SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
      SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997
                                                        OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
    SECURITIES EXCHANGE ACT OF 1935

                    For the Transition Period From N/A to N/A

                          Commission File No.: 0-15543
                        METAL RECOVERY TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

                  Delaware                                71-0628061
         (State of Incorporation)           (I.R.S. Employer Identification No.)

              415 East 151st Street
           East Chicago, Indiana                            46312
(Address of principal executive offices)                 (Zip Code)

        Registrant's telephone number, including area code (219) 397-6261

          Securities Registered Pursuant to Section 12 (b) of the Act:
                                                       Name of each exchange
             Title of each class                       on which registered
             -------------------                       -------------------
               Common Stock                           NASD OTC Bulletin Board

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13, or 15 (d) of the Securities  Exchange Act of 1939
during the  proceeding 12 months (or for such shorter period that the Registrant
was  required to file such  report(s),  and (2) has been  subject to such filing
requirements for the past 90 days:
                                Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ] The mid-market value of the voting stock held by non-affiliates
of  the  Registrant  as of  April  21,  1998  is  $5,374,670  Number  of  shares
outstanding  of the  Registrant's  Common  Stock  as of  December  31,  1997  is
38,390,501.
Exhibit Index begins on page 17.


<PAGE>


                                     PART 1
ITEM 1.  BUSINESS

CURRENT OPERATIONS
------------------
Metal  Recovery  Technologies,  Inc., a Delaware  Corporation,  (formerly  Malvy
Technology,  Inc.), hereafter "the Company" or "MRTI", acquired its wholly owned
subsidiary,  Metal Recovery Industries (US), Inc., hereafter "MRI(US)", in April
1995.  MRI(US) is engaged in the  development of the first  commercially  viable
means of  recovering  the zinc  coating  from steel  scrap  through a  dezincing
process. Over the last 17 years, the steel industry has seen a rapid increase in
the  world  wide  use of  galvanized  (zinc  coated)  steel,  especially  in the
automotive and appliance industries.  This increase has created a new problem in
the industry - an ever increasing amount of galvanized steel scrap. The presence
of zinc in the steel scrap supply creates problems in the melting and casting of
new steel and an environmental issue to clean or dispose of zinc laden dusts.

Since the  acquisition,  MRTI has been involved in the  re-commissioning  of the
MRI(US)  plant in East  Chicago,  Indiana.  The East  Chicago  Plant  began test
production  runs  in  October  1996.  MRTI   considered   these   operations  as
developmental  and,  through  the end of 1996 and 1997,  capitalized  all of its
expenditures related to putting the plant into regular production.

The  application  of zinc to steel to inhibit  corrosion  has  created a rapidly
growing market for zinc over the last two decades.  Current world consumption of
zinc is approximately  7,000,000 tons per year, half of which is used to protect
steel.

By far the largest market for galvanized steel scrap is the automotive industry.
Through obsolescence, recycling and the production of prompt scrap from the auto
stamping processes, there is now a rapidly increasing amount of galvanized steel
scrap. This causes problems for the steel mills and foundries, which have a need
for clean black  (non-coated)  scrap to avoid  problems  environmentally  due to
difficult air or water emissions with zinc coated scrap.

For each ton of galvanized sheet steel supplied to auto stamping plants, 1/4 ton
becomes  scrap  immediately.  Most  bundles of such high  quality  prompt  scrap
contain a minimum of 40% coated material.

MRI(US)'s current  competition comes from the waste treatment recycling industry
who process or stabilize the wastes generated from the furnace  emissions in the
steel and foundry industries.

However any recycling system which does not involve dezincing the steel prior to
melting, allows the production of large quantities of hazardous waste and incurs
punitive  recycling and waste disposal costs, as well as exposure to the risk of
future environmental liability penalties.

The Company believes that its technology will allow for the removal of zinc from
scrap metal without the production of hazardous bi-products.

The  Company's  dezincing  process is  environmentally  benign,  but  continuous
management  of  air  quality  is  necessary,   and  when  in  full   production,
environmental procedures require continuous monitoring. The Company's activities
are subject to a variety of federal, state and local environmental regulations.
<PAGE>
Close attention is paid to compliance with all  environmental  regulations.  The
Company believes that it is in compliance with applicable regulations.

In the early part of 1997 the Company successfully  dezinced 1,700 tons of scrap
resulting  in sales / revenues  of  approximately  $353,000.  However,  the East
Chicago plant suffered frequent breakdowns and long periods out of production.

In April 1997,  Leon Lohman was  appointed  Vice  President of  engineering  and
production and he determined along with the assistance of SSOE .(a leading A & E
partnership) that the technology was proven but the plant was under engineered.

The scrap that was dezinced was sold to one of the U.S.'s leading foundries at a
premium  price to normal  scrap  proving  the  added  value  performance  of the
technology and the zinc that was produced also met specification although due to
the lack of appropriate equipment was heavily oxidized.

Following the results of an internal  production  review the company  determined
that an additional  investment of circa $2,000,000 would be necessary to achieve
an annual  production  target of 110,000  tons of scrap.  The ability to produce
high quality black scrap and marketable  zinc products has been  demonstrated by
the  existing  facility  but the need to  optimize  the current  facility  while
continuing to produce created operational difficulties. Accordingly, the company
curtailed  its  operations  with the intention of making major  operational  and
processing  additions and improvements to its plant operating  equipment.  These
improvements will last approximately  four to five additional months,  once they
are commenced.

The  disappointments   concerning   production  created  significant   financial
problems.  Existing lenders were reluctant to commit  substantial  further funds
and it was difficult to find new sources of financing.  However,  in March 1998,
the Company entered into a conditional  agreement with Zinc  Investments Inc. to
provide in stages the sum of  $3,000,000 to finance the  engineering  upgrade at
East Chicago. It is hoped that this financing will become  unconditional  before
the end of April, 1998.

All  dezincing by MRI(US) had been  carried out as a batch  process on different
grades and types of galvanized  scrap.  A production  line had never before been
established for the MRI(US)  process.  However,  although the Company has, since
October,  1996,  run  production  lines  on  a  limited  basis,  the  full-scale
commercial viability of the MRI(US) process remains unproven and there can be no
assurance  that  the  process  will be  technologically  successful,  or even if
technologically successful, that the Company will be able to obtain financing on
acceptable terms and in sufficient  amounts to bring the process to the point of
commercial success.

The  degree to which the  Company's  process  is  protected  by  patents is also
uncertain, although the company's U.S patent application was approved in January
1998. Accordingly,  even if successful,  the Company's technology may be subject
to appropriation by competition from third parties, having significantly greater
financial resources.
<PAGE>
To date,  the Company has obtained the  majority of its raw  materials  directly
from an auto  manufacturer.  The Company has also obtained  materials from other
local broker  sources.  The Company  believes that at such time as the Company's
facility is fully operational, there will be substantial competition among scrap
brokers,  metals and mining  companies and  manufacturers  of  galvanized  steel
product both to provide scrap for dezincing and to purchase both recovered zinc,
in powder and ingot form,  and clean  "black"  scrap.  However,  there can be no
assurance as to the terms and  conditions  upon which scrap can be purchased or,
recovered zinc or "black" scrap sold, or whether the Company's  operations  will
necessarily be profitable.

FINANCING OF BUSINESS
---------------------
The MRI(US) process has been developed in cooperation  with the Argonne National
Laboratory  ("Argonne") and the US Department of  Energy("DOE").  The DOE helped
provide some of the initial capital  required for the development of the MRI(US)
process.  Since June 1, 1992,  the DOE has made  available a total of $1,141,411
for research and development  respecting the  dezincification  technology  being
developed by MRI(US).

The  original  collaborative  research  and  development  contract  estimated  a
contribution  of $1.4  million  from the DOE.  The funds have been  provided  to
Argonne and have been  expended,  both by MRI(US) and  Argonne,  on research and
development  of the  dezincing  technology.  Further  funds  will  require a new
application  by the  Company  at such time as the  Company is capable of putting
such  funds  to  immediate   appropriate  use.  Based  upon  the  Memorandum  of
Understanding  entered  into  between  the DOE and  MRI(US),  the  Company has a
contingent  repayment  obligation,  equal  to  150%  of the  government's  total
payments  to the  project,  which  arises if and when the  technology  developed
becomes commercially  feasible.  The payments must be made out of the percentage
of future net royalty payments  received by the Company from the exploitation of
the technology, if successful.

Development  of  the  dezincing  technology  to the  point  of  full  commercial
application will require  substantial  funds in addition to those made available
through DOE.

The Company has had no ability to arrange bank financing and has therefore,  had
to arrange  convertible  term loans  with a number of private  overseas  venture
capital investment companies.

As of December  31,  1997,  the  Company  had  outstanding  the  following  loan
facilities, having the balances, set forth below; the aggregate balance of these
loans was  $3,285,794.  Each loan, at the option of the lender,  is  convertible
into  common  stock of the  Company.  Interest is payable at the rate of 10% per
annum;  the Company has the option to  capitalize  the interest  (which  becomes
convertible into additional shares).

Lender                                                       Outstanding Balance

Sundorne  Holding SA loan  convertible into 9,772,263                    781,781
shares of common stock

Plenbrick Ltd loan  convertible into 8,263,175 shares                    661,054
of common stock

Anthemis Ltd loan  convertible  into 1,295,675 shares                    103,654
of common stock
<PAGE>
Pangea Ltd loan  convertible into 6,935,287 shares of                    554,823
common stock

Quested Ltd loan  convertible  into 6,802,538  shares                    544,203
of common stock

Dorrrance Ltd loan  convertible into 6,584,925 shares                    526,794
of common stock

Garcia Ltd loan  convertible  into 481,062  shares of                     38,485
common stock

Accounting   Services  Ltd  loan   convertible   into                     75,000
1,416,668 shares of common stock

                                                                       3,285,794
                                                                       =========

The number of common shares into which such loans are  convertible is subject to
adjustment pursuant to anti-dilution  provisions.  During 1996, the Company, and
MRI(US),  at the insistence of lenders whose loans were then  outstanding,  as a
condition  to the  extension  of the  maturity  of such loans and the waiving of
certain defaults  thereunder,  entered into a pledge and security agreement with
Plenbrick,  Ltd.,  for  itself,  and as agent  for the other  existing  lenders,
whereby the loans then outstanding  would,  together with future loans made with
the approval of a majority in interest of the  lenders,  be secured by a blanket
lien upon, and security  interest in, the assets and shares,  of the Company and
MRI(US).  The  lenders  also have the right,  under  certain  contingencies,  to
exchange  loans for a majority  interest in MRI(US).  At the present  time,  the
loans described here have been extended so far to mature on June 30, 1998. Since
December 31, 1997,  Accounting  Services Ltd loan of $75,000 has been  converted
into common stock.

