<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 September 30, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400-2 Totten Pond Road
Waltham, MA 02154
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(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 23,669,176
---------------------------- -------------------------------
Class Outstanding at October 20, 1997
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MOLTEN METAL TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet - September 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations for the quarters ended September
30, 1997 and 1996 and for the nine months ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 12-20
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 21
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 22
SIGNATURES 22
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</TABLE>
* No information provided due to the inapplicability of item.
2
<PAGE> 3
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,626,572 $ 19,679,104
Short-term investments 15,651,416 109,388,659
Accounts receivable, net of allowance for doubtful accounts of $150,000
at September 30, 1997 5,680,626 2,573,306
Unbilled accounts receivable 991,329 --
Accounts receivable from affiliates 3,555,000 5,525,491
Unbilled accounts receivable from affiliates -- 798,980
Other receivables 5,543,540 --
Prepaid expenses and other current assets 7,929,599 6,300,727
------------- -------------
Total current assets 44,978,082 144,266,267
Restricted cash 3,662,809 2,592,925
Fixed assets, net 129,447,343 103,553,945
Intangible assets, net 18,119,561 16,363,201
Long-term receivable 19,000,000 --
Other assets 8,101,132 5,968,911
------------- -------------
$ 223,308,927 $ 272,745,249
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 15,767 $ 1,884,486
Accounts payable 22,389,978 19,273,058
Accrued expenses 12,520,036 6,082,746
Accrued interest 3,643,362 2,161,297
Deferred revenue 7,230,613 1,647,472
Deferred income from affiliate -- 4,586,870
------------- -------------
Total current liabilities 45,799,756 35,635,929
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Long-term debt 202,750,000 164,753,334
------------- -------------
Due to related parties 1,385,889 1,385,889
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Deferred income from affiliate 2,311,315 2,437,500
------------- -------------
Accumulated losses of affiliate in excess of investment -- 5,020,765
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Preferred stock, $.01 par value, 3,000 shares authorized
Series A convertible, redeemable preferred stock, $.01 par value,
800 shares designated, issued and outstanding at September 30, 1997 14,161,180 --
------------- -------------
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized;
23,775,843 shares issued and 23,665,443 outstanding at September 30, 1997 and
23,643,707 shares issued and 23,603,707 outstanding at December 31, 1996 237,758 236,437
Additional paid-in capital 170,996,887 163,124,587
Valuation allowance for short-term investments (31,790) (86,653)
Accumulated deficit (212,910,532) (97,820,411)
------------- -------------
(41,707,677) 65,453,960
Less: Treasury stock, 110,400 shares at September 30, 1997 and 40,000
shares at December 31, 1996, at cost (1,251,319) (482,504)
Less: Deferred compensation (140,217) (1,459,624)
------------- -------------
Total stockholders' equity (43,099,213) 63,511,832
------------- -------------
$ 223,308,927 $ 272,745,249
============= =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Quarter ended September 30, Nine Months ended September 30,
------------------------------ --------------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Waste services $ 4,767,293 $ -- $ 13,805,623 $ --
Equipment sales 453,202 -- 1,646,226 --
Construction and research and development ("R&D") 137,649 3,187,477 656,399 8,230,774
Construction, R&D and consulting from affiliates -- 6,304,972 783,937 33,989,304
Technology transfer and success fees from affiliate -- 5,583,333 -- 13,083,333
------------ ------------ ------------- ------------
5,358,144 15,075,782 16,892,185 55,303,411
------------ ------------ ------------- ------------
Operating expenses:
Cost of revenue - Waste services 13,929,959 -- 31,393,502 --
Cost of revenue - Equipment sales 283,707 -- 875,994 --
Cost of revenue - Construction and R&D 49,681 3,187,646 592,983 8,090,929
Cost of revenue - Construction, R&D, consulting,
technology transfer and success fees from affiliates -- 8,155,726 1,132,875 33,970,636
R&D 4,986,207 5,189,205 20,719,348 14,516,206
Selling, general and administrative ("SG&A") 9,175,032 7,212,523 23,838,759 11,841,741
Impairment charge for long-lived assets 38,427,184 -- 38,427,184 --
------------ ------------ ------------- ------------
66,851,770 23,745,100 116,065,791 68,419,512
Equity income (loss) from affiliate -- 2,818,178 (9,740,565) 5,494,214
------------ ------------ ------------- ------------
Loss from operations (61,493,626) (5,851,140) (108,914,171) (7,621,887)
Other income (expense):
Interest income 437,108 2,846,313 2,917,725 6,431,691
Interest expense (2,064,997) (2,268,115) (6,463,736) (4,375,814)
------------ ------------ ------------- ------------
Net loss (63,121,515) 5,272,942) (112,460,182) (5,566,010)
Less: preferred stock dividends and preferences (Note 2) (2,629,939) -- (2,629,939) --
------------ ------------ ------------- ------------
Net loss available to common shareholders $(65,751,454) $ (5,272,942) $(115,090,121) $ (5,566,010)
============ ============ ============= ============
Net loss per share $ (2.78) $ (0.22) $ (4.87) $ (0.24)
============ ============ ============= ============
Weighted average common and common equivalent
shares outstanding 23,653,738 23,490,753 23,612,207 23,230,088
============ ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
4
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MOLTEN METAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(112,460,182) $ (5,566,010)
Adjustments to reconcile loss to net cash used in
operating activities (net of assets acquired from VECTRA):
Depreciation and amortization 9,393,702 4,301,200
Equity loss (income) from affiliate 9,740,565 (5,494,214)
Impairment charge for long-lived assets 38,427,184 --
Compensation expense related to restricted stock and common stock options 1,398,932 305,529
Increase in accounts receivable (3,604,141) (4,201,711)
Decrease (increase) in accounts receivable from affiliate 2,769,471 (7,274,291)
Decrease in other accounts receivable 748,127 --
Increase in prepaid expenses and other current assets (698,295) (3,908,597)
Increase in other assets (319,713) (874,356)
Increase (decrease) in accounts payable 1,423,690 (1,057,332)
Increase (decrease) in accrued expenses (5,017,092) 2,799,313
Increase in accrued interest 1,482,065 2,820,579
Increase (decrease) in deferred revenue 5,583,141 (4,083,334)
Increase (decrease) in deferred income from affiliate (278,748) 4,434,952
------------- -------------
Net cash used in operating activities (51,411,294) (17,798,272)
------------- -------------
Cash flows from investing activities:
Expenditures for fixed assets (58,391,971) (26,718,793)
Purchase of intangible assets (796,346) (1,515,203)
Cash paid for acquisition of VECTRA assets (3,950,559) --
Cash investments in affiliates (9,180,521) --
Cash received from M4 restructuring 271,468 --
Redemption (purchase) of short-term investments, net 93,792,106 (68,197,027)
Decrease (increase) in restricted cash (1,069,884) 5,096,122
------------- -------------
Net cash provided by (used in) investing activities 20,674,293 (91,334,901)
------------- -------------
Cash flows from financing activities:
Proceeds from issuances of common stock 659,550 3,222,797
Net proceeds from issuance of preferred stock 18,665,787 --
Purchase of treasury stock (768,815) --
Net proceeds from issuance of long-term debt -- 139,338,826
Payments to related parties -- (88,697)
Principal repayments of long-term debt (1,872,053) (143,388)
------------- -------------
Net cash provided by financing activities 16,684,469 142,329,538
------------- -------------
Increase (decrease) in cash and cash equivalents (14,052,532) 33,196,365
Cash and cash equivalents at beginning of period 19,679,104 6,644,856
------------- -------------
Cash and cash equivalents at end of period $ 5,626,572 $ 39,841,221
============= =============
Additional disclosure of non-cash investing and financing activities:
Issuance of common stock in exchange for investment in affiliate $ -- $ 9,770,587
============= =============
</TABLE>
As a result of the restructuring of M4 Environmental L.P. ("M4") and the
consolidation of M4 with the Company for financial reporting purposes, the
Company assumed liabilities of $51,147,612 that included $38 million of
long-term debt and obtained assets of $46,713,305 which consisted primarily of
receivables from Lockheed Martin Corporation and fixed and intangible assets.
