SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1935
For the Transition Period From N/A to N/A
Commission File No.: 0-15543
METAL RECOVERY TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 71-0628061
(State of Incorporation) (I.R.S. Employer Identification No.)
415 East 151st Street
East Chicago, Indiana 46312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219) 397-6261
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock NASD OTC Bulletin Board
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13, or 15 (d) of the Securities Exchange Act of 1939
during the proceeding 12 months (or for such shorter period that the Registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ] The mid-market value of the voting stock held by non-affiliates
of the Registrant as of April 21, 1998 is $5,374,670 Number of shares
outstanding of the Registrant's Common Stock as of December 31, 1997 is
38,390,501.
Exhibit Index begins on page 17.
PART 1
ITEM 1. BUSINESS
CURRENT OPERATIONS
- - ------------------
Metal Recovery Technologies, Inc., a Delaware Corporation, (formerly Malvy
Technology, Inc.), hereafter "the Company" or "MRTI", acquired its wholly owned
subsidiary, Metal Recovery Industries (US), Inc., hereafter "MRI(US)", in April
1995. MRI(US) is engaged in the development of the first commercially viable
means of recovering the zinc coating from steel scrap through a dezincing
process. Over the last 17 years, the steel industry has seen a rapid increase in
the world wide use of galvanized (zinc coated) steel, especially in the
automotive and appliance industries. This increase has created a new problem in
the industry - an ever increasing amount of galvanized steel scrap. The presence
of zinc in the steel scrap supply creates problems in the melting and casting of
new steel and an environmental issue to clean or dispose of zinc laden dusts.
Since the acquisition, MRTI has been involved in the re-commissioning of the
MRI(US) plant in East Chicago, Indiana. The East Chicago Plant began test
production runs in October 1996. MRTI considered these operations as
developmental and, through the end of 1996 and 1997, capitalized all of its
expenditures related to putting the plant into regular production.
The application of zinc to steel to inhibit corrosion has created a rapidly
growing market for zinc over the last two decades. Current world consumption of
zinc is approximately 7,000,000 tons per year, half of which is used to protect
steel.
By far the largest market for galvanized steel scrap is the automotive industry.
Through obsolescence, recycling and the production of prompt scrap from the auto
stamping processes, there is now a rapidly increasing amount of galvanized steel
scrap. This causes problems for the steel mills and foundries, which have a need
for clean black (non-coated) scrap to avoid problems environmentally due to
difficult air or water emissions with zinc coated scrap.
For each ton of galvanized sheet steel supplied to auto stamping plants, 1/4 ton
becomes scrap immediately. Most bundles of such high quality prompt scrap
contain a minimum of 40% coated material.
MRI(US)'s current competition comes from the waste treatment recycling industry
who process or stabilize the wastes generated from the furnace emissions in the
steel and foundry industries.
However any recycling system which does not involve dezincing the steel prior to
melting, allows the production of large quantities of hazardous waste and incurs
punitive recycling and waste disposal costs, as well as exposure to the risk of
future environmental liability penalties.
The Company believes that its technology will allow for the removal of zinc from
scrap metal without the production of hazardous bi-products.
The Company's dezincing process is environmentally benign, but continuous
management of air quality is necessary, and when in full production,
environmental procedures require continuous monitoring. The Company's activities
are subject to a variety of federal, state and local environmental regulations.
Close attention is paid to compliance with all environmental regulations. The
Company believes that it is in compliance with applicable regulations.
In the early part of 1997 the Company successfully dezinced 1,700 tons of scrap
resulting in sales / revenues of approximately $353,000. However, the East
Chicago plant suffered frequent breakdowns and long periods out of production.
In April 1997, Leon Lohman was appointed Vice President of engineering and
production and he determined along with the assistance of SSOE .(a leading A & E
partnership) that the technology was proven but the plant was under engineered.
The scrap that was dezinced was sold to one of the U.S.'s leading foundries at a
premium price to normal scrap proving the added value performance of the
technology and the zinc that was produced also met specification although due to
the lack of appropriate equipment was heavily oxidized.
Following the results of an internal production review the company determined
that an additional investment of circa $2,000,000 would be necessary to achieve
an annual production target of 110,000 tons of scrap. The ability to produce
high quality black scrap and marketable zinc products has been demonstrated by
the existing facility but the need to optimize the current facility while
continuing to produce created operational difficulties. Accordingly, the company
curtailed its operations with the intention of making major operational and
processing additions and improvements to its plant operating equipment. These
improvements will last approximately four to five additional months, once they
are commenced.
The disappointments concerning production created significant financial
problems. Existing lenders were reluctant to commit substantial further funds
and it was difficult to find new sources of financing. However, in March 1998,
the Company entered into a conditional agreement with Zinc Investments Inc. to
provide in stages the sum of $3,000,000 to finance the engineering upgrade at
East Chicago. It is hoped that this financing will become unconditional before
the end of April, 1998.
All dezincing by MRI(US) had been carried out as a batch process on different
grades and types of galvanized scrap. A production line had never before been
established for the MRI(US) process. However, although the Company has, since
October, 1996, run production lines on a limited basis, the full-scale
commercial viability of the MRI(US) process remains unproven and there can be no
assurance that the process will be technologically successful, or even if
technologically successful, that the Company will be able to obtain financing on
acceptable terms and in sufficient amounts to bring the process to the point of
commercial success.
The degree to which the Company's process is protected by patents is also
uncertain, although the company's U.S patent application was approved in January
1998. Accordingly, even if successful, the Company's technology may be subject
to appropriation by competition from third parties, having significantly greater
financial resources.
To date, the Company has obtained the majority of its raw materials directly
from an auto manufacturer. The Company has also obtained materials from other
local broker sources. The Company believes that at such time as the Company's
facility is fully operational, there will be substantial competition among scrap
brokers, metals and mining companies and manufacturers of galvanized steel
product both to provide scrap for dezincing and to purchase both recovered zinc,
in powder and ingot form, and clean "black" scrap. However, there can be no
assurance as to the terms and conditions upon which scrap can be purchased or,
recovered zinc or "black" scrap sold, or whether the Company's operations will
necessarily be profitable.
FINANCING OF BUSINESS
- - ---------------------
The MRI(US) process has been developed in cooperation with the Argonne National
Laboratory ("Argonne") and the US Department of Energy("DOE"). The DOE helped
provide some of the initial capital required for the development of the MRI(US)
process. Since June 1, 1992, the DOE has made available a total of $1,141,411
for research and development respecting the dezincification technology being
developed by MRI(US).
The original collaborative research and development contract estimated a
contribution of $1.4 million from the DOE. The funds have been provided to
Argonne and have been expended, both by MRI(US) and Argonne, on research and
development of the dezincing technology. Further funds will require a new
application by the Company at such time as the Company is capable of putting
such funds to immediate appropriate use. Based upon the Memorandum of
Understanding entered into between the DOE and MRI(US), the Company has a
contingent repayment obligation, equal to 150% of the government's total
payments to the project, which arises if and when the technology developed
becomes commercially feasible. The payments must be made out of the percentage
of future net royalty payments received by the Company from the exploitation of
the technology, if successful.
Development of the dezincing technology to the point of full commercial
application will require substantial funds in addition to those made available
through DOE.
The Company has had no ability to arrange bank financing and has therefore, had
to arrange convertible term loans with a number of private overseas venture
capital investment companies.
As of December 31, 1997, the Company had outstanding the following loan
facilities, having the balances, set forth below; the aggregate balance of these
loans was $3,285,794. Each loan, at the option of the lender, is convertible
into common stock of the Company. Interest is payable at the rate of 10% per
annum; the Company has the option to capitalize the interest (which becomes
convertible into additional shares).
Lender Outstanding Balance
Sundorne Holding SA loan convertible into 9,772,263 781,781
shares of common stock
Plenbrick Ltd loan convertible into 8,263,175 shares 661,054
of common stock
Anthemis Ltd loan convertible into 1,295,675 shares 103,654
of common stock
Pangea Ltd loan convertible into 6,935,287 shares of 554,823
common stock
Quested Ltd loan convertible into 6,802,538 shares 544,203
of common stock
Dorrrance Ltd loan convertible into 6,584,925 shares 526,794
of common stock
Garcia Ltd loan convertible into 481,062 shares of 38,485
common stock
Accounting Services Ltd loan convertible into 75,000
1,416,668 shares of common stock
3,285,794
=========
The number of common shares into which such loans are convertible is subject to
adjustment pursuant to anti-dilution provisions. During 1996, the Company, and
MRI(US), at the insistence of lenders whose loans were then outstanding, as a
condition to the extension of the maturity of such loans and the waiving of
certain defaults thereunder, entered into a pledge and security agreement with
Plenbrick, Ltd., for itself, and as agent for the other existing lenders,
whereby the loans then outstanding would, together with future loans made with
the approval of a majority in interest of the lenders, be secured by a blanket
lien upon, and security interest in, the assets and shares, of the Company and
MRI(US). The lenders also have the right, under certain contingencies, to
exchange loans for a majority interest in MRI(US). At the present time, the
loans described here have been extended so far to mature on June 30, 1998. Since
December 31, 1997, Accounting Services Ltd loan of $75,000 has been converted
into common stock.