Based on past  experience,  the Company expects that it will require  additional
financing during the current year. There can be no assurance that such financing
will be available,  or as to the terms and conditions  upon which financing will
be  available,  or as to the terms  and  conditions  upon  which  financing,  if
available, will be provided. However, the Company anticipates that any financing
will be  available  only from  lenders  who will  require the right to an equity
participation in the Company,  either in the form of convertible  loans or loans
with accompanying warrants; and in either case this will likely lead to dilution
of existing  shareholders  equity.(See "Item 1" Zinc Investments Inc conditional
agreement).

In addition to obtaining  required  capital from  lenders,  the Company has also
sought to obtain needed financing through long-term arrangements with industrial
companies  interested in the  utilization  of its  technology.  These  companies
include  both those  engaged in the  mining and  processing  of zinc for sale to
users,  as well as  industrial  companies  (such as  automobile  manufacturers),
engaged in the manufacture of products utilizing  galvanized steel who seek ways
to dispose of the resulting scrap.


<PAGE>
ACQUISITION OF MRI(US)
----------------------
The acquisition of MRI(US) in 1995 was effected as follows:

          a). By the issue of  11,000,000  common  shares  under  Regulation  S,
          having a nominal value of $12,000,000,  including 10,000,000 of shares
          at an assigned value of $1.20 each, plus 1,000,000 shares representing
          the fee to underwriters.

          b). An  additional  7,000,000  common  shares will be issuable only at
          such time as the  dezincing  technology  of  MRI(US)  shall  have been
          approved by an independent  third-party,  as evidenced by such party's
          entering  into a contract  with the  Company for the  processing  of a
          minimum  of  50,000  tons  per  annum  of steel  scrap  utilizing  the
          Company's   technology,   which  contract  shall  be  on  commercially
          reasonable terms consistent with a bona fide arm's-length relationship
          between the parties,  and, pursuant thereto,  processing in commercial
          quantities shall have commenced and scrap so processed shall have been
          accepted and paid for by such third-party.

          c). An  additional  7,000,000  Common Shares shall be issuable only at
          such time or times as contracts utilizing the dezincing  technology of
          MRI(US)  shall  have been  entered  into with one or more  independent
          third parties, providing for the processing of an aggregate minimum of
          1,000,000 tons per annum of steel scrap,  which  contracts shall be on
          commercially reasonable terms consistent with a bona fide arm's-length
          relationship between the parties.

          d).  $25,000,000 of Convertible  Redeemable  Preference  Shares ("CRP"
          Shares), shall be issuable upon the following conditions:

                  (1) at the  rate  of  $5.00  of CRP  Shares  for  each  ton of
                  capacity in dezincing plants  established by the Company or by
                  any subsidiary (excluding the East Chicago, IN plant) which is
                  certified as being operable at full capacity and

                  (2) at the rate of $5.00  of CRP  Shares  for each ton of such
                  plant capacity,  which achieves  normal  operation of at least
                  80% of its specified  throughput capacity over an aggregate of
                  three consecutive months.

These CRP Shares,  if issued,  will be  convertible  at the option of the holder
into shares of common  stock of the  Company,  or the Company may be required to
redeem  such CPR Shares over a period of four  years,  commencing  on the second
anniversary  of issue to the extent of 50%  thereof and on each of the third and
fourth anniversaries to the extent of 25% thereof. Issuance of additional common
shares on  conversion  of CRP  Shares,  if issued,  would  result in  additional
dilution of shareholders equity.

Determinations  as to certification of a plant as being  operational,  and as to
the  attainment of requisite 80% of operational  capacity,  shall be made by the
Company in its reasonable good faith judgment. Because of delays in bringing the
dezincing process to the point of commercial viability,  as well as the need for
substantial  amounts of capital beyond that originally  anticipated when MRI(US)
was acquired,  the Company  contemplates  seeking to negotiate a modification of
the  conditions  upon which such  additional  common  and/or CRP shares  will be
issued.


<PAGE>
DISCONTINUED OPERATIONS
-----------------------
MRTI was from 1993 to the middle of 1995  primarily  engaged in the  development
and testing of the Malvy Anti-Theft device and the marketing of the Malvy device
concept to the public  and  automotive  manufacturers  through  its two  foreign
subsidiaries,  Malvy  Technology  S.A.  and  Malvy  Technology  (UK)  Ltd.  This
division,  however, went into receivership in October 1995. The Company does not
expect to recover any portion of its investment.  Prior thereto, the Company was
engaged  primarily in the business of mining and developing  precious  metals in
Alaska,  the  production  of oil and gas in  Oklahoma  and  New  Mexico  and the
transmission of gas through a pipeline  operated in Oklahoma.  These  operations
were  disposed  of,  or  written  down,  during  1994 and 1995.  The  historical
financial information in the consolidated  financial  statements,  shown in Part
IV,  Item  14(a)  of  this  10-K  include  historical   information  from  these
discontinued operations.


ITEM 2.  PROPERTIES

The Company occupies under license its only facility, in East Chicago,  Indiana,
from ASK Corporation (see Item 13 as to Certain  Relationships and Related Party
Transactions).  The  license  agreement  expired on January  31,  1997,  and the
parties to the license have agreed to a three year extension, at the same annual
rental of $60,000 currently  payable.  (In addition,  the Company is responsible
for all real estate taxes, utility costs, and costs of maintenance.)


ITEM 3.  LEGAL PROCEEDINGS

In September,  1994, the Company reached a settlement with a former chairman and
chief executive  officer of the Company,  Jack Alexander,  and certain  entities
related to him, in respect of amounts  claimed to be owed to them by the Company
on accounts of notes payable, loans and the redemption price of preferred stock.
Under the terms of the  settlement,  Mr.  Alexander  was to be paid $1.3 million
over a period ending May, 1995. The Company has renegotiated  several times, the
terms of  payment  to Mr.  Alexander.  At the time of the final  settlement  the
Company owed Mr Alexander a total of approximately  $551,129. Mr. Alexander also
owned all of the shares of a class of preferred  stock which gave Mr.  Alexander
the right to elect the majority of the board of directors of the Company.

During 1996, Mr Alexander assigned his interest in the settlement, including the
shares of  preferred  stock to an entity  identified  as "Morton  Blue" (with an
address in the British  Virgin  Islands).  During  1997,the  Company,  having no
ability  to  settle  the  amount  owed to  Morton  Blue in cash,  negotiated  an
agreement  with  Morton Blue to settle the  liability  and redeem the "Series A"
Preferred  shares.  This occurred in 1997 by the issuance of 2,550,000 shares of
the Company's  common stock under  Regulation S of the  Securities  and Exchange
Commission and is reflected in the financial statements.

On November 6, 1995, an action entitled Levine vs. Metal Recovery  Technologies,
Inc., was filed in the United States District Court of Delaware by a shareholder
against the Company and certain present and former directors,  alleging breaches
of the federal securities laws, by reason of alleged material misrepresentations
by the  Company and the  Company's  alleged  failure to make  timely  disclosure
relating to its Malvy  operations.  In November,  1996, the court  certified the
proposed  class.  On October 31, 1996, a second action was commenced by the same
plaintiff against  defendants and others,  including a number of brokerage firms
and their representatives,  alleging a conspiracy to inflate prices at which the
shares of the Company's common stock traded during the period specified therein.

Without admitting liability,  the Company has reluctantly agreed to settle these
actions. The decision was primarily taken to avoid mounting legal costs, to free
management from the burdensome time involved in dealing with this matter, and to
achieve certainty as to the outcome of the proceedings. The uncertainty of these
proceedings  has  been  negatively  affecting  or  delaying  potential  business
transactions by the Company's subsidiary, Metal Recovery Industries (US), Inc.

The agreed settlement was $3.25 million payable as follows:

-        $500,000 in cash to be paid on October 15, 1997 (the effective date).

-        $500,000,  in the  form of cash or  unrestrictive  common  stock of the
         Company, to be paid on the effective date. If the Company elects in its
         sole  discretion  not to make  this  payment  in the form of cash,  the
         number of shares of unrestricted  common stock of the Company necessary
         to satisfy the obligation of this  subparagraph  shall be determined by
         dividing  $550,000 by the market price of the  Company's  common stock.
         The market price of the Company's common stock will be deemed to be the
         average of the closing bid prices of that stock  during the ten trading
         days preceding the effective  date.  Should the effective date not have
         occurred by October 15,  1997,  the Company will deposit into escrow on
         that  date an amount of stock  equal to twice its  payment  obligation.
         Should the Company's stock  thereafter  decline by 30% or more from the
         market  price,  the escrow  agent,  as  promptly  as  possible  without
         depressing the price of the Company's stock, will liquidate  sufficient
         shares to yield the sum of $550,000 in cash,  whereupon  the balance of
         the shares will be returned to the Company. The funds obtained shall be
         held in escrow,  bearing  interest for the benefit of the class,  until
         the effective date.

-        The  Company  will  pay the  remaining  $2.2  million  in  four  annual
         installments  in  the  amount  of  $550,000,  beginning  on  the  first
         anniversary  of the effective  date. The Company shall have the option,
         in  its  sole  discretion,  to  satisfy  all  or  any  portion  of  the
         installment   payment  obligation  in  the  form  of  cash,  shares  of
         unrestricted common stock of the Company,  or any combination  thereof.
         If  the  Company  decides  not  to  satisfy  the  installment   payment
         obligation solely with cash, then the Company shall be obligated to pay
         in the form of  unrestricted  common stock of the Company the amount of
         the installment  obligation less the amount paid in cash (the "Non-Cash
         Obligation").  The number of shares of unrestricted common stock of the
         Company   necessary  to  satisfy  the  Non-Cash   Obligation  shall  be
         calculated  as follows:  (a) if the  unrestricted  common  stock of the
         Company is less than $1 per share, then the Non-Cash Obligation divided
         by the market price; (b) if the market price of the unrestricted common
         stock is equal to or  greater  than $1,  but in no event  greater  than
         $1.4545,  then the product of the Non-Cash Obligation divided by $1 per
         share;  or (C) if the market  price is greater than  $1.4545,  then the
         product of the  Non-Cash  Obligation  and 1.4545  divided by the market
         price. The market price of the Company's stock will be deemed to be the
         average of the closing bid prices of that stock  during the ten trading
         days preceding each installment payment date.