In conjuction with the restructuring, the Company offset deferred income of
$4,434,307 against fixed assets obtained from M4.
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.
The Company incurred a net loss of $112.5 million for the nine months ended
September 30, 1997. As described below, the Company raised $20 million in a
private placement of preferred stock in September 1997. However, the Company
will require immediate and substantial additional financing in order to continue
normal operations beyond November 1997. The Company is currently pursuing
various financing opportunities, including equity and/or debt financing from
private investors and a tax-exempt bond financing for MMT of Tennessee Inc., a
wholly-owned subsidiary of the Company ("MMT Tennessee"). In connection with
this proposed bond financing, the Company has received from the State of
Tennessee, where the Q-CEP Facility is located, a reservation in the amount of
$20 million of the total amount of tax-exempt private-activity bonds permitted
under federal tax rules to be issued by the State of Tennessee in 1997. Although
the Company expected that the completion of the preferred stock financing would
facilitate completion of the proposed bond financing, to date the Company has
been unable to close this financing. The Company is currently in discussions
with several different financing sources, although there can be no assurances as
to the timing or completion of any financing. Without the completion of the bond
financing and/or substantial additional financing, the Company will not have
sufficient funds to continue normal operations after November 1997 and may be
required to file a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. In the event of a bankruptcy filing, the following indebtedness
of the Company could become immediately due and payable at the option of the
holders of such debt: $143,750,000 principal amount of the Company's 5 1/2%
Convertible Subordinated Notes Due 2006; $21,000,000 principal amount of
industrial revenue bonds issued by the Massachusetts Industrial Finance Agency;
a $2,000,000 loan from Jobs for Fall River, Inc.; and $38,000,000 principal
amount of industrial revenue bonds issued by the Industrial Development Board of
the City of Oak Ridge.
To address both its near-term and long-term liquidity needs, the Company, in
addition to seeking financing, is seeking to decrease future planned capital
expenditures by obtaining third party funding for such expenditures, and also is
seeking to defer certain payments owed to the prime contractor of the Company's
CEP facility in Bay City, Texas (the "Bay City CEP Facility"). Specifically, the
Company is seeking a strategic partner for its chemicals business, including the
Bay City CEP Facility. The Company's intent is to find a strategic partner that
would provide the funding necessary to start-up and initially operate this
plant. If the Company is unable to find such a strategic partner, or to
negotiate an acceptable partnering arrangement, the Company will not have
sufficient funds to complete and start-up the Bay City CEP Facility by the end
of 1997, if at all. There can be no assurances that the Company will be
successful in finding such a strategic partner or, if it does so, that the
Company will be able to negotiate a satisfactory partnering arrangement. The
Company also is negotiating with Nichimen Corporation and NKK Plant Engineering
Corporation ("NKP") to restructure the Japanese joint venture which the Company
formed with these two companies in September 1996. The Company anticipates that,
as part of the proposed restructuring, its ownership interest in the joint
venture will be reduced substantially from the current 49% in return for funding
commitments from Nichimen and NKP necessary to complete testing on the Company's
demonstration ash processing facility in Fall River, MA and the construction of
a second demonstration ash processing facility for shipment to Japan. If the
Company is unable to successfully complete this contemplated restructuring, or
otherwise obtain substantial alternative financing, the Company will not have
sufficient funds to complete the testing of the Fall River demonstration plant
or to complete construction of the second demonstration plant. There can be no
assurances that the Company will be successful in restructuring this joint
venture. The Company also is negotiating to defer payment of approximately $13
million owed by the Company to the prime contractor of the Bay City CEP
Facility. The Company expects that it will be able to negotiate such deferral on
satisfactory terms, however there can be no assurances that such negotiations
will be successful. If the Company is unable to negotiate satisfactory terms for
the deferral of such payment, the prime contractor could have a mechanics lien
placed on the Bay City CEP Facility. The Company expects that such a mechanics
lien would materially adversely affect the Company's ability to locate a
strategic partner of the Bay City CEP Facility and could materially adversely
affect the Company's ability to obtain financing for the Company as a whole.
The Company's common stock is listed on the Nasdaq National Market. Currently,
the Company is not in compliance with one or more of the criteria required for
continued listing on such market. If the Company is unable to meet such
criteria, it could be delisted from trading on the Nasdaq National Market,
however the Company expects it would have a period of several months within
which to meet such criteria if the Company had a plan for doing so. If the
Company were to be delisted, the Company could apply for listing on a national
stock exchange or another established automated over-the-counter trading
market, Although there can be no assurance that the Company would meet the
listing criteria for such exchange or market. If the Company were to be
delisted from the Nasdaq National Market and were not to be accepted for
listing on a national stock exchange or another established over-the-counter
trading market, holders of the Company's 5 1/2% Convertible Subordinated Notes
Due 2006 could require the Company to redeem their notes at the face amount
thereof plus interest accrued to the date of redemption. $143,750,000 principal
amount of such notes are outstanding, and, in the event of a mandatory
redemption, the Company would not have sufficient funds to redeem such notes.
If after January 8, 1998 the Company were to be delisted from the Nasdaq
National Market and were not to be accepted for listing on another market or an
exchange, holders of the Company's Series A Preferred Stock also could require
the Company to redeem their shares of preferred stock in accordance with the
redemption formula described below. $20 million face amount of such preferred
stock is outstanding and the Company does not expect that it would have
sufficient funds to redeem such preferred stock. In addition, if the Company
were to change its listing from the Nasdaq National Market to the Nasdaq Small
Cap Market, holders of the Company's Series A Preferred Stock would have the
right to convert their shares of such preferred stock into common stock at a
20% discount, rather than a 15% discount.
In addition, the Company has retained an investment banking firm to assist the
Company in obtaining necessary financing, and also to review alternatives for a
sale of some or all of the Company's assets.
Net loss per share is determined by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. Net loss available to common shareholders is derived after giving
effect to preferred stock dividends and imputed preferences (see Note 2).
Preferred stock preferences are imputed based on (i) the fair market value of
the warrants issued in connection with the preferred stock recognized on
issuance and (ii) the differences between the conversion price to the preferred
shareholders and the value of the related common stock as measured in the public
market, recognized over the one year period beginning with the date of issuance,
the period over which the preferred shareholders can realize their return.
Common share equivalents, which consist of common stock that may be issuable
upon conversion of preferred stock and upon exercise of outstanding stock
options and warrants, have been excluded from the weighted average number of
common shares since their effect is anti-dilutive. The effect of the assumed
conversion of the Company's 5 1/2% Convertible Subordinated Notes Due 2006 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
6
<PAGE> 7
that time. Had the Company determined earnings per share in accordance with FAS
128, basic loss per share and diluted loss per share for the periods ended
September 30, 1997 and 1996 would not have been materially different from the
net 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 periods ended September
30, 1996.
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 September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY TRANSACTIONS
On September 8, 1997, the Company completed a private placement with a group of
institutional investors (the "Private Placement") whereby the Company sold 800
shares of Series A Preferred Stock for an aggregate purchase price of $20.4
million. The Series A Preferred Stock is convertible into shares of the
Company's common stock on the basis described below.
