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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended June 30, 1998
Commission File No. 0-29664
SOLUCORP INDUSTRIES LTD.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
YUKON N/A
------------------------------ -------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
250 WEST NYACK ROAD, WEST NYACK, NY 10994
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:
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(914) 623-2333
Former name, former address and former fiscal year,
if changed since last report:
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None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of August 14, 1998, there were 19,357,785 shares of Common Stock, no par
value outstanding.
================================================================================
<PAGE>
BASIS OF PRESENTATION
The following unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information without audit. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These unaudited statements should be read in
conjunction with the audited financial statements of the Company and notes
thereto included in the Company's Transition Report for the six month period
ended December 31, 1997. The results of operations for the six months ended
June 30, 1998 are not necessarily indicative of the results which may be
expected for the full year ending December 31, 1998.
2
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOLUCORP INDUSTRIES LTD
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(UNAUDITED - PREPARED BY MANAGEMENT)
(In U.S. Dollars)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Environmental clean-up and waste disposal $481,412 ($298,287) $986,563 ($19,096)
Training Institute 680 19,617 8,396 25,447
------------ ------------ ------------ ------------
482,092 (278,670) 994,959 6,351
------------ ------------ ------------ ------------
COST OF SALES AND REVENUE
Environmental clean-up and waste disposal 410,588 220,511 855,710 503,844
Training Institute 0 4,867 2,964 7,097
Inventory storage costs 42,931 0 139,746 0
------------ ------------ ------------ ------------
453,519 225,378 998,420 510,941
------------ ------------ ------------ ------------
GROSS MARGIN 28,573 (504,048) (3,461) (504,590)
INVESTMENT AND OTHER INCOME 44,828 7,499 108,374 8,999
LICENSE FEES 530,304 0 1,075,758 0
------------ ------------ ------------ ------------
603,705 (496,549) 1,180,671 (495,591)
------------ ------------ ------------ ------------
EXPENSES
Administrative and general 1,116,168 (750,712) 1,769,072 (141,105)
Corporate development and marketing 142,421 59,444 256,447 160,511
Depreciation and amortization 88,155 65,661 157,671 147,384
Research and development 0 1,968,858 0 1,968,910
------------ ------------ ------------ ------------
1,346,744 1,343,251 2,183,190 2,135,700
------------ ------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (743,039) (1,839,800) (1,002,519) (2,631,291)
OTHER INCOME (EXPENSE) (527,968) (36,013) (527,968) (36,013)
------------ ------------ ------------ ------------
EARNINGS (LOSS) FOR THE PERIOD (1,271,007) (1,875,813) (1,530,487) (2,667,304)
DEFICIT, BEGINNING OF PERIOD (13,507,218) (11,391,440) (13,247,738) (10,599,949)
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD ($14,778,225) ($13,267,253) ($14,778,225) ($13,267,253)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE ($0.07) ($0.12) ($0.08) ($0.17)
============ ============ ============ ============
The accompanying notes are an integral part of this statement.
3
</TABLE>
<PAGE>
SOLUCORP INDUSTRIES LTD
CONSOLIDATED BALANCE SHEET
(In U.S. Dollars)
JUNE DECEMBER
30, 1998 31, 1997
-------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 32,755 $ 26,646
Accounts receivable 1,133,530 672,791
License fees 166,667 490,910
Loan receivable 39,979 50,000
Due from related parties 1,426,219 1,981,377
Other receivables 69,218 100,872
Inventories 1,824,262 784,815
Prepaid expenses 205,709 816,495
------------- -------------
4,898,339 4,923,906
LONG TERM INVESTMENTS 377,699 368,844
CAPITAL ASSETS 339,301 350,663
WASTE DISPOSAL RIGHTS 1,515,937 1,624,219
OTHER ASSETS 475,000 0
------------- -------------
TOTAL ASSETS $7,606,276 $7,267,632
============= =============
LIABILITIES
CURRENT LIABILITIES
Accounts payable & accrued liabilities $1,603,824 $ 868,198
Loans payable 268,877 270,722
------------- -------------
1,872,701 1,138,920
DUE ON WASTE DISPOSAL RIGHTS 1,265,625 1,265,625
------------- -------------
3,138,326 2,404,545
------------- -------------
SHAREHOLDERS EQUITY
SHARE CAPITAL 19,270,590 18,135,240
DEFICIT (14,778,225) (13,247,738)
------------- -------------
4,492,365 4,887,502
LESS: Cost of 8,000 shares held by
company's subsidiary (24,415) (24,415)
------------- -------------
4,467,950 4,863,087
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $7,606,276 $7,267,632
============= =============
The accompanying notes are an integral part of this statement.