The Company has reflected the provision of these  arrangements  in the financial
statements.  The Company is in default in making the first installment under the
agreement and is currently renegotiating the payment schedule.

The Company is involved in other maters of  litigation  in the normal  course of
business.  Management  believes that none of these matters,  upon their ultimate
resolution, will involve amounts material to the Company's financial statements.

The Company maintains  insurance in an amount which management believes to cover
its risks.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.


<PAGE>
                                     PART II

ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since August 1995, the Company's  Common Stock has been quoted under MRTI on the
over-the-counter market system of the Bulletin Board (NASD OTC BB).

The following  table sets forth the range of high and low closing bid quotations
for the Common Stock as reported by NASD OTC BB Monthly  Statistical  Report for
the periods indicated.  Such quotations  represent  inter-dealer  prices without
retail markup, markdown, or commission, and may not necessarily represent actual
transactions.

Calendar Years by Quarter                 Closing Bid Price
-------------------------                 -----------------
                                          (in US Dollars)

                                          High                             Low
                                          ----                             ---

1996             First                    1.09375                          0.43
                 Second                   1.35                             0.46
                 Third                    1.12                             0.51
                 Fourth                   0.875                            0.30

1997             First                    0.76                             0.38
                 Second                   0.45                             0.19
                 Third                    0.31                             0.11
                 Fourth                   0.38                             0.06


As of December 31, 1997, the Company had in excess of 2,000 common  shareholders
of record.

The Company has not paid cash dividends to date on its Common Stock and intends,
for the foreseeable  future,  to continue its policy of retaining  earnings that
may otherwise be available for such dividends.

The Company has outstanding a number of loans  convertible  into common stock as
well as warrants to purchase its common  stock.  Information  on these loans and
warrants is more fully  described  in Notes 5 & 11 of the  financial  statements
found in Part IV,  Item 14 (a) of this  filing.  See  also  "Item 1-  Business",
regarding such convertible loans and shares of common stock that may be issuable
in connection with the acquisition of MRI(US).


<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA       ($,000's omitted)

                                              Year Ended December 31

For the Year Ended:          1997          1996          1995           1994
                             ----          ----          ----           ----

Revenues                  $    -         $   -         $   -           $  -
Net Income (loss)
 from operations          (622.5)     (1,046.8)       (177.2)       (4,976.6)
Income (loss) from
  operations per
  common share           (0.0212)      (0.0617)      (3.1670)        (0.2065)

At year ended:
  Total assets           20,187.9    $ 17,833.0    $ 14,832.2    $   35,068.3
                                                                           
Long-term debt            2,155.0         509.2         505.0           302.4
                                                                               
Total liabilities         9,450.3       5,410.8       3,548.8         1,888.5
Working Capital
   (deficiency)         (7,233.7)     (4,732.1)     (2,819.0)           338.6
Stockholders equity      10,737.6      12,422.2      11,284.0        33,179.8
      (Footnote 4)

Pro forma financial
  information
  Revenues                          $       -      $       -     $     1044.8
Net income (loss)
  from operations        (622.5)      (1,046.8)       (177.2)       (4,976.6)
Income (loss) from
  operations per
  common share          (0.0212)       (0.0617)      (3.1670)        (0.2065)
     (Footnotes 2 and 3)

Footnotes:
         1.   The  selected   financial  data  presented  are  not   necessarily
              indicative  of future  financial  position or results  from future
              operations.
         2.   The  computations of earning (loss) per common share considers the
              weighted  average  number of shares  outstanding  during the year,
              plus any common stock options and warrants if dilutive.
         3.   The weighted  average number of shares  reflects the twenty to one
              share consolidation, which occurred in February 1995.
         4.   Shareholders' equity of $10,737,592  includes  goodwill,  patents,
              etc. of $12,906,606.

<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION & ANALYSIS

1997 vs. 1996
-------------
Because  the East  Chicago,  Indiana,  processing  plant  was not in  commercial
operation,  but was in the  process of being  commissioned,  through  the end of
1996,  The  Company  had sales in 1997 of  $353,000  which were  offset  against
capitalized  costs in accordance  with the Company's  election to capitalize all
organizational  costs during the  development  stage.  The Selling,  General and
Administrative   expenses  for  1997  and  1996  were  $622,488  and  $1,046,761
respectively. The reduction in 1997 is primarily due to the company scaling back
operations.  (See item 1 Business).  The Non Operating  expenses  increased from
$64,512  in 1996  to  $3,286,517  in 1997  due to the  Class  Action  settlement
described in "Item 3" Legal Proceedings.

During 1997 and 1996, the Company spent $2,500,897 and $3,001,766,  respectively
on the commissioning of the plant in East Chicago,  Indiana. These costs include
equipment purchase and installation,  development and testing of its technology,
obtaining customers, suppliers, and financing, installing and testing equipment,
and  administrative  activities,  all of which were  capitalized and included as
assets on the accompanying financial statements.

Commencing  in late  1996,  and  continued  through  the early  part of 1997 the
dezincing process was, for the first time, successfully carried out on a limited
production  basis, and the Company believes that the process is  technologically
sound. The Company has, however,  experienced problems in its ability to operate
the  production  line  continuously,  and  without  interruptions,  largely,  it
believes,   because  of  unforeseen   mechanical  problems,   as  distinct  from
infirmities in the basic  technology  itself.  There is the need for significant
improvements,  upgrades and plant and equipment  expansions if the process is to
become commercially viable.

The commercial viability of the MRI(US) process will necessarily remain unproven
until a point in time  where  production  targets  are  achieved  to verify  the
Company's projections. The degree to which the Company's process is protected by
patents is also uncertain. Patent applications in the U.S have been approved and
worldwide  patents  have  been made and are  pending.  Even if  successful,  the
Company's  technology may be subject to  appropriation  by and competition  from
third parties, having significantly greater financial resources.

The Company has experienced  favorable interest in its technology from the steel
industry.  Several major  corporations are in various stages of investigation of
using  the  Company's  technology.  Initial  sales of the  product  in 1997 have
substantiated  the ability to obtain premium  prices for the non-coated  "black"
scrap produced by dezincing.

Because of the commissioning of the East Chicago plant, the Company has incurred
operating losses over the last two years from its on-going business  activities.
For the last several  years the Company has not  generated  positive  cash flows
from its  operations.  At December  31, 1997,  the Company had negative  working
capital of $7,233,663.  The Company's  independent auditors have qualified their
opinion on the Company's financial statements for the fiscal year ended December
31, 1997, to the effect that there is substantial doubt about the ability of the
Company to continue as a going concern.
<PAGE>
Requirement for Additional Financing
------------------------------------
The Company presently has, in addition to its existing cash on hand, unused loan
facilities aggregating approximately $950,000

Financing  will be required  both to fund  production-line  improvements  and to
defray   operating   expenses  pending   sufficient   revenues  from  commercial
production.  Because of the unavailability of conventional  financing due to the
lack of historical  positive cash flow to repay loans,  the Company is dependent
upon other  sources.  In the past,  it has raised  funds from the  placement  of
convertible loans with overseas  investors.  It anticipates that it will be able
to do so,  although  there can be no  assurance.  The Company is also engaged in
negotiations  with  potential  users of the Company's  dezincing  services,  and
potential  purchasers  of its end products of clean  "black" scrap and recovered
zinc,  respecting possible long-term  commercial  agreements,  as well as direct
investments,  which  would  provide  needed  capital,  although  there can be no
assurance that such negotiations will be successful.

1996 vs. 1995

The majority of  differences  in the financial  performance  of the Company from
1995 to 1996 stems from operations which were discontinued over various times in
1995.

      MINING  OPERATIONS  (DISPOSED  FEBRUARY  1995),  The property was actively
     marketed for sale and eventually sold in February 1995, for $425,000.  This
     adjustment  was  made  in  the  December,   1994   consolidated   financial
     statements, which resulted in a loss on disposal of $407,748.

      GAS PIPELINE D/B/A SPHINX INTERNATIONAL PETROLEUM CO. (DISPOSED JUNE 1995)
     -- Gross  revenues from the sale of gas were  $171,371 in 1995.The  Company
     disposed  of this  subsidiary  for a nominal  amount in June  1995..  After
     writing down the assets and  liabilities  of the  subsidiary to zero,  this
     resulted in a net loss at December 1995 of $7,841.

      MALVY TECHNOLOGY SA & UK - Though sales commenced in 1994  ($181,371),  it
     was  difficult in 1995 for this division to become  profitable.  During the
     first few  months of 1995,  sales  were  slow,  as the  ability to sell was
     hampered by the inability of the French hub  manufacturer  to supply enough
     of a variety  of hubs.  Prospects  seemed to be  improving  after a new hub
     manufacturer  was  located  in the UK. A  franchise  network  was set up in
     France  and the UK,  in  anticipation  of the  manufacturer  being  able to
     overcome the problem.  As the year passed by,  however,  it became more and
     more obvious  that the  technology  could not be converted  into more sales
     without a  substantial  amount of  further  capital  investment.  The board
     considered this option, but with the limited financial resources available,
     had  no  alternative  but to  allow  the  subsidiaries  to be  forced  into
     liquidation  following  petitions  filed by its  creditors.  As a result of
     this,  the  assets  and  liabilities  of  Malvy  were  eliminated  from the
     Company's  1995 balance sheet,  resulting in the write off of  concessions,
     rights, patents & goodwill of $33,883,238,  together with an operating loss
     of $725,562.


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial  statements  required by this item are set forth in Part IV, Item
14(a) hereof.

ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE

There have been no disagreements between the Company and its auditors that would
warrant disclosure pursuant to this item.


<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company has three directors, who are also executive officers of the Company.
The following  table sets forth the names and ages of all executive  officers of
the Company,  all positions and offices  presently  held by them,  the year each
person first became an officer and the term of each person office.

Name                 Age  Office              Principal Occupation Officer Since

Michael S. Lucas      50  Chairman,           Chairman,             October 1994
                          President & Chief   President & Chief
                          Executive Officer   Executive Officer

Roy Pearce            37  Chief Financial     Chief Financial         April 1993
                          Officer, Director   Officer

Dr. William Morgan    68  Executive Vice      Executive Vice            May 1995
                          President, Director President

Mr. Lucas joined the Company on October 14, 1994,  for five years prior thereto,
Mr. Lucas was Chairman  Executive  President of BGMB (USA),  Inc. (an investment
group),  and prior  thereto  was  Chairman  of BOM  Holdings,  a public  company
registered  in Great  Britain.  Mr. Pearce joined the Company on April 26, 1993.
For five  years  prior  thereto,  he was  Treasurer  of  Sharedane  Limited,  an
investment and property company  registered in Great Britain.  Dr. Morgan joined
the  Company on May 10,  1995.  For five years  prior  thereto,  Dr.  Morgan was
Chairman of MDZ Recycling  Corporation,  an  environmental  process  development
company incorporated in Canada.