The Series A Preferred Stock has a stated value of $25,000 per share and has an
annual premium accruing at five percent. Upon any bankruptcy or liquidation of
the Company, the holders of the Series A Preferred Stock will be entitled to
receive the stated value of the Series A Preferred Stock ($25,000) plus a five
percent premium per annum to the date of such bankruptcy or liquidation. The
Series A Preferred Stock is non-voting, is subject to voluntary conversion at
the option of the holders at any time commencing 120 days after September 8,
1997, and will automatically convert into common stock on September 8, 2000. The
conversion price per share will be the lower of (i) a fixed price (the "Fixed
Price") of $5.83 (110% of the average closing bid prices of the Company's common
stock over the five trading days ending September 5, 1997), or (ii) a variable
price (the "Variable Price") equal to 85% of the average of the closing bid
prices of the common stock for the five trading days immediately preceding a
notice of conversion. However, during the first year after closing, any holder
of Series A Preferred Stock who converts any Series A Preferred Stock based on
the Variable Price and requests removal of the legend on the underlying shares
of common stock will pay a legend removal fee to the Company, initially in the
amount of 8% and decreasing over time to 0% by September 1998. In addition,
until approved by the Company's stockholders in accordance with the rules of The
Nasdaq Stock Market, the Company may not issue shares of common stock upon
conversion of the Series A Preferred Stock equal to or in excess of 20% of the
Company's outstanding common stock at a price less than the market value of the
common stock.
The conversion price of the Series A Preferred Stock is subject to possible
upward performance adjustments. If, at the time of conversion, the closing bid
price of the common stock has increased by more than 40% over the original Fixed
Price, the Fixed Price will be automatically increased to equal:
C
-----------------
[(C/F) + (1.4)]/2
Where:
C = the average of the closing bid prices of the common stock for the five
trading days immediately preceding a notice of conversion; and
F = the original Fixed Price ($5.83 per share).
The Series A Preferred Stock is subject to optional redemption by the Company
for cash at any time at an amount equal to 140% of the stated value of the
Series A Preferred Stock and for common stock provided that the closing bid
price of the common stock for the twenty trading days preceding such redemption
has exceeded 140% of the original Fixed Price. Upon the occurrence of certain
events specified in the
7
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Certificate of Designations, Preferences and Rights for the Series A Preferred
Stock (the "Certificate of Designations") (including, among other things,
suspension of trading or delisting of the common stock and failure by the
Company's stockholders to approve the issuance of shares of common stock upon
conversion of the Series A Preferred Stock in excess of twenty percent of the
common stock outstanding within 120 days after September 8, 1997), the Series A
Preferred Stock may be required to be redeemed by the Company at a redemption
price equal to the greater of (i) 140% of the stated value of the Series A
Preferred Stock ($25,000) and (ii) the amount determined as follows:
(SV + PR) X M
-------------
CP
Where:
SV = the stated value of the Series A Preferred Stock;
Pr = the accrued premium on the Series A Preferred Stock;
M = the highest closing bid price of the common stock from the date of the
redemption notice delivered by the holder of the Series A Preferred Stock
requesting redemption through the date of redemption; and
CP = the conversion price of the Series A Preferred Stock at such time.
In lieu of redemption, the Company may elect to pay to each holder of the Series
A Preferred Stock cash in the amount of 5% per week of the sum of the aggregate
stated value of the then outstanding Series A Preferred Stock held by such
holder plus any accrued premium, until such event no longer exists. The Company
shall not be required to pay more than 25% of such amount in the aggregate to
such holder with respect to any such event.
Upon the occurrence of certain other events specified in the Certificate of
Designations (including, among other things, failure of the Company to remove
any restrictive legend on any certificate or any shares issued to the holders of
the Series A Preferred Stock upon conversion of the Series A Preferred Stock,
notice by the Company to any holder of the Series A Preferred Stock of its
intention not to issue shares of common stock to any holder upon conversion of
the Series A Preferred Stock, determination that any representation or warranty
of the Company was false or misleading in any material respect and the Company
knew that the representation or warranty was false or misleading, and failure of
the Company to issue shares of common stock within ten days after the conversion
of Series A Preferred Stock), the Series A Preferred Stock must be redeemed by
the Company at the amounts set forth above.
In connection with the Private Placement the Company issued a warrant (the "GEM
Warrant") to GEM Ventures Ltd. exercisable at any time over a three year period
for 566,000 shares of common stock at an exercise price of $6.625 per share. The
GEM Warrant expires on September 8, 2000.
During the quarter ended September 30, 1997, 62,463 shares of common stock were
issued upon the exercise of options.
NOTE 3. RESTRUCTURING OF M4
On June 16, 1997, the Company and Lockheed Martin Corporation ("LMC") executed
agreements to restructure their relationship embodied in M4 Environmental L.P.
("M4"). The agreements stipulate the following: (1) LMC has 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 will provide
directly to LMC certain construction and development services with respect to
Q-CEP(R). (2) The Company has the exclusive right to lead and pursue the
worldwide opportunities for processing UF6 and LMC has 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 formed a new limited liability company to be
their exclusive vehicle to pursue the processing of chemical weapons worldwide.
(4) Retech was transferred to LMC. (5) The Company became the sole owner of M4
of which the principal asset is the Technology Center in Oak Ridge, Tennessee
(the "M4 Technology Center"). The Company is responsible for the operation of
the M4 Technology Center and is entitled to all future revenue from such
operations. The Company and LMC
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<PAGE> 9
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 terminated its line of credit with M4 and deemed the
approximately $15.8 million aggregate principal and accrued interest outstanding
thereunder to have been paid in full and the Company contributed $14.6 million
in outstanding accounts receivable to the capital of M4. (7) LMC and the Company
generally share equally in substantially all of the costs of the restructuring.
(8) All existing agreements between the Company, LMC and M4 are terminated,
including the CEP license to M4. (9) LMC and the Company established 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.
In connection with the M4 restructuring, the Company entered into an agreement
to deliver a pilot-scale, demonstration CEP plant to the LMC Hanford team in
1997 for a fixed price of $5 million. If the Company is unable to obtain
substantial financing to address its short-term and long-term liquidity needs,
the Company will not have sufficient funds to complete the construction and
delivery of this demonstration plant.
Prior to the restructuring, the Company accounted for its investment in M4 using
the equity method. Under the M4 limited partnership agreement, the Company and
LMC shared equally in M4's revenues and other income and all expenses were
allocated to LMC until the capital accounts of the Company and LMC became equal.
The capital accounts became equal in the fourth quarter of 1996, and from that
date until March 26, 1997 the Company and LMC shared equally in the losses of
M4. On March 26, 1997, the Company and LMC executed a letter of intent that
contemplated the restructuring described above. After the date of the letter of
intent, the Company and LMC agreed to fund the operations of M4 in a manner
consistent with the terms of the restructuring agreements and the Company
recognized losses from M4 in accordance with its funding obligation.
Effective on June 16, 1997, M4 became a wholly owned subsidiary of the Company.
Accordingly, use of the equity method of accounting for the Company's investment
in M4 ceased as of that date and M4 was consolidated with the Company for
financial reporting purposes from that date forward. As a result of the
restructuring, the Company assumed liabilities of $51,147,612 that included $38
million of long-term debt and obtained assets of $46,713,305 which consisted
primarily of receivables from LMC and fixed and intangible assets.
In periods prior to the restructuring, the Company billed M4 for construction
services. For billings that were capitalized by M4, the Company deferred the
portion of the gross profit representing the Company's designated ownership
interest related to such sales. The deferred income was being recognized by the
Company as the related assets were depreciated by M4. The deferred income
balance at June 16, 1997 related to assets that, as a result of the
restructuring, are now owned by the Company, and such balance has been offset
against the carrying value of such assets.
In 1996, the Company sold the rights to the Japanese chemical weapons market to
M4 and deferred the portion of the gross profit representing the Company's
designated ownership interest. As a result of the restructuring, these rights
are now held by the new limited liability company formed by the Company and LMC
(the "LLC") to pursue the worldwide chemical weapons market. Accordingly, the
deferred income related to the sale of the rights to the Japanese chemical
weapons market will be recognized as a reduction of cost of revenue as the
rights are amortized by the LLC.