4
<PAGE>
SOLUCORP INDUSTRIES LTD
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED - PREPARED BY MANAGEMENT)
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net profit (loss) for the period ($1,530,487) ($2,667,304)
Items not involving cash:
Depreciation & amortization 157,671 147,384
Writedown of investments 36,013
------------- -------------
Funds provided (used) from operations (1,372,816) (2,483,907)
Non-cash working capital changes 202,122 447,630
------------- -------------
Cash provided by (used in) operating activities (1,170,694) (2,036,277)
------------- -------------
FINANCING ACTIVITIES
Issue of common shares 1,135,350 2,947,754
Due from related parties 555,158 (573,483)
Loans receivable 10,021
Loans payable (1,845) (14,620)
------------- -------------
Cash provided by (used in) financing activities 1,698,684 2,359,651
------------- -------------
INVESTMENT ACTIVITIES
(Increase) decrease in capital assets (13,027) (50,953)
Revenue agreement inducement (250,000)
(Increase) decrease in deferred charges (500,000)
(Increase) decrease in long-term investments (8,854) (17,085)
------------- -------------
Cash provided by (used in) investment activities (521,881) (318,038)
------------- -------------
INCREASE (DECREASE) IN CASH POSITION 6,109 5,336
CASH POSITION, BEGINNING OF PERIOD 26,646 10,451
------------- -------------
CASH POSITION, END OF PERIOD $ 32,755 $ 15,787
============= =============
The accompanying notes are an integral part of this statement.
5
</TABLE>
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
a) Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada, which differ
in some respects from those in the United States. Except as disclosed
in note 22, no differences have been reported as they are not
considered significant.
b) Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. At June 30, 1998 the Company's
subsidiaries and its percentage equity interest in each are as
follows:
ESM Industries (Canada) Inc. 100%
World Travel Plazas Inc. 100%
World Tec Equities Inc. 100%
EPS Environmental, Inc. 100%
Environmental Training Institute Inc.
(incorporated in the US) 100%
c) Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of
cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
d) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
e) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, loans and other receivables,
accounts payable and accrued liabilities and loans payable approximate
fair market value because of the immediate or short-term maturity of
these financial accounts. The fair values of the long-term investments
are not readily determinable due to uncertainties in their
realization; however, where available, the quoted market prices have
been disclosed. The fair value of the amount due on the waste disposal
rights is not determinable due to uncertainty regarding payment.
6
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
f) Inventory
Inventory is valued at the lower of cost or net realizable value. Cost
is determined on a first-in, first-out bases.
g) Long-term Investments
Investments are recorded at cost less a provision for permanent
impairment in value.
h) Capital Assets
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of the assets on the following bases:
Computer 30% declining balance
Furniture and office equipment 20% declining balance
Leasehold improvements 5 years straight-line
Remediation equipment 30% declining balance
Patent costs 10 years straight-line
i) Waste Disposal Rights
Waste disposal rights are recorded at cost net of amortization. These
rights are being amortized at the greater of $10 per ton of waste
delivered or $216,500 per year. The Company conducts an annual review
of the carrying value to ensure it is not in excess of the estimated
recoverable amount of this asset (see note 10). Any excess amount
identified as a result of this review is charged to income in that
year as a write-down of the carrying value.
j) Reporting Currency and Translation of Foreign Currency
The Company adopted the United States dollar as its reporting currency
for its financial statements prepared after March 31, 1996. The United
States dollar is the currency of the primary economic environment in
which the Company conducts its business, and is considered the
appropriate functional currency for its operations. Accordingly, the
financial statements of the Company have been translated using the
temporal method with translation gains and losses included in
earnings. Under this method the operations of the Company have been
converted into U.S. dollars at the following rates of exchange:
(i) Monetary assets and liabilities - at the rate of exchange
prevailing at the balance sheet date.