ITEM 11.  EXECUTIVE COMPENSATION

Compensation - During 1997, Michael Lucas,  Director,  Chairman and CEO was paid
$240,000 and was the Company's most highly paid executive.  Roy Pearce, Director
and CFO was paid $150,000, and Dr. William Morgan was paid $105,000.

During 1997 the Company paid on behalf of Michael  Lucas $2,622 in premiums on a
term-life insurance policy.

Stock Option Compensation - As of the fiscal year ended December 31, 1997, there
were no outstanding employee stock options in existence.

No employees are employed  pursuant to employment  contract.  No director's fees
have been paid to date and the  Company  does not intend to pay  directors  fees
during the current fiscal year.
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Michael Lucas, President,  Chairman & Chief Executive Officer of the Company has
a direct  interest in 20,000 shares of common stock, or 0.05% of the outstanding
shares.  Mr. Lucas also has a contingent  interest in  1,000,000  common  shares
(representing  2.6% of the outstanding  shares) in the Company owned by a family
trust, of which Mr. Lucas' four children are beneficiaries.  Mr. Lucas disclaims
beneficial  ownership  of the  shares  or the power to  direct  the  disposition
thereof.

Roy Pearce,  currently Chief  Financial  Officer has a direct interest in 10,000
shares of common stock, or 0.03% of the outstanding shares.

Dr.  William  Morgan,  a director,  owns or has interest in 75% of MDZ Recycling
Corporation,  a company that may in the future receive CRP shares of the Company
of a  face  value  of up  to  $12,500,000,  dependent  on  the  success  of  the
dezincification  technology.  The obligation to issue such shares was assumed by
the Company in connection with its initial acquisition of MRI(US); see "Item 1 -
Business". Such CPR Shares, if issued, are convertible into common shares of the
Company.

Subsequent  to December  31,  1997,  Accounting  Services Ltd located at Harbour
House, South Esplanade,  St Peter Port, Guernsey,  C.I. a lender to the Company,
converted their loan of $75,000 into 1,416,668 common shares.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

MRI(US)  occupies  under  license  an 11 acre  site and  building  for its plant
facility  at East  Chicago,  Indiana  from a  corporation  of which Dr.  William
Morgan,  a director  of the  Company,  has an indirect  interest of 30.75%.  The
Company pays an annual rental of $60,000,  plus additional  expenses relating to
the property. See "Item 2 Property".  MDZ Recycling Company, in which Dr. Morgan
holds a direct and  indirect  interest of 75%,  is  entitled to receive  royalty
payments of $1.00 per ton on the annual  "throughput"  of all  dezincing  plants
operated by MRI(US),  other than the East Chicago,  Indiana  plant,  pursuant to
arrangement in effect at the time the Company  acquired  MRI(US).  See "Item 1 -
Business". To date, no such payments have become due.

See also Note 13 of the audited  financial  statements in Part IV, Item 14(a) of
this filing,  with respect to related  party  transactions  in which the Company
participated.


<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)
 1 The following  financial  statements and supplementary data are filed as part
of this Annual Report on Form 10-K:
                                                                            Page
Consolidated Financial Statements

Independent Auditor's Report                                           F-1 - F-2

Consolidated Balance sheets at December 31, 1997 and 1996                 F-3-F4

Consolidated Statements of operations for each of the
         three years in the period ended December 31, 1997             F-5 - F-6

Consolidated Statements of stockholders' equity for each of
         the three years in the period ended December 31, 1997             F7-F8

Consolidated Statements of cash flows for each of the three
         years in the period ended December 31, 1997                         F-9

Notes to Consolidated financial statements                           F-10 - F-26

Exhibits

3(i) Certificate of  Incorporation  of Registrant  (incorporated by reference to
Exhibit 3(i) to form 10-K for the year ended December 31, 1990).

3(ii)    Certificates of Amendment of Preferred Stock Designation  (incorporated
         by reference to Exhibit 3(ii) to Form 10-K for the year ended  December
         31, 1996), as follows:

                  (A)  January 28, 1991
                  (B)  July 5, 1991
                  (C)  September 23, 1991
                  (D)  October 20, 1992
                  (E)  November 2, 1992
                  (F)  March 19, 1993
                  (G)  April 15, 1993
                  (H)  June 17, 1993

 4 Instruments  Defining the Rights of Security  Holders are included  under the
items listed in Exhibit 3(ii) above and therefore are  incorporated by reference
to the Form 10-k for the year ended December 31, 1995.
<PAGE>
10(ii). Material Contracts -- Convertible loan agreements have been entered into
with the following lenders:

                  1.   Sovereign Trust Services, Limited
                  2.   Sundorne Holdings, Limited
                  3.   Osbourne, Limited
                  4.   Plenbrick, Limited
                  5.   Alcaria Investments, Limited
                  6.   Jepherson Limited
                  7.   Antheims Limited
                  8.   Pangea Limited
                  9.   Quested Limited
                  10.  Garcia Ltd

         The  lenders are parties to a pledge and  security  agreement  with the
Company and MRI(US),  dated February 1, 1996, whereby such loans,  together with
future loans, are secured by a pledge of and security  interest in all assets of
the Company (including the shares of MRI(US)) and of MRI(US).

11. Computation of per share earnings is included in the Consolidated Statements
of Operations found on page F-5 of this filing

13. Form 10-Q for the periods  ending March 31, June 30, and  September 30, 1997
are attached hereto.

21. Subsidiary of the Registrant:

     1. Metal Recovery Industries (US), Inc. a Delaware corporation.

27. Financial Data Schedule 

All other schedules have been omitted because either
the  required  information  is not  present,  or it is not  present  in  amounts
sufficient to require submission of the schedule,  or because the information is
included in the consolidated financial statements and notes thereto.


<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                        METAL RECOVERY TECHNOLOGIES, INC.




                  BY:      /s/ Michael S. Lucas          
                           --------------------          
                           Michael S. Lucas
                           President, Chairman & CEO


Date:  April 21, 1998


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated.

NAME                                 CAPACITIES                      DATE
----                                 ----------                      ----



/s/ Michael S. Lucas           Chairman, President & CEO          April 21, 1998
-------------------------




/s/ Roy Pearce                 Chief Financial Officer            April 21, 1998
-------------------------




/s/ William A. Morgan          Executive Vice President           April 21, 1998
-------------------------



<PAGE>
























                                         METAL RECOVERY TECHNOLOGIES, INC.

                                         Consolidated Financial Statements
                                         METAL RECOVERY TECHNOLOGIES, INC.


<PAGE>


                                     Part IV

            Item 14. Consolidated Financial Statements and Financial
                               Statement Schedules



(a) The  following  documents  are filed as a part of this Annual Report on Form
10-K:


                           Reference

                                                                            Page
Consolidated Financial Statements

Independent Auditor's Report                                           F-1 - F-2

Consolidated Balance sheets at December 31, 1997 and 1996                 F-3-F4

Consolidated Statements of operations for each of the
         three years in the period ended December 31, 1997             F-5 - F-6

Consolidated Statements of stockholders' equity for each of
         the three years in the period ended December 31, 1997             F7-F8

Consolidated Statements of cash flows for each of the three
         years in the period ended December 31, 1997                         F-9

Notes to Consolidated financial statements                           F-10 - F-26


<PAGE>
Independent Auditor's Report
----------------------------

Board of Directors and Stockholders
Metal Recovery Technologies, Inc.

We have audited the consolidated balance sheets of Metal Recovery  Technologies,
Inc.  (MRTI),  as of December  31, 1997 and 1996,  and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ending December 31, 1997, 1996 and 1995. The consolidated  financial  statements
are the responsibility of MRTI's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of MRTI, as of December
31, 1997 and 1996, and the results of their operations, stockholders' equity and
cash flows for the years ended  December 31, 1997,  1996 and 1995, in conformity
with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that  MRTI  will  continue  as a going  concern.  As shown  in the  consolidated
financial   statements,   MRTI's   current  assets  are  $61,619  while  current
liabilities  total  $7,295,282.  MRTI  incurred a net  operating  loss and is in
default of a material settlement agreement with former shareholders for the year
ended December 31, 1997. These conditions raise  substantial  doubt about MRTI's
ability to continue  as a going  concern.  Management's  plan in regard to these
matters is also discussed in Note 18. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from the  outcome  of these
uncertainties.

MRTI is involved with the development of a dezincing  process and the success of
the development is dependent on future operating market conditions,  acceptance,
and operating  efficiancy.  The ultimate outcome of these  uncertainties  cannot
presently  be  determined.  As  discussed in Notes 1,3, and 15, the recovery for
intangible  costs  for  concessions,  rights,  patents,  and  goodwill  totaling
$12,906,606  and  $12,905,749,  the recovery of property and equipment  totaling
$3,007,100 and $2,591,985,  and the recovery of costs for  organizational  costs
totaling $4,198,149 and $2,112,367 for 1997 and 1996, respectively, is dependent
on  future  profitable  operations.   Accordingly,  the  consolidated  financial
statements do not include any  adjustment  that might result from the outcome of
these uncertainties.




                                       F1
<PAGE>
                       Board of Directors and Stockholders
                   Metal Recovery Technologies, Inc. continued


As  discussed  in Note 17, MRTI is a  defendant  in several  lawsuits  and other
matters. The ultimate outcome of the lawsuits and other matters is not presently
determinable.  Accordingly,  no provisions for liability if any has been made in
the financial  statements for any potential  lawsuits or other  liabilities that
may arise.

As shown in the financial  statements  and discussed in Note 13 and elsewhere in
the  financial  statements,  MRTI has  engaged in various  substantive  business
activities and agreements with related parties.





