Filed On 10/3/97 · SEC File 333-10949 · Accession Number 950135-97-4053
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
10/03/97 Molten Metal Technology Inc/DE POS AM 3:114 950135
Document/Exhibit Description Pages Size
1: POS AM Molten Metal Technolgy, Inc. 112 755K
2: EX-23.1 Consent of Price Waterhouse Llp(Registrant) 1 5K
3: EX-23.2 Consent of Price Waterhouse Llp (M4 Environmental) 1 5K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION STATEMENT NO. 333-10949
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 2 ON
FORM S-1
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MOLTEN METAL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 8731 52-1659959
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
400-2 TOTTEN POND ROAD
WALTHAM, MASSACHUSETTS 02154
(617) 487-9700
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
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WILLIAM M. HANEY, III
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------
with a copy to:
ETHAN E. JACKS, ESQ.
Vice President and General Counsel
MOLTEN METAL TECHNOLOGY, INC.
400-2 Totten Pond Road
Waltham, Massachusetts 02154
(617) 487-9700
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION DATED OCTOBER 3, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
$142,750,000
[MOLTEN METAL TECHNOLOGY LOGO]
5-1/2% Convertible Subordinated Notes Due 2006
This Prospectus relates to the 5-1/2% Convertible Subordinated Notes Due
2006 (the "Notes") of Molten Metal Technology, Inc. ("MMT" or the "Company")
and the shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), issuable upon conversion of the Notes. The Notes were issued
and sold May 1, 1996 and May 9, 1996 (the "Original Offering") in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), to persons reasonably believed by Lazard Freres
& Co. LLC, Alex. Brown & Sons Incorporated and Oppenheimer & Co., Inc., as the
initial purchasers of the Notes (collectively, the "Initial Purchasers"), to be
"qualified institutional buyers" (as defined by Rule 144A under the Securities
Act), other institutional "accredited investors" (as defined in Rule 501(a)(2),
(3) or (7) under the Securities Act) or in transactions complying with
Regulation S under the Securities Act. The Notes (other than Notes originally
sold pursuant to Regulation S) and the Common Stock issuable upon conversion
thereof (collectively, the "Securities") may be offered and sold from time to
time by the holders named herein or by their transferees, pledgees, donees or
their successors (collectively, the "Selling Holders") pursuant to this
Prospectus. The Registration Statement of which this Prospectus is a part has
been filed with the Securities and Exchange Commission pursuant to a
registration rights agreement dated as of April 25, 1996 (the "Registration
Rights Agreement") between the Company and the Initial Purchasers, entered into
in connection with the Original Offering.
The Notes will mature on May 1, 2006. Interest on the Notes will be paid
semiannually on May 1 and November 1 of each year, commencing November 1, 1996.
The Notes are convertible, at the option of the holder thereof, at any time
prior to maturity, unless previously redeemed, into shares of Common Stock at a
conversion price of $38.75 per share, subject to adjustment in certain events.
On June 20, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market (symbol "MLTN") was $5 9/16 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on and after May 1, 1999, at the redemption prices set
forth herein together with accrued interest. A Note also will be subject to
redemption, at the option of the Company, in whole but not in part, at any time,
at 100% of their principal amount plus accrued interest in the event of certain
changes affecting U.S. taxes applicable to such Note. The Notes do not provide
for any sinking fund. Upon a Change of Control (as defined) or in the event the
Common Stock is no longer publicly traded, holders of the Notes will have the
right, subject to certain restrictions and conditions, to require the Company to
purchase all or any part of the Notes at a purchase price equal to 100% of the
principal amount thereof together with accrued and unpaid interest to the date
of purchase. See "Description of the Notes -- Repurchase Rights."
The Notes are unsecured obligations of the Company and are subordinate in
right of payment to all existing and future Senior Debt (as defined) of the
Company.
The Securities may be sold by the Selling Holders from time to time
directly to purchasers or through agents, underwriters or dealers. See "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Securities in respect of which this Prospectus is
being delivered and the applicable agent's commission, dealer's purchase price
or underwriter's discount, if any, will be set forth in an accompanying
supplement to this Prospectus. The Selling Holders and broker-dealers, agents or
underwriters which participate in the distribution of the Securities may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution."
The Selling Holders will receive all of the net proceeds from the sale of
the Securities and will pay all underwriting discounts and selling commissions,
if any, applicable to the sale of the Securities. The Company is responsible for
the payment of all other expenses incident to the offer and sale of the
Securities.
See "Risk Factors" for a description of the material risks involved in an
investment in the Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _________________, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 5th Street, N.W., Washington,
D.C. 20549, as well as at the following regional offices: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 5th Street, N.W., Washington, D.C. 20549. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. The Commission maintains a World Wide
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document, if
any, filed as an exhibit to the Registration Statement on Form S-1 of which this
Prospectus is a part, each such statement being qualified in all respects by
such reference.
The Company has agreed to distribute to holders of the Notes reports,
information and documents specified in Section 13 or 15(d) of the Exchange Act,
so long as the Notes are outstanding, whether or not the Company is subject to
such informational requirements of the Exchange Act. While any Notes remain
outstanding, the Company will make available, upon request, to any holder of the
Notes, the information required by Rule 144(d)(4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act. Any such request should be directed to the Company, Investor
Relations at 400-2 Totten Pond Road, Waltham, Massachusetts 02154 (Telephone No.
(617) 487-9700).
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, any Selling Holder or any of the Initial Purchasers. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make any such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall in any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof.
