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FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended: SEPTEMBER 30, 1997
Commission File Number: 0-23100
RECONVERSION TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-2649848
(State of Incorporation) (IRS Employer ID No)
2 HENDERSONVILLE ROAD, SUITE E, ASHEVILLE, NORTH CAROLINA 28803
(Address of principal executive office)
(704) 255-0307
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X .
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X .
The number of shares outstanding of registrant's common stock, par value $.0001
per share, as of September 30, 1997 was 11,371,617.
Transitional Small Business Disclosure Format (Check one): Yes No X.
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RECONVERSION TECHNOLOGIES, INC.
INDEX
Page
No.
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Financial Information
Balance Sheet - September 30, 1997 3
Statement of Operations - 4
Three Months Ended September 30, 1997 and 1996
Statement of Stockholders' Deficit - 5
Three Months Ended September 30, 1997
Statements of Cash Flows - 6
Three Months Ended September 30, 1997 and 1996
Notes to Financial Statements - 7-10
Three Months Ended September 30, 1997 and 1996
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RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
(UNAUDITED)
September 30, June 30,
1997 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,900 $ 3,900
------------ ------------
Total current assets 1,900 3,900
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc. 100,000 100,000
============ ============
$ 101,900 $ 103,900
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 371,923 $ 371,923
Class 4 Claims - unsecured claims for transfer services 4,604 4,604
Class 5 Claims - administrative convenience small claims 3,247 3,247
Class 6 Claims - allowed unsecured claims 205,050 205,050
Class 6 Claims - disputed unsecured claims 652,523 652,523
Class 7 Claims - disputed unsecured claim of GAIA 1,670,000 1,670,000
------------ ------------
Total current liabilities 2,907,347 2,907,347
STOCKHOLDERS' DEFICIT
6% Series A nonvoting, cumulative, convertible preferred stock, $2.75 par value 3,036,223 3,036,223
Authorized 2,000,000 shares; issued and outstanding 1,104,081 shares
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 1,137 1,137
outstanding 11,371,617 shares
Paid-in capital 10,252,819 10,252,819
Retained earnings (deficit) (16,095,626) (16,093,626)
------------ ------------
Total stockholders' deficit (2,805,447) (2,803,447)
============ ============
$ 101,900 $ 103,900
============ ============
See accompanying notes to financial statements.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
Sales and revenues $ -- $ --
Cost of sales -- --
------------ ------------
Gross profit -- --
Other expense (income)
Selling, general and administrative expense 2,000 45,267
Interest and other income -- --
------------ ------------
2,000 45,267
------------ ------------
Earnings (loss) before income taxes (2,000) (45,267)
Income tax expense (benefit) -- --
============ ============
Net earnings (loss) (2,000) (45,267)
============ ============
Net earnings (loss) per share $ (0.00) $ (0.00)
============ ============
Weighted Average Shares Outstanding (Pre reverse-split) 11,371,617 11,371,617
============ ============
See accompanying notes to financial statements.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
Preferred Stock Common Stock Paid-in Accumulated
Shares Par Value Shares Par Value Capital Deficit Total
--------- ------------ ---------- ------------ ------------ ------------ ------------
BALANCE, July 1, 1997 1,104,081 $ 3,036,223 11,371,617 $ 1,137 $ 10,252,819 $(16,093,626) $ (2,803,447)
Net earnings (loss) (2,000) (2,000)
============ ============ ============ ============ ============ ============ ============
BALANCE, September 30, 1997 1,104,081 $ 3,036,223 11,371,617 $ 1,137 $ 10,252,819 $(16,095,626) $ (2,805,447)
============ ============ ============ ============ ============ ============ ============
See accompanying notes to financial statements.
Shares are pre reverse-split amounts.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (2,000) $(45,267)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Accounts payable and accrued liabilities - -
----------------- ----------------
Net cash provided by (used in) operating activities (2,000) (45,267)
----------------- ----------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Funds from Reconversion Technologies of Texas, Inc. - 19,549
----------------- ----------------
Net cash provided by (used in) investing activities - 19,549
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CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
----------------- ----------------
Net cash provided by (used in) financing activities - -
----------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,000) (25,718)
CASH AND CASH EQUIVALENTS, beginning of period 3,900 25,395
================= ================
CASH AND CASH EQUIVALENTS, end of period $ 1,900 $ (323)
================= ================
See accompanying notes to consolidated financial statements.