March 31, 1998




























                                       F2
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
                           Consolidated Balance Sheets
                           December 31, 1997 and 1996


                                                                                                   1997          1996
<S>                                                                                      <C>             <C>   
                                                                                                  ----          ----
Current assets:
     Cash (note 14)                                                                              43,247         6,778
     Inventories
                                                                                                 18,372        65,370
     Other current assets
                                                                                                   --          97,355
                                                                                            -----------   -----------
        Total current assets
                                                                                                 61,619       169,503
                                                                                            -----------   -----------

Property and equipment (note 3) .........................................................     2,591,985
                                                                                            -----------   -----------
                                                                                                            3,007,100

Other assets:
     Concessions, rights, patents and goodwill (note 15) ................................    12,906,606    12,905,749
     Organizational costs, net of amortization (note 15) ................................     2,112,367
                                                                                                            4,198,149
     Other assets
                                                                                                 14,400        53,400
                                                                                            -----------   -----------
        Total other assets ..............................................................    17,119,155    15,071,516
                                                                                            -----------   -----------

                                                                                            $20,187,874    17,833,004
                                                                                            ===========   ===========

                 Liabilities and Stockholders' Equity
                 ------------------------------------

Current liabilties:
     Current maturities of long-term debt (note 4)
                                                                                              1,635,000         4,580
     Notes payable (note 6)
                                                                                                 39,184        49,894
     Accounts payable                                                                            
                                                                                              2,172,270     1,432,128
     Payable to former officer and director (note 13)
                                                                                                      -        55,098
     Notes to others (note 5)                                                                    
                                                                                              3,285,794     3,288,010
     Payroll and related liabilities                                                            163,034        71,863
                                                                                               --------        ------
          Total current liabilities                                                           7,295,282     4,901,573
                                                                              
Long-term liabilities:
  Long-term debt (note 4)                                                                     2,155,000       505,000
  Capital lease (note 4)                                                                              -         4,182
                                                                                                   ----         -----
        Total long-term liabilites                                                            2,155,000       509,182
                                                                                             ----------       -------

        Total liabilites                                                                      9,450,282     5,410,755
                                                                         
Stockholders' equity (notes 8 and 9):
     "Series A" preferred stock, $10 par value,
        100,000 shares authorized;  0 and 46,965 shares
        outstanding for 1997 and 1996                                                                 -       469,650
                                                                                       
     "Series B" preferred  stock, $10 par value,  2,500,000  shares  authorized;
        21,375 shares issued and outstanding for 1997 and 1996                                   44,373        44,373
                                                                                   
     Common  stock,  par  value  of  $  .001;   100,000,000  shares  authorized;
       38,390,501 and 20,707,597 shares issued and outstanding for 1997 and 1996                 38,390        20,707
     Additional paid-in capital                                                              65,031,530    62,355,161
     Deficit accumulated during the development stage (note 2)                              (5,274,467)   (1,365,408)
                                                                             
     Deficit accumulated prior to development stage                                        (49,102,234)  (49,102,234)
                                                                                           ------------  ------------
        Total stockholders' equity                                                           10,737,592    12,422,249
                                                                                           ------------    ----------

                                                                                       $     20,187,874    17,833,004
                                                                                        ===============    ==========

</TABLE>

See accompanying notes which are an integral part of these financial statements.



                                                        F4
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
                      Consolidated Statements of Operations
                  Years Ended December 31, 1997, 1996, and 1995



                                                                  Cumulative
                                                                from Inception
                                                                April 1995 to
                                                                 December 31,
                                                                     1997           1997            1996            1995
                                                                     ----           ----            ----            ----
                                                                 (note 2)
<S>                                                          <C>             <C>             <C>             <C>    

Operating expenses - Selling, general and administrative      $ 1,846,429        622,488       1,046,761         177,180

Nonoperating expense:
     Loss associated with legal settlement (note 17)          (3,250,000)    (3,250,000)               -               -
     Interest expense                                           (178,038)       (36,571)        (64,512)        (76,955)
                                                                ---------       --------        --------        --------
        Total nonoperating expense                            (3,428,038)    (3,286,571)        (64,512)        (76,955)
                                                              -----------    -----------

        Loss before discontinued operations                   (5,274,467)    (3,909,059)     (1,111,273)       (254,135)

Loss on discontinued operations:
     Seminole pipeline                                                  -              -               -         (7,841)
     Malvy France and Malvy UK                                          -              -               -       (725,562)

  Loss on disposal of discontinued operations:
     Malvy France and Malvy UK (note 16)                                -              -               -    (33,883,238)
                                                                    -----          -----           -----    ------------  

        Net loss                                             $(5,274,467)     (3,909,059)     (1,111,273)   (34,870,776)
                                                              ===========     ===========     ===========   ============
                                                                                                  
</TABLE>



                                       F5
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
                Consolidated Statements of Operations, continued



                                                                 Cumulative
                                                                    from
                                                                  Inception
                                                                April 1995 to
                                                                 December 31,
                                                                         1997           1997           1996           1995
                                                                         ----           ----           ----           ----
                                                                     (note 2)
<S>                                                                  <C>            <C>            <C>            <C>    

Primary loss per share:

     Loss before discontinued operations                     $       (0.2764)       (0.1334)       (0.0655)       (0.0232)
                                                                     ========       ========       ========       ========

     Loss from operations of discontinued segment
                                                                            -              -              -       (0.0668)

     Loss on disposal
                                                                            -              -              -       (3.0878)
                                                                         ----           ----           ----       --------

     Net loss                                                $       (0.2764)       (0.1334)       (0.0655)       (3.1778)
                                                                     ========       ========       ========       ========

Fully diluted loss per share                                          *             *              *              *

Weighted average number of common shares outstanding:
         Primary                                                   19,084,708     29,312,984     16,968,009     10,973,132
         Fully diluted                                                *             *              *              *
</TABLE>

*  Anti-Dilutive








                                       F6
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 1997, 1996 and 1995

                                          Series A                         Series B
                                       Preferred Stock                 Preferred Stock                       Common Stock
                                  Shares             Amount         Shares         Amount             Shares              Amount

<S>                             <C>             <C>               <C>         <C>                <C>                <C>

 Balance, January 1, 1995         46,965        $   469,650       21,375      $    44,373         49,879,195        $     49,879
     Reverse split 20 for 1            -                  -            -                -
     Common stock issued:
       February 1995                   -                  -            -                -                                    250
       April 1995 for MRI(US)          -                  -            -                -
     Cumulative foreign
 currency translation adjustment       -                  -            -                -                  -                   -
     Net loss                          -                  -            -                -                  -                   -
                                    ----            -------         ----          -------            -------              ------
 Balance, December 31, 1995       46,965            469,650       21,375           44,373         13,764,653              13,764
                                                                                   
     Common stock issued
 (note 9)
        April 1996                     -                  -            -                -                                  1,335
        May 1996                       -                  -            -                -                                  1,500
        August 1996                    -                  -            -                -                                    500
        September 1996                 -                  -            -                -                                  1,164
        October 1996                   -                  -            -                -                                  2,444
     Net loss                          -                  -            -                -                  -                   -
                                    ----            -------         ----          -------               ----                ----
 Balance, December 31, 1996       46,965            469,650       21,375           44,373         20,707,597              20,707
    Preferred Series A redeemed (46,965)          (469,650)                                        2,550,000               2,550
     Common stock issued (note 9)
        January 1997                   -                 -              -               -                                    571
        February 1997                  -                 -              -               -                                  1,555
        April 1997                     -                 -              -               -                                  3,482
        September 1997                 -                 -              -               -                                  3,306
        October 1997                   -                 -              -               -                                  4,454
        November 1997                  -                 -              -               -                                  1,765
     Net loss                          -                 -              -               -                  -                   -
                                    ----           -------           ----         -------               ----                 ---
 Balance, December 31, 1997                       $                21,375     $    44,373         38,390,501        $     38,390
                            ============               ===        =======       =========        ===========        ============
                                   


</TABLE>











                                       F7
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
           Consolidated Statements of Stockholders' Equity, Continued


                                                                                            Retained
                                                                                            Earnings
                                                                                            (Deficit)
                                                     Foreign                               Accumulated
                               Additional           Currency            Retained           Durting the
                                Paid-In            Translation          Earnings            Deveolopment
                                Capital            Adjustment          (Deficit)              Stage                Total
                                                                                            (note 2)
<S>                            <C>                  <C>            <C>                       <C>                 <C>   

Balance, January 1, 1995       $   46,676,883       $    424,599   $    (14,485,593)                    -        $   33,179,791
                                                                 
    Reverse split 20 for 1             47,365                  -                   -                    -                     -
    Common stock issued:
      February 1995                   199,750                  -                   -                    -               200,000
      April 1995 for MRI(US)       13,189,000                                                                        13,200,000
 Cumulative foreign
currency translation adjustment             -          (424,599)                   -                    -             (424,599)
    Net loss                                -                  -        (34,616,641)            (254,135)          (34,870,776)
                                -------------       ------------        ------------            ---------          ------------
Balance, December 31, 1995         60,112,998                           (49,102,234)            (254,135)            11,284,416
                                                               -
    Common stock issued
(note 9)
       April 1996                     521,731                  -                   -                    -               523,066
       May 1996                       411,000                  -                   -                    -               412,500
       August 1996                    146,985                  -                   -                    -               147,485
       September 1996                 464,847                  -                   -                    -               466,011
       October 1996                   697,600                  -                   -                    -               700,044
    Net loss                                -                  -                   -          (1,111,273)           (1,111,273)
                                      -------             ------              ------          -----------           -----------
Balance, December 31, 1996         62,355,161                           (49,102,234)          (1,365,408)            12,422,249
                                                               -
    Preferred Series A redeemed       548,579                  -                   -                    -                81,479
    Common stock issued (note 9)
       January 1997                   199,429                  -                   -                    -               200,000
       February 1997                  218,445                  -                   -                    -               220,000
       April 1997                     776,545                  -                   -                    -               780,027
       September 1997                 273,441                  -                   -                    -               276,747
       October 1997                   490,745                  -                   -                    -               495,199
       November 1997                  169,185                  -                   -                    -               170,950
    Net loss                                -                  -                   -          (3,909,059)           (3,909,059)
                                       ------             ------              ------          -----------           -----------
 Balance, December 31, 1997    $   65,031,530     $                      (49,102,234)          (5,274,467)        $   10,737,592
                              ===============    =================       ============          ===========        ==============
</TABLE>
                                                           
See accompanying notes which are an integral part of these financial statements.