The net amount of funding due from LMC under the restructuring agreements was
recorded as short-term and long-term receivables of $6,292,000 ($5,544,000 at
September 30, 1997) and $19,000,000, respectively.
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NOTE 4. JAPANESE JOINT VENTURE
In February 1996, MMT, Nichimen Corporation, one of Japan's major trading
companies, and NKK Plant Engineering Corporation, one of Japan's largest
engineering providers of municipal waste systems ("NKP"), signed a letter of
intent to form a joint venture to process fly ash produced by Japanese municipal
solid waste incinerators. A definitive agreement to form this joint venture was
executed in October 1996 by the Company, Nichimen and NKP. The agreement grants
the joint venture the exclusive right to introduce CEP to the Japanese municipal
incinerator ash market. The joint venture will employ MMT's proprietary
Cerex-CEP technology to process and recycle incinerator ash to recover ceramic
and metal products. Under the agreement, the Company owns 49% of the joint
venture, will receive a two percent royalty on all revenues of the joint
venture, and will receive a $12.5 million licensing fee, to be paid from the
joint venture's profits. The Company and the joint venture have entered into an
agreement pursuant to which the joint venture will purchase an initial
demonstration CEP system from MMT for a fixed price of $7.9 million. The
agreement contemplates that this system will be shipped to Japan in the first
quarter of 1998, but the Company expects that it will not be able to meet this
timing unless it is able to restructure the joint venture as described below or
otherwise obtain substantial additional financing. Prior to the quarter ended
September 30, 1997, revenue under this agreement was being recognized using the
percentage of completion method based on the ratio that costs incurred to date
bear to estimated total costs at completion. During the quarter ended September
30, 1997, the Company did not recognize any revenue under this agreement due to
the potential risk of the Company being unable to fulfill its obligations under
this agreement.
The Company is currently negotiating with Nichimen and NKP to restructure this
joint venture. The Company anticipates that, as part of the proposed
restructuring, its ownership interest in the joint venture will be reduced
substantially from the current 49% in return for funding commitments from
Nichimen and NKP necessary to complete testing on the Company's demonstration
ash processing facility in Fall River, MA and the construction of the initial
CEP system described above. If the Company is unable to successfully complete
this contemplated restructuring, or otherwise obtain substantial alternative
financing, the Company will not have sufficient funds to complete the testing of
the Fall River demonstration plant or to complete construction of the initial
CEP system intended for shipment to Japan. There can be no assurances that the
Company will be successful in restructuring this joint venture.
NOTE 5. 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. These cases have been consolidated and on October
30, 1997, the plaintiffs filed a consolidated complaint. The consolidated
complaint variously alleges 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. The suit seeks
compensatory damages for unspecified alleged losses during the alleged class
period, which extends from March 28, 1995 through October 18, 1996. This action
is at an early procedural stage. While the Company has not yet filed a response
to the consolidated complaint, the Company intends to deny liability and/or move
to dismiss the action. 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 September 30, 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.
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<PAGE> 11
NOTE 6. IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses whether any events or changes in circumstances
have occurred that would indicate that the carrying amount of a long-lived asset
may not be recoverable. When such an event or change in circumstance occurs, the
Company evaluates whether the carrying amount of such asset is recoverable by
comparing the net book value of the asset to estimated future undiscounted cash
flows, excluding interest charges, attributable to such asset. If it is
determined that the carrying amount is not recoverable, the Company recognizes
an impairment loss equal to the excess of the carrying amount of the asset over
the estimated fair value of such asset.
Due to losses in excess of expectations for the quarter ended September 30,
1997, management performed an assessment of the recoverability of all of the
Company's long-lived assets (including fixed assets and intangible assets) as of
September 30, 1997.
In connection with the assessment, management prepared forecasts of the expected
future cash flows related to these assets on an undiscounted basis and without
interest charges. For purposes of these forecasts, assets were grouped at the
lowest level for which there are expected to be identifiable cash flows that are
largely independent of expected cash flows related to other groups of assets.
These forecasts were developed based on assumptions developed by management
using management's best estimates of future trends and events. The Company first
generated revenues from its waste services operations in January 1997 and has
not yet demonstrated sustained revenues from waste services operations.
Accordingly, management's estimates of future cash flows are based largely on
expected future trends and events, rather than historical experience. In
estimating future cash flows, management considered a range of the amount and
timing of future cash flows and the likelihood of possible outcomes. The range
and likelihood of possible outcomes considered by management were based on
assumptions regarding various factors, including the likelihood of the CEP
plants operating at the levels required to produce such cash flows, the ranges
of prices the Company is likely to be able to charge for its services, the
percentage of the market that the Company is likely to capture, the likelihood
of an emergence of a competing technology, anticipated capital improvements, and
the regulatory environment. Considering the above assumptions, management
assigned a probability percentage to each of the estimated cash flow scenarios
within the range of estimates and computed a weighted average estimated cash
flow for each grouping of assets.
For each grouping of long-lived assets, the sum of the weighted average
forecasted cash flows from management's models exceeded the carrying amount of
the Company's long-lived assets, except for the Company's CEP facility located
in Bay City, Texas (the "Bay City CEP Facility"). The sum of the future
estimated cash flows related to the Bay City CEP Facility was less than the
carrying value of the related asset as of September 30, 1997, the Company
currently does not have sufficient funds to start-up and initially operate this
facility and will seek a strategic partner for its chemicals business,
including the Bay City CEP Facility. Accordingly, the Bay City CEP Facility was
written down to its estimated fair value using a discounted cash flow model and
an impairment charge of $38,427,184 was recognized in the statement of
operations for the quarter ended September 30, 1997. The Company's intent is to
find a strategic partner that would provide the funding necessary to start-up
and initially operate this plant. If the Company is unable to find such a
strategic partner, or to negotiate an acceptable partnering arrangement, the
Company will not have sufficient funds to start-up the Bay City CEP Facility by
the end of 1997, if at all, and would be required to recognize an additional
impairment charge of approximately $25,000,000. There can be no assurances that
the Company will be successful in finding such a strategic partner or, if it
does so, that the Company will be able to negotiate a satisfactory partnering
arrangement.
Management's estimates of forecasted cash flows required an evaluation of
various risks and uncertainties. Although management has made its best estimate
of these factors based on current conditions and expected trends and events, it
is reasonably possible that changes could occur in the near term which could
adversely affect management's estimates of forecasted cash flows. If such
changes occur, asset impairment write-downs could be required in the future and
such write-downs would be material to the Company's financial statements. In
particular, if the Company is unable to satisfy its short-term and long-term
liquidity needs, the Company would be required to write down certain other of
its long-lived assets.
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents and short-term
investments totaling $21.3 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.
The Company incurred a net loss of $112.5 million for the nine months ended
September 30, 1997. As described below, the Company raised $20 million in a
private placement of preferred stock in September 1997. However, the Company
will require immediate and substantial additional financing in order to continue
normal operations beyond November 1997. The Company is currently pursuing
various financing opportunities, including equity and/or debt financing from
private investors and a tax-exempt bond financing for MMT of Tennessee Inc., a
wholly-owned subsidiary of the Company ("MMT Tennessee"). In connection with
this proposed bond financing, the Company has received from the State of
Tennessee, where the Q-CEP Facility is located, a reservation in the amount of
$20 million of the total amount of tax-exempt private-activity bonds permitted
under federal tax rules to be issued by the State of Tennessee in 1997. Although
the Company expected that the completion of the preferred stock financing would
facilitate completion of the proposed bond financing, to date the Company has
been unable to close this financing. The Company is currently in discussions
with several different financing sources, although there can be no assurances as
to the timing or completion of any financing. Without the completion of the bond
financing and/or substantial additional financing, the Company will not have
sufficient funds to continue normal operations after November 1997 and may be
required to file a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. In the event of a bankruptcy filing, the following indebtedness
of the Company could become immediately due and payable at the option of the
holders of such debt: $143,750,000 principal amount of the Company's 5 1/2%
Convertible Subordinated Notes Due 2006; $21,000,000 principal amount of
industrial revenue bonds issued by the Massachusetts Industrial Finance Agency;
a $2,000,000 loan from Jobs for Fall River, Inc.; and $38,000,000 principal
amount of industrial revenue bonds issued by the Industrial Development Board of
the City of Oak Ridge.