Based on past experience, the Company expects that it will require additional
financing during the current year. There can be no assurance that such financing
will be available, or as to the terms and conditions upon which financing will
be available, or as to the terms and conditions upon which financing, if
available, will be provided. However, the Company anticipates that any financing
will be available only from lenders who will require the right to an equity
participation in the Company, either in the form of convertible loans or loans
with accompanying warrants; and in either case this will likely lead to dilution
of existing shareholders equity.(See "Item 1" Zinc Investments Inc conditional
agreement).
In addition to obtaining required capital from lenders, the Company has also
sought to obtain needed financing through long-term arrangements with industrial
companies interested in the utilization of its technology. These companies
include both those engaged in the mining and processing of zinc for sale to
users, as well as industrial companies (such as automobile manufacturers),
engaged in the manufacture of products utilizing galvanized steel who seek ways
to dispose of the resulting scrap.
ACQUISITION OF MRI(US)
- - ----------------------
The acquisition of MRI(US) in 1995 was effected as follows:
a). By the issue of 11,000,000 common shares under Regulation S,
having a nominal value of $12,000,000, including 10,000,000 of shares
at an assigned value of $1.20 each, plus 1,000,000 shares representing
the fee to underwriters.
b). An additional 7,000,000 common shares will be issuable only at
such time as the dezincing technology of MRI(US) shall have been
approved by an independent third-party, as evidenced by such party's
entering into a contract with the Company for the processing of a
minimum of 50,000 tons per annum of steel scrap utilizing the
Company's technology, which contract shall be on commercially
reasonable terms consistent with a bona fide arm's-length relationship
between the parties, and, pursuant thereto, processing in commercial
quantities shall have commenced and scrap so processed shall have been
accepted and paid for by such third-party.
c). An additional 7,000,000 Common Shares shall be issuable only at
such time or times as contracts utilizing the dezincing technology of
MRI(US) shall have been entered into with one or more independent
third parties, providing for the processing of an aggregate minimum of
1,000,000 tons per annum of steel scrap, which contracts shall be on
commercially reasonable terms consistent with a bona fide arm's-length
relationship between the parties.
d). $25,000,000 of Convertible Redeemable Preference Shares ("CRP"
Shares), shall be issuable upon the following conditions:
(1) at the rate of $5.00 of CRP Shares for each ton of
capacity in dezincing plants established by the Company or by
any subsidiary (excluding the East Chicago, IN plant) which is
certified as being operable at full capacity and
(2) at the rate of $5.00 of CRP Shares for each ton of such
plant capacity, which achieves normal operation of at least
80% of its specified throughput capacity over an aggregate of
three consecutive months.
These CRP Shares, if issued, will be convertible at the option of the holder
into shares of common stock of the Company, or the Company may be required to
redeem such CPR Shares over a period of four years, commencing on the second
anniversary of issue to the extent of 50% thereof and on each of the third and
fourth anniversaries to the extent of 25% thereof. Issuance of additional common
shares on conversion of CRP Shares, if issued, would result in additional
dilution of shareholders equity.
Determinations as to certification of a plant as being operational, and as to
the attainment of requisite 80% of operational capacity, shall be made by the
Company in its reasonable good faith judgment. Because of delays in bringing the
dezincing process to the point of commercial viability, as well as the need for
substantial amounts of capital beyond that originally anticipated when MRI(US)
was acquired, the Company contemplates seeking to negotiate a modification of
the conditions upon which such additional common and/or CRP shares will be
issued.
DISCONTINUED OPERATIONS
- - -----------------------
MRTI was from 1993 to the middle of 1995 primarily engaged in the development
and testing of the Malvy Anti-Theft device and the marketing of the Malvy device
concept to the public and automotive manufacturers through its two foreign
subsidiaries, Malvy Technology S.A. and Malvy Technology (UK) Ltd. This
division, however, went into receivership in October 1995. The Company does not
expect to recover any portion of its investment. Prior thereto, the Company was
engaged primarily in the business of mining and developing precious metals in
Alaska, the production of oil and gas in Oklahoma and New Mexico and the
transmission of gas through a pipeline operated in Oklahoma. These operations
were disposed of, or written down, during 1994 and 1995. The historical
financial information in the consolidated financial statements, shown in Part
IV, Item 14(a) of this 10-K include historical information from these
discontinued operations.
ITEM 2. PROPERTIES
The Company occupies under license its only facility, in East Chicago, Indiana,
from ASK Corporation (see Item 13 as to Certain Relationships and Related Party
Transactions). The license agreement expired on January 31, 1997, and the
parties to the license have agreed to a three year extension, at the same annual
rental of $60,000 currently payable. (In addition, the Company is responsible
for all real estate taxes, utility costs, and costs of maintenance.)
ITEM 3. LEGAL PROCEEDINGS
In September, 1994, the Company reached a settlement with a former chairman and
chief executive officer of the Company, Jack Alexander, and certain entities
related to him, in respect of amounts claimed to be owed to them by the Company
on accounts of notes payable, loans and the redemption price of preferred stock.
Under the terms of the settlement, Mr. Alexander was to be paid $1.3 million
over a period ending May, 1995. The Company has renegotiated several times, the
terms of payment to Mr. Alexander. At the time of the final settlement the
Company owed Mr Alexander a total of approximately $551,129. Mr. Alexander also
owned all of the shares of a class of preferred stock which gave Mr. Alexander
the right to elect the majority of the board of directors of the Company.
During 1996, Mr Alexander assigned his interest in the settlement, including the
shares of preferred stock to an entity identified as "Morton Blue" (with an
address in the British Virgin Islands). During 1997,the Company, having no
ability to settle the amount owed to Morton Blue in cash, negotiated an
agreement with Morton Blue to settle the liability and redeem the "Series A"
Preferred shares. This occurred in 1997 by the issuance of 2,550,000 shares of
the Company's common stock under Regulation S of the Securities and Exchange
Commission and is reflected in the financial statements.
On November 6, 1995, an action entitled Levine vs. Metal Recovery Technologies,
Inc., was filed in the United States District Court of Delaware by a shareholder
against the Company and certain present and former directors, alleging breaches
of the federal securities laws, by reason of alleged material misrepresentations
by the Company and the Company's alleged failure to make timely disclosure
relating to its Malvy operations. In November, 1996, the court certified the
proposed class. On October 31, 1996, a second action was commenced by the same
plaintiff against defendants and others, including a number of brokerage firms
and their representatives, alleging a conspiracy to inflate prices at which the
shares of the Company's common stock traded during the period specified therein.
Without admitting liability, the Company has reluctantly agreed to settle these
actions. The decision was primarily taken to avoid mounting legal costs, to free
management from the burdensome time involved in dealing with this matter, and to
achieve certainty as to the outcome of the proceedings. The uncertainty of these
proceedings has been negatively affecting or delaying potential business
transactions by the Company's subsidiary, Metal Recovery Industries (US), Inc.
The agreed settlement was $3.25 million payable as follows:
- - - $500,000 in cash to be paid on October 15, 1997 (the effective date).
- - - $500,000, in the form of cash or unrestrictive common stock of the
Company, to be paid on the effective date. If the Company elects in its
sole discretion not to make this payment in the form of cash, the
number of shares of unrestricted common stock of the Company necessary
to satisfy the obligation of this subparagraph shall be determined by
dividing $550,000 by the market price of the Company's common stock.
The market price of the Company's common stock will be deemed to be the
average of the closing bid prices of that stock during the ten trading
days preceding the effective date. Should the effective date not have
occurred by October 15, 1997, the Company will deposit into escrow on
that date an amount of stock equal to twice its payment obligation.
Should the Company's stock thereafter decline by 30% or more from the
market price, the escrow agent, as promptly as possible without
depressing the price of the Company's stock, will liquidate sufficient
shares to yield the sum of $550,000 in cash, whereupon the balance of
the shares will be returned to the Company. The funds obtained shall be
held in escrow, bearing interest for the benefit of the class, until
the effective date.
- - - The Company will pay the remaining $2.2 million in four annual
installments in the amount of $550,000, beginning on the first
anniversary of the effective date. The Company shall have the option,
in its sole discretion, to satisfy all or any portion of the
installment payment obligation in the form of cash, shares of
unrestricted common stock of the Company, or any combination thereof.