2
RISK FACTORS
An investment in the Common Stock offered by this Prospectus involves a
high degree of risk. Accordingly, prospective investors should consider
carefully the following risk factors, in addition to the other information
concerning the Company and its business contained in this Prospectus, before
purchasing the Common Stock offered hereby.
Uncertainty of Future Profitability. The Company's results of
operations have varied significantly in the past and may continue to vary
significantly in the future. The Company had a net loss of approximately $61.2
million for the year ended December 31, 1996 and a net loss of approximately
$49.3 million for the six months ended June 30, 1997. Other than 1995, the
Company has had losses in each of the years since its incorporation. Losses
have resulted principally from costs incurred in connection with research and
development activities and from costs associated with the Company's
administrative and marketing activities. A significant portion of the Company's
revenues for the year ended December 31, 1996 consisted of technology transfer
and success fees from M4 Environmental L.P., the Company's former joint venture
with Lockheed Martin Corporation ("LMC") (approximately $13.1 million in 1996).
As a result of a restructuring completed in June 1997, M4 is now a wholly owned
subsidiary of the Company, and MMT does not expect any future revenues
consisting of technology transfer and success fees from M4. During 1997, MMT
will earn limited revenue from the operations of M4.
The Company's future profitability is dependent upon its ability to
successfully commercialize its CEP technology and to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to pay interest and principal on the Notes or to achieve profitability.
Uncertainty of Market Acceptance. The Company's Catalytic Extraction
Processing ("CEP") technology is a new technology for which there is no
established market. There can be no assurance that feedstock generators will
view the Company's CEP process as an economically and environmentally
acceptable means of disposing of their hazardous and non-hazardous wastes and
industrial by-products, which could result in the Company experiencing
difficulty in selling its CEP systems. Moreover, there can be no assurance that
the economic terms under which generators may be willing to use the Company's
CEP process will be profitable to the Company. In addition, a particular
generator may be subject to environmental regulation unique to its location
which may affect its ability to use CEP.
Limited Commercial Operations. The Company has limited experience
operating CEP systems on a commercial basis. There can be no assurance that the
Company will be able to operate CEP systems on a sustained basis in
commercial-scale use or that such systems can be operated profitably. In
addition, the Company may experience problems associated with the engineering,
construction and scale-up of its CEP systems, including cost overruns and
start-up delays resulting from technical or mechanical problems or unfavorable
conditions in the equipment or labor market.
The Company has limited experience developing and constructing
commercial CEP plants. In addition, the Company's "first of a kind" CEP plants
have required larger capital expenditures and a longer period to develop and
construct than originally anticipated by the Company. If the Company is not
able to develop and construct CEP plants, particularly "second of a kind"
plants, on time and under budget, this would have a material adverse effect on
the Company's ability to successfully sell CEP plants to customers and to
obtain financing for the development and construction of CEP plants.
Reliance on Environmental Regulation. Federal, state and local
environmental legislation and regulations require substantial expenditures and
impose liabilities for noncompliance. Environmental laws and regulations are,
and will continue to be, a principal factor affecting demand for the systems and
services being developed or offered by the Company. The level of enforcement
activities by federal, state and local environmental protection agencies and
changes in regulations will also affect demand. Any changes in these regulations
which increase compliance standards may require MMT to change or improve the CEP
technology to meet more stringent regulatory
3
requirements. To the extent that the burdens of complying with such laws and
regulations may be eased, the demand for the Company's services could be
materially adversely affected. In addition, international environmental
regulations and enforcement of such regulations vary by country and are subject
to changes which may adversely affect the Company's operations and its ability
to commercialize its CEP technology internationally.
Dependence on Disposal Facilities. The Company's CEP technology may
not be successful in recovering materials in a form that is commercially usable
or saleable. The Company also could be materially adversely affected by a
decrease in the demand for the recovered materials. Some materials produced
using CEP may have little to no commercial value, and may be considered wastes.
Such waste may be classified as a hazardous or low-level radioactive waste (and
may need to be handled as such) under current United States environmental
regulations. In addition, such waste may need to be disposed of at specially
permitted disposal facilities. In order to utilize such facilities, any waste
produced by CEP must meet the acceptance criteria of the particular facility.
Fees for disposal of wastes at such facilities, and the methods for calculating
such fees, are subject to change. The Company's ability to operate its CEP
systems profitably may be adversely affected by increases in such fees or
changes in the methods of calculating such fees. The Company expects that the
volume of residual waste streams produced from the processing of radioactive
wastes with Quantum-CEP(R) will be greater than those produced from other
applications of CEP.
Availability of Markets for Recovered Materials. CEP has been designed
to perform Elemental Recycling. There can be no assurance, however, that the
Company's CEP process will be successful in recovering materials in a form that
is commercially usable or saleable or that the Company would not be materially
adversely affected by a decrease in the demand for the recovered materials.
Potential Environmental Liability. The Company's business exposes it to
the risk that harmful substances such as hazardous or toxic wastes or
radioactive materials will escape into the environment and cause substantial
damages or injuries. The Company's ownership or operation of CEP systems expose
it to possible liability for investigation and clean-up costs under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and the Resource Conservation and Recovery Act of 1976, as amended
("RCRA") and to possible liability under RCRA for violations of requirements
applicable to the generation, transportation, treatment, storage and disposal of
hazardous waste. In addition, the Company may be exposed to certain
environmental risks resulting from the actions of its customers. Although the
Company maintains general liability insurance, this insurance is subject to
coverage limits and generally excludes coverage for losses or liabilities
relating to environmental damage or pollution. The Company has obtained nuclear
insurance for its Quantum-CEP(R) operations in Oak Ridge, Tennessee and
environmental impairment liability insurance for these operations and its
research and development facility in Fall River, Massachusetts in compliance
with applicable state and federal regulatory standards. Although the Company has
developed plans to conduct its operations prudently and to structure its
relationships with customers and contractors in a manner so as to minimize its
exposure to environmental risks, the Company could be materially adversely
affected by a claim that is not covered or is only partially covered by
insurance.