To address both its near-term and long-term liquidity needs, the Company, in
addition to seeking financing, is seeking to decrease future planned capital
expenditures by obtaining third party funding for such expenditures, and also
is seeking to defer certain payments owed to the prime contractor of the Bay
City CEP Facility. Specifically, the Company is seeking a strategic partner for
its chemicals business, including the Bay City CEP Facility. The Company's
intent is to find a strategic partner that would provide the Company with the
funding necessary to start-up and initially operate this plant. If the Company
is unable to find such a strategic partner, or to negotiate an acceptable
partnering arrangement, the Company will not have sufficient funds to start-up
the Bay City CEP Facility by the end of 1997, if at all. There can be no
assurances that the Company will be successful in finding such a strategic
partner or, if it does so, that the Company will be able to negotiate a
satisfactory partnering arrangement. The Company also is negotiating with
Nichimen and NKP to restructure the Japanese joint venture which the Company
formed with these two companies in September 1996. The Company anticipates
that, as part of the proposed restructuring, its ownership interest in the
joint venture will be reduced substantially from the current 49% in return for
funding commitments from Nichimen and NKP necessary to complete testing on the
Company's demonstration ash processing facility in Fall River, MA and the
construction of a second demonstration ash processing facility for shipment to
Japan. If the Company is unable to successfully complete this contemplated
restructuring, or otherwise obtain substantial alternative financing, the
Company will not have sufficient funds to complete the testing of the Fall
River demonstration plant or to complete construction of the second
demonstration plant. There can be no assurances that the Company will be
successful in restructuring this joint venture. The Company also is negotiating
to defer payment of approximately $13 million owed by the Company to the prime
contractor of the Bay City CEP Facility. The Company expects that it will be
able to negotiate such deferral on satisfactory terms, however there can be no
assurances that such negotiations will be successful. If the Company is unable
to negotiate satisfactory terms for the deferral of such payment, the prime
contractor could have a mechanics lien placed on the Bay City CEP Facility. The
Company expects that such a mechanics lien would materially adversely affect
the Company's ability to locate a strategic partner for
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<PAGE> 13
the Bay City CEP Facility and could materially adversely affect the Company's
ability to obtain financing for the Company as a whole.
In addition, the Company has retained an investment banking firm to assist the
Company in obtaining necessary financing, and also to review alternatives for a
sale of some or all of the Company's assets.
On November 17, 1997, the Company announced that it had made certain changes in
its senior management and in its Board of Directors. John Preston, one of the
Company's non-employee directors, was made Chairman of the Board of Directors,
Gordon Bitter, the Company's Chief Financial Officer, was promoted to Chief
Executive Officer and Chief Financial Officer, and Charlie Shaver, the Company's
Chief Operating Officer, was promoted to President and Chief Operating Officer.
William M. Haney, III, the Company's former Chairman, Chief Executive Officer
and President, resigned from these positions and was replaced by Messrs.
Preston, Bitter and Shear. Mr. Haney will continue to serve as a member of the
Company's Board of Directors. Messrs. Bitter and Shaver also replaced Maurice
Strong and Robert Swanson as directors after Messrs. Strong and Swanson notified
the Company that they would be stepping down as directors.
The Company's common stock is listed on the Nasdaq National Market. Currently,
the Company is not in compliance with one or more of the criteria required for
continued listing on such market. If the Company is unable to meet such
criteria, it could be delisted from trading on the Nasdaq National Market,
however the Company expects it would have a period of several months within
which to meet such criteria if the Company had a plan for doing so. If the
Company were to be delisted, the Company could apply for listing on a national
stock exchange or another established automated over-the-counter trading market,
although there can be no assurance that the Company would meet the listing
criteria for such exchange or market. If the Company were to be delisted from
the Nasdaq National Market and were not to be accepted for listing on a national
stock exchange or another established over-the-counter trading market, holders
of the Company's 5 1/2% Convertible Subordinated Notes Due 2006 could require
the Company to redeem their notes at the face amount thereof plus interest
accrued to the date of redemption. $143,750,000 principal amount of such notes
are outstanding, and, in the event of a mandatory redemption, the Company would
not have sufficient funds to redeem such notes. If after January 8, 1998 the
Company were to be delisted from the Nasdaq National Market and were not to be
accepted for listing on another market or an exchange, holders of the Company's
Series A Preferred Stock also could require the Company to redeem their shares
of preferred stock in accordance with the redemption formula described below.
$20 million face amount of such preferred stock is outstanding and the Company
does not expect that it would have sufficient funds to redeem such preferred
stock. In addition, if the Company were to change its listing from the Nasdaq
National Market to the Nasdaq Small Cap Market, holders of the Company's Series
A Preferred Stock would have the right to convert their shares of such preferred
stock into common stock at a 20% discount, rather than a 15% discount.
On September 8, 1997, the Company completed a private placement with a group of
institutional investors (the "Private Placement") whereby the Company sold 800
shares of Series A Preferred Stock for an aggregate purchase price of $20.4
million. The Series A Preferred Stock is convertible into shares of common stock
on the basis described below.
The Series A Preferred Stock has a stated value of $25,000 per share and has an
annual premium accruing at five percent. Upon any bankruptcy or liquidation of
the Company, the holders of the Series A Preferred Stock will be entitled to
receive the stated value of the Series A Preferred Stock ($25,000) plus a five
percent premium per annum to the date of such bankruptcy or liquidation. The
Series A Preferred Stock is non-voting, is subject to voluntary conversion at
the option of the holders at any time commencing 120 days after September 8,
1997, and will automatically convert into common stock on September 8, 2000. The
conversion price per share will be the lower of (i) a fixed price (the "Fixed
Price") of $5.83 (110% of the average closing bid prices of the Company's common
stock over the five trading days ending September 5, 1997), or (ii) a variable
price (the "Variable Price") equal to 85% of the average of the closing bid
prices of the common stock for the five trading days immediately preceding a
notice of conversion. However, during the first year after closing, any holder
of Series A Preferred Stock who converts any Series A Preferred Stock based on
the Variable Price and requests removal of the legend on the underlying shares
of common stock will pay a legend removal fee to the Company, initially in the
amount of 8% and
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decreasing over time to 0% by September 1998. In addition, until approved by the
Company's stockholders in accordance with the rules of The Nasdaq Stock Market,
the Company may not issue shares of common stock upon conversion of the Series A
Preferred Stock equal to or in excess of 20% of the Company's outstanding common
stock at a price less than the market value of the common stock.
The conversion price of the Series A Preferred Stock is subject to possible
upward performance adjustments. If, at the time of conversion, the closing bid
price of the common stock has increased by more than 40% over the original Fixed
Price, the Fixed Price will be automatically increased to equal:
C
-----------------
[(C/F) + (1.4)]/2
Where:
C = the average of the closing bid prices of the common stock for the five
trading days immediately preceding a notice of conversion; and
F = the original Fixed Price ($5.83 per share).