If the Company decides not to satisfy the installment payment
obligation solely with cash, then the Company shall be obligated to pay
in the form of unrestricted common stock of the Company the amount of
the installment obligation less the amount paid in cash (the "Non-Cash
Obligation"). The number of shares of unrestricted common stock of the
Company necessary to satisfy the Non-Cash Obligation shall be
calculated as follows: (a) if the unrestricted common stock of the
Company is less than $1 per share, then the Non-Cash Obligation divided
by the market price; (b) if the market price of the unrestricted common
stock is equal to or greater than $1, but in no event greater than
$1.4545, then the product of the Non-Cash Obligation divided by $1 per
share; or (C) if the market price is greater than $1.4545, then the
product of the Non-Cash Obligation and 1.4545 divided by the market
price. The market price of the Company's stock will be deemed to be the
average of the closing bid prices of that stock during the ten trading
days preceding each installment payment date.
The Company has reflected the provision of these arrangements in the financial
statements. The Company is in default in making the first installment under the
agreement and is currently renegotiating the payment schedule.
The Company is involved in other maters of litigation in the normal course of
business. Management believes that none of these matters, upon their ultimate
resolution, will involve amounts material to the Company's financial statements.
The Company maintains insurance in an amount which management believes to cover
its risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since August 1995, the Company's Common Stock has been quoted under MRTI on the
over-the-counter market system of the Bulletin Board (NASD OTC BB).
The following table sets forth the range of high and low closing bid quotations
for the Common Stock as reported by NASD OTC BB Monthly Statistical Report for
the periods indicated. Such quotations represent inter-dealer prices without
retail markup, markdown, or commission, and may not necessarily represent actual
transactions.
Calendar Years by Quarter Closing Bid Price
- - ------------------------- -----------------
(in US Dollars)
High Low
---- ---
1996 First 1.09375 0.43
Second 1.35 0.46
Third 1.12 0.51
Fourth 0.875 0.30
1997 First 0.76 0.38
Second 0.45 0.19
Third 0.31 0.11
Fourth 0.38 0.06
As of December 31, 1997, the Company had in excess of 2,000 common shareholders
of record.
The Company has not paid cash dividends to date on its Common Stock and intends,
for the foreseeable future, to continue its policy of retaining earnings that
may otherwise be available for such dividends.
The Company has outstanding a number of loans convertible into common stock as
well as warrants to purchase its common stock. Information on these loans and
warrants is more fully described in Notes 5 & 11 of the financial statements
found in Part IV, Item 14 (a) of this filing. See also "Item 1- Business",
regarding such convertible loans and shares of common stock that may be issuable
in connection with the acquisition of MRI(US).
ITEM 6. SELECTED FINANCIAL DATA ($,000's omitted)
Year Ended December 31
For the Year Ended: 1997 1996 1995 1994
---- ---- ---- ----
Revenues $ - $ - $ - $ -
Net Income (loss)
from operations (622.5) (1,046.8) (177.2) (4,976.6)
Income (loss) from
operations per
common share (0.0212) (0.0617) (3.1670) (0.2065)
At year ended:
Total assets 20,187.9 $ 17,833.0 $ 14,832.2 $ 35,068.3
Long-term debt 2,155.0 509.2 505.0 302.4
Total liabilities 9,450.3 5,410.8 3,548.8 1,888.5
Working Capital
(deficiency) (7,233.7) (4,732.1) (2,819.0) 338.6
Stockholders equity 10,737.6 12,422.2 11,284.0 33,179.8
(Footnote 4)
Pro forma financial
information
Revenues $ - $ - $ 1044.8
Net income (loss)
from operations (622.5) (1,046.8) (177.2) (4,976.6)
Income (loss) from
operations per
common share (0.0212) (0.0617) (3.1670) (0.2065)
(Footnotes 2 and 3)
Footnotes:
1. The selected financial data presented are not necessarily
indicative of future financial position or results from future
operations.
2. The computations of earning (loss) per common share considers the
weighted average number of shares outstanding during the year,
plus any common stock options and warrants if dilutive.
3. The weighted average number of shares reflects the twenty to one
share consolidation, which occurred in February 1995.
4. Shareholders' equity of $10,737,592 includes goodwill, patents,
etc. of $12,906,606.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS
1997 vs. 1996
- - -------------
Because the East Chicago, Indiana, processing plant was not in commercial
operation, but was in the process of being commissioned, through the end of
1996, The Company had sales in 1997 of $353,000 which were offset against
capitalized costs in accordance with the Company's election to capitalize all
organizational costs during the development stage. The Selling, General and
Administrative expenses for 1997 and 1996 were $622,488 and $1,046,761
respectively. The reduction in 1997 is primarily due to the company scaling back
operations. (See item 1 Business). The Non Operating expenses increased from
$64,512 in 1996 to $3,286,517 in 1997 due to the Class Action settlement
described in "Item 3" Legal Proceedings.
During 1997 and 1996, the Company spent $2,500,897 and $3,001,766, respectively
on the commissioning of the plant in East Chicago, Indiana. These costs include
equipment purchase and installation, development and testing of its technology,
obtaining customers, suppliers, and financing, installing and testing equipment,
and administrative activities, all of which were capitalized and included as
assets on the accompanying financial statements.
Commencing in late 1996, and continued through the early part of 1997 the
dezincing process was, for the first time, successfully carried out on a limited
production basis, and the Company believes that the process is technologically
sound. The Company has, however, experienced problems in its ability to operate
the production line continuously, and without interruptions, largely, it
believes, because of unforeseen mechanical problems, as distinct from
infirmities in the basic technology itself. There is the need for significant
improvements, upgrades and plant and equipment expansions if the process is to
become commercially viable.
The commercial viability of the MRI(US) process will necessarily remain unproven
until a point in time where production targets are achieved to verify the
Company's projections. The degree to which the Company's process is protected by
patents is also uncertain. Patent applications in the U.S have been approved and
worldwide patents have been made and are pending. Even if successful, the
Company's technology may be subject to appropriation by and competition from
third parties, having significantly greater financial resources.
The Company has experienced favorable interest in its technology from the steel
industry. Several major corporations are in various stages of investigation of
using the Company's technology. Initial sales of the product in 1997 have
substantiated the ability to obtain premium prices for the non-coated "black"
scrap produced by dezincing.
Because of the commissioning of the East Chicago plant, the Company has incurred
operating losses over the last two years from its on-going business activities.
For the last several years the Company has not generated positive cash flows
from its operations. At December 31, 1997, the Company had negative working
capital of $7,233,663. The Company's independent auditors have qualified their
opinion on the Company's financial statements for the fiscal year ended December
31, 1997, to the effect that there is substantial doubt about the ability of the
Company to continue as a going concern.
Requirement for Additional Financing
- - ------------------------------------
The Company presently has, in addition to its existing cash on hand, unused loan
facilities aggregating approximately $950,000
Financing will be required both to fund production-line improvements and to
defray operating expenses pending sufficient revenues from commercial
production. Because of the unavailability of conventional financing due to the
lack of historical positive cash flow to repay loans, the Company is dependent
upon other sources. In the past, it has raised funds from the placement of
convertible loans with overseas investors. It anticipates that it will be able
to do so, although there can be no assurance. The Company is also engaged in
negotiations with potential users of the Company's dezincing services, and
potential purchasers of its end products of clean "black" scrap and recovered
zinc, respecting possible long-term commercial agreements, as well as direct
investments, which would provide needed capital, although there can be no
assurance that such negotiations will be successful.
1996 vs. 1995
The majority of differences in the financial performance of the Company from
1995 to 1996 stems from operations which were discontinued over various times in
1995.
MINING OPERATIONS (DISPOSED FEBRUARY 1995), The property was actively
marketed for sale and eventually sold in February 1995, for $425,000. This
adjustment was made in the December, 1994 consolidated financial
statements, which resulted in a loss on disposal of $407,748.
GAS PIPELINE D/B/A SPHINX INTERNATIONAL PETROLEUM CO. (DISPOSED JUNE 1995)
-- Gross revenues from the sale of gas were $171,371 in 1995.The Company
disposed of this subsidiary for a nominal amount in June 1995.. After
writing down the assets and liabilities of the subsidiary to zero, this
resulted in a net loss at December 1995 of $7,841.