Regulatory Status of Operations. The Company and its customers operate
in a highly regulated environment and certain of the operations at the Company's
CEP facilities will be required to have federal, state and local government
permits and approvals. Any of these permits or approvals may be subject to
denial, revocation or modification under various circumstances. Failure to
obtain or comply with the conditions of permits or approvals may adversely
affect the introduction or operation of the Company's CEP systems and may
subject the Company to penalties. The Company's ability to satisfy permitting
requirements for a particular CEP system does not assure that permitting
requirements for other CEP systems will be more easily satisfied, if at all. In
addition, if new environmental legislation or regulations are enacted or
existing legislation or regulations are amended or are interpreted or enforced
differently, the Company or its customers may be required to obtain additional
operating permits or approvals. There can be no assurance that the Company will
meet all of the applicable regulatory requirements.
Future Capital Needs. The Company will require substantial funds to
construct the commercial CEP systems that it anticipates it will own and
operate, and to continue its development activities. The amount and timing of
the Company's expenditures and the Company's future capital requirements could
vary significantly and will depend on certain factors, many of which are not
within the Company's control, including customers' decisions to finance, own and
operate their CEP systems; the terms of any collaborative arrangements entered
into by the Company; the progress of the Company's development of CEP; the
nature and timing of permits required for CEP systems; and the availability of
alternative sources of financing. The Company is currently contemplating a $20
million tax-exempt bond financing for its Quantum-CEP(R) facility in Oak Ridge,
Tennessee. There can be no assurance that such financing or any other financing
will be available or, if available, that it will be on favorable terms. Failure
to obtain necessary financing would have a materially adverse impact on the
Company's ability to own and operate certain initial CEP facilities and to
continue its development activities.
Dependence on Certain Customers. During the years ended December 31,
1996 and 1995, revenue from M4 accounted for approximately 87% and 69%,
respectively, of the Company's total revenue, and revenue from the U.S.
Department of Energy ("DOE") accounted for approximately 13% and 30%,
respectively, of the Company's total revenue. This revenue was generated
primarily by engineering and construction services, R & D and consulting
services and technology transfer and success fees. The Company does not expect
to be receiving substantial revenues from M4 or the Department of Energy in 1997
and expects that most of its revenues in 1997 will come from waste processing
services. The Company's future profitability is dependent upon its ability to
commercialize successfully its CEP technology and to find alternative sources of
revenue. There can be no assurance that the Company will generate sufficient
revenue to achieve profitability.
Reliance on Subcontractors. The Company relies principally on
subcontractors to build CEP system components and to assemble and install such
systems. The Company's ability to deliver high quality systems on time will
depend upon the reliability and performance of its subcontractors. The failure
of a subcontractor to meet delivery schedules could cause the Company to default
on its obligations to its customers. In addition, the Company's reliance on
subcontractors for manufacturing, assembly and installation places a significant
part of the Company's quality control responsibilities on these subcontractors.
There can be no assurance that the Company will be able to continue to contract
for the level of quality control required by the Company's customers.
Risks of "Fixed-Price" Contracts. The Company expects that a majority
of its contracts will be performed on a "fixed-price" basis. In a fixed-price
contract, the Company bears the full risk of cost overruns caused by estimates
that differ from actual costs incurred or manufacturing delays during the course
of the contract. If manufacturing or installation costs for a particular project
exceed anticipated levels, gross margins would be materially adversely affected,
and the Company could experience losses on such contracts.
Risks of International Sales. The Company expects that a significant
portion of its revenues will come from sales of CEP systems overseas.
International sales and operations may be limited or disrupted by the imposition
of government controls, export license requirements, trade restrictions, changes
in tariffs, difficulties in staffing, the transport of machinery, managing
international operations and other factors. Regulatory compliance requirements
differ among foreign countries and are also different from those established in
the United States. If the Company's customers are unable to obtain the necessary
foreign regulatory approvals on a timely basis, the Company's international
sales could be materially adversely affected. Additionally, the Company's
business may be materially adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates, difficulties in obtaining
export licenses, ability to maintain or increase prices and competition. Since
the bulk of expenses in connection with international contracts are often
incurred in United States dollars, the Company may be subject to exchange rate
risk. If the Company has significant international sales in the future
denominated in foreign currencies, the Company may purchase hedging instruments
to mitigate the exchange risk on these contracts.
4
Dependence on Collaborative Relationships. The Company's future success
may depend, in part, on its collaborative relationships.
Risks of Government Contracting. The Company's existing government
contracts can generally be canceled, delayed or modified at the sole option of
the government and are generally subject to annual funding limitations and
public sector financing constraints. The Company believes that any future
government contracts will be structured similarly. In addition, under the terms
of future government contracts, if any, the Company may be required to grant the
federal government greater rights with respect to the Company's intellectual
property than the Company would grant private parties. As a result of engaging
in the government contracting business, the Company is subject to audits, and
may be subject to investigation, by government agencies. See "Pending Litigation
and Investigations." The Company also faces the risks associated with
government contracting, which could include substantial civil and criminal fines
and penalties. In addition to potential damage to the Company's business
reputation, the failure by the Company to comply with the terms of any of its
government contracts could result in the Company's suspension or debarment from
future government contracts for a significant period of time. All of the
foregoing risks associated with government contracting also may apply to M4 with
respect to its government contracts.