                                       F8
<PAGE>
<TABLE>
<CAPTION>

                        Metal Recovery Technologies, Inc.
Consolidated Statements of Cash Flows-Years Ended December 31, 1997, 1996 & 1995

                                                        Cumulative
                                                    from Inception
                                                     April 1995 to
                                                      December 31,
                                                              1997            1997             1996             1995
                                                              ----            ----             ----             ----
                                                          (note 2)
<S>                                                   <C>              <C>               <C>            <C>   
Cash flows provided used by operations:
    Net loss                                    $      (5,274,467)     (3,909,059)       (1,111,273)    (34,870,776)
    Adjustments to reconcile net loss
        to net cash provided used by
        operating activities:
          Common stock issued in exchange for
services or reduction of debt                            2,966,157       2,104,189           662,218               -
          Change in foreign currency
              translation adjustment                             -               -                 -       (424,599)
          Net changes in current assets and
liabilities excluding long-term debt                       310,871         975,666           405,969         616,430
                                                          --------         -------           -------         -------
         Net cash used by operating activities         (1,997,439)       (829,204)          (43,086)    (34,678,945)
                                                       -----------       ---------          --------    ------------
Cash flows provided used by
  investing activities:
    Reserve for pipeline cleanup                                 -               -                 -        (60,787)
    Net changes to property and equipment              (3,007,100)       (415,115)       (1,431,466)       (222,853)
    Net changes in organization cost                   (4,198,149)     (2,085,782)       (1,557,945)       (554,422)
    (Additions) deletions to concessions,
rights, patents and goodwill                          (12,906,606)           (857)          (12,355)      19,086,253
     Decrease (increase) in other assets                  (14,400)         39,000           (53,400)         214,639
                                                          --------         -------            ------         -------
              Net cash used by investing              (20,126,255)     (2,462,754)       (3,055,166)      18,462,830
                                                      ------------   -------------       -----------     -----------
activities
Cash flows provided  (used by)
   financing activities:
    Increase (decrease) in notes payable                  (15,914)        (65,808)          (86,309)         136,203
    Increase in long-term debt                           3,790,000       3,276,238             8,762         275,028
    Increase (decrease) in notes to investors            3,285,794         (2,216)         1,394,834       1,893,176
    Issuance (reduction) of common stock                   11,529)          17,683             6,943        (36,115)
    Received from additional stock and
       paid-in capital issues                           13,436,115               -                 -      13,436,115
    Reduction in Series A preferred stock                (469,650)       (469,650)                 -               -
    Cash received for common stock issued                2,152,125         572,180         1,579,945               -
       Net cash provided by financing activities        22,166,941       3,328,427         2,904,175      15,704,407
                                                        ----------       ---------         ---------      ----------
       Increase (decrease) in cash                          43,247          36,469         (194,077)       (511,708)

Cash at beginning of year                                        -           6,778           200,855         712,563 
                                                      ------------           -----           -------         -------
Cash at end of year                                   $     43,247          43,247             6,778         200,855
                                                           =======         =======            ======         =======
Supplemental Information:
  Cash paid for interest                              $    148,010          23,129            47,926          76,955
                                                           -------          ------            ------          ------
                                                                                 
  Cash paid for income taxes                          $          -               -                 -               -
                                                              ====            ====           =======          ======
</TABLE>

<PAGE>
                        Metal Recovery Technologies, Inc.

                   Notes to Consolidated Financial Statements

                        December 31, 1997, 1996 and 1995


(1)      THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
         PRINCIPAL ACTIVITIES
         METAL RECOVERY TECHNOLOGIES, INC. (MRTI)
         During 1990,  Sphinx  Mining,  Inc.  (Sphinx),  originally  a  Canadian
            corporation,  reorganized and became a U.S. corporation incorporated
            in the state of Delaware.  In 1991, Sphinx formally changed its name
            to Sphinx Natural  Resources,  Inc. In June, 1993 the Company's name
            was changed to Malvy Technology,  Inc. (Malvy) and in July 1995, the
            Company changed its name to Metal Recovery Technologies, Inc.

         MRTI has a wholly-owned  subsidiary,  Metal Recovery Industries,  (US),
            Inc.  (located  in East  Chicago,  Indiana)  a  developmental  stage
            company that intends to market the service of dezincing scrap metal.

         METAL RECOVERY INDUSTRIES, (US), INC. (MRI(US))
         MRTI acquired  MRI(US),  in April 1995 for $12,000,000 which was raised
            by the  offshore  sale  under a  placing  and  escrow  agreement  of
            10,000,000 shares of MRTI's stock,  together with a fee of 1,000,000
            shares.  The shares  were  placed at a value of $1.20 per share.  In
            addition,  $25,000,000 of convertible  redeemable preference shares,
            and 14,000,000  common shares may be issued  contingent upon several
            factors,  including,  but not limited to, the building of subsequent
            plants and the achievement of production  goals of said plants.  The
            acquisition  has been  accounted for using the purchase  method with
            the  excess  of  cost  over  assets  acquired  being  attributed  to
            concessions,  rights, patents, and goodwill. As of December 31, 1997
            and 1996, the value of concessions,  rights,  patents,  and goodwill
            was $12,906,606 and $12,905,749, respectively. The ultimate value of
            these  assets  depends on future  profitable  operations  and market
            conditions  for the MRI(US)  dezincing  process.  As of December 31,
            1997,  MRI(US) is still in the developmental  stage and expenses are
            being capitalized as incurred.

         DISCONTINUED AND DISPOSED OF OPERATIONS
         SPHINX INTERNATIONAL PETROLEUM COMPANY (SIPCO), (A WHOLLY SUBSIDIARY OF
         SPHINX)
         In December 1992, SIPCO, a wholly owned subsidiary of Sphinx,  acquired
            a pipeline  operation  (Seminole  Pipeline)  located in  Oklahoma in
            exchange  for  143,750  shares of Malvy  Series B  preferred  stock.
            (Footnote 8) The  acquisition  was  accounted for using the purchase
            method and  accordingly,  the acquired assets were recorded at their
            fair value at the date of acquisition. In 1994, 143,750 of preferred
            Series B shares were redeemed for 7,137,731  shares of common stock.
            As  further  discussed  in note 16,  in 1995,  SIPCO  was sold for a
            nominal price.


                                      F-10


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


         THE COMPANY AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS,CONTINUED
         MALVY TECHNOLOGY S.A., A FRENCH CORPORATION (MALVY FRANCE)
         In 1993,  Malvy  agreed to acquire  100% of the capital  stock of Malvy
            Technology S.A., a French corporation.  100% ownership was completed
            January 15, 1994. The acquisition price of $32,500,000 was raised by
            the offshore sale of 16,250,000  shares of MRTI's common stock.  The
            acquisition  has been  accounted for using the purchase  method with
            the  excess  of  cost  over  assets  acquired  being  attributed  to
            concessions,  rights,  patents and goodwill.  The ultimate  value of
            these assets  depended on future  profitable  operations  and market
            conditions for the Malvy automobile anti-theft device.

         In October,  1995, Malvy France was placed into  liquidation  under the
            control of a government  liquidator.  As of December  31,  1995,  as
            further  explained  in note 16, a loss on  disposal  of  assets  was
            recorded.

         MALVY TECHNOLOGY UK, LIMITED, A BRITISH CORPORATION (MALVY UK)
         Malvy  UK  was  incorporated  November  15,  1993,  as  a  wholly-owned
            subsidiary of Malvy Technology,  Inc. There was no activity in 1993.
            Malvy UK was established to aid in business development and sales of
            the anti-theft device in the United Kingdom. As further discussed in
            note 16, in October,  1995, Malvy UK was placed in liquidation under
            the control of a government liquidator. A loss on disposal of assets
            was recorded.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         PRINCIPLES OF CONSOLIDATION
         The1997 and 1996 consolidated  balance sheets and related statements of
            operations,  stockholders'  equity,  and cash  flows  consist of the
            accounts of MRTI and MRI(US).  The 1995  statements  of  operations,
            stockholders'  equity,  and cash flows  consist of the  accounts  of
            MRTI,  MRI(US) and the results of the  discontinued  and disposed of
            operations  for Malvy France,  Malvy UK and SIPCO.  All  significant
            inter-company balances and transactions have been eliminated.

         DEVELOPMENT STAGE OPERATIONS
         Development  operations   consisting  of  raising  capital,   obtaining
           financing, locating and acquiring equipment,  obtaining customers and
           suppliers,    installing   and   testing    equipment   and   certain
           administrative   activities   have  been   capitalized  in  property,
           equipment, and organizational costs.

         CUMULATIVE FROM INCEPTION TOTALS
         Financial statement  information that reports cumulative from inception
           totals and retained deficit accumulated during the development stage,
           includes the results of operations  from the purchase date of MRI(US)
           and not the disposed of  operations  of Malvy  France,  Malvy UK, and
           SIPCO.
                                      F-11


<PAGE>


                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         CASH
         Cash includes cash on hand and cash in checking accounts.

         INVENTORIES
         Inventories for MRI(US) consist of steel scrap, zinc bearing solutions,
            and other chemicals valued at lower of cost or market.

         PROPERTY AND EQUIPMENT
         Assets are recorded at historical cost.  Depreciation is computed using
            the straight-line  method based on the estimated useful lives of the
            related assets. Expenditures for maintenance and repairs are charged
            to  expense  as  incurred  whereas  expenditures  for  renewals  and
            betterments  are  capitalized.  The  cost  and  related  accumulated
            depreciation  of assets  sold or  otherwise  disposed  of during the
            period are removed from the accounts. (note 3.)

         INTANGIBLE ASSETS
         Intangible assets will be amortized using the straight line method over
            the estimated life of the related assets as follows:

              Concessions, rights, patents, and goodwill                15 Years
              Organizational costs                                       5 Years

            (note 15.)

         DEPRECIATION AND AMORTIZATION
         Depreciation  and  amortization  is  provided  using the  straight-line
            method over the useful lives of the related assets.












                                      F-12


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
         LOSS PER SHARE
         Thecomputation  of  earnings  (loss) per  common  share  considers  the
            weighted  average  number of  shares  outstanding  during  the year.
            Common stock options, and warrants,  if dilutive,  are considered in
            the  computation of earnings per share (unless  anti-dilutive).  The
            treasury  method of accounting for the dilutive  outstanding  common
            stock  options  and  warrants  is used  in the  earnings  per  share
            calculation.

         INCOME TAXES
         MRTI files  consolidated  federal and state  income tax  returns.  MRTI
            computes  provisions  for  income  taxes if any in the  consolidated
            financial  statements  using  the  liability  method  of  accounting
            prescribed by Financial  Accounting  Standards  Board  Statement No.
            109.

         BASIS FOR PRESENTATION
         MRTI presents all financial  statements  in United  States  dollars and
            under generally accepted  accounting  principles as practiced in the
            United States.

         FOREIGN CURRENCY TRANSLATION
         Foreign entities  translate monetary assets and liabilities at year end
            exchange rates while non-monetary items are translated at historical
            rates.  Revenue and expense  accounts are  translated at the average
            rates in effect  during the year.  Gains and losses from  changes in
            exchange rates are recognized in  consolidated  income (loss) in the
            year of occurrence. Adjustments resulting from translation of assets
            and  liabilities are reflected in the  stockholders'  equity section
            titled "Cumulative foreign currency translation adjustment."