MALVY TECHNOLOGY SA & UK - Though sales commenced in 1994 ($181,371), it
was difficult in 1995 for this division to become profitable. During the
first few months of 1995, sales were slow, as the ability to sell was
hampered by the inability of the French hub manufacturer to supply enough
of a variety of hubs. Prospects seemed to be improving after a new hub
manufacturer was located in the UK. A franchise network was set up in
France and the UK, in anticipation of the manufacturer being able to
overcome the problem. As the year passed by, however, it became more and
more obvious that the technology could not be converted into more sales
without a substantial amount of further capital investment. The board
considered this option, but with the limited financial resources available,
had no alternative but to allow the subsidiaries to be forced into
liquidation following petitions filed by its creditors. As a result of
this, the assets and liabilities of Malvy were eliminated from the
Company's 1995 balance sheet, resulting in the write off of concessions,
rights, patents & goodwill of $33,883,238, together with an operating loss
of $725,562.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth in Part IV, Item
14(a) hereof.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements between the Company and its auditors that would
warrant disclosure pursuant to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company has three directors, who are also executive officers of the Company.
The following table sets forth the names and ages of all executive officers of
the Company, all positions and offices presently held by them, the year each
person first became an officer and the term of each person office.
Name Age Office Principal Occupation Officer Since
Michael S. Lucas 50 Chairman, Chairman, October 1994
President & Chief President & Chief
Executive Officer Executive Officer
Roy Pearce 37 Chief Financial Chief Financial April 1993
Officer, Director Officer
Dr. William Morgan 68 Executive Vice Executive Vice May 1995
President, Director President
Mr. Lucas joined the Company on October 14, 1994, for five years prior thereto,
Mr. Lucas was Chairman Executive President of BGMB (USA), Inc. (an investment
group), and prior thereto was Chairman of BOM Holdings, a public company
registered in Great Britain. Mr. Pearce joined the Company on April 26, 1993.
For five years prior thereto, he was Treasurer of Sharedane Limited, an
investment and property company registered in Great Britain. Dr. Morgan joined
the Company on May 10, 1995. For five years prior thereto, Dr. Morgan was
Chairman of MDZ Recycling Corporation, an environmental process development
company incorporated in Canada.
ITEM 11. EXECUTIVE COMPENSATION
Compensation - During 1997, Michael Lucas, Director, Chairman and CEO was paid
$240,000 and was the Company's most highly paid executive. Roy Pearce, Director
and CFO was paid $150,000, and Dr. William Morgan was paid $105,000.
During 1997 the Company paid on behalf of Michael Lucas $2,622 in premiums on a
term-life insurance policy.
Stock Option Compensation - As of the fiscal year ended December 31, 1997, there
were no outstanding employee stock options in existence.
No employees are employed pursuant to employment contract. No director's fees
have been paid to date and the Company does not intend to pay directors fees
during the current fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Michael Lucas, President, Chairman & Chief Executive Officer of the Company has
a direct interest in 20,000 shares of common stock, or 0.05% of the outstanding
shares. Mr. Lucas also has a contingent interest in 1,000,000 common shares
(representing 2.6% of the outstanding shares) in the Company owned by a family
trust, of which Mr. Lucas' four children are beneficiaries. Mr. Lucas disclaims
beneficial ownership of the shares or the power to direct the disposition
thereof.
Roy Pearce, currently Chief Financial Officer has a direct interest in 10,000
shares of common stock, or 0.03% of the outstanding shares.
Dr. William Morgan, a director, owns or has interest in 75% of MDZ Recycling
Corporation, a company that may in the future receive CRP shares of the Company
of a face value of up to $12,500,000, dependent on the success of the
dezincification technology. The obligation to issue such shares was assumed by
the Company in connection with its initial acquisition of MRI(US); see "Item 1 -
Business". Such CPR Shares, if issued, are convertible into common shares of the
Company.
Subsequent to December 31, 1997, Accounting Services Ltd located at Harbour
House, South Esplanade, St Peter Port, Guernsey, C.I. a lender to the Company,
converted their loan of $75,000 into 1,416,668 common shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MRI(US) occupies under license an 11 acre site and building for its plant
facility at East Chicago, Indiana from a corporation of which Dr. William
Morgan, a director of the Company, has an indirect interest of 30.75%. The
Company pays an annual rental of $60,000, plus additional expenses relating to
the property. See "Item 2 Property". MDZ Recycling Company, in which Dr. Morgan
holds a direct and indirect interest of 75%, is entitled to receive royalty
payments of $1.00 per ton on the annual "throughput" of all dezincing plants
operated by MRI(US), other than the East Chicago, Indiana plant, pursuant to
arrangement in effect at the time the Company acquired MRI(US). See "Item 1 -
Business". To date, no such payments have become due.
See also Note 13 of the audited financial statements in Part IV, Item 14(a) of
this filing, with respect to related party transactions in which the Company
participated.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1 The following financial statements and supplementary data are filed as part
of this Annual Report on Form 10-K:
Page
Consolidated Financial Statements
Independent Auditor's Report F-1 - F-2
Consolidated Balance sheets at December 31, 1997 and 1996 F-3-F4
Consolidated Statements of operations for each of the
three years in the period ended December 31, 1997 F-5 - F-6
Consolidated Statements of stockholders' equity for each of
the three years in the period ended December 31, 1997 F7-F8
Consolidated Statements of cash flows for each of the three
years in the period ended December 31, 1997 F-9
Notes to Consolidated financial statements F-10 - F-26
Exhibits
3(i) Certificate of Incorporation of Registrant (incorporated by reference to
Exhibit 3(i) to form 10-K for the year ended December 31, 1990).
3(ii) Certificates of Amendment of Preferred Stock Designation (incorporated
by reference to Exhibit 3(ii) to Form 10-K for the year ended December
31, 1996), as follows:
(A) January 28, 1991
(B) July 5, 1991
(C) September 23, 1991
(D) October 20, 1992
(E) November 2, 1992
(F) March 19, 1993
(G) April 15, 1993
(H) June 17, 1993
4 Instruments Defining the Rights of Security Holders are included under the
items listed in Exhibit 3(ii) above and therefore are incorporated by reference
to the Form 10-k for the year ended December 31, 1995.
10(ii). Material Contracts -- Convertible loan agreements have been entered into
with the following lenders:
1. Sovereign Trust Services, Limited
2. Sundorne Holdings, Limited
3. Osbourne, Limited
4. Plenbrick, Limited
5. Alcaria Investments, Limited
6. Jepherson Limited
7. Antheims Limited
8. Pangea Limited
9. Quested Limited
10. Garcia Ltd
The lenders are parties to a pledge and security agreement with the
Company and MRI(US), dated February 1, 1996, whereby such loans, together with
future loans, are secured by a pledge of and security interest in all assets of
the Company (including the shares of MRI(US)) and of MRI(US).
11. Computation of per share earnings is included in the Consolidated Statements
of Operations found on page F-5 of this filing
13. Form 10-Q for the periods ending March 31, June 30, and September 30, 1997
are attached hereto.
21. Subsidiary of the Registrant:
1. Metal Recovery Industries (US), Inc. a Delaware corporation.
27. Financial Data Schedule
All other schedules have been omitted because either
the required information is not present, or it is not present in amounts
sufficient to require submission of the schedule, or because the information is
included in the consolidated financial statements and notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METAL RECOVERY TECHNOLOGIES, INC.
BY: /s/ Michael S. Lucas
--------------------
Michael S. Lucas
President, Chairman & CEO
Date: April 21, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
NAME CAPACITIES DATE
- - ---- ---------- ----
/s/ Michael S. Lucas Chairman, President & CEO April 21, 1998
- - -------------------------
/s/ Roy Pearce Chief Financial Officer April 21, 1998
- - -------------------------
/s/ William A. Morgan Executive Vice President April 21, 1998
- - -------------------------
METAL RECOVERY TECHNOLOGIES, INC.
Consolidated Financial Statements
METAL RECOVERY TECHNOLOGIES, INC.
Part IV
Item 14. Consolidated Financial Statements and Financial
Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form
10-K:
Reference
Page
Consolidated Financial Statements
Independent Auditor's Report F-1 - F-2
Consolidated Balance sheets at December 31, 1997 and 1996 F-3-F4
Consolidated Statements of operations for each of the
three years in the period ended December 31, 1997 F-5 - F-6
Consolidated Statements of stockholders' equity for each of
the three years in the period ended December 31, 1997 F7-F8
Consolidated Statements of cash flows for each of the three
years in the period ended December 31, 1997 F-9
Notes to Consolidated financial statements F-10 - F-26
Independent Auditor's Report
- - ----------------------------
Board of Directors and Stockholders
Metal Recovery Technologies, Inc.