Pending Litigation and Investigations. Five purported class action
securities suits against the Company and certain of its present and former
directors and officers are pending in the United States District Court for the
District of Massachusetts. In addition, the Company is in the process of
providing information in connection with investigations being conducted by the
DOE, the Subcommittee on Oversight and Investigations of the U.S. House of
Representatives Committee on Commerce and the U.S. Senate Committee on
Governmental Affairs. See "Business -- Legal Proceedings."
Competition. The Company anticipates that the initial market for CEP
will be the hazardous and non-hazardous waste and industrial by-products
treatment and disposal market, which is characterized by several large companies
and numerous small companies. Existing technologies may prove more
cost-effective than CEP, or new technologies which are superior to those of the
Company may be developed. In addition, the Company and its customers will
compete with other producers of raw materials and recycled products for the sale
of products recovered from the CEP process. Many of the Company's competitors
are large companies with substantially greater financial resources than the
Company. To the extent these competitors offer comparable services or products
at lower prices or of higher quality, or more cost-effective waste disposal
alternatives, the Company's ability to compete effectively could be adversely
affected.
Unpredictability of Patent Protection and Proprietary Technology. The
Company's success depends, in part, on its ability to obtain additional patents,
protect the patents which it owns, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that any of the Company's pending patent applications will be
approved, that the Company will develop additional proprietary processes that
are patentable, that any patents issued or licensed to the Company will provide
the Company with competitive advantages or will not be challenged by third
parties or that the patents of others will not have an adverse effect on the
ability of the Company to conduct its business. Furthermore, there can be no
assurance that others will not independently develop similar or superior
technologies, duplicate any of the Company's processes or design around the
patented processes developed by the Company. It is possible the Company may need
to acquire licenses to, or to contest the validity of, issued or pending patents
of third parties relating to the Company's technology. There can be no assurance
that any license under such patents would be made available to the Company on
acceptable terms, if at all, or that the Company would prevail in any such
contest. In addition, the Company could incur substantial costs in defending
itself in suits brought against the Company on its patents or in bringing suits
against other parties.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect, in part,
by confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
Dependence on Key Management and Qualified Personnel. The Company is
highly dependent upon the efforts of its senior management and scientific staff.
The Company maintains key man insurance in the amount of $1.0 million on the
lives of each of William M. Haney, III, Chairman of the Board of Directors and
Chief Executive Officer, and Dr. Christopher J. Nagel, Chief Technical Officer.
The Company is the
5
sole beneficiary of these policies, but the proceeds of such policies may not be
adequate to compensate the Company for the loss of either individual. The loss
of the services of one or more of these individuals may have a material adverse
effect upon the Company. The Company's future success will depend in large part
upon its ability to attract and retain further highly skilled scientific,
managerial, manufacturing and marketing personnel. The Company faces competition
for hiring such personnel from other companies, research and academic
institutions, government entities and other organizations. With the exception of
William M. Haney, III, the Company does not have any employment agreements with
any of its executive officers for a specific time. There can be no assurance
that the Company will continue to be successful in attracting and retaining such
personnel.
Lack of Established Market. There is no established trading market for
the Notes. Although the Initial Purchasers have advised the Company that they
each currently intend to make a market in the Notes, they are not obligated to
do so and any such market making may be discontinued at any time without notice,
at their sole discretion. The Company does not intend to apply for listing of
the Notes on any securities exchange. Accordingly, there can be no assurance as
to development of a market for the Notes or as to the liquidity of any market
that may develop. Moreover, to the extent that they trade at all, the Notes may
trade at a discount from their stated principal.
Possible Volatility of Share Price. There has been a history of
volatility in the market prices for securities of emerging growth companies such
as the Company, which volatility often has been unrelated to or
disproportionately impacted by the operating performance of such companies.
There can be no assurance that the market for the Notes and Common Stock
issuable upon conversion thereof will not be subject to similar fluctuations.
Factors such as announcements of technological developments, sales of waste
treatment or disposal systems or status of collaborative agreements of the
Company or its competitors, government regulatory action, public concern as to
the safety of products developed by the Company, patent or proprietary rights
developments and market conditions in general could have a significant impact on
the future market price of the Company's securities, including the Notes and
Common Stock.
6
THE COMPANY
The Company is an environmental technology company engaged in the
commercialization and continued development of its innovative, proprietary
processing technology known as Catalytic Extraction Processing ("CEP"). The
Company has its principal executive offices at 400-2 Totten Pond Road, Waltham,
MA 02154. The telephone number of said offices is (617) 487-9700.
USE OF PROCEEDS
All of the Securities offered hereby are being offered by the Selling
Holders. The Selling Holders will receive all of the net proceeds from the
Securities sold pursuant to this Prospectus.
PRICE RANGE OF COMMON STOCK
Since February 10, 1993, the first day of trading for the Common Stock,
the Common Stock has traded on the Nasdaq National Market under the symbol
"MLTN." The following table sets forth, for the periods indicated, the high and
low sale prices per share of the Common Stock as reported by the Nasdaq National
Market.