         RECLASSIFICATIONS
         Certain  amounts for prior years may have been  reclassified to conform
            with the current year presentation.













                                      F-13


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
         RISKS AND UNCERTAINTIES
         Thepreparation  of financial  statements in conformity  with  generally
            accepted accounting principles requires management to make estimates
            and  assumptions  that  affect  the  reported  amounts of assets and
            liabilities  and disclosure of contingent  assets and liabilities at
            the date of the  financial  statements  and the reported  amounts of
            revenues and expenses  during the reporting  period.  Actual results
            could differ from those estimates.

<TABLE>
<CAPTION>

(3)      PROPERTY AND EQUIPMENT
         Property and equipment consisted of the following at December 31:

                                                                1997                            1996
                                                 ------------------------------      -----------------------
                                                      Accumulated    Book              Accumulated  Book
                                               Cost   Depreciation   Value     Cost    Depreciation Value
<S>                                          <C>         <C>       <C>       <C>         <C>     <C>
         MRI(US):
         Equipment and capitalized expenses$ 2,435,654      -      2,435,654 2,178,823      -    2,178,823
         Furniture and fixtures                 33,845      -         33,845    33,845      -       33,845
         Leasehold improvements                537,601      -        537,601   348,255      -       348,25
         Vehicles                                    -      -         -         31,062      -       31,062
         

                                           $ 3,007,100      -      3,007,100 2,591,985      -    2,591,985
                                             =========   =======   ========= =========   ======= =========
</TABLE>

     MRI(US) is in the  developmental  stage and therefore,  no depreciation was
     taken in 1996 or 1997.















                                      F-14


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

<TABLE>
<CAPTION>

(4)      LONG-TERM DEBT
         Long-term debt at December 31, 1997 and 1996 was as follows:

                                                                                          1997             1996
                                                                                          ----             ----
<S>                                                                                     <C>              <C>  
         MRTI
         In a settlement with former shareholders, MRTI agreed                          $ 3,285,000        -
         to pay $3.25 million dollars plus administrative fees
         in cash and common stock.  Payments scheduled
         include $1,050,000 on the effective date
         of the agreement (October 15, 1997) and future
         annual payments of $550,000 over the next four
         years.  As further discussed in note 17, MRTI
         is currently in default of this agreement.

         MRI(US)
         United States Department of Energy (D.O.E.),                                       505,000       505,000
         provided a research grant to the Argonne
         National Laboratory of $1,400,000 to conduct research
         and pilot plant work on the dezincing of steel.  The total
         benefits of this work to accrue to MRI(US).  Of this amount,
         MRI(US) was paid $505,000 and under a Memorandum of
         Understanding with D.O.E., will be responsible to repay
         1.5 times the amount received, i.e., $2,100,000 to D.O.E.
         out of future royalty receipts from the process.  Management
         anticipates no repayment funds will be paid in 1998.

         Equipment capital lease;  principal and interest                                    -             8,762
         payments due monthly for 24 months with a $1 buyout
         option at end of lease.
                                                                                          3,790,000       513,762

         Less current installments                                                        1,635,000         4,580
                                                                                         ----------      --------

            Long-term debt, net of current maturities                                   $ 2,155,000       509,182
                                                                                         ==========       =======


</TABLE>





                                      F-15
<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

(5)     CONTINUING OPERATIONS - LIQUIDITY
        Continued operations require continuing loans from various entities.  At
           December  31,  1997 and 1996,  the  balance  of these  loans  totaled
           $3,285,794 and  $3,288,010,  respectively.  The balance of 1997 loans
           are  scheduled to be converted  into common  shares on June 30, 1998.
           Conversion  of notes  is  subject  to  anti-dilution  provisions  and
           interest of 10% per annum. Following is a schedule of these notes:




































                                       F16
<PAGE>
<TABLE>
<CAPTION>


                                          Note                                  1997                   1996
                                          ----                                  ----                   ----
<S>                                                                            <C>                    <C>    
           Sovereign Trust Services loan converted into
            2,801,191 shares common stock in April 1997                 $         -                     680,036

           Osbourne Ltd. loan converted into
           1,555,271 shares of common stock in February 1997                      -                     220,000

           Jepherson Ltd. loan converted into
           1,301,725 shares of common stock in October 1997                       -                      98,521

           Alcaria Investments, Ltd. loan converted into
            1,325,775 shares of common stock in October 1997                      -                     100,398

           Dorrance Ltd. loan convertible into 6,935,287
           shares of common stock                                                526,794                   -

           Sundorne Holdings, SA loan convertible into
           9,772,263 shares of common stock                                      781,781                  715,154

           Garcia Ltd. loan convertible into 481,062
           shares of common stock                                                 38,485                   -

           Plenbrick Ltd. loan convertible into 8,263,175
           shares of common stock                                                661,054                  604,688

           Antheims Ltd. loan convertible into 1,295,675
           shares of common stock                                                103,654                   96,384

           Pangea Ltd. loan convertible into 6,935,287
           shares of common stock                                                554,823                  504,706

           Quested Ltd. loan convertible into 6,802,538
           shares of common stock                                                544,203                  268,123

           Accounting Services Ltd. loan convertible into
           1,416,668 shares of common stock                                       75,000                   -
                                                                             -----------                ----------

                                                                             $ 3,285,794                3,288,010
                                                                               =========                =========
</TABLE>

     Interest payments for 1997 and 1996 of $280,394 and $229,673, respectively,
     were capitalized.




                                      F-17


<PAGE>


                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


(6)     NOTE PAYABLE
        Thenote  payable  consists  of a MRI(US)  loan  obtained  from  American
           National  Bank & Trust  Co.  of  Chicago  prior to  acquisition.  The
           balance  of this  note was  $39,184  and  $49,894  for 1997 and 1996,
           respectively. MRI(US) is currently in default of this agreement.

(7)     INCOME TAXES
        As of  December  31,  1997,  MRTI  has  income  tax net  operating  loss
           carryforwards  available to offset  future  federal  taxable  income,
           which expire in future years.  The use of these operating  losses are
           dependent upon MRTI having taxable net earnings.

        MRTI's unused  net  operating  loss  carryforwards  available  to offset
           future  taxable  income for income tax reporting  purposes  expire as
           follows:

              Years Ending                          Net Operating Loss
              ------------                          ------------------

                 2002                                      208,223
                 2003                                       55,337
                 2004                                      694,177
                 2005                                      128,994
                 2006                                      232,623
                 2007                                      291,834
                 2008                                    1,746,945
                 2009                                    1,682,025
                 2010                                    1,111,273
                 2011                                    3,909,059

        Neither MRTI nor its  subsidiaries  had any  taxable net income in 1997,
           1996, or 1995.  Management has elected not to recognize any value for
           operating loss carryforwards for income tax purposes in the financial
           statements.










                                      F-18
<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

(8)     PREFERRED STOCK
        SERIES A PREFERRED
        DESCRIPTION
        TheSeries A stock confers the following  rights:  (1) A preference  upon
           liquidation,  (2) a 12% dividend payable at MRTI's  discretion either
           in additional preferred stock, common shares, cash, or gold, (3) MRTI
           has the  right to redeem  at any time  upon  notice to the  preferred
           holder,  (4) the right to convert  into  common  shares at a ratio of
           12.5 common shares for each preferred one, and (5) the holders of the
           Series A  preferred  shares have the right to elect a majority of the
           Board of  Directors  and can vote the total  number of common  shares
           into which the Series A can be converted.

        During 1997,  the  total of Series A  preferred  stock  outstanding  was
           redeemed in exchange for a negotiated  number of common shares.  (See
           note 13.)

        SERIES B PREFERRED
        DESCRIPTION
        TheSeries B stock confers the following  rights:  (1) A preference  upon
           liquidation, except not as to the Series A preferred stock, (2) an 8%
           cumulative cash dividend, (3) the Corporation has the right to redeem
           at any time upon  notice  to the  preferred  holder  and  subject  to
           certain other conditions, (4) the right to convert into common shares
           at a ratio of 6 common shares for each preferred  share,  which ratio
           is subject to  adjustment in certain  events,  and (5) the holders of
           the Series B  preferred  shares  shall as a class elect one member of
           the Board of  Directors  and have other  voting  rights as granted by
           law.

        At December  31,  1997 and 1996,  there were  21,375  Series B preferred
           shares  outstanding.  Management is pursuing the future retirement of
           these shares.


(9)     COMMON STOCK
        REVERSE SPLIT
        On February 21, 1995 MRTI  announced a 20 for 1 reverse split  effective
           immediately.  This  reduced  the  number  of  shares  outstanding  by
           47,364,542.

        PURCHASE OF MRI(US)
        In April 1995, as more fully described in note 1, MRTI issued 11,000,000
           shares to an  underwriter to be placed with offshore  investors.  The
           proceeds were used for the acquisition of MRI(US).





                                      F-19
<PAGE>


                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


        COMMON STOCK, CONTINUED
        Reconciliation of outstanding MRTI common stock is as follows:

                                              Outstanding shares of Common Stock
                                                        as of December 31
                                                     1997                1996
        Beginning balance                         20,707,597          13,764,653
        Shares issued                             17,682,904           6,942,944
                                                 -----------           ---------
            Total outstanding
              common stock                        38,390,501          20,707,597
                                                  ==========          ==========

        In 1997, MRTI issued stock for the following purposes:

           Month                     Shares        Purpose
           -----                     ------        -------

           January571,428Shares sold in private placement
           February                 1,555,271   Conversion of debt
           April                    2,801,191   Conversion of debt
           April                      680,451   Shares sold in private placement
           June                     2,550,000   Redemption of preferred shares
           September                3,305,727   Conversion of debt
           October                  3,537,500   Conversion of debt
           October                    916,668   Shares sold in private placement
           November                   916,668   Shares sold in private placement
           November                   728,000   Conversion of debt
           November                   120,000   Employee incentives
                                      -------                      
              Total                17,682,904
                                   ==========



(10)    KEY EMPLOYEE QUALIFIED INCENTIVE STOCK OPTION PLAN
        There is  currently  no formal key employee  incentive  stock plans.  In
           1997,  under an informal  stock  incentive  plan,  MRTI issued common
           stock worth $17,000 to employees.