(ii) All other assets and liabilities - at the exchange rate
prevailing at the time of the transactions.
7
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
(iii) Revenue and expenses - at the average exchange rates
prevailing during the period.
k) Share Issue Costs
Share issue costs are charged directly to the deficit.
l) Revenue Recognition
Revenue from on-site remediation projects is recognized using the
percentage of completion method of accounting. Under this method
contract revenue is determined by applying to the total estimated
income on each contract, a percentage which is equal to the ratio of
contract costs incurred to date, to the most recent estimate of total
costs which will have to be incurred upon the completion of the
contract. Costs and estimated earnings in excess of billings
represents additional earnings over billings, based upon the
percentage completed, as outlined above. Similarly, billings in excess
of costs and estimated earnings represent excess of amounts billed
over income recognized. Provision for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
At June 30, 1998 there were no on-site projects in process.
Revenue from in-line remediation projects is recognized using the
completed contract method. Under this method revenue is recognized
when work is completed and invoiced.
Revenue from license fees, option payments and royalties are
recognized as the accrue in accordance with the terms of the relevant
agreements.
m) Research and Development
Research and development expenditures less related government grants
are charged to operations.
n) Earnings (Loss) Per Share
The earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during the year.
o) Accounting for Stock-Based Compensation
In October 1995 the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation". The statement encourages all entities to
adopt a new method of accounting to measure compensation cost of all
employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed
to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies
that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statement pro forma net income
8
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December
15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15,
1995. Currently, the Company's stock-based compensation plan is
accounted for using Canadian generally accepted accounting principles
similar to the intrinsic value method prescribed by APB No. 25. The
Company is in the process of computing the effect of adopting SFAS No.
123 and has not yet made a decision on whether to adopt the U.S.
accounting policy for the fiscal period ended June 30, 1998.
Management believes the financial impact of adopting SFAS No. 123
would be immaterial.
2. Accounts Receivable
June 30, December 31,
1998 1997
-----------------------
Tristate Restoration Company, Inc.
(note 7a) $ 0 $293,361
Smart International Ltd. 1,006,984 203,796
Other 230,943 216,741
---------------------
1,237,927 713,898
Allowance for bad debts (104,397) (41,107)
---------------------
$1,133,530 $672,791
=====================
3. License Fees
By a letter of intent dated June 4, 1997 and an agreement dated
September 15, 1997 the Company granted to Smart International Ltd.
(Smart) the right to manufacture chemicals for the Company and the
right to exclusively engage in remediation projects in China using the
Company's technology. The agreement is for a ten-year term commencing
from June 1, 1997 with an option to renew for a further 10 years. As
consideration, Smart has agreed to pay an annual license fee of
$2,000,000 per year plus a royalty of $5 per ton for each ton of
processed material in excess of 100,000 tons per contract year. At
June 30, 1998 the Company has received $1,118,750 of the $2,000,000
billed towards the license fee and has accrued an amount receivable of
$166,667 for license fees earned. No royalties were earned.
9
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
4. Loan Receivable
June 30, December 31,
1998 1997
------------------------
Loan receivable, 5% per annum, due
November 30, 1997 $ 0 $50,000
========================
$25,000 of the $50,000 was collected in February 1998. The remaining
$25,000 was fully reserved against at June 30, 1998.
5. Due From Related Parties
Advances, primarily to directors, and employees related to directors
in the amount of $1,426,219 (December, 1997 - $1,981,377) bear
interest at 8.50%, are secured with marketable securities (market
value at June 30, 1998 - $ 207,539) and have no specific terms of
repayment.