The Series A Preferred Stock is subject to optional redemption by the Company
for cash at any time at an amount equal to 140% of the stated value of the
Series A Preferred Stock and for common stock provided that the closing bid
price of the common stock for the twenty trading days preceding such redemption
has exceeded 140% of the original Fixed Price. Upon the occurrence of certain
events specified in the Certificate of Designations, Preferences and Rights for
the Series A Preferred Stock (the "Certificate of Designations") (including,
among other things, suspension of trading or delisting of the common stock and
failure by the Company's stockholders to approve the issuance of shares of
common stock upon conversion of the Series A Preferred Stock in excess of twenty
percent of the common stock outstanding within 120 days after September 8,
1997), the Series A Preferred Stock may be required to be redeemed by the
Company at a redemption price equal to the greater of (i) 140% of the stated
value of the Series A Preferred Stock ($25,000) and (ii) the amount determined
as follows:
(SV + PR) X M
-------------
CP
Where:
SV = the stated value of the Series A Preferred Stock; Pr = the accrued premium
on the Series A Preferred Stock;
M = the highest closing bid price of the common stock from the date of the
redemption notice delivered by the holder of the Series A Preferred Stock
requesting redemption through the date of redemption; and
CP = the conversion price of the Series A Preferred Stock at such time.
In lieu of redemption, the Company may elect to pay to each holder of the Series
A Preferred Stock cash in the amount of 5% per week of the sum of the aggregate
stated value of the then outstanding Series A Preferred Stock held by such
holder plus any accrued premium, until such event no longer exists. The Company
shall not be required to pay more than 25% of such amount in the aggregate to
such holder with respect to any such event.
Upon the occurrence of certain other events specified in the Certificate of
Designations (including, among other things, failure of the Company to remove
any restrictive legend on any certificate or any shares issued to the holders of
the Series A Preferred Stock upon conversion of the Series A Preferred Stock,
notice by the Company to any holder of the Series A Preferred Stock of its
intention not to issue shares of common stock to any holder upon conversion of
the Series A Preferred Stock, determination that any representation or warranty
of the Company was false or misleading in any material respect and the Company
knew that the representation or warranty was false or misleading, and failure of
the Company to issue shares of common stock within ten days after the conversion
of Series A Preferred Stock), the Series A Preferred Stock must be redeemed by
the Company at the amounts set forth above.
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<PAGE> 15
In connection with the Private Placement the Company issued a warrant (the "GEM
Warrant") to GEM Ventures Ltd. exercisable at any time over a three year period
for 566,000 shares of common stock at an exercise price of $6.625 per share. The
GEM Warrant expires on September 8, 2000.
In June 1997, the Company and LMC executed an agreement to restructure their
relationship with respect to the 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 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. LMC and MMT are now free to pursue projects formerly governed by the
joint venture agreements, subject to the requirements established by the new
arrangements. The agreement stipulates five principal changes in the companies'
relationship: (1) LMC has the exclusive right to lead and pursue contracts for
the clean up of the DOE's tanked waste site in Hanford, Washington, and MMT will
provide directly to LMC certain construction and development services with
respect to Q-CEP, (2) the Company and LMC formed a new limited liability company
to be their exclusive vehicle to deliver processing services to customers in the
chemical demilitarization market worldwide, (3) MMT has the exclusive right to
lead and pursue worldwide opportunities for processing DUF6, (4) the Company
became 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, was transferred to LMC.
As part of the LMC team for the Hanford project, LMC agreed to purchase and MMT
has agreed to deliver a pilot-scale, demonstration CEP plant in 1997 for a fixed
price of $5 million. This plant will be used to process surrogate Hanford tank
waste. If the Company is unable to obtain substantial financing to address its
short-term and long-term liquidity needs, the Company will not have sufficient
funds to complete the construction and delivery of this demonstration plant.
Additionally, LMC has agreed to fund certain development work with respect to
Q-CEP for possible application to the Hanford project. LMC has informed the DOE
that LMC currently intends to propose an alternative technology, vitrification,
as its baseline processing technology for Phase 1B of the Hanford contract.
However, in connection with the development work to be performed by MMT, LMC and
MMT have agreed to develop a technology insertion plan for the possible
inclusion of Q-CEP in the Hanford project if such development work is
successful. LMC has informed the DOE of the development of this technology
insertion plan and LMC's intent to use such plan to include Q-CEP in the Hanford
project if MMT's development work is successful. If the LMC team is awarded a
contract under Phase 1B of the Hanford cleanup program and Q-CEP is used in the
Phase 1B performance, LMC has agreed to pay MMT a fee of $15 million. $5 million
of this fee will be payable on award of the contract and the remaining $10
million will be payable upon timely delivery and acceptance of a CEP production
plant pursuant to terms to be agreed upon by LMC and MMT. MMT also is entitled
to an on-going royalty of 3.5% of all revenues generated from the processing of
waste in equipment supplied by MMT under the Hanford contract. There can be no
assurances that LMC will include Q-CEP in any proposal for any Phase 1B contract
or that LMC will submit a bid for Phase 1B. There also can be no assurances that
DOE will award a Phase 1B contract to the LMC team or that, even if it does so,
Q-CEP will prove to be satisfactory to the DOE for processing the Hanford waste.
The limited liability company formed by the Company and LMC has exclusive
worldwide rights to commercialize CEP for the chemical weapons demilitarization
market. The limited liability company is owned 50/50 by subsidiaries of LMC and
the Company. The Company is 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, each success fee to be paid from revenues generated by
the CEP plant to which it relates. The limited liability company has an initial
term of five years.
As sole owner of M4, the Company is responsible for the operations of the M4
Technology Center, and is entitled to all future revenues from such operations.
Under the terms of the agreements with LMC, the $38 million aggregate principal
amount of bonds issued by the Industrial Development Board of Oak
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<PAGE> 16
Ridge relating to the M4 Technology Center remain outstanding, LMC's guarantee
of these bonds remains in place, and each of LMC and the Company are 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 that
the Company would have the exclusive right to lead and pursue worldwide
opportunities for processing DUF6. LMC will consider participating in this
market on a case-by-case basis, subject to mutual agreement of the parties, and
has agreed not to pursue this market for five years except jointly with the
Company.
LMC and the Company have also established 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. Prior to pursuing any such
opportunity alone, each of LMC and MMT will be obligated to first offer such
opportunity to the other party by presenting it to the strategic alliance
committee. The committee would determine whether such opportunity would be
pursued jointly by the parties and the terms thereof. If the committee does not
elect to pursue the opportunity jointly, either party would be free to pursue it
alone.
In connection with the restructuring, (i) LMC terminated its line of credit with
M4 and deemed the approximately $15.8 million aggregate principal and accrued
interest outstanding thereunder to have been paid in full, and (ii) MMT
contributed $14.6 million in outstanding accounts receivable to the capital of
M4. LMC and MMT generally will share equally in substantially all of the costs
of the restructuring.
Effective on June 16, 1997, M4 became a wholly owned subsidiary of the Company.
Accordingly, use of the equity method of accounting for the Company's investment
in M4 ceased as of that date and M4 was consolidated with the Company for
financial reporting purposes from that date forward. As a result of the
restructuring, the Company assumed liabilities of $51,147,612 and obtained
assets of $45,133,064 which consisted primarily of receivables from LMC and
fixed and intangible assets.
In periods prior to the restructuring, the Company provided M4 with
construction services. For items that were capitalized by M4, the Company
deferred the portion of the gross profit representing the Company's designated
ownership interest related to such sales. The deferred income was being
recognized by the Company as the related assets were depreciated by M4. The
deferred income balance at June 16, 1997 related to assets that, as a result of
the restructuring, are now indirectly owned by the Company (through its 100%
ownership of M4), and such balance has been offset against the carrying value
of such assets.
In 1996, the Company sold the rights to the Japanese chemical weapons market to
M4 and deferred the portion of the gross profit representing the Company's
designated ownership interest. As a result of the restructuring, these rights
are now held by the new limited liability company which will pursue the
worldwide chemical weapons market. Accordingly, the deferred income related to
the sale of the rights to the Japanese chemical weapons market will be
recognized as a reduction of cost of revenue as the rights are amortized by this
limited liability company.