· Download Table
HIGH LOW
PRICE PRICE
----- -----
YEAR ENDING DECEMBER 31, 1995
First Quarter .............................. $19.25 $13.75
Second Quarter ............................. $26.25 $15.75
Third Quarter .............................. $33.25 $21.00
Fourth Quarter ............................. $41.25 $27.50
YEAR ENDING DECEMBER 31, 1996
First Quarter .............................. $40.25 $29.75
Second Quarter ............................. $36.50 $28.00
Third Quarter .............................. $34.63 $21.75
Fourth Quarter ............................. $33.25 $ 9.25
YEAR ENDING DECEMBER 31, 1997
First Quarter............................... $13.13 $ 8.38
Second Quarter ............................. $ 9.25 $ 4.25
Third Quarter (through September 30, 1997).. $ 8.00 $ 4.75
On September 30, 1997, the last sale price of the Common Stock, as
reported by the Nasdaq National Market, was $5.50 per share. As of September
30, 1997, there were 966 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.
7
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
the actual capitalization of the Company as of June 30, 1997.
· Download Table
JUNE 30, 1997
-------------
Current portion of long-term debt.............................. $ 1,792,949
Long-term debt, excluding current portion...................... 202,750,000
Stockholders' equity:
Preferred stock, $.01 par value, 3,000 shares authorized;
no shares issued and outstanding ......................... --
Common stock, $.01 par value, 100,000,000 shares authorized;
23,713,380 shares issued and 23,602,980 outstanding....... 237,134
Additional paid-in capital................................... 163,545,308
Valuation allowance for short-term investments............... 33,128
Accumulated deficit.......................................... (147,159,078)
-------------
16,656,492
Less: Treasury stock, 110,400 shares at cost................... (1,251,319)
Less: Deferred compensation.................................... (1,044,493)
-------------
Total stockholders' equity............................. 14,360,680
-------------
Total capitalization.............................. $ 218,903,629
=============
8
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial information of the
Company for the six months ended June 30, 1997 and the 5 years ended December
31, 1996.
· Enlarge/Download Table
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------ --------------------------
1996 1995 1994 1993 1992 1997 1996
------------ ------------ ------------ ------------ ------------ ------------ -----------
STATEMENT OF OPERATIONS
DATA
Revenue................. $ 63,511,190 $ 44,181,398 $ 14,398,829 $ 4,721,953 $ 2,526,327 $ 11,534,041 $40,227,629
Operating expenses:
Cost of revenue....... 50,478,630 34,901,904 11,057,163 2,205,316 2,172,399 19,002,303 30,718,193
Research and
development......... 26,183,268 10,986,234 14,417,327 10,837,484 4,208,319 15,547,991 9,327,001
Selling, general and
administrative...... 18,708,514 2,877,371 7,132,256 5,661,953 4,133,270 14,663,727 4,629,218
------------ ------------ ------------ ------------ ------------ ------------ -----------
95,370,412 48,765,509 32,606,746 18,704,753 10,513,988 49,214,021 44,674,412
Equity income (loss)
from affiliate........ (31,612,891) 834,294 -- -- -- (9,740,565) 2,676,036
------------ ------------ ------------ ------------ ------------ ------------ -----------
Loss from operations.... (63,472,113) (3,749,817) (18,207,917) (13,982,800) (7,987,661) (47,420,545) (1,770,747)
Interest income......... 8,812,303 5,559,690 4,376,403 1,861,077 400,559 2,480,617 3,585,378
Interest expense........ (6,521,654) (1,455,084) (737,741) (160,233) (15,972) (4,398,739) (2,107,699)
------------ ------------ ------------ ------------ ------------ ------------ -----------
Net income (loss)..... $(61,181,464) $ 354,789 $(14,569,255) $(12,281,956) $ (7,603,074) $(49,338,667) $ (293,068)
============ ============ ============ ============ ============ ============ ===========
Net income (loss) per
share............... $ (2.62) $ 0.01 $ (0.67) $ (0.69) $ (0.59) $ (2.09) $ (0.01)
============ ============ ============ ============ ============ ============ ===========
Weighted average common
shares outstanding.... 23,313,243 24,710,423 21,904,213 17,811,830 12,843,220 23,591,090 23,098,323
============ ============ ============ ============ ============ ============ ===========
Supplementary net loss
per share (1)......... $ (0.67) $ (0.52)
============ ============
Supplementary weighted
average common shares
outstanding........... 18,293,320 14,509,887
============ ============
· Enlarge/Download Table
DECEMBER 31, JUNE 30,
------------------------------------------------------------------------ -------------
1996 1995 1994 1993 1992 1997
------------ ------------ ------------ ------------ ------------ -------------
BALANCE SHEET DATA
Cash, cash equivalents
and short-term
investments.......... $129,067,763 $ 86,276,250 $100,196,475 $104,423,037 $ 2,234,110 $ 44,555,231
Working capital........ 108,630,338 89,306,823 95,318,381 103,689,795 (72,876) 22,873,660
Total assets........... 272,745,249 153,336,001 135,541,524 123,628,053 11,523,176 261,059,240
Long-term liabilities,
less current
maturities (2)....... 173,597,488 26,818,466 24,549,733 3,625,427 3,538,531 206,519,807
Convertible preferred
stock................ -- -- -- -- 72,727 --
Accumulated deficit.... (97,820,411) (36,638,947) (36,993,736) (22,424,481) (10,142,525) (147,159,078)
Stockholders' equity... 63,511,832 109,908,656 102,135,257 116,333,308 5,264,679 14,360,680
---------------
(1) Supplementary net loss per share information for the years ended December
31, 1993 and 1992 is presented to reflect the conversion of preferred stock
as if it occurred on the later of the first day of the period or the date of
issuance of the preferred stock.