6. Inventories
June 30, December 31,
1998 1997
---------------------------
Raw chemicals $1,799,302 $731,576
Blended chemicals 21,143 13,626
Goods for resale 3,817 39,613
---------------------------
$1,824,262 $784,815
===========================
7. Prepaid Expenses
June 30, December 31,
1998 1997
---------------------------
Employment agreement (note 7a) $ -- $250,000
Deposit on inventory purchase (note 7b) -- 244,250
Consulting agreements (note 7c) 154,688 283,911
Rental expense 40,477 28,334
Other 10,544 10,000
---------------------------
$ 205,709 $816,495
===========================
10
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
a) Employment agreement
In May, 1998, the Company filed a suit in the United States District
Court for the District of New Jersey against Tristate Restoration
Company, Inc., and the two shareholders of Tristate alleging
conversion, fraud, and breech of contract. Accordingly, the account
receivable from Tristate and the related employment agreements have
been fully reserved against at June 30, 1998.
b) Deposits on Inventory Purchase
Subsequent to December 31, 1997 the $244,250 deposit was applied to
net purchases of raw chemicals totaling $415,250.
c) Consulting Agreements
(i) The Company issued 50,000 shares at $4.50 per share related
to a consulting agreement which has a two-year term ending
November 19, 1999.
11
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
8. Long-term Investments
June 30, December 31,
1998 1997
-------------------------------
(a) 100,500 shares of Earthworks
Industries Inc. plus accrued
shares of 40,023 (December 31,
1997 - 36,165) (note 11 and
18(d)) (Market value $70,262) $108,142 $ 99,287
(b) Convertible debenture from
Travel Plaza Developments Inc.
(Travel Plaza). The Company
elected on December 28, 1994
to convert the $50,000
debenture into 250,000 shares
of Travel Plaza. Final
regulatory approval for this
conversion from the Alberta
Stock Exchange is still
pending subject to their
acceptance of a financing
arrangement and the approval
of minority shareholders. On
August 21, 1996, pending the
finalization of the required
financing to compute the
project, construction has been
temporarily suspended and the
stock of Travel Plaza has been
halted from trading. Due to
these uncertainties, the
Company has written this
investment down to a nominal
value. 1 1
(c) Convertible loan to Cortina
Integrated Waste Management
Inc., a subsidiary of
Earthworks industries inc.
(public company), Due
September 5, 2000 with
interest at 15% Per annum. The
Company is entitled to Convert
all or a portion of the loan
into Shares of Earthworks
Industries Inc. at any Time.
During the term of this loan,
the Company has the right to
offset royalty Payments due to
Earthworks Industries Inc.
Against the loan balance. 208,821 208,821
(d) Investment in EPS Chemicals,
Inc. 1 1
(e) 70,000 shares of Global
Technologies Inc. (note 11). 60,734 60,734
--------------------------
$377,699 $368,844
==========================
12
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
9. Capital Assets
June 30, December 31,
1998 1997
--------------------------------
Computers $ 24,047 $ 24,047
Furniture and office equipment 100,940 100,940
Remediation equipment 439,657 426,630
Leasehold improvements 15,927 15,927
Incorporation costs 688 688
Patent costs 53,177 53,177
----------------------------------
634,436 621,409
Less: Accumulated amortization 295,135 270,746
----------------------------------
$339,301 $350,663
==================================
10. Waste Disposal Rights
During the year ended June 30, 1995, the Company entered into a one-year
agreement effective from August 1, 1994 with a non-related public company,
Thermo Tech Technologies inc. (Thermo Tech), to deliver 3,500 tons per
month of suitable organic waste to a bio-conversion facility located in
Corinth, New York at $55 per ton on a put or pay basis. The Company
delivered only approximately 5% of the waste contemplated under the
one-year agreement. The Corinth facility experienced technical start-up
problems and was shut down in July 1995 to correct an engineering design
problem. On September 14, 1995 and January 17, 1996 the Company and Thermo
Tech signed confirmation agreements which resulted in a ten (10) year
extension from the put or pay agreement to commence when either the Corinth
facility became operational, or as an alternative, when organic waste was
delivered to another Thermo Tech facility. The agreements obligated the
Company to pay an initial amount of $2,165,625 for the right to deliver
216,500 tons of acceptable organic waste ($10 per ton) plus an additional
$45 per ton during the ten (10) year term of the agreement.