We have audited the consolidated balance sheets of Metal Recovery Technologies,
Inc. (MRTI), as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ending December 31, 1997, 1996 and 1995. The consolidated financial statements
are the responsibility of MRTI's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MRTI, as of December
31, 1997 and 1996, and the results of their operations, stockholders' equity and
cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that MRTI will continue as a going concern. As shown in the consolidated
financial statements, MRTI's current assets are $61,619 while current
liabilities total $7,295,282. MRTI incurred a net operating loss and is in
default of a material settlement agreement with former shareholders for the year
ended December 31, 1997. These conditions raise substantial doubt about MRTI's
ability to continue as a going concern. Management's plan in regard to these
matters is also discussed in Note 18. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
MRTI is involved with the development of a dezincing process and the success of
the development is dependent on future operating market conditions, acceptance,
and operating efficiancy. The ultimate outcome of these uncertainties cannot
presently be determined. As discussed in Notes 1,3, and 15, the recovery for
intangible costs for concessions, rights, patents, and goodwill totaling
$12,906,606 and $12,905,749, the recovery of property and equipment totaling
$3,007,100 and $2,591,985, and the recovery of costs for organizational costs
totaling $4,198,149 and $2,112,367 for 1997 and 1996, respectively, is dependent
on future profitable operations. Accordingly, the consolidated financial
statements do not include any adjustment that might result from the outcome of
these uncertainties.
F1
Board of Directors and Stockholders
Metal Recovery Technologies, Inc. continued
As discussed in Note 17, MRTI is a defendant in several lawsuits and other
matters. The ultimate outcome of the lawsuits and other matters is not presently
determinable. Accordingly, no provisions for liability if any has been made in
the financial statements for any potential lawsuits or other liabilities that
may arise.
As shown in the financial statements and discussed in Note 13 and elsewhere in
the financial statements, MRTI has engaged in various substantive business
activities and agreements with related parties.
March 31, 1998
F2
Metal Recovery Technologies, Inc.
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
---- ----
Current assets:
Cash (note 14) 43,247 6,778
Inventories
18,372 65,370
Other current assets
-- 97,355
----------- -----------
Total current assets
61,619 169,503
----------- -----------
Property and equipment (note 3) ......................................................... 2,591,985
----------- -----------
3,007,100
Other assets:
Concessions, rights, patents and goodwill (note 15) ................................ 12,906,606 12,905,749
Organizational costs, net of amortization (note 15) ................................ 2,112,367
4,198,149
Other assets
14,400 53,400
----------- -----------
Total other assets .............................................................. 17,119,155 15,071,516
----------- -----------
$20,187,874 17,833,004
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilties:
Current maturities of long-term debt (note 4)
1,635,000 4,580
Notes payable (note 6)
39,184 49,894
Accounts payable
2,172,270 1,432,128
Payable to former officer and director (note 13)
- 55,098
Notes to others (note 5)
3,285,794 3,288,010
Payroll and related liabilities 163,034 71,863
-------- ------
Total current liabilities 7,295,282 4,901,573
Long-term liabilities:
Long-term debt (note 4) 2,155,000 505,000
Capital lease (note 4) - 4,182
---- -----
Total long-term liabilites 2,155,000 509,182
---------- -------
Total liabilites 9,450,282 5,410,755
Stockholders' equity (notes 8 and 9):
"Series A" preferred stock, $10 par value,
100,000 shares authorized; 0 and 46,965 shares
outstanding for 1997 and 1996 - 469,650
"Series B" preferred stock, $10 par value, 2,500,000 shares authorized;
21,375 shares issued and outstanding for 1997 and 1996 44,373 44,373
Common stock, par value of $ .001; 100,000,000 shares authorized;
38,390,501 and 20,707,597 shares issued and outstanding for 1997 and 1996 38,390 20,707
Additional paid-in capital 65,031,530 62,355,161
Deficit accumulated during the development stage (note 2) (5,274,467) (1,365,408)
Deficit accumulated prior to development stage (49,102,234) (49,102,234)
------------ ------------
Total stockholders' equity 10,737,592 12,422,249
------------ ----------
$ 20,187,874 17,833,004
=============== ==========
See accompanying notes which are an integral part of these financial statements.
F4
Metal Recovery Technologies, Inc.
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, and 1995
Cumulative
from Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
Operating expenses - Selling, general and administrative $ 1,846,429 622,488 1,046,761 177,180
Nonoperating expense:
Loss associated with legal settlement (note 17) (3,250,000) (3,250,000) - -
Interest expense (178,038) (36,571) (64,512) (76,955)
--------- -------- -------- --------
Total nonoperating expense (3,428,038) (3,286,571) (64,512) (76,955)
----------- -----------
Loss before discontinued operations (5,274,467) (3,909,059) (1,111,273) (254,135)
Loss on discontinued operations:
Seminole pipeline - - - (7,841)
Malvy France and Malvy UK - - - (725,562)
Loss on disposal of discontinued operations:
Malvy France and Malvy UK (note 16) - - - (33,883,238)
----- ----- ----- ------------
Net loss $(5,274,467) (3,909,059) (1,111,273) (34,870,776)
=========== =========== =========== ============
F5
Metal Recovery Technologies, Inc.
Consolidated Statements of Operations, continued
Cumulative
from
Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
Primary loss per share:
Loss before discontinued operations $ (0.2764) (0.1334) (0.0655) (0.0232)
======== ======== ======== ========
Loss from operations of discontinued segment
- - - (0.0668)
Loss on disposal
- - - (3.0878)
---- ---- ---- --------
Net loss $ (0.2764) (0.1334) (0.0655) (3.1778)
======== ======== ======== ========
Fully diluted loss per share * * * *
Weighted average number of common shares outstanding:
Primary 19,084,708 29,312,984 16,968,009 10,973,132
Fully diluted * * * *
* Anti-Dilutive
F6
Metal Recovery Technologies, Inc.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
Series A Series B
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
Balance, January 1, 1995 46,965 $ 469,650 21,375 $ 44,373 49,879,195 $ 49,879
Reverse split 20 for 1 - - - -
Common stock issued:
February 1995 - - - - 250
April 1995 for MRI(US) - - - -
Cumulative foreign
currency translation adjustment - - - - - -
Net loss - - - - - -
---- ------- ---- ------- ------- ------
Balance, December 31, 1995 46,965 469,650 21,375 44,373 13,764,653 13,764
Common stock issued
(note 9)
April 1996 - - - - 1,335
May 1996 - - - - 1,500
August 1996 - - - - 500
September 1996 - - - - 1,164
October 1996 - - - - 2,444
Net loss - - - - - -
---- ------- ---- ------- ---- ----
Balance, December 31, 1996 46,965 469,650 21,375 44,373 20,707,597 20,707
Preferred Series A redeemed (46,965) (469,650) 2,550,000 2,550
Common stock issued (note 9)
January 1997 - - - - 571
February 1997 - - - - 1,555
April 1997 - - - - 3,482
September 1997 - - - - 3,306
October 1997 - - - - 4,454
November 1997 - - - - 1,765
Net loss - - - - - -
---- ------- ---- ------- ---- ---
Balance, December 31, 1997 $ 21,375 $ 44,373 38,390,501 $ 38,390
============ === ======= ========= =========== ============
F7
Metal Recovery Technologies, Inc.
Consolidated Statements of Stockholders' Equity, Continued
Retained
Earnings
(Deficit)
Foreign Accumulated
Additional Currency Retained Durting the
Paid-In Translation Earnings Deveolopment
Capital Adjustment (Deficit) Stage Total
(note 2)
Balance, January 1, 1995 $ 46,676,883 $ 424,599 $ (14,485,593) - $ 33,179,791
Reverse split 20 for 1 47,365 - - - -
Common stock issued:
February 1995 199,750 - - - 200,000
April 1995 for MRI(US) 13,189,000 13,200,000
Cumulative foreign
currency translation adjustment - (424,599) - - (424,599)
Net loss - - (34,616,641) (254,135) (34,870,776)
------------- ------------ ------------ --------- ------------
Balance, December 31, 1995 60,112,998 (49,102,234) (254,135) 11,284,416
-
Common stock issued
(note 9)
April 1996 521,731 - - - 523,066
May 1996 411,000 - - - 412,500
August 1996 146,985 - - - 147,485
September 1996 464,847 - - - 466,011
October 1996 697,600 - - - 700,044
Net loss - - - (1,111,273) (1,111,273)
------- ------ ------ ----------- -----------
Balance, December 31, 1996 62,355,161 (49,102,234) (1,365,408) 12,422,249
-
Preferred Series A redeemed 548,579 - - - 81,479
Common stock issued (note 9)
January 1997 199,429 - - - 200,000
February 1997 218,445 - - - 220,000
April 1997 776,545 - - - 780,027
September 1997 273,441 - - - 276,747
October 1997 490,745 - - - 495,199
November 1997 169,185 - - - 170,950
Net loss - - - (3,909,059) (3,909,059)
------ ------ ------ ----------- -----------
Balance, December 31, 1997 $ 65,031,530 $ (49,102,234) (5,274,467) $ 10,737,592
=============== ================= ============ =========== ==============
See accompanying notes which are an integral part of these financial statements.