The net amount of funding due from LMC under the restructuring agreements is
recorded as short-term and long-term receivables and as of September 30, 1997,
the related balances are $5,544,000 and $19,000,000, respectively. Subsequent to
September 30, 1997, $3,681,000 of the short-term receivable was collected.
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 has constructed a CEP facility in Bay City, Texas that is
designed to service the industrial hazardous waste market. During the nine
months ended September 30, 1997, the Company
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<PAGE> 17
spent approximately $54 million for the engineering, construction and permitting
of this facility. During the quarter ended September 30, 1997, the Company
recorded an impairment charge of $38.4 million for this facility. See Note 6 to
Financial Statements.
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 lease payments are
due on a monthly basis throughout the seven-year term. The Company does not
intend to occupy the second building and has negotiated subleases for virtually
all of such space at rents in excess of the rent which the Company is required
to pay. The building's landlord has exercised its right to enter into direct
leases with subtenants occupying more than 75% of such building and has
terminated the Company's obligations under the lease with respect to such
subtenants. The Company expects the landlord to exercise such rights with
respect to the remaining space in the building by the end of 1997. As a result
of the job eliminations described above and the relocation of certain personnel
to other Company offices, the Company vacated two of the four floors in its
corporate headquarters in September 1997. The Company intends to sublease such
space for the remaining five years of the lease. In connection with the
restructuring of M4, the Company assumed a lease for approximately 42,000 square
feet of office space that it does not intend to occupy. The lease requires
payments on a monthly basis throughout the term of the lease which expires in
2002. The Company has subleased approximately 15,000 square feet of this space
and intends to sublease the remainder of such space. The Company has accrued
$2.7 million for anticipated losses relating to these leases, net of expected
sublease income, at September 30, 1997
RESULTS OF OPERATIONS
Revenues for the third quarter of 1997 decreased to $5,358,000 from $15,076,000
in the third quarter of 1996 and decreased to $16,892,000 for the nine months
ended September 30, 1997 from $55,303,000 for the nine months ended September
30, 1996. The following table compares sources of revenue for the periods ended
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Waste services $ 4,767,000 $ --
Equipment sales 453,000 --
Engineering and construction -- 5,667,000
R&D and consulting 138,000 3,826,000
Technology transfer and success fees -- 5,583,000
----------- -----------
$ 5,358,000 $15,076,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Waste services $13,806,000 $ --
Equipment sales 1,646,000 --
Engineering and construction 784,000 31,392,000
R&D and consulting 656,000 10,828,000
Technology transfer and success fees -- 13,083,000
----------- -----------
$16,892,000 $55,303,000
=========== ===========
</TABLE>
Waste services revenue is derived from processing, managing and handling
radioactive wastes through the Company's nuclear waste services division based
in Oak Ridge, Tennessee. In the first quarter of 1997, the Company began
generating revenues from processing operations at its Quantum-CEP(R) Facility in
Oak Ridge, Tennessee ("Q-CEP(R) Facility") and from the waste services business
it acquired from The Scientific Ecology Group, Inc. ("SEG") and VECTRA
Technologies, Inc. ("VECTRA"). Subject to the Company obtaining financing to
address its short-term and long-term liquidity needs, the Company expects that
revenue from plant operations will increase in future periods as operations at
the Q-CEP Facility and M4 Technology Center continue to ramp up. See "Liquidity
and Capital Resources."
17
<PAGE> 18
Equipment sales are recognized 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 which occurred in
December 1996 and January 1997, respectively.
During the nine months ended September 30, 1996, the Company recognized $31.4
million in revenue related to the engineering, design and construction of M4's
Technology Center. For the nine months ended September 30, 1997, engineering and
construction revenue related solely to the engineering, design and construction
of an initial CEP system for the joint venture with Nichimen and NKP for the
processing of fly ash in Japan. During the quarter ended September 30, 1997, the
Company performed construction activities related to fixed price contracts for
the delivery of this CEP system, as well as for the delivery of a pilot-scale,
demonstration CEP plant to the LMC Hanford team. However, the Company did not
recognize any revenue using the percentage of completion method under these
contracts due to the potential risk of the Company being unable to fulfill its
obligations under each of these contracts. Subject to the Company obtaining
financing to address its short-term and long-term liquidity needs, the Company
expects engineering and construction revenue to increase in the next few
quarters due to the ability of the Company to recognize revenue related to
engineering, design and construction of the initial CEP system for the joint
venture with Nichimen and NKP and for the demonstration CEP unit for the DOE's
tanked waste site in Hanford, Washington. See "Liquidity and Capital Resources."
As described below, the Company is negotiating with Nichimen and NKP to
restructure the Japanese joint venture.
During the nine months ended September 30, 1996, the Company recognized revenue
related to research and development and consulting contracts with M4 and the US
government. During the nine months ended September 30, 1997, the Company
recorded no such revenue from M4 or the US government. 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 nine months ended
September 30, 1997. Technology transfer and success fees for nine months ended
September 30, 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, but unless the Company obtains financing to address its
short-term and long-term liquidity needs, the Company does not expect that it
will be successful in licensing its technology under such arrangements or any
other arrangements.
The existence and timing of revenues related to the Company's commercial
operations will depend on a number of factors, including (i) the ability of the
Company and its affiliates to obtain substantial additional financing, (ii)
their ability to successfully market, permit and build CEP systems on a timely
and economic basis for their target markets, (iii) customer acceptance of the
technology, and (iv) competition from other companies in the Company's target
markets. As a result no assurances can be made in this regard.
Cost of revenue increased in the third quarter of 1997 to $14,263,000 from
$11,343,000 in the third quarter of 1996 due to costs related to the start-up of
a mixed waste CEP system at the M4 Technology Center and processing costs at the
Q-CEP Facility. Cost of revenue decreased to $33,266,000 for the nine months
ended September 30, 1997 from $42,062,000 for the nine months ended September
30, 1996 due primarily to a reduction in cost reimbursement contracts for R&D
and engineering and construction activities.
R&D expenses decreased to $4,986,000 for the third quarter of 1997 from
$5,189,000 in the third quarter of 1996 as the Company focused on commercial
operations and eliminated non-critical, long-term R&D initiatives. R&D expenses
increased to $20,534,000 for the nine months ended September 30, 1997 from
$14,516,000 for the nine months ended September 30, 1996 due to a lower
absorption of R&D expenses into cost of revenue as a result of a reduction in
cost reimbursement contracts. The Company expects that R&D costs will decrease
during the remainder of 1997 as R&D efforts continue to be scaled back. SG&A
expenses for the third quarter of 1997 increased to $9,175,000 from $7,213,000
in the third quarter of 1996 and increased to $23,839,000 for the nine months
ended September 30, 1997 from $11,842,000 for the nine months ended September
30, 1996. The increases reflect a lower absorption of SG&A expenses into cost of
revenue due to a reduction in cost reimbursement contracts. The Company will
continue to make efforts to decrease SG&A expenses in future periods. In August
1997, the Company announced that it
18
<PAGE> 19
would eliminate 57 positions, primarily at the Company's corporate headquarters
in Waltham, Massachusetts, and at the Company's research and development
facility in Fall River, Massachusetts. Thirty-two jobs were eliminated
immediately and the remaining 25 will be phased out by the end of the year. Most
of the eliminations were from MMT's research and development, engineering and
administration areas. In November 1997, the Company eliminated an additional 14
positions, as well as terminating a number of relationships with independent
contractors, at the Company's nuclear waste services division in Oak Ridge,
Tennessee. The Company intends to eliminate additional positions before the end
of the year at its headquarters, its Fall River facility and in Bay City. 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 has constructed a CEP facility in Bay City, Texas that is designed
to service the industrial hazardous waste market. During the nine months
ended September 30, 1997, the Company spent approximately $54 million for the
engineering, construction and permitting of this facility. During the quarter
ended September 30, 1997, the Company recorded an impairment charge of $38.4
million for this facility. See Note 6 to Financial Statements.
