
of the parties, and would agree not to pursue this market for five years except
jointly with the Company.
LMC and the Company also would establish a strategic alliance committee,
comprising three representatives from each company, to review and monitor the
relationships created by the restructuring and to evaluate new market
opportunities within the DOE and DoD markets.
In connection with the proposed restructuring, LMC would forgive $15 million
aggregate principal amount and all accrued interest under its line of credit
with M4, and the Company would contribute outstanding accounts receivable of
$14.6 million to
14
<PAGE> 15
M4's capital. LMC and the Company will generally share equally in substantially
all of the costs of the restructuring.
The restructuring described above is based on the terms set forth in a
non-binding letter of intent between the Company and LMC. Completion of the
restructuring is dependent upon a number of factors, including the negotiation
of definitive agreements and the approval of the Boards of Directors of the
Company and LMC. There can be no assurances that the Company and LMC will
successfully consummate the transactions described in the letter of intent.
On January 29, 1997, MMT Tennessee acquired certain low-level radioactive waste
processing assets of VECTRA, a spent nuclear fuel and radioactive waste services
company located in San Ramon, California. MMT Tennessee paid $3.9 million in
cash for the VECTRA waste-handling assets, which include machinery, equipment,
spare parts, intellectual property and customer contracts.
The Company is currently constructing a CEP facility in Bay City, Texas that is
designed to service the industrial hazardous waste market. During the quarter
ended March 31, 1997, the Company spent approximately $16.1 million for the
engineering, construction and permitting of this facility.
In October 1996, the Board of Directors authorized the Company to repurchase up
to 2,000,000 shares of its common stock. Under this authorization, 70,400 shares
were repurchased by the Company during the quarter ended March 31, 1997 for
$769,000. The Company does not anticipate repurchasing additional shares in the
foreseeable future.
In March 1996, the Company entered into a new lease for the Company's corporate
headquarters. In September 1996, the Company entered into a new lease for
additional space in the same office park as the Company's corporate
headquarters. Each of these leases is for seven years, and future minimum lease
payments of approximately $22.8 million in the aggregate are due on a monthly
basis throughout the seven-year term. The Company does not currently intend to
occupy the second building and is in the process of negotiating subleases for
such space. Currently, more than one third of this building has been subleased
at rents in excess of the rent which the Company is required to pay. The Company
has accrued $1.3 million for anticipated losses relating to this lease, net of
expected sublease income, at March 31, 1997 and December 31, 1996.
The Company incurred a net loss of $23.5 million for the quarter ended March 31,
1997. The Company's current business plan indicates that the Company will
require additional financing to be used for the completion of its planned
capital expenditures through the end of 1997, including the completion of the
Bay City CEP Facility, and to continue its research, development and other
efforts necessary to commercialize its CEP technology. Accordingly, the Company
intends to raise additional financing during
15
<PAGE> 16
1997, and has retained several investment banking firms to assist it in these
efforts. These sources of financing could include a tax-exempt bond financing
for MMT Tennessee, which owns and operates the Q-CEP facility in Oak Ridge,
Tennessee and the wet waste assets acquired from SEG and VECTRA. If the Company
does not obtain additional financing during 1997, it would have a materially
adverse effect on the Company's operations. The amount, timing and effect on
liquidity of capital expenditures, including equity contributions to joint
ventures, to be made by the Company in connection with the development of
commercial CEP systems will depend on a number of factors, including the number
of systems to be developed, the timing of the development of such CEP systems,
the terms of the development arrangements with the Company's customers and
partners and the extent to which the Company is able to obtain financing for
such CEP systems.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained in this Form 10-Q regarding future events or the
future financial performance of the Company are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements include
statements concerning anticipated trends in the Company's revenue from plant
operations, engineering and construction activities and technology transfer and
success fees and research and development expenditures, anticipated capital
expenditures, the Company's plans to obtain additional financing, and
expectations regarding the future performance of the Company's relationship with
LMC. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Accordingly, actual results could differ
materially from those contemplated by these forward-looking statements. Among
the risks and uncertainties which could affect actual results are that potential
customers will not accept the Company's CEP technology as an economically and
environmentally acceptable means of disposing of wastes and by-products; that
the Company will be unable to build its CEP plants on time and under budget;
that the Company will not be able to commercially operate CEP plants on a
sustained and profitable basis; and that the Company will not be able to obtain
required funding on satisfactory terms or at all.
Additional factors which may cause actual results to differ are described in
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as well as the Company's other filings with the Securities
and Exchange Commission and are incorporated herein by reference.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February and March 1997, purchasers of the Company's common stock filed five
purported class action suits against the Company and certain of its present and
former directors and executive officers in the United States District Court for
the District of Massachusetts. The first suit, filed on February 12, 1997, and
the fifth suit, filed on March 28, 1997, name the Company and Messrs. William M.