F8
Metal Recovery Technologies, Inc.
Consolidated Statements of Cash Flows-Years Ended December 31, 1997, 1996 & 1995
Cumulative
from Inception
April 1995 to
December 31,
1997 1997 1996 1995
---- ---- ---- ----
(note 2)
Cash flows provided used by operations:
Net loss $ (5,274,467) (3,909,059) (1,111,273) (34,870,776)
Adjustments to reconcile net loss
to net cash provided used by
operating activities:
Common stock issued in exchange for
services or reduction of debt 2,966,157 2,104,189 662,218 -
Change in foreign currency
translation adjustment - - - (424,599)
Net changes in current assets and
liabilities excluding long-term debt 310,871 975,666 405,969 616,430
-------- ------- ------- -------
Net cash used by operating activities (1,997,439) (829,204) (43,086) (34,678,945)
----------- --------- -------- ------------
Cash flows provided used by
investing activities:
Reserve for pipeline cleanup - - - (60,787)
Net changes to property and equipment (3,007,100) (415,115) (1,431,466) (222,853)
Net changes in organization cost (4,198,149) (2,085,782) (1,557,945) (554,422)
(Additions) deletions to concessions,
rights, patents and goodwill (12,906,606) (857) (12,355) 19,086,253
Decrease (increase) in other assets (14,400) 39,000 (53,400) 214,639
-------- ------- ------ -------
Net cash used by investing (20,126,255) (2,462,754) (3,055,166) 18,462,830
------------ ------------- ----------- -----------
activities
Cash flows provided (used by)
financing activities:
Increase (decrease) in notes payable (15,914) (65,808) (86,309) 136,203
Increase in long-term debt 3,790,000 3,276,238 8,762 275,028
Increase (decrease) in notes to investors 3,285,794 (2,216) 1,394,834 1,893,176
Issuance (reduction) of common stock 11,529) 17,683 6,943 (36,115)
Received from additional stock and
paid-in capital issues 13,436,115 - - 13,436,115
Reduction in Series A preferred stock (469,650) (469,650) - -
Cash received for common stock issued 2,152,125 572,180 1,579,945 -
Net cash provided by financing activities 22,166,941 3,328,427 2,904,175 15,704,407
---------- --------- --------- ----------
Increase (decrease) in cash 43,247 36,469 (194,077) (511,708)
Cash at beginning of year - 6,778 200,855 712,563
------------ ----- ------- -------
Cash at end of year $ 43,247 43,247 6,778 200,855
======= ======= ====== =======
Supplemental Information:
Cash paid for interest $ 148,010 23,129 47,926 76,955
------- ------ ------ ------
Cash paid for income taxes $ - - - -
==== ==== ======= ======
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
PRINCIPAL ACTIVITIES
METAL RECOVERY TECHNOLOGIES, INC. (MRTI)
During 1990, Sphinx Mining, Inc. (Sphinx), originally a Canadian
corporation, reorganized and became a U.S. corporation incorporated
in the state of Delaware. In 1991, Sphinx formally changed its name
to Sphinx Natural Resources, Inc. In June, 1993 the Company's name
was changed to Malvy Technology, Inc. (Malvy) and in July 1995, the
Company changed its name to Metal Recovery Technologies, Inc.
MRTI has a wholly-owned subsidiary, Metal Recovery Industries, (US),
Inc. (located in East Chicago, Indiana) a developmental stage
company that intends to market the service of dezincing scrap metal.
METAL RECOVERY INDUSTRIES, (US), INC. (MRI(US))
MRTI acquired MRI(US), in April 1995 for $12,000,000 which was raised
by the offshore sale under a placing and escrow agreement of
10,000,000 shares of MRTI's stock, together with a fee of 1,000,000
shares. The shares were placed at a value of $1.20 per share. In
addition, $25,000,000 of convertible redeemable preference shares,
and 14,000,000 common shares may be issued contingent upon several
factors, including, but not limited to, the building of subsequent
plants and the achievement of production goals of said plants. The
acquisition has been accounted for using the purchase method with
the excess of cost over assets acquired being attributed to
concessions, rights, patents, and goodwill. As of December 31, 1997
and 1996, the value of concessions, rights, patents, and goodwill
was $12,906,606 and $12,905,749, respectively. The ultimate value of
these assets depends on future profitable operations and market
conditions for the MRI(US) dezincing process. As of December 31,
1997, MRI(US) is still in the developmental stage and expenses are
being capitalized as incurred.
DISCONTINUED AND DISPOSED OF OPERATIONS
SPHINX INTERNATIONAL PETROLEUM COMPANY (SIPCO), (A WHOLLY SUBSIDIARY OF
SPHINX)
In December 1992, SIPCO, a wholly owned subsidiary of Sphinx, acquired
a pipeline operation (Seminole Pipeline) located in Oklahoma in
exchange for 143,750 shares of Malvy Series B preferred stock.
(Footnote 8) The acquisition was accounted for using the purchase
method and accordingly, the acquired assets were recorded at their
fair value at the date of acquisition. In 1994, 143,750 of preferred
Series B shares were redeemed for 7,137,731 shares of common stock.
As further discussed in note 16, in 1995, SIPCO was sold for a
nominal price.
F-10
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS,CONTINUED
MALVY TECHNOLOGY S.A., A FRENCH CORPORATION (MALVY FRANCE)
In 1993, Malvy agreed to acquire 100% of the capital stock of Malvy
Technology S.A., a French corporation. 100% ownership was completed
January 15, 1994. The acquisition price of $32,500,000 was raised by
the offshore sale of 16,250,000 shares of MRTI's common stock. The
acquisition has been accounted for using the purchase method with
the excess of cost over assets acquired being attributed to
concessions, rights, patents and goodwill. The ultimate value of
these assets depended on future profitable operations and market
conditions for the Malvy automobile anti-theft device.
In October, 1995, Malvy France was placed into liquidation under the
control of a government liquidator. As of December 31, 1995, as
further explained in note 16, a loss on disposal of assets was
recorded.
MALVY TECHNOLOGY UK, LIMITED, A BRITISH CORPORATION (MALVY UK)
Malvy UK was incorporated November 15, 1993, as a wholly-owned
subsidiary of Malvy Technology, Inc. There was no activity in 1993.
Malvy UK was established to aid in business development and sales of
the anti-theft device in the United Kingdom. As further discussed in
note 16, in October, 1995, Malvy UK was placed in liquidation under
the control of a government liquidator. A loss on disposal of assets
was recorded.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The1997 and 1996 consolidated balance sheets and related statements of
operations, stockholders' equity, and cash flows consist of the
accounts of MRTI and MRI(US). The 1995 statements of operations,
stockholders' equity, and cash flows consist of the accounts of
MRTI, MRI(US) and the results of the discontinued and disposed of
operations for Malvy France, Malvy UK and SIPCO. All significant
inter-company balances and transactions have been eliminated.
DEVELOPMENT STAGE OPERATIONS
Development operations consisting of raising capital, obtaining
financing, locating and acquiring equipment, obtaining customers and
suppliers, installing and testing equipment and certain
administrative activities have been capitalized in property,
equipment, and organizational costs.
CUMULATIVE FROM INCEPTION TOTALS
Financial statement information that reports cumulative from inception
totals and retained deficit accumulated during the development stage,
includes the results of operations from the purchase date of MRI(US)
and not the disposed of operations of Malvy France, Malvy UK, and
SIPCO.
F-11
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CASH
Cash includes cash on hand and cash in checking accounts.
INVENTORIES
Inventories for MRI(US) consist of steel scrap, zinc bearing solutions,
and other chemicals valued at lower of cost or market.
PROPERTY AND EQUIPMENT
Assets are recorded at historical cost. Depreciation is computed using
the straight-line method based on the estimated useful lives of the
related assets. Expenditures for maintenance and repairs are charged
to expense as incurred whereas expenditures for renewals and
betterments are capitalized. The cost and related accumulated
depreciation of assets sold or otherwise disposed of during the
period are removed from the accounts. (note 3.)
INTANGIBLE ASSETS
Intangible assets will be amortized using the straight line method over
the estimated life of the related assets as follows:
Concessions, rights, patents, and goodwill 15 Years
Organizational costs 5 Years
(note 15.)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided using the straight-line
method over the useful lives of the related assets.
F-12
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOSS PER SHARE
Thecomputation of earnings (loss) per common share considers the
weighted average number of shares outstanding during the year.
Common stock options, and warrants, if dilutive, are considered in
the computation of earnings per share (unless anti-dilutive). The
treasury method of accounting for the dilutive outstanding common
stock options and warrants is used in the earnings per share
calculation.
INCOME TAXES
MRTI files consolidated federal and state income tax returns. MRTI
computes provisions for income taxes if any in the consolidated
financial statements using the liability method of accounting
prescribed by Financial Accounting Standards Board Statement No.