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RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statement of Reconversion Technologies, Inc. (the
"Company") includes only the accounts of Reconversion Technologies,
Inc., which is a holding company principally engaged in acquiring and
developing businesses. The Company had three wholly-owned subsidiaries:
Reconversion Technologies of Texas, Inc., a Texas Corporation,
organized on February 24, 1992 ("RETEX"), Reconversion Products, Inc.
("RPI"), formerly Thomas Engineering, Inc., a Georgia Corporation
organized on October 9, 1992, and Spectrum Recycling Technologies, Inc.
("Spectrum"), a New York Corporation.
On March 23, 1995, the Company voluntarily filed for bankruptcy
protection in the United States Bankruptcy Court for the Northern
District of Oklahoma. During the pendency of the bankruptcy, RETEX,
Spectrum and RPI discontinued operations. Spectrum and RPI have been
liquidated and the remaining asset of RETEX, the Brenham Plant
facility, located in Brenham, Texas, is discussed in the Plan of
Reorganization.
On November 13, 1997, the Company was formally reorganized pursuant to
a confirmed Bankruptcy Plan of Reorganization. As a result, the Company
acquired 100% of the issued and outstanding common stock of Keystone
Laboratories, Inc. ("KLI"), a Delaware corporation organized on July
20, 1987. KLI is a forensic urine drug screening and confirmatory
testing laboratory.
B. SUMMARY OF PLAN OF REORGANIZATION
On July 3, 1997, Richard T. Clark and Joel C. Holt, shareholders and
creditors of the Company, filed a Disclosure Statement and Plan of
Reorganization ("Plan"). On November 13, 1997, the Plan was confirmed
pursuant to 11 U.S.C. Section 1126 and filed with the Securities and
Exchange Commission on Form 8-K dated November 13, 1997.
The Plan is premised on the concept that the Claims and Interests of
Creditors and Equity Security Holders are best served by an orderly
reorganization of the Company built around the acquisition by the
Company of Keystone Laboratories, Inc. and the establishment of a less
expensive procedure for resolutions of the claims of the Company.
KLI is engaged in the business of forensic drug testing. Currently,
Richard T. Clark, Jr. and Joel C. Holt, Plan Proponents own all
outstanding shares of Common Stock of KLI. Under this Plan, Messrs.
Holt and Clark will exchange their shares in KLI for 2,500,000 shares
of New Common Stock in Reorganized Debtor. The shares of New Common
Stock issued for KLI do not include other shares of New Common Stock to
be received by Messrs. Clark and Holt pursuant to this Plan in their
capacities as either Equity Security Holders of Common Stock and
Preferred Stock or as Creditors.
In addition to the acquisition of Keystone and the orderly collection
of claims of the Company proposed in the Plan, RETEX will be liquidated
through a Liquidating Plan and a RETEX Liquidating Trust in its pending
Chapter 11 case. The Company is the principal secured creditor of
RETEX. The principal asset of RETEX is the Brenham Plant facility in
Brenham, Texas
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("Brenham Plant"). Pursuant to the Liquidating Trust, the Brenham Plant
would be sold. No sale is expected in the near future. The Company is
the major secured creditor of RETEX, but under the Plan, the Company
agreed to subordinate its allowed secured claim against RETEX in the
amount of $5,000,000 to the extent of up to $200,000 of the first
dollars received from the sale to permit payment of RETEX's allowed
claims and administrative expenses. The balance of all funds or assets
of RETEX (after the lesser of the amounts required to pay RETEX's
allowed priority claims and allowed claims, or $200,000) will be paid
by the Liquidating Trust to the Company in satisfaction of the RETEX
obligation to the Company.
Following the acquisition of Keystone, the liquidation of the principal
assets of RETEX through the RETEX Liquidating Trust and the collection
of any claims of the Company, the Company's only operating asset will
be KLI. The Company will be engaged solely in the business of forensic
drug testing through Keystone unless and until the Company expands its
business activities. Under the Plan:
(a) All Pre-Petition shares of common stock will be
subject to a one-for-eight reverse stock split such
that each holder of Pre-Petition shares of common
stock will receive the number of shares of New Common
Stock equal to the number of shares of Pre-Petition
common stock held by the holder, divided by eight;
(b) All Pre-Petition shares of preferred stock will be
reclassified as New Common Stock and the holders of
preferred stock will receive a pro rata share of
1,274,172 shares of New Common Stock in exchange for
Pre-Petition preferred shares;
(c) Certain creditor claims may be converted into New
Common Stock; and
(d) Warrants to purchase New Common Stock will be issued
to certain holders of interests.