The Company paid Thermo Tech $900,000 of the initial amount leaving
$1,265,625 still to be paid. Thermo Tech recently resolved their lease
terms at the Corinth facility, and they are now retrofitting the plant to
obtain the required permits. Since the schedule to make the plant
operational is not yet determinable, Thermo Tech has agreed to defer
Solucorp's balance due on the waste disposal rights. Accordingly, the
$1,265,625 is reflected as a non-current payable. Furthermore, it is still
the Company's position that it will fully recover its investment in waste
disposal rights over the ten-year contractual period by delivering waste to
either the Corinth facility or an alternative Thermo Tech facility.
13
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
The carrying value for the waste disposal rights represents a significant
portion of the Company's assets. Measurement of the recoverability of the
carrying value is based on an assessment of the waste disposal rates
currently existing in the New York and New Jersey areas, and at other areas
where Thermo Tech plants are located, and on the assumption that the
Corinth plant will be in operation in the near future. As of June 30, 1998,
the Company has determined that no write-down is necessary. However, it is
reasonably possible, based on existing knowledge, that changes in future
conditions in the near term could require a material change in the
estimated recoverable amount.
11. Other Assets
The $475,000 represents a deferred charge from an up-front license fee of
$500,000 paid to KBF Pollution Management, Inc. (KBF) in the form of
190,550 shares of restricted common stock, net of amortization of $25,000.
The license permits the Company to market worldwide KBF's selective
separation technology (SST), a water treatment system, for five (5) years
with automatic renewals for successive one year periods.
12. Loans Payable
June 30, December 31,
1998 1997
--------------------------------
(Unaudited)
IDM Environmental Corp., due on
demand with interest at 10.25%,
secured by the Company's treasury
stock, 100,500 shares of Earthworks
Industries Ltd. (note 8a) and
70,000 shares of Global
Technologies Inc. (note 8a) held as
investments by the Company. $ 200,748 $200,748
Global Technologies Inc., due on
demand ($100,000 Cdn). 68,129 69,974
--------------------------------
$ 268,877 $270,722
================================
14
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
13. Share Capital
a) Authorized:
200,000,000 common shares of no par value
b) Issued:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
(Unaudited) (Unaudited)
----------------------------------------------------------
Shares Amount Shares Amount
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning 18,652,497 $18,135,240 15,062,463 $11,472,295
----------------------------------------------------------
Issued pursuant to
Stock options 271,000 568,850 693,294 1,202,084
Private placements 131,457 230,050
Warrants 36,557 63,975 128,790 146,680
Shares for debt settlements 264,320 520,630
Conversion of debentures 264,355 395,000
Employment agreements 100,000 250,000
License agreement 190,550 500,000
----------------------------------------------------------
498,107 1,132,825 1,582,216 2,744,444
----------------------------------------------------------
Alloted for cash 1,443 2,525 122,873 203,310
----------------------------------------------------------
Balance, ending 19,152,047 $19,270,590 16,767,552 $14,420,049
==========================================================
</TABLE>
c) During the six month period ended June 30, 1998 the Company granted
employees, directors and other individuals associated with Company
stock options to acquire up to 465,000 shares at $3.50 per share.