Prior to the restructuring of M4 on June 16, 1997, the Company accounted for its
investment in M4 using the equity method, and thereafter consolidated M4's
results of operations. Consequently, the Company had no equity income or loss
for the quarter ended September 30, 1997 and recorded equity income of
$2,818,000 for the third quarter of 1996. For the nine months ended September
30, 1997, the Company recorded an equity loss of $9,741,000 compared to equity
income of $5,494,000 for the nine months ended September 30, 1996. Under the M4
limited partnership agreement, the Company and LMC shared equally in M4's
revenues and other income and all expenses were allocated to LMC until the
capital accounts of the Company and LMC were equal. During the nine months ended
September 30, 1996, the Company's and LMC's capital accounts were not 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 during the nine months ended September 30, 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. On March 26,
1997, the Company and LMC agreed to fund the operations of M4 in a manner
consistent with how the funding would occur after the proposed restructuring
took place. The Company recognized revenue and expenses of M4 consistent with
how the funding occurred and, as a result, recorded equity losses in the first
two quarters of 1997.
Interest income for the third quarter of 1997 decreased to $437,000 from
$2,846,000 in the third quarter of 1996 and decreased to $2,918,000 for the nine
months ended September 30, 1997 from $6,432,000 for the nine months ended
September 30, 1996. The decreases are due to the use of cash and short-term
investments to fund operations and investment activities, including expenditures
for fixed assets. Interest expense for the third quarter of 1997 decreased to
$2,065,000 from $2,268,000 in the third quarter of 1996 due to an increase in
interest capitalized for the construction of the Company's CEP facility in Bay
City, Texas. Interest expense increased to $6,464,000 for the nine months ended
September 30, 1997 from $4,376,000 for the nine months ended September 30, 1996.
The increase is due to interest on the Company's 5 1/2% Convertible Subordinated
Notes Due 2006 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
are likely to continue to vary significantly in the future, particularly in the
short-term. The Company's future profitability is dependent upon its ability to
obtain substantial additional financing, to commercialize successfully its CEP
technology and to find alternative sources of revenue. There can be no assurance
that the Company will obtain any such financing or that the Company will
generate sufficient revenue to achieve profitability. If the Company is not able
to obtain substantial additional financing to address both its short-term and
long-term liquidity needs, the Company will not have sufficient funds to
continue normal operations after November 1997 and may be required to file a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. See
"Liquidity and Capital Resources."
19
<PAGE> 20
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 loss per share and diluted loss per share for the periods ended
September 30, 1997 and 1996 would not have been materially different from the
net loss per share reported by the Company.
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, and the Company's plans to obtain additional
financing, restructure its partnering arrangements, sell some or all of its
assets, and otherwise address its short-term and long-term liquidity needs.
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
(i) the Company will not be able to obtain required financing on satisfactory
terms or at all which may require the Company to file a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code; (ii) the Company
will be unable to restructure its operations so that costs are better matched
to its revenue base; (iii) the Company will be unable to start-up the Bay City
CEP Facility, or that such facility will not be able to be operated profitably;
(iv) the Company will be unable to continue its commitments to its joint
venture partners, including Nichimen and NKP with respect to the Japanese joint
venture and LMC with respect to the Hanford project; (v) the Company will be
unable to renegotiate the payment terms of amounts owed to the prime contractor
of the Bay City CEP Facility; (vi) potential customers will not accept the
Company's CEP technology as an economically and environmentally acceptable
means of disposing of wastes and by-products; (vii) the Company will be unable
to build its CEP plants on time and under budget; and (viii) the Company will
not be able to commercially operate CEP plants on a sustained and profitable
basis.
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.
20
<PAGE> 21
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In October 1997, certain employees and former employees of the Company received
subpoenas from the U.S. Department of Justice (the "DOJ") requesting the
production of various personal information and records. The Company's employees,
with the cooperation of the Company, are complying with these subpoenas. As
described in the Company's Form 10-Q for the quarter ended June 30, 1997 (the
"June 30 Form 10-Q"), in July 1997 the Company received a letter from the
Subcommittee on Oversight and Investigations of the U.S. House of
Representatives Committee on Commerce (the "House Subcommittee") requesting that
the Company provide various Company information and records to the House
Subcommittee in connection with the House Subcommittee's investigation of the
Office of Science and Technology of the DOE. The Company voluntarily complied
with this request and has provided all documents covered by the House
Subcommittee's request. In November 1997, the House Subcommittee held hearings
at which the Company had been requested to testify, however the House
Subcommittee elected not to call any representatives of the Company to testify
at such hearings. Also as described in the June 30 Form 10-Q, in August 1997,
the Company received a subpoena from the U.S. Senate Committee on Governmental
Affairs (the "Senate Committee") requesting the production of various Company
information and records and requesting that a representative of the Company
testify at a hearing of the Senate Committee and give a deposition. William M.
Haney, III, the former President and Chief Executive Officer of the Company,
received a similar subpoena. In connection with these subpoenas, Mr. Haney and
Victor E. Gatto, Jr., the Company's Vice President of Business
Development-Nuclear Markets, were deposed by representatives of the Senate
Committee in September 1997, however the Company was not called upon to testify
at any Senate Committee hearings. The Company and Mr. Haney have provided all
documents covered by these subpoenas, and the Company believes, based on public
statements by the chairman of the Senate Committee, that the committee's
investigation is closed. In connection with the foregoing requests for
information and the DOJ and Senate Committee subpoenas, as well as the
outstanding subpoenas received by the Company and M4 from the Office of the
Inspector General (the "OIG") of the DOE which were described in the Company's
Form 10-Q for the quarter ended March 31, 1997, employees and former employees
of the Company have been interviewed by representatives of several government
agencies. The Company expects to be providing information and records to the
DOE, the DOJ and the OIG over an extended period of time. Any of these entities
also may conduct additional interviews with employees and former employees of
the Company. In addition, the House Subcommittee may hold additional hearings at
which employees and former employees of the Company may be asked to testify.
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. These cases have been consolidated and on October
30, 1997, the plaintiffs filed a consolidated complaint. The consolidated
complaint variously alleges 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. The suit seeks
compensatory damages for unspecified alleged losses during the alleged class
period, which extends from March 28, 1995 through October 18, 1996. This action
is at an early procedural stage. While the Company has not yet filed a response
to the consolidated complaint, the Company intends to deny liability and/or move
to dismiss the action. However, the ultimate outcome cannot be determined at
present.
21
<PAGE> 22
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 September 30, 1997, the Company filed the
following Current Reports on Form 8-K:
Form 8-K dated September 11, 1997, with respect to the issuance of
the Company's Series A Convertible Participating Preferred Stock.
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: November 19, 1997 By: /s/ F. Gordon Bitter
----------------- --------------------
F. Gordon Bitter
Chief Executive Officer, Chief Financial
Officer and Treasurer
(Principal Financial Officer and
Authorized Signatory)
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,626,572
<SECURITIES> 15,651,416
<RECEIVABLES> 15,770,495
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 44,978,082
<PP&E> 151,524,096
<DEPRECIATION> 22,076,753
<TOTAL-ASSETS> 223,308,927
<CURRENT-LIABILITIES> 45,799,756
<BONDS> 202,750,000
0
14,161,180
<COMMON> 237,758
<OTHER-SE> (43,336,971)
<TOTAL-LIABILITY-AND-EQUITY> 223,308,927
<SALES> 1,193,024
<TOTAL-REVENUES> 16,892,185
<CGS> 875,994
<TOTAL-COSTS> 33,265,650
<OTHER-EXPENSES> 82,800,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,463,736
<INCOME-PRETAX> (112,460,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,460,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,460,182)
<EPS-PRIMARY> (4.87)
<EPS-DILUTED> (4.87)
</TABLE>