The Plan is binding on the Company and all creditors and shareholders
of the Company. The Plan provides for treatment of the following eleven
classes of claims and interest:
CLASS 1 CLAIMS: ALLOWED ADMINISTRATIVE CLAIMS. Allowed Claims
under Section 503(b) of the Bankruptcy Code. The Class 1
Claims include (I) allowed but unpaid attorneys' fees on the
Effective Date for the Company's counsel, Riggs, Abney, Neal,
Turpen, Orbison & Lewis, and (ii) allowed but unpaid
professional fees due to Neal Tomlins, Examiner, and his
counsel, and fees and expenses not yet presented for payment,
and therefore, not yet approved.
CLASS 2 CLAIMS: ALLOWED PRIORITY CLAIMS. Allowed Unsecured
Claims entitled to priority pursuant to Section 507(a) of the
Bankruptcy Code. The Company has scheduled priority claims
owing in unknown amounts to the Internal Revenue Service and
the Securities and Exchange Commission. The Plan Proponents
believe that there is no liability to either of the agencies
included in this Class.
CLASS 3 CLAIMS: DISPUTED SECURED CLAIMS. This Class consists
of Creditors who assert a secured claim against the Company
and its assets. All of such secured claims are disputed, and
all underlying claims are disputed, as they do not arise from
obligations of the Company but instead represent, if valid,
obligations of RETEX. It is believed that the joint
administration of the Company's case and the RETEX case may
have created confusion among RETEX creditors who asserted
secured status in the Company's case.
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CLASS 4 CLAIM: CLAIM OF TRANSFER AGENTS AST AND DEPOSITORY
TRUST CO. This Class consists of the pre-petition unsecured
claim of American Securities Transfer ("AST") in the amount of
$3,553.66 and of the pre-petition unsecured claim of
Depository Trust Co. in the amount of $1,050.00. Both claims
were incurred for stock transfer services rendered to the
Company pre-petition.
CLASS 5 CLAIMS: ADMINISTRATIVE CONVENIENCE SMALL CLAIMS. This
class consists of all allowed unsecured claims against the
Company which are $1,000 or less in amount, and shall include
Class 6 creditors who elect to reduce their claim for Class 5
participation.
CLASS 6 CLAIMS: UNSECURED CLAIMS. Class 6 claims consist of
allowed unsecured claims against the Company to which no
objection has been interposed and total approximately $513,668
and disputed claims, which would otherwise be included within
this Class, but will not be allowed until allowed by Final
Order of the Bankruptcy Court. The aggregate amount of
disputed claims is $1,631,308. The allowed claims have been
valued at 40% of their face amount or $205,050 in the
accompanying balance sheet, based upon the amount to be paid
to settle the claims. The disputed claims have also been
valued at 40% of their face amount pending their ultimate
disposition.
CLASS 7 CLAIM: DISPUTED UNSECURED CLAIM OF GAIA. GAIA is the
holder of a disputed unsecured claim against the Company. On
March 17, 1995, GAIA obtained a judgment against the Company
and certain individuals in the aggregate sum of $22 million in
the United States District Court for the Southern District of
Texas styled Gaia Technologies, Inc. v. Reconversion
Technologies, Inc., et al., Case No. H-94-2258 and GAIA filed
its Proof of Claim in the case for $23,043,276.21. On August
19, 1996, the U.S. Court of Appeals for the Federal Circuit
reversed and vacated the judgment entirely and remanded the
matter to the U.S. District Court for the Southern District of
Texas. The GAIA claim is disputed under the Plan. An objection
to the GAIA claim was filed seeking a determination of the
value of the GAIA claim through the claim estimation process
pursuant to 11 U.S.C. Section 502(c). After the objection was
filed, the United States District Court for the Southern
District of Texas (to which the appeals court had remanded the
matter after vacating and reversing the judgment) entered
judgment in favor of GAIA and against the Company and others
as follows:
(a) Judgment against the Company, RETEX, Progressive
Capital Corporation, David Gordon, Ira Rimer, Joel C.
Holt and Richard T. Clark, Jr., jointly and
severally, for:
(i) $4,350,000;
(ii) pre-judgment interest of $2,130,192.79;
(b) Judgment against the Company, RETEX and Progressive
Capital Corporation, jointly and severally, for:
(i) $125,000;
(ii) pre-judgment interest of $61,212.42;
(c) Judgment against David Gordon, Ira Rimer, Joel C.