109.
BASIS FOR PRESENTATION
MRTI presents all financial statements in United States dollars and
under generally accepted accounting principles as practiced in the
United States.
FOREIGN CURRENCY TRANSLATION
Foreign entities translate monetary assets and liabilities at year end
exchange rates while non-monetary items are translated at historical
rates. Revenue and expense accounts are translated at the average
rates in effect during the year. Gains and losses from changes in
exchange rates are recognized in consolidated income (loss) in the
year of occurrence. Adjustments resulting from translation of assets
and liabilities are reflected in the stockholders' equity section
titled "Cumulative foreign currency translation adjustment."
RECLASSIFICATIONS
Certain amounts for prior years may have been reclassified to conform
with the current year presentation.
F-13
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RISKS AND UNCERTAINTIES
Thepreparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1997 1996
------------------------------ -----------------------
Accumulated Book Accumulated Book
Cost Depreciation Value Cost Depreciation Value
MRI(US):
Equipment and capitalized expenses$ 2,435,654 - 2,435,654 2,178,823 - 2,178,823
Furniture and fixtures 33,845 - 33,845 33,845 - 33,845
Leasehold improvements 537,601 - 537,601 348,255 - 348,25
Vehicles - - - 31,062 - 31,062
$ 3,007,100 - 3,007,100 2,591,985 - 2,591,985
========= ======= ========= ========= ======= =========
MRI(US) is in the developmental stage and therefore, no depreciation was
taken in 1996 or 1997.
F-14
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(4) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 was as follows:
1997 1996
---- ----
MRTI
In a settlement with former shareholders, MRTI agreed $ 3,285,000 -
to pay $3.25 million dollars plus administrative fees
in cash and common stock. Payments scheduled
include $1,050,000 on the effective date
of the agreement (October 15, 1997) and future
annual payments of $550,000 over the next four
years. As further discussed in note 17, MRTI
is currently in default of this agreement.
MRI(US)
United States Department of Energy (D.O.E.), 505,000 505,000
provided a research grant to the Argonne
National Laboratory of $1,400,000 to conduct research
and pilot plant work on the dezincing of steel. The total
benefits of this work to accrue to MRI(US). Of this amount,
MRI(US) was paid $505,000 and under a Memorandum of
Understanding with D.O.E., will be responsible to repay
1.5 times the amount received, i.e., $2,100,000 to D.O.E.
out of future royalty receipts from the process. Management
anticipates no repayment funds will be paid in 1998.
Equipment capital lease; principal and interest - 8,762
payments due monthly for 24 months with a $1 buyout
option at end of lease.
3,790,000 513,762
Less current installments 1,635,000 4,580
---------- --------
Long-term debt, net of current maturities $ 2,155,000 509,182
========== =======
F-15
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(5) CONTINUING OPERATIONS - LIQUIDITY
Continued operations require continuing loans from various entities. At
December 31, 1997 and 1996, the balance of these loans totaled
$3,285,794 and $3,288,010, respectively. The balance of 1997 loans
are scheduled to be converted into common shares on June 30, 1998.
Conversion of notes is subject to anti-dilution provisions and
interest of 10% per annum. Following is a schedule of these notes:
F16
Note 1997 1996
---- ---- ----
Sovereign Trust Services loan converted into
2,801,191 shares common stock in April 1997 $ - 680,036
Osbourne Ltd. loan converted into
1,555,271 shares of common stock in February 1997 - 220,000
Jepherson Ltd. loan converted into
1,301,725 shares of common stock in October 1997 - 98,521
Alcaria Investments, Ltd. loan converted into
1,325,775 shares of common stock in October 1997 - 100,398
Dorrance Ltd. loan convertible into 6,935,287
shares of common stock 526,794 -
Sundorne Holdings, SA loan convertible into
9,772,263 shares of common stock 781,781 715,154
Garcia Ltd. loan convertible into 481,062
shares of common stock 38,485 -
Plenbrick Ltd. loan convertible into 8,263,175
shares of common stock 661,054 604,688
Antheims Ltd. loan convertible into 1,295,675
shares of common stock 103,654 96,384
Pangea Ltd. loan convertible into 6,935,287
shares of common stock 554,823 504,706
Quested Ltd. loan convertible into 6,802,538
shares of common stock 544,203 268,123
Accounting Services Ltd. loan convertible into
1,416,668 shares of common stock 75,000 -
----------- ----------
$ 3,285,794 3,288,010
========= =========
Interest payments for 1997 and 1996 of $280,394 and $229,673, respectively,
were capitalized.
F-17
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(6) NOTE PAYABLE
Thenote payable consists of a MRI(US) loan obtained from American
National Bank & Trust Co. of Chicago prior to acquisition. The
balance of this note was $39,184 and $49,894 for 1997 and 1996,
respectively. MRI(US) is currently in default of this agreement.
(7) INCOME TAXES
As of December 31, 1997, MRTI has income tax net operating loss
carryforwards available to offset future federal taxable income,
which expire in future years. The use of these operating losses are
dependent upon MRTI having taxable net earnings.
MRTI's unused net operating loss carryforwards available to offset
future taxable income for income tax reporting purposes expire as
follows:
Years Ending Net Operating Loss
------------ ------------------
2002 208,223
2003 55,337
2004 694,177
2005 128,994
2006 232,623
2007 291,834
2008 1,746,945
2009 1,682,025
2010 1,111,273
2011 3,909,059
Neither MRTI nor its subsidiaries had any taxable net income in 1997,
1996, or 1995. Management has elected not to recognize any value for
operating loss carryforwards for income tax purposes in the financial
statements.
F-18
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(8) PREFERRED STOCK
SERIES A PREFERRED
DESCRIPTION
TheSeries A stock confers the following rights: (1) A preference upon
liquidation, (2) a 12% dividend payable at MRTI's discretion either
in additional preferred stock, common shares, cash, or gold, (3) MRTI
has the right to redeem at any time upon notice to the preferred
holder, (4) the right to convert into common shares at a ratio of
12.5 common shares for each preferred one, and (5) the holders of the
Series A preferred shares have the right to elect a majority of the
Board of Directors and can vote the total number of common shares
into which the Series A can be converted.
During 1997, the total of Series A preferred stock outstanding was
redeemed in exchange for a negotiated number of common shares. (See
note 13.)
SERIES B PREFERRED
DESCRIPTION
TheSeries B stock confers the following rights: (1) A preference upon
liquidation, except not as to the Series A preferred stock, (2) an 8%
cumulative cash dividend, (3) the Corporation has the right to redeem
at any time upon notice to the preferred holder and subject to
certain other conditions, (4) the right to convert into common shares
at a ratio of 6 common shares for each preferred share, which ratio
is subject to adjustment in certain events, and (5) the holders of
the Series B preferred shares shall as a class elect one member of
the Board of Directors and have other voting rights as granted by
law.
At December 31, 1997 and 1996, there were 21,375 Series B preferred
shares outstanding. Management is pursuing the future retirement of
these shares.
(9) COMMON STOCK
REVERSE SPLIT
On February 21, 1995 MRTI announced a 20 for 1 reverse split effective
immediately. This reduced the number of shares outstanding by
47,364,542.
PURCHASE OF MRI(US)
In April 1995, as more fully described in note 1, MRTI issued 11,000,000
shares to an underwriter to be placed with offshore investors. The
proceeds were used for the acquisition of MRI(US).
F-19
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
COMMON STOCK, CONTINUED
Reconciliation of outstanding MRTI common stock is as follows:
Outstanding shares of Common Stock
as of December 31
1997 1996
Beginning balance 20,707,597 13,764,653
Shares issued 17,682,904 6,942,944
----------- ---------
Total outstanding
common stock 38,390,501 20,707,597
========== ==========
In 1997, MRTI issued stock for the following purposes:
Month Shares Purpose
----- ------ -------
January571,428Shares sold in private placement
February 1,555,271 Conversion of debt
April 2,801,191 Conversion of debt
April 680,451 Shares sold in private placement
June 2,550,000 Redemption of preferred shares
September 3,305,727 Conversion of debt
October 3,537,500 Conversion of debt
October 916,668 Shares sold in private placement
November 916,668 Shares sold in private placement
November 728,000 Conversion of debt
November 120,000 Employee incentives
-------
Total 17,682,904
==========
(10) KEY EMPLOYEE QUALIFIED INCENTIVE STOCK OPTION PLAN
There is currently no formal key employee incentive stock plans. In
1997, under an informal stock incentive plan, MRTI issued common
stock worth $17,000 to employees.
