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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For Quarter Ended: SEPTEMBER 30, 1999
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)
(828) 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 X No .
--- ---
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 X No .
--- ---
The number of shares outstanding of registrant's common stock, par value $.0001
per share, as of September 30, 1999 was 9,982,053
Transitional Small Business Disclosure Format (Check one): Yes No X .
--- ---
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RECONVERSION TECHNOLOGIES, INC.
INDEX
Page
No.
Part I. Financial Information
Item 1. Balance Sheet - September 30, 1999 (unaudited) and June 30, 1999 (audited) 3
Statement of Operations - 4
Three Months Ended September 30, 1999 and 1998
Statement of Stockholders' Deficit - 5
Three Months Ended September 30, 1999
Statements of Cash Flows - 6-7
Three Months Ended September 30, 1999 and 1998
Notes to Financial Statements - 8-10
Three Months Ended September 30, 1999 and 1998
Item 2. Managements Discussion and Analysis of Financial Condition 11-12
and Results of Operations
Part II. Other Information 13
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RECONVERSION TECHNOLOGIES, INC.
BALANCE SHEET
September 30, June 30,
1999 1999
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 106,863 $ 104,968
Marketable equity securities less allowance of $10,572 and $18,627 31,938 23,885
Accounts receivable less allowance of $13,389 and $13,389 93,576 69,184
Due from employees 20,830 20,830
Prepaid expenses 5,878 5,878
Deferred income taxes 41,082 63,591
--------- ---------
Total current assets 300,167 288,336
Property and equipment, net 177,567 185,036
Due from Liquidating Trust of Reconversion Technologies of Texas, Inc. 100,000 100,000
Goodwill, less accumulated amortization of $11,528 and $9,956 82,794 84,366
--------- ---------
$ 660,528 $ 657,738
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 28,390 $ 27,657
Current installments of capital leases payable 121,230 $ 122,931
Accounts payable 93,223 93,077
Unresolved bankruptcy claims 7,951 7,951
Obligations to be paid in common stock -- 250,535
Accured expenses 28,524 27,053
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Total current liabilities 279,318 529,204
Long-term debt and obligations under capital leases less current installments 60,422 73,756
Deferred income tax liability 31,428 30,993
STOCKHOLDERS' DEFICIT
Common stock, $.0001 par value. Authorized 200,000,000 shares; issued and 998 998
outstanding 9,982,053 and 9,982,053 shares
Paid-in capital 663,971 663,971
Retained earnings (deficit) (375,609) (390,649)
Stock issuable under bankruptcy plan -- (250,535)
--------- ---------
Total stockholders' deficit 289,360 23,785
--------- ---------
$ 660,528 $ 657,738
========= =========
See accompanying notes to financial statements.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
SALES AND REVENUES $ 466,667 $ 514,801
COST OF SALES 128,077 185,335
------------ ------------
GROSS PROFIT 338,590 329,466
OTHER EXPENSE (INCOME)
Selling, general and administrative expense 298,538 373,700
Interest expense 5,151 7,340
Gain on sale-leaseback -- (10,529)
Unrealized (gain) loss on marketable equity securities (8,053) (1,813)
------------ ------------
295,636 368,698
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 42,954 (39,232)
INCOME TAX EXPENSE (BENEFIT) 27,914 (21,480)
------------ ------------
NET EARNINGS (LOSS) 15,040 (17,752)
============ ============
NET EARNINGS (LOSS) PER SHARE $ 0.002 $ (0.002)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 9,982,053 10,260,749
============ ============
See accompanying notes to financial statements.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Stock Issuable
Common Stock Paid-in Accumulated Under
Shares Par Value Capital Deficit Bankruptcy Plan Total
------ --------- ------- ------- --------------- -----
Balance, June 30, 1999 9,982,053 $ 998 $ 663,971 $(390,649) $ (250,535) $ 23,785
Stock issued under Bankruptcy
Plan 250,535 250,535
Net income 15,040 15,040
--------- --------- --------- --------- ---------- ---------
Balance, September 30, 1999 9,982,053 $ 998 $ 663,971 $(375,609) $ -- $ 289,360
========= ========= ========= ========= ========== =========
See accompanying notes to financial statements.