Holt and Richard T. Clark, Jr. for $100,000 each, in
the nature of punitive damages;
(d) Attorney's fees of $450,000 against the Company,
RETEX, Progressive Capital Corporation, David Gordon,
Ira Rimer, Joel C. Holt and Richard T. Clark, Jr.,
jointly and severally; and
(e) Post-judgment interest after July 10, 1997, at 5.65%.
The aggregate amount of the judgment against the Company and
the other parties if $7,116,405.21, exclusive of interest
after July 10, 1997. The Company and Plan Proponents have
initialized an appeal of the judgment, which it is believed
was rendered
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in contravention of the mandate from the Court of Appeals,
which vacated the earlier judgment of $23,043,276.31. The
Company and Plan Proponents will vigorously prosecute the
appeal.
Plan Proponents believe the value of the GAIA claim against
the Company will ultimately be determined to be zero, and
further that the Company may have claims against GAIA arising
as a result of the GAIA litigation, which potential claim is
reserved pending analysis. The claim has been valued at
$1,670,000 in the accompanying balance sheet.
CLASS 8 CLAIM: TNRCC CLAIM. The TNRCC claim against the
Company arises, if at all, in connection with certain
environmental claims, which are asserted by TNRCC against
RETEX from operation of the RETEX plant in Brenham, Texas.
TNRCC has not filed a claim against the Company. The Company
believes that if TNRCC asserts its claim against RETEX, and as
set forth in the Disclosure Statement, that the Company has no
liability to TNRCC.
CLASS 9 CLAIM: KLENDA, GORDON & GETCHELL CREDITOR CLAIM. This
Class consists of the Claim of Klenda, Gordon & Getchell
asserting an unsecured claim in the amount of $128,439.37. The
Company asserted claims against Klenda, Gordon & Getchell,
which on May 22, 1997, resulted in a judgment in favor of the
Company against Klenda, Gordon & Getchell for $98,625,
together with interest at 6.72% from June 21, 1996, until
paid.
CLASS 10 INTERESTS: PREFERRED STOCK. This Class consists of
the interest of the Equity Security Holders who own
Pre-Petition Shares of Preferred Stock. According to
information available to Plan Proponents, there were 1,145,250
Pre-Petition shares of preferred stock issued by the Company
and held by approximately forty-eight (48) entities or
individuals.
CLASS 11 INTERESTS: COMMON STOCK. This Class consists of the
interests of the Equity Security Holders who own Pre-Petition
shares of common stock of the Company. According to
information available to Plan Proponents, there were
outstanding 11,371,617 Pre-Petition shares of common stock
held by approximately 301 entities or individuals.
C. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. SFAS No. 109 requires that a valuation allowance be
established to reduce deferred tax assets to the amount that is more
likely than not to be realized.
Deferred income taxes result primarily from temporary differences in
recognizing net operating losses for tax and financial reporting
purposes.
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D. SUBSEQUENT EVENTS
As discussed above, on November 13, 1997, the Company was formally
reorganized pursuant to a confirmed Bankruptcy Plan of Reorganization.
As a result, the Company acquired 100% of the issued and outstanding
common stock of Keystone Laboratories, Inc., a forensic urine drug
screening and confirmatory testing laboratory on December 3, 1997.
The acquisition of KLI will be accounted for as a reverse acquisition.
During its quarter ended September 30, 1997, KLI had revenues of
$429,966 and net income in the amount of $29,262. Net income per share
on a pre reverse-split basis would have been $.002.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
On March 23, 1995, Reconversion Technologies, Inc.,
Debtor-in-Possession ("RETEK"), a Delaware corporation filed voluntary
petition for relief under Chapter 11 of the United States Bankruptcy
Code.
On July 3, 1997, Richard T. Clark and Joel C. Holt, shareholders and
creditors of the Company, filed a Disclosure Statement and Plan of
Reorganization ("Plan"). On November 13, 1997, the Plan was confirmed
pursuant to 11 U.S.C. Section 1126 and has been filed with the
Securities and Exchange Commission on Form 8-K dated November 13, 1997.
This Plan, which is summarized in Note B to the financial statements,
is premised on the concept that the Claims and Interests of Creditors
and Equity Security Holders are best served by an orderly
reorganization of the Company built around the acquisition of Keystone
Laboratories, Inc. and the establishment of a less expensive procedure
for resolutions of RETEK claims.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - None were filed during the quarter
ended September 30, 1997.
SIGNATURE
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.
RECONVERSION TECHNOLOGIES, INC.
Date: August 17, 1998 By: /s/Joel C. Holt
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Joel C. Holt, President and
Principal Accounting Officer
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