(2) Includes (i) deferred revenue of $1,900,000 at December 31, 1992, (ii)
payments due under a technology purchase agreement of $1,385,889 at June 30,
1997 and December 31, 1996 and $1,474,586 at December 31, 1995, 1994, 1993
and 1992, (iii) deferred income of $2,383,918 at June 30, 1997, $2,437,500
at December 31, 1996 and $2,459,918 at December 31, 1995 and (iv) $5,020,765
of accumulated losses of affiliate in excess of investment at December 31,
1996.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarters and Six Months Ended June 30, 1997 and 1996
Revenues for the second quarter of 1997 decreased to $6,561,000 from $17,854,000
in the second quarter of 1996 and decreased to $11,534,000 for the first half of
1997 from $40,228,000 for the first half of 1996. The following table compares
sources of revenue for the quarters and six months ended June 30, 1997 and 1996:
· Download Table
Quarter ended June 30,
---------------------------
1997 1996
---- ----
Waste services $5,093,000 $ --
Equipment sales 486,000 --
Engineering and construction 663,000 9,241,000
R&D and consulting 319,000 4,863,000
Technology transfer and success fees -- 3,750,000
---------- -----------
$6,561,000 $17,854,000
========== ===========
Six Months ended June 30,
----------------------------
1997 1996
---- ----
Waste services $ 9,038,000 $ --
Equipment sales 1,193,000 --
Engineering and construction 784,000 25,725,000
R&D and consulting 519,000 7,003,000
Technology transfer and success fees -- 7,500,000
----------- -----------
$11,534,000 $40,228,000
=========== ===========
Waste services revenue is from processing, managing and handling radioactive
wastes through the Company's nuclear waste services division based in Oak Ridge,
Tennessee. The first quarter of 1997 marked the commercial start-up of the
Company's Quantum CEP Facility in Oak Ridge, Tennessee ("Q-CEP Facility") and
the commencement of commercial CEP operations. The Company also began operations
of its newly acquired waste service business from The Scientific Ecology Group,
Inc. ("SEG") and VECTRA Technologies, Inc. ("VECTRA"). The Company expects that
revenue from plant operations will continue to increase in future periods as
operations at the Q-CEP Facility ramp up and as commercial operations commence
at additional facilities in Oak Ridge, Tennessee and Bay City, Texas.
Equipment sales are from the sale of waste storage and processing equipment for
commercial low-level radioactive waste. The sales are a result of operations
related to the acquisitions from SEG and VECTRA which occurred in December 1996
and January 1997, respectively.
During the six months ended June 30, 1996 the Company recognized $25.7 million
in revenue related to the engineering, design and construction of M4's
Technology Center. During the six months ended June 30, 1997,engineering and
construction revenue related solely to the engineering, design and construction
of an initial CEP system for the joint venture with Nichimen Corporation
("Nichimen") and NKK Plant Engineering Corporation ("NKP")for the processing of
fly ash in Japan. The Company expects engineering and construction revenue to
increase in the next few quarters due to increased activities related to
engineering, design and construction of the initial CEP system for the joint
venture with Nichimen and NKP and for a demonstration CEP unit for the DOE's
tanked waste site in Hanford, Washington.
During the six months ended June 30, 1996, the Company recognized $2.1 million
in revenue related to research and development and consulting contracts with M4
and the US government. During the six months ended June 30, 1997, the Company
recorded no
10
such revenue from M4 or the US government. The Company expects to continue with
research and development projects, some of which will be funded by third parties
and some of which will be funded from the Company's working capital. The Company
anticipates that the amount of both internally and externally funded research
and development will decrease over the next year.
There were no technology transfer and success fees for the first six months of
1997. Technology transfer and success fees for the first quarter of 1996
resulted from the recognition of a portion of the original $14 million license
fee from M4 and from plant start-up fees from M4. Part of the Company's strategy
is to license its technology under arrangements which provide for up-front
technology transfer fees, ongoing tolling fees, license fees or royalties and
the Company expects such revenues to increase in future periods over the first
half of 1997.
The existence and timing of revenues related to the Company's commercial
operations will depend on a number of factors, including the ability of the
Company and its affiliates to successfully market, permit and build CEP systems
on a timely and economic basis for their target markets, customer acceptance of
the technology, and competition from other companies in the Company's target
markets, and no assurances can be made in this regard.
Cost of revenues for the second quarter of 1997 decreased to $11,043,000 from
$14,393,000 in the second quarter of 1996 and decreased to $19,002,000 for the
first half of 1997 from $30,718,000 for the first half of 1996. The decreases
are primarily attributable to a reduction in cost reimbursement contracts for
R&D and engineering and construction activities.
R&D expenses for the second quarter of 1997 increased to $6,416,000 from
$4,619,000 in the second quarter of 1996 and increased to $15,548,000 for the
first half of 1997 from $9,327,00 for the first half of 1996. The increases
reflect a lower absorption of R&D expenses into cost of revenue due to a
reduction in cost reimbursement contracts. The Company expects that R&D costs
will decrease during the remainder of 1997 as efforts become more directed
toward commercial operations. SG&A expenses for the second quarter of 1997
increased to $7,724,000 from $2,211,000 in the second quarter of 1996 and
increased to $14,664,000 for the first half of 1997 from $4,629,000 for the
first half of 1996. The increases reflect a lower absorption of SG&A expenses
into cost of revenue due to a reduction in cost reimbursement contracts. The
Company is making efforts to decrease SG&A expenses in future periods. The
classification of expenses between cost of revenue, R&D and SG&A will depend on
the number and amount of future cost reimbursement contracts and the related
absorption of R&D and SG&A expenses into cost of revenue.