                                      F-20
<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>

(11)    WARRANTS OUTSTANDING
        Warrants outstanding as of December 31, 1997, are as follows:

                                                  Date                                         Number          Price
          Holder                                 Issued        Life           Expires         of Shares      Per Share
          ------                                ---------      -----          -------         ---------      ---------     
<S>                                                    <C>     <C>                 <C>            <C>          <C>    
          Sovereign Trust Services, Ltd.     February, 1995    3 years    January, 1998*          125,000      $  0.80
          Sundorn Holding, S.A.              February, 1995    3 years    January, 1998*          125,000         0.80
          Accounting Services, Ltd.         September, 1995    3 years     August, 1998           500,000         0.50
          Vistaquest, Inc.                   January, 1996     5 years    December, 2001        1,000,000         0.30
          R.G. Advisory Services            September, 1995    3 years     August, 1998           250,000         0.50
          Accounting Services, Ltd.            July, 1995      3 years      June, 1998            500,000         0.50
          Elwin Smith International         September, 1995    3 years     August, 1998           100,000         0.50
          Venaus                              August, 1996     2 years     August, 1998           100,000         0.35
                                                                                                  -------

                                                                               Total            2,700,000
                                                                                                =========
</TABLE>

         *As of report date warrants have expired.
















                                       F21
<PAGE>


(12)    SUPPLEMENTAL CASH FLOW INFORMATION
        Thefollowing   provides    additional    information    concerning   the
           supplemental  disclosures of cash flow activities for the years ended
           December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>

        NONCASH INVESTING AND FINANCING ACTIVITIES
        Theeffects on the  balance  sheets of noncash  investing  and  financing
           activities  for the years ended  December  31,  1997,  1996 and 1995,
           consist of the following:

                                                                  1997                 1996             1995
                                                                  ----                 ----             ----

<S>                                                    <C>                              <C>            <C>       
        Loss on disposal of assets                     $           -                    -              33,883,238
        Foreign currency translation
           adjustment                                              -                    -               (424,599)
        Issued common stock
           for debt                                           1,651,831               413,269            199,750
        Issued common stock in exchange
           for goods or services                                452,358              248,949                 -

        Reserve for pipeline
           cleanup adjustment                          $           -                    -                 60,787
</TABLE>

     Management  has shown net  amounts in the  Consolidated  Statement  of Cash
     Flows.























                                      F-22
<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued


(13)    RELATED PARTY TRANSACTIONS
        PAYMENTS TO JACK ALEXANDER
        In 1995,  MRTI reached a settlement  with a former  officer and director
           (Mr.  Jack  Alexander),  and certain  related  entities in respect of
           amounts claimed to be owed to them by MRTI for notes payable,  loans,
           and the redemption price of MRTI's Series A preferred stock. Payments
           of $275,316 and $150,000 were made in 1995 and 1996, respectively. At
           December  31,  1996,  there was an  amount  due in  respect  to notes
           payable  and  interest  of  $55,098  together  with an amount  due of
           $469,650 to redeem the Series A preferred  stock.  Mr.  Alexander had
           assigned beneficial  ownership of all interest described herein to an
           entity named Morton Blue.

        During 1997,  an agreement  with Morton Blue to settle the liability and
           redeem the Series A preferred  shares was reached.  This  occurred by
           the  issuance  of  2,550,000  shares of  MRTI's  common  stock  under
           Regulation S.


        PLANT FACILITY
        MRI(US)  leases  its plant  facility  from an entity in which one of the
           MRTI  directors has a partial  beneficial  interest.  Lease  expenses
           amounted  to $60,000 in 1997 and 1996.  The annual  lease  payment is
           $60,000 and expires on January 31, 2000.

        OFFICER AND DIRECTOR COMPENSATION
        During the years ended December 31, 1997 and 1996  compensation  expense
           for  current  officers  and  directors  was  $522,526  and  $985,000,
           respectively.  At  December  31,  1997 and  1996,  MRTI  had  accrued
           expenses  of zero and  $219,958  payable to officers  and  directors,
           respectively.

        LOANS TO OFFICERS AND DIRECTORS
        In  the  past,  MRTI  has  made  loans  to  officers and  directors.  At
          December 31, 1997 and 1996 the  balance  of  these  loans was zero and
          $74,966, respectively.

        OFFICER AND DIRECTOR FINANCIAL INTEREST
        Current officers and directors  have direct and  contingent  interest in
          approximately  1,030,000 shares of common stock. Further, one director
          owns an  interest in the  company  that may  receive  the  convertible
          redeemable preference shares more fully discussed in note 1.






                                      F-23


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

(14)    CASH
        At December 31, the cash balances were:

                                           1997               1996
                                           ----               ----

           Cash in checking accounts    $ 43,247              6,778
                                          ======              =====

        Balances  are insured up to FDIC insured  limits.  At December 31, 1997,
MRTI did not exceed these limits.
<TABLE>
<CAPTION>

(15)    INTANGIBLE ASSETS
        CONCESSIONS, RIGHTS, PATENTS AND GOODWILL
        Concessions,  rights,  patents and  goodwill  relate to the  purchase of
           MRI(US) and patent development as follows:

                                                Balance at                                          Balance at
                                                  December 31,      1997           Accumulated        December 31,
                                                   1996            Additions      Amortization         1997
                                                   ----            ---------      ------------         ----

<S>                                              <C>                <C>                 <C>            <C>   
           MRI(US)
            Concessions, rights, patents
             and goodwill                      $ 12,905,749              857            -              12,906,606
                                                 ==========    =============     ==============        ==========

        MRI(US) is in the developmental  stage and therefore no amortization was
taken in 1996 or 1997.

         ORGANIZATIONAL COSTS
         Organizational costs consisted of the following at December 31:
                                                Balance at                                          Balance at
                                                  December 31,      1997           Accumulated        December 31,
                                                   1996            Additions      Amortization         1997
                                                   ----            ---------      ------------         ----

           MRI(US)
             Organizational cost                $ 2,112,367        2,085,782           -               4,198,149
                                                  =========        =========    ==============         =========
</TABLE>

         MRI(US) is in the developmental stage and therefore no depreciation was
            taken in 1996 or 1997.  Organizational  costs  consists  of  raising
            capital,  obtaining  financing,  locating and  acquiring  equipment,
            obtaining customers and suppliers,  installing and testing equipment
            and certain administrative activities.



                                      F-24


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

(16)    DISCONTINUED OPERATIONS
        SIPCO
        In December  1992,  SIPCO  acquired  a  pipeline   operation   (Seminole
           Pipeline) located in Oklahoma, in exchange for 143,750 shares of MRTI
           Series B preferred stock. In 1994,  143,750 preferred Series B shares
           were redeemed for 7,137,731  shares of common stock.  In 1995,  SIPCO
           was sold for a nominal price,  and the result of this  transaction is
           reflected in the 1995 statement of operations.

        MALVY FRANCE AND MALVY UK
        The success of Malvy  France and Malvy UK depended solely on the success
           of the Malvy auto  anti-theft  device.  In  September,  1995,  it was
           determined that without  substantial future investment the device was
           not  marketable.  Malvy  France was closed and turned  over to French
           government  liquidators and Malvy UK was closed. MRTI does not expect
           to receive  any funds from this  liquidation.  A loss on  disposal of
           assets was recorded for $33,883,238 in 1995.


(17)    CONTINGENCIES
        At December  31,  1997,   MRTI  was  involved  in  several   matters  of
           litigation,  regarding past and present  business  activities.  These
           matters were initiated by creditors and former employees. Some of the
           matters  involving  creditors  and former  employees  were settled or
           ruled  in  favor of MRTI  and are  provided  for in the  accompanying
           financial  statements.  It is the  opinion  of  management  that  the
           ultimate outcome of the remaining litigation would not be material to
           the financial  statements  except as described  below. The outcome of
           these cases is unknown at this time and,  accordingly,  no  provision
           for any liability that might result has been made in the accompanying
           financial statements.

        In 1995, an action initiated by a shareholder, was made against MRTI and
           certain present and former  directors.  In 1996, this action became a
           "class-action"  suit. The action alleges that breaches of the federal
           securities   laws   occurred,   by   reason   of   alleged   material
           misrepresentations  by MRTI and MRTI's alleged failure to make timely
           disclosure  relating to its Malvy auto anti-theft device  operations.
           During 1997,  MRTI  negotiated  a  settlement  in the amount of $3.25
           million,  payable in cash and  unrestricted  common  stock to be paid
           over the next four years. The resulting liability was provided for in
           the accompanying  financial statements.  Currently,  MRTI has not met
           the  obligations as agreed and is in default of the  settlement.  The
           result of this is unknown at this time and, accordingly, no provision
           for any  additional  liability that might result has been made in the
           accompanying financial statements.




                                      F-25


<PAGE>
                        Metal Recovery Technologies, Inc.

              Notes to Consolidated Financial Statements, continued

        CONTINGENCIES, CONTINUED
        In 1997,  MRI(US)  settled a lawsuit with the National  Labor  Relations
           Board.  While a portion  of the  payments  were  made,  MRI(US) is in
           default  of the  agreement.  A  related  liability  in the  amount of
           $35,000 has been recorded in the financial statements.  The result of
           the default is unknown at this time and,  accordingly,  no  provision
           for any  additional  liability that might result has been made in the
           accompanying financial statements.

        During 1997,  MRTI did not make all of the  required  federal  and state
           deposits related to payroll  withholding  taxes. At December 31, 1997
           MRTI has recorded a liability of $157,386 for the  withholding  taxes
           and  penalties  and  interest  that  have been  determined.  However,
           additional fines and penalties resulting from this action are unknown
           and accordingly, no provision for any additional liability that might
           result has been made in the accompanying financial statements.


(18)    GOING CONCERN
        As shown  in  the  accompanying  financial  statements,   MRTI  incurred
           substantial  net losses in 1997, 1996 and 1995. At December 31, 1997,
           current liabilities exceeded current assets by $7,233,663. Operations
           for 1998 will consist of further development and administrative costs
           which will be funded from conditional convertible loans with existing
           and new entities (note 5). Further,  in March 1998, MRTI has signed a
           conditional  agreement for a $3 million  convertible  loan. Under the
           terms of the agreement,  MRTI will form a new operating company to be
           called Zinc Recovery Inc. which will be a wholly-owned  subsidiary of
           MRTI. The operating assets of MRTI and MRI(US) will be transferred to
           the  new  company.  The  loan  will be used  for  the  purpose  of an
           engineering upgrade and bringing into production the plant located at
           East Chicago,  Indiana. Absent receiving new financing and generating
           new revenue, there is substantial uncertainty about MRTI's ability to
           continue as a going concern.  The financial statements do not include
           any   adjustments   that  might  result  from  the  outcome  of  this
           uncertainty.












                                      F-26