Haney, III, Christopher J. Nagel, Benjamin T. Downs, Victor E. Gatto, Jr., Ian
C. Yates, John T. Preston and Maurice F. Strong as defendants. The other three
suits, filed on February 13, February 20, and February 27, 1997, each name the
Company and Messrs. Haney, Nagel, Preston and Strong as defendants. The
complaints variously allege that the Company and the individual defendants made
false and misleading statements concerning the development and commercialization
of CEP and the availability of research and development funding from the DOE,
and disseminated financial statements not prepared in accordance with generally
accepted accounting principles, in violation of Section 10(b) of the Securities
Exchange Act of 1934 and state law. The complaints variously assert that the
alleged false or misleading statements were made to inflate the price of the
Company's common stock in order to facilitate its March 1996 offering of
convertible subordinated notes, to reduce the number of shares contributed to M4
to match an investment by M4's co-owner, to enhance the value of stock or
options held by the individual defendants, and to increase the price of stock
sold by the individual defendants. Each of the suits seeks compensatory damages
for alleged losses during the class periods (September 26, 1995 through October
21, 1996 in the first suit, March 28, 1995 through October 18, 1996 in three of
the suits, and September 26, 1995 through October 20, 1996 in the fifth suit) as
well as fees and costs. The suits are at an early procedural stage. While the
Company has not yet filed answers to the complaints, the Company intends to deny
liability. However, the ultimate outcome of the litigation cannot be determined
at present.
In April 1997, the Company and M4 received subpoenas from the Office of the
Inspector General ("OIG") of the DOE which request various Company and M4
information and records. The OIG has not informed the Company or M4 of its
reasons for requesting such information and records.
17
<PAGE> 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed the following
Current Reports on Form 8-K:
1. Form 8-K dated January 2, 1997, as amended by Form 8-K/A dated
February 20, 1997 with respect to the acquisition of certain assets
from The Scientific Ecology Group, Inc. and Westinghouse Electric
Corporation. In connection with the Form 8-K/A, the following
financial statements and pro forma financial information were filed:
(a) Financial Statements
Report of Independent Accountants
Statement of Assets Acquired and Liabilities Assumed as of
December 31, 1995 and as of September 30, 1996
Statement of Revenue and Direct Operating Expenses for the years
ended December 31, 1995 and 1994 and for the nine months ended
September 30, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Combined Balance Sheet as of September 30, 1996
Pro Forma Combined Statement of Operations for the year ended
December 31, 1995 and the nine months ended September 30,
1996
2. Form 8-K dated January 29, 1997 with respect to the acquisition of
certain assets from VECTRA Technologies, Inc.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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.
MOLTEN METAL TECHNOLOGY, INC.
-----------------------------
Date: May 29, 1997 By: /S/ Benjamin T. Downs
------------ ---------------------
Benjamin T. Downs
Executive Vice President of Finance
and Administration, Treasurer
(Principal Financial Officer and
Authorized Signatory)
19
<PAGE> 1
MOLTEN METAL TECHNOLOGY, INC. EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE:
Net income (loss) $(23,473,328) $ 215,428
============ ===========
Weighted average common shares outstanding 23,556,029 22,859,947
Incremental shares from use of treasury stock method for
stock options and warrants (i) -- 4,633,943
============ ===========
Common and common equivalent shares, where applicable 23,556,029 27,493,890
============ ===========
Net income (loss) per share $ (1.00) $ 0.01
============ ===========
NET INCOME (LOSS) PER SHARE ASSUMING FULL DILUTION:
Net income (loss) $(23,473,328) 215,428
============ ===========
Weighted average common shares outstanding 23,556,029 22,859,947
Incremental shares from use of treasury stock method for
stock options and warrants (i) -- 4,633,943
============ ===========
Common and common equivalent shares, where applicable 23,556,029 27,493,890
============ ===========
Net income (loss) per share $ (1.00) $ 0.01
============ ===========
</TABLE>
(i) For the quarter ended March 31, 1997, the incremental shares from the use
of the treasury stock method for stock options and warrants have been
excluded from the computation since their effect is anti-dilutive. For the
quarter ended March 31, 1997, the effect of the assumed conversion of the
convertible debt has been excluded from the computation since the effect is
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 17,614,024
<SECURITIES> 70,156,082
<RECEIVABLES> 10,071,248
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 104,670,552
<PP&E> 138,293,343
<DEPRECIATION> 17,279,234
<TOTAL-ASSETS> 250,360,981
<CURRENT-LIABILITIES> 36,385,686
<BONDS> 164,750,000
0
0
<COMMON> 236,807
<OTHER-SE> 39,220,012
<TOTAL-LIABILITY-AND-EQUITY> 250,360,981
<SALES> 707,361
<TOTAL-REVENUES> 4,973,221
<CGS> 255,154
<TOTAL-COSTS> 7,959,263
<OTHER-EXPENSES> 16,071,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,308,974
<INCOME-PRETAX> (23,473,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,473,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,473,328)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