Prior to the restructuring of M4 in June 1997 described below, the Company
accounted for its investment in M4 using the equity method. The Company recorded
an equity loss of $6,063,000 for the second quarter of 1997 compared to equity
income of $2,307,000 for the second quarter of 1996 and equity loss of
$9,741,000 for the first half of 1997 compared to equity income of $2,676,000
for the first half of 1996. Under the M4 limited partnership agreement, the
Company and Lockheed Martin Corporation ("LMC") shared equally in M4's revenues
and other income and all expenses were allocated to LMC until the capital
accounts of the Company and LMC became equal. During the first quarter of 1996,
the Company's and LMC's capital accounts were not
11
equal and the Company recorded its share of revenues and other income from M4
without recognizing any expenses from M4. This resulted in the Company having
equity income from M4 during the first half of 1996. In the fourth quarter of
1996, the Company's and LMC's capital accounts became equal and the Company
began to share in the recognition of expenses from M4. On March 26,1997, the
Company and LMC agreed to fund the operations of M4 in a manner consistent with
how the funding would occur after the restructuring took place. The Company
recognized revenue and expenses of M4 in line with how the funding occurred
and, as a result, recorded equity losses in the second quarter of 1997.
Interest income for the second quarter of 1997 decreased to $909,000 from
$2,231,000 in the second quarter of 1996 and decreased to $2,481,000 for
the first half of 1997 from $3,585,000 for the first half of 1996. The decreases
are due to the use of cash and short-term investments to fund commercial
operations and investment activities, including expenditures for fixed assets.
The Company expects interest income to decline in the coming year as cash and
short-term investments are used to fund initial commercial operations and
continued investment activities, including expenditures for fixed assets.
Interest expense for the second quarter of 1997 increased to $2,090,000 from
$1,675,000 in the second quarter of 1996 and increased to $4,399,000 for the
first half of 1997 from $2,108,000 for the first half of 1996. The increases
are due to interest on the Company's 5 1/2% Convertible Subordinated Notes due
2006 issued in May 1996.
Inflation is not expected to have a material effect on future results of
operations.
The Company's results of operations have varied significantly in the past and
may continue to vary significantly in the future. The Company's future
profitability is dependent upon its ability to commercialize successfully its
CEP technology and to find alternative sources of revenue. There can be no
assurance that the Company will generate sufficient revenue to achieve
profitability.
In February 1997, Financial Accounting Standards No. 128 "Earnings Per Share"
("FAS 128") was issued by the Financial Accounting Standards Board. FAS 128
specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under FAS 128, "basic earnings per share" will be
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares (stock options, warrants and convertible debt) if they are dilutive. FAS
128 is effective for the Company's fourth quarter of 1997 and will be adopted at
that time. Had the Company determined earnings per share in accordance with FAS
128, basic earnings (loss) per share and diluted earnings (loss) per share for
the quarters ended June 30, 1997 and 1996 would not have been materially
different from the net income (loss) per share reported by the Company.
12
Years Ended December 31, 1996 and 1995
Revenue was approximately $63.5 million for 1996 compared with $44.2 million for
1995. The following table compares sources of revenue for the years ended
December 31, 1996 and 1995:
· Download Table
Year ended December 31,
1996 1995
Engineering and construction $ 37,796,000 $ 20,242,000
R&D and consulting 12,632,000 14,939,000
Technology transfer and success fees 13,083,000 9,000,000
------------ -----------
$ 63,511,000 $44,181,000
============ ===========
Engineering and construction revenue is from services provided to M4 for the
engineering, design and construction of the M4 Technology Center. The increase
in 1996 over 1995 is a result of billings to M4 during the peak period of
construction and start-up of the M4 Technology Center. Overall, the Company
expects engineering and construction revenue to decline until it enters into
definitive contracts to construct commercial CEP systems for customers that will
be financially responsible, in whole or in part, for the construction of such
systems. In June 1997, the Company and LMC entered into definitive agreements to
restructure their relationship with respect to M4's market. Although the Company
may earn revenue in the future pursuant to the new agreements with LMC, the
Company will earn limited additional revenue from the operations of M4 in 1997.
Additionally, there is uncertainty as to the amounts and timing of revenue, if
any, that may be earned by the Company in the future under the new agreements
with LMC.
R&D and consulting revenue decreased in 1996 from 1995 due to a reduction in
billings under a cost sharing contract with the United States Department of
Energy (the "DOE"). During 1996, the Company recorded $8 million in revenue for
the reimbursement of R&D costs incurred under the cost sharing contract with the
DOE compared to approximately $13.2 million for 1995. The decrease is a result
of the Company reaching the funded contract value during the third quarter of
1996 and not entering into any arrangements providing for additional funding
from the DOE. The Company expects to continue with research and development
projects, some of which will be funded by third parties and some of which will
be funded from the Company's working capital. The Company anticipates that the
amount of both internally and externally funded research and development will
decrease over the next year.
Technology transfer and success fees increased in 1996 over 1995 due to $5
million of revenue recognized for the sale of a license to M4 for the Japanese
chemical weapons market. During 1996, the Company recognized the remaining $4
million of the original $14 million license fee from M4. This license fee was
being recognized over a two year period that began in August 1994. Also during
1996, the Company recognized $4 million of plant start-up fees from M4. Under
the terms of the M4 limited partnership agreement, the Company was entitled to a
fee of $2 million upon the start-up of each of the first three CEP plants
developed by M4. As of June 30, 1996, the Company had earned each of these three
success fees. Part of the Company's strategy is to license its technology under
arrangements which provide for up-front technology transfer fees, ongoing
tolling fees, license fees or royalties and the Company expects such revenues
to increase in future periods.