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 15,040 $ (17,752)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 14,751 15,572
Deferred income taxes 22,944 (21,480)
Amortization of deferred gain on sale-leaseback -- (10,529)
Marketable securities (8,053) (1,813)
Accounts receivable (24,392) 30,457
Prepaid expenses -- 7,500
Accounts payable and accrued expenses 1,617 17,167
--------- ---------
Net cash provided by (used in) operating activities 21,907 19,122
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CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures (5,710) (348)
--------- ---------
Net cash provided by (used in) investing activities (5,710) (348)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt and capital leases (14,302) (10,017)
Loans to related parties -- (10,000)
--------- ---------
Net cash provided by (used in) financing activities (14,302) (20,017)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,895 (1,243)
CASH AND CASH EQUIVALENTS, beginning of period 104,968 124,746
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 106,863 $ 123,503
========= =========
See accompanying notes to consolidated financial statements.
Continued
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RECONVERSION TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(CONTINUED)
1999 1998
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
Interest $ 5,151 $ 7,340
Income taxes $ 842 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for liabilities to be paid in stock $250,535 $ --
See accompanying to consolidated financial statements.
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RECONVERSION TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS - The financial
statement of Reconversion Technologies, Inc. (the "Company") includes
the accounts of Reconversion Technologies, Inc., which is a holding
company principally engaged in acquiring and developing businesses and
the accounts of its wholly owned subsidiary, Keystone Laboratories,
Inc. ("KLI"). Prior to its acquisition of KLI, 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. For accounting purposes, the acquisition has been
treated as the acquisition of KLI by the Company with KLI as the
acquiror (reverse acquisition). The historical financial statements
prior to December 1, 1997 are those of KLI.
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation. These
financial statements have not been audited.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended June 30,
1999, which is included in the Company's Form 10-KSB for the year ended
June 30, 1999. The financial data for the interim periods presented may
not necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
(2) MARKETABLE EQUITY SECURITIES - Marketable equity securities are
comprised of trading securities held for short-term investment purposes
and are stated at fair value, with the change in fair value during the
period included in earnings.
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(3) MACHINERY AND EQUIPMENT - Owned machinery and equipment are stated
at cost and depreciated using the straight-line method over the
estimated useful lives of the respective assets. Machinery and
equipment under capital leases are stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or
fair value at the inception of the lease and are amortized over the
lesser of the lease term or the estimated useful lives of the related
assets.
(4) INCOME TAXES - Deferred income taxes are recognized for income and
expense items that are reported for financial purposes in different
years than for income tax purposes.
(5) NET EARNINGS PER SHARE - Net earnings per share amounts are
computed using the weighted average number of shares outstanding during
the period. Fully diluted earnings per share is presented if the
assumed conversion of common stock equivalents results in material
dilution.
B. MARKETABLE SECURITIES
As of September 30, 1999, the Company has an investment in marketable
equity securities that are classified as trading securities whose cost
of $42,511 exceeded the fair value of the securities by $10,572. Income
in the amount of $8,053 has been recognized to account for the change
in value of the marketable securities during the three-month period
ended September 30, 1999. Income in the amount of $1,813 was recognized
in the corresponding prior year period.
C. CAPITAL LEASES AND LONG TERM OBLIGATIONS
During the three months ended September 30, 1999, the Company reduced
capital leases and other long-term obligations by $14,302.
D. 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.
Income tax expense (benefit) for the three months ended September 30,
1999 and 1998 consisted of current state income taxes in the amount of
$4,970 and deferred income taxes in the amount of $22,944 during the
three months ended September 30, 1999 and deferred income tax in the
amount of $(21,480) during the three months ended September 30, 1998.