F-20
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(11) WARRANTS OUTSTANDING
Warrants outstanding as of December 31, 1997, are as follows:
Date Number Price
Holder Issued Life Expires of Shares Per Share
------ --------- ----- ------- --------- ---------
Sovereign Trust Services, Ltd. February, 1995 3 years January, 1998* 125,000 $ 0.80
Sundorn Holding, S.A. February, 1995 3 years January, 1998* 125,000 0.80
Accounting Services, Ltd. September, 1995 3 years August, 1998 500,000 0.50
Vistaquest, Inc. January, 1996 5 years December, 2001 1,000,000 0.30
R.G. Advisory Services September, 1995 3 years August, 1998 250,000 0.50
Accounting Services, Ltd. July, 1995 3 years June, 1998 500,000 0.50
Elwin Smith International September, 1995 3 years August, 1998 100,000 0.50
Venaus August, 1996 2 years August, 1998 100,000 0.35
-------
Total 2,700,000
=========
*As of report date warrants have expired.
F21
(12) SUPPLEMENTAL CASH FLOW INFORMATION
Thefollowing provides additional information concerning the
supplemental disclosures of cash flow activities for the years ended
December 31, 1997, 1996 and 1995:
NONCASH INVESTING AND FINANCING ACTIVITIES
Theeffects on the balance sheets of noncash investing and financing
activities for the years ended December 31, 1997, 1996 and 1995,
consist of the following:
1997 1996 1995
---- ---- ----
Loss on disposal of assets $ - - 33,883,238
Foreign currency translation
adjustment - - (424,599)
Issued common stock
for debt 1,651,831 413,269 199,750
Issued common stock in exchange
for goods or services 452,358 248,949 -
Reserve for pipeline
cleanup adjustment $ - - 60,787
Management has shown net amounts in the Consolidated Statement of Cash
Flows.
F-22
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(13) RELATED PARTY TRANSACTIONS
PAYMENTS TO JACK ALEXANDER
In 1995, MRTI reached a settlement with a former officer and director
(Mr. Jack Alexander), and certain related entities in respect of
amounts claimed to be owed to them by MRTI for notes payable, loans,
and the redemption price of MRTI's Series A preferred stock. Payments
of $275,316 and $150,000 were made in 1995 and 1996, respectively. At
December 31, 1996, there was an amount due in respect to notes
payable and interest of $55,098 together with an amount due of
$469,650 to redeem the Series A preferred stock. Mr. Alexander had
assigned beneficial ownership of all interest described herein to an
entity named Morton Blue.
During 1997, an agreement with Morton Blue to settle the liability and
redeem the Series A preferred shares was reached. This occurred by
the issuance of 2,550,000 shares of MRTI's common stock under
Regulation S.
PLANT FACILITY
MRI(US) leases its plant facility from an entity in which one of the
MRTI directors has a partial beneficial interest. Lease expenses
amounted to $60,000 in 1997 and 1996. The annual lease payment is
$60,000 and expires on January 31, 2000.
OFFICER AND DIRECTOR COMPENSATION
During the years ended December 31, 1997 and 1996 compensation expense
for current officers and directors was $522,526 and $985,000,
respectively. At December 31, 1997 and 1996, MRTI had accrued
expenses of zero and $219,958 payable to officers and directors,
respectively.
LOANS TO OFFICERS AND DIRECTORS
In the past, MRTI has made loans to officers and directors. At
December 31, 1997 and 1996 the balance of these loans was zero and
$74,966, respectively.
OFFICER AND DIRECTOR FINANCIAL INTEREST
Current officers and directors have direct and contingent interest in
approximately 1,030,000 shares of common stock. Further, one director
owns an interest in the company that may receive the convertible
redeemable preference shares more fully discussed in note 1.
F-23
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(14) CASH
At December 31, the cash balances were:
1997 1996
---- ----
Cash in checking accounts $ 43,247 6,778
====== =====
Balances are insured up to FDIC insured limits. At December 31, 1997,
MRTI did not exceed these limits.
(15) INTANGIBLE ASSETS
CONCESSIONS, RIGHTS, PATENTS AND GOODWILL
Concessions, rights, patents and goodwill relate to the purchase of
MRI(US) and patent development as follows:
Balance at Balance at
December 31, 1997 Accumulated December 31,
1996 Additions Amortization 1997
---- --------- ------------ ----
MRI(US)
Concessions, rights, patents
and goodwill $ 12,905,749 857 - 12,906,606
========== ============= ============== ==========
MRI(US) is in the developmental stage and therefore no amortization was
taken in 1996 or 1997.
ORGANIZATIONAL COSTS
Organizational costs consisted of the following at December 31:
Balance at Balance at
December 31, 1997 Accumulated December 31,
1996 Additions Amortization 1997
---- --------- ------------ ----
MRI(US)
Organizational cost $ 2,112,367 2,085,782 - 4,198,149
========= ========= ============== =========
MRI(US) is in the developmental stage and therefore no depreciation was
taken in 1996 or 1997. Organizational costs consists of raising
capital, obtaining financing, locating and acquiring equipment,
obtaining customers and suppliers, installing and testing equipment
and certain administrative activities.
F-24
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
(16) DISCONTINUED OPERATIONS
SIPCO
In December 1992, SIPCO acquired a pipeline operation (Seminole
Pipeline) located in Oklahoma, in exchange for 143,750 shares of MRTI
Series B preferred stock. In 1994, 143,750 preferred Series B shares
were redeemed for 7,137,731 shares of common stock. In 1995, SIPCO
was sold for a nominal price, and the result of this transaction is
reflected in the 1995 statement of operations.
MALVY FRANCE AND MALVY UK
The success of Malvy France and Malvy UK depended solely on the success
of the Malvy auto anti-theft device. In September, 1995, it was
determined that without substantial future investment the device was
not marketable. Malvy France was closed and turned over to French
government liquidators and Malvy UK was closed. MRTI does not expect
to receive any funds from this liquidation. A loss on disposal of
assets was recorded for $33,883,238 in 1995.
(17) CONTINGENCIES
At December 31, 1997, MRTI was involved in several matters of
litigation, regarding past and present business activities. These
matters were initiated by creditors and former employees. Some of the
matters involving creditors and former employees were settled or
ruled in favor of MRTI and are provided for in the accompanying
financial statements. It is the opinion of management that the
ultimate outcome of the remaining litigation would not be material to
the financial statements except as described below. The outcome of
these cases is unknown at this time and, accordingly, no provision
for any liability that might result has been made in the accompanying
financial statements.
In 1995, an action initiated by a shareholder, was made against MRTI and
certain present and former directors. In 1996, this action became a
"class-action" suit. The action alleges that breaches of the federal
securities laws occurred, by reason of alleged material
misrepresentations by MRTI and MRTI's alleged failure to make timely
disclosure relating to its Malvy auto anti-theft device operations.
During 1997, MRTI negotiated a settlement in the amount of $3.25
million, payable in cash and unrestricted common stock to be paid
over the next four years. The resulting liability was provided for in
the accompanying financial statements. Currently, MRTI has not met
the obligations as agreed and is in default of the settlement. The
result of this is unknown at this time and, accordingly, no provision
for any additional liability that might result has been made in the
accompanying financial statements.
F-25
Metal Recovery Technologies, Inc.
Notes to Consolidated Financial Statements, continued
CONTINGENCIES, CONTINUED
In 1997, MRI(US) settled a lawsuit with the National Labor Relations
Board. While a portion of the payments were made, MRI(US) is in
default of the agreement. A related liability in the amount of
$35,000 has been recorded in the financial statements. The result of
the default is unknown at this time and, accordingly, no provision
for any additional liability that might result has been made in the
accompanying financial statements.
During 1997, MRTI did not make all of the required federal and state
deposits related to payroll withholding taxes. At December 31, 1997
MRTI has recorded a liability of $157,386 for the withholding taxes
and penalties and interest that have been determined. However,
additional fines and penalties resulting from this action are unknown
and accordingly, no provision for any additional liability that might
result has been made in the accompanying financial statements.
(18) GOING CONCERN
As shown in the accompanying financial statements, MRTI incurred
substantial net losses in 1997, 1996 and 1995. At December 31, 1997,
current liabilities exceeded current assets by $7,233,663. Operations
for 1998 will consist of further development and administrative costs
which will be funded from conditional convertible loans with existing
and new entities (note 5). Further, in March 1998, MRTI has signed a
conditional agreement for a $3 million convertible loan. Under the
terms of the agreement, MRTI will form a new operating company to be
called Zinc Recovery Inc. which will be a wholly-owned subsidiary of
MRTI. The operating assets of MRTI and MRI(US) will be transferred to
the new company. The loan will be used for the purpose of an
engineering upgrade and bringing into production the plant located at
East Chicago, Indiana. Absent receiving new financing and generating
new revenue, there is substantial uncertainty about MRTI's ability to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
F-26