As commercial operations commence at the Company's facilities in Oak Ridge,
Tennessee and Bay City, Texas, the Company expects to generate revenue from
processing and recycling wastes. The Company expects that revenue from plant
operations will be a significant portion of its total revenue in future periods.
During 1996, however, the Company did not receive any revenue from plant
operations. The existence and timing of revenues related to the Company's
commercial operations will depend on a
13
number of factors, including the ability of the Company and its affiliates to
successfully market, permit and build CEP systems on a timely and economic basis
for their target markets, customer acceptance of the technology, and competition
from other companies in the Company's target markets, and no assurances can be
made in this regard.
During 1996, revenue from M4 and DOE accounted for approximately 87% and 13% of
revenue, respectively. The Company anticipates that during 1997 it will earn
limited revenue from the operations of M4. In addition, other than the NICE(3)
grant described in "Business -- U.S. Government Market -- United States
Department of Energy," the Company does not anticipate receiving research and
development funding from the DOE in 1997.
Certain billings by the Company to M4 for engineering and construction,
research and development and consulting services were disputed by M4 and were
not paid by M4. The Company has investigated the circumstances of these
disputes and has determined that the Company's quarterly results of operations
should be restated for the periods ended June 30, 1996 and September 30,1996.
Revenue of $2.593 million has been reversed in the quarter ended June 30, 1996
because of a dispute regarding the obligation underlying billings in that amount
for that quarter. Revenue of $481,000 has been reversed and a charge to bad debt
expense in the amount of $1.484 million has been recorded in the quarter ended
September 30, 1996 to reflect the doubtful collection, because of an additional
dispute arising prior to the close of the Company's third quarter accounts, of
billings for $1.965 million for the third and prior quarters. The Company is not
pursuing collection of these disputed amounts. The Company has amended its prior
filings on Form 10-Q for the quarters ended June 30, 1996 and September 30,
1996 to reflect these adjustments. In the opinion of management, all
adjustments necessary to revise the quarterly financial statements have been
recorded. Following is a summary of the unaudited quarterly results of
operations for these quarters:
· Download Table
Quarter Ended
As Previously Reported: June 30, 1996 September 30, 1996
------------- ------------------
Revenue $20,447,000 $ 15,557,000
Income (loss) from operations 1,529,000 (3,886,000)
Net income (loss) 2,084,000 (3,308,000)
Net income (loss) per share $ 0.08 $ (0.14)
· Download Table
Quarter Ended
As Restated: June 30, 1996 September 30, 1996
------------- ------------------
Revenue $ 17,854,000 $ 15,076,000
Loss from operations (1,064,000) (5,851,000)
Net loss (509,000) (5,273,000)
Net loss per share $ (0.02) $ (0.22)
Cost of revenue for 1996 increased to $50.5 from $34.9 million for 1995. The
increase is primarily attributable to an increase in engineering and
construction activities in connection with the development of CEP systems for M4
and the deferral of income related to intercompany profit on the sale of assets
to M4. The Company expects cost of revenue to increase in future periods as
commercial operations commence at its facilities in Oak Ridge, Tennessee and Bay
City, Texas.
Research and development expenses increased to $26.2 million in 1996 from $11.0
million in 1995. The increase reflects an increase in costs associated with the
continued development of CEP and internally funded CEP demonstrations. The
Company expects that R&D costs will decrease in the next year as efforts become
more concentrated on commercial operations. SG&A expenses for 1996 increased to
$18.7 million from $2.9 million in 1995. The increase reflects the hiring of
additional personnel, the expansion of corporate infrastructure and a lower
absorption of SG&A expenses into cost of revenue due to a reduction in cost
reimbursement contracts. The Company is making efforts to decrease SG&A expenses
in future periods. The classification of expenses between cost of revenue, R&D
and SG&A will depend in part on the number and amount of future cost
reimbursement contracts and the related absorption of R&D and SG&A expenses into
cost of revenue.
The Company recorded an equity loss of $31.6 million in 1996 with respect to M4
compared to equity income of $834,000 in 1995. Under the M4 limited partnership
agreement, the Company and LMC share equally in M4's revenues and other income
and all expenses are allocated to LMC until the capital accounts of the Company
and LMC are equal. Thereafter, as long as the capital accounts of the Company
and LMC are equal, the Company and LMC share the profits and losses of M4
equally. During 1995, the Company's and LMC's capital accounts were not equal
and the Company recorded its share of revenues and other income from M4 without
recognizing any expenses from M4. This resulted in the Company having equity
income from M4 in 1995. In the fourth quarter of 1996, the Company's and LMC's
capital accounts became equal and the Company began to share in the recognition
of expenses from M4. Because of substantial losses at M4 in the fourth quarter
of 1996, the Company recorded $40.9 million in expenses from M4, resulting in a
net equity loss from its investment in M4 of $31.6 million in 1996. A
substantial portion of the losses at M4 are the result of impairment charges
totaling approximately $60.9 million primarily relating to the M4 Technology
Center.
Interest income for 1996 increased to $8.8 million from $5.6 million in 1995.
The increase is due to interest earned on the net proceeds from the issuance of
convertible debt in May 1996. The Company expects interest income to decline in
the coming year as cash and short-term investments are used to fund initial
commercial operations and continued investment activities, including
expenditures for fixed assets. Interest expense for 1996 increased to $6.5
million from $1.5 million in 1995. The increase is due to interest on the
convertible debt issued in May 1996. Interest expense is expected to increase in
1997 due to a full year of interest on the convertible debt issued in May 1996
and other potential debt financing. 