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Actual income tax expense (benefit) applicable to earnings (loss)
before income taxes is reconciled with the "normally expected" federal
income tax expense (benefit) as follows:
1999 1998
"Normally expected" income tax (benefit) $ 14,604 $(13,339)
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income
tax effect 5,666 (3,001)
Adjust state net operating loss carryforward 10,656 --
Nondeductible meals and entertainment 342 --
Change in valuation allowance (3,354) (5,140)
-------- --------
Actual income tax expense (benefit) $ 27,914 $(21,480)
-------- --------
The deferred income tax assets and liabilities at September 30, 1999
are comprised of the following:
CURRENT NONCURRENT
Allowance for uncollectible accounts receivable $ 5,577 --
Allowance for unrealized loss on marketable
Securities 4,403 --
Capital loss carryforwards -- 145,704
Net operating loss carryforwards 35,505 4,136,290
----------- -----------
45,485 4,281,994
Less valuation allowance (4,403) (4,281,994)
----------- -----------
Deferred income tax asset 41,082 --
Deferred income tax liability - asset basis -- (31,428)
----------- -----------
Net deferred income tax assets (liabilities) $ 41,082 (31,428)
----------- -----------
E. RIGHTS TO PURCHASE STOCK
As of September 30, 1999, there were Class A warrants issued which
allow the purchase of 1,624,172 shares of the common stock of the
Company at $1.00 per share, Class B warrants issued which allow the
purchase of 1,475,973 shares of the common stock of the Company at
$1.00 per share and Class C warrants issued which allow the purchase of
17,500 shares of the common stock of the Company at $1.75 per share.
The warrants all expire on June 7, 2000.
Upon the exercise of a Class B warrant, a Class C warrant will be
issued allowing the purchase of a like number of shares at $1.75 per
share. There were no warrants exercised during the three months ended
September 30, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL
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 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 resolution of RETEK claims. KLI was acquired effective December 1,
1997.
As of September 30, 1999, the Company had working capital in the amount
of $20,849, as compared to a working capital deficit at June 30, 1999
in the amount of $240,868. The Company issued the remaining shares due
pursuant to their bankruptcy plan, which retired the balance of the
obligations to be paid in common stock, in the amount of $250,535. This
accounts for the main working capital improvement. The Company expects
to utilize earnings to provide its other working capital requirements.
The Company's capital expenditure requirements are not significant and
can be met from the working capital generated by net earnings and lease
financing. The Company installed new gas chromatography/mass
spectrometry equipment, which will be used in the test confirmation
process during October 1999. The equipment cost of $68,768 was seller
financed over four years.
B. RESULTS OF OPERATIONS
The Company operates solely as a forensic urine drug screening and
confirmatory testing laboratory and has no other operating segments.
SALES AND COST OF SALES
Total revenues decreased $48,134 (9%) during the three months ended
September 30, 1999 as compared to the same three-month period ended
September 30, 1998. During the three month period ended September 30,
1999, the Company recognized a gross profit margin of 73% as compared
to 64% during the same year earlier period.
The Company's decreased revenue is primarily the result of the
Company's customers experiencing less employment turnover. A large
portion of the Company's revenue is based upon initial test procedures
performed for new employees of its customers. The improved gross profit
as a percentage of sales is due primarily to lower delivery costs and
lower screen costs. The Company expects its operations to continue at
the current levels.
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OTHER EXPENSE AND INCOME
The selling, general and administrative expenses of the Company
decreased $75,162 (20%) during the three months ended September 30,
1999 as compared to the same year earlier period. Approximately $45,000
of this decrease is from a reduction in the legal and accounting costs
associated with completion of the bankruptcy plan. The remaining
decrease is a result of lower moving expense of $6,000, lower service
contract costs of $8,000, lower travel costs of $6,000 and a reduction
in other items which totals $10,000. Selling, general and
administrative expenses were 64% of revenues during the three-month
period ended September 30, 1999 as compared to 73% during the same year
earlier period.
Other expense includes interest expense incurred during the three
months ended September 30, 1999 in the amount of $5,151 as compared to
$7,340 in the same year earlier period.
Other income includes $10,529 from amortization of the deferred gain
realized in the sale-leaseback transaction during the three months
ended September 30, 1998. The sale-leaseback transaction was entered
into during the quarter ended December 31, 1997.
During the three months ended September 30, 1999, the Company
recognized an unrealized gain from their marketable equity securities
in the amount of $8,053. During the same year earlier period, the
Company recognized a gain in the amount of $1,813.
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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 during the current quarter.
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: November 8, 1999 By: /s/ Joel C. Holt
Joel C. Holt, President and
Principal Accounting Officer
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