(Effective July 17, 1998 Solucorp's Board of Directors repriced these
options and the options with an expiration date of November 4, 2002 to
$1.81). At June 30, 1998 stock options were outstanding as follows:
Shares Exercise Price Expiration Date
- --------------------------------------------------------------------------------
250,000 $1.38 December 21, 1999
50,500 $1.75 July 13, 2000
81,500 $1.75 September 12, 2000
52,500 $1.75 January 6, 2002
1,842,829 $1.75 June 9, 2002
872,210 $1.81 November 4, 2002
456,000 $1.81 February 19, 2003
15
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
d) At June 30, 1998 warrants were outstanding as follows:
Shares Exercise Price Expiration Date
- --------------------------------------------------------------------------------
155,443 $1.75 - $2.00 June 25, 1999
750,000 $2.75 September 10, 2000
25,000 $4.00 April 4, 2001
300,000 $7.50 June 3, 2001
e) At June 30, 1998, 1,675,000 (June 30, 1997 - 1,675,000) common shares
were held in escrow. However, pursuant to an escrow agreement dated
April 30, 1988 these shares were subject to release on or before June
22, 1998 in the event that the Company attained certain cash flow
targets. Since these cash flow targets were not achieved these
escrowed shares are in the process of being cancelled.
14. Income Taxes
At December 31, 1997, the Company had accumulated tax losses aggregating
$9,636,000, which may be carried forward and applied against taxable income
in future years up to 2003. The Company does not record the income tax
benefit of these losses.
15. Subsequent Events - None
16
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
16. Segmented Information
<TABLE>
<CAPTION>
US Services & Products Canada Consolidated Totals
----------------------------------------------------------------
<S> <C> <C> <C>
(a) Three Months Ended June 30, 1998:
(Unaudited)
Revenue $ 482,092 $ - $ 482,092
License fees 530,304 - 530,304
Cost of sales 475,457 - 475,457
-----------------------------------------------------------
Operating earnings (loss) 536,939 536,939
Administrative and general 1,059,442 56,726 1,116,168
Corporate development and marketing 101,990 40,431 142,421
Amortization and depreciation 88,155 - 88,155
-----------------------------------------
Segmented loss $ (712,648) $ (97,157) (809,805)
-----------------------------------------
Unallocated:
Other income (expense) (521,039)
Investment and other income 2,899
-----------------
LOSS FOR THE PERIOD $ (1,327,945)
=================
IDENTIFIABLE ASSETS $ 7,108,528 $ 497,748 $ 7,606,276
===========================================================
(b) Three Months Ended June 30, 1997:
(Unaudited)
Revenue $ 278,670 $ - $ 278,670
Cost of sales 225,378 - 225,378
-----------------------------------------------------------
Operating earnings (loss) (504,048) - (504,048)
Administrative and general (849,198) 98,486 (750,712)
Corporate development and marketing 70,678 (11,234) 59,444
Research and development 1,968,537 321 1,968,85
Amortization and depreciation 65,661 - 65,661
-----------------------------------------------------------
Segmented loss $ (1,759,726) $ (87,573) (1,847,299)
-----------------------------------------
Unallocated:
Writedown of investment (36,013)
Investment and other income 7,499
-----------------
LOSS FOR THE PERIOD $ (1,875,813)
=================
IDENTIFIABLE ASSETS $ 2,817,389 $ 407,796 $ 3,867,638
===========================================================
17
</TABLE>
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
16. Segmented Information
<TABLE>
<CAPTION>
US Services & Consolidated
Products Canada Totals
----------------------------------------------------------------
<S> <C> <C> <C>
(c) Six Months Ended June 30, 1998:
(Unaudited)
Revenue $ 994,959 $ - $ 994,959
License fees 1,075,758 - 1,075,758
Cost of sales 1,020,358 - 1,020,358
------------------------------------------------------
Operating earnings (loss) 1,050,359 1,050,359
Administrative and general 1,677,370 91,702 1,769,072
Corporate development and marketing 202,655 53,792 256,447
Amortization and depreciation 151,311 6,360 157,671
------------------------------------------------------
Segmented loss $ (980,977) $ (151,854) (1,132,831)
-------------------------------------
Unallocated:
Other income (expense) (521,039)
Investment and other income
66,445
----------------
LOSS FOR THE PERIOD $ (1,587,425)
================
IDENTIFIABLE ASSETS $ 7,108,528 $ 497,748 $ 7,606,276
======================================================
(d) Six Months Ended June 30, 1997:
(Unaudited)
Revenue $ 6,351 $ - $ 6,351
Cost of sales 510,941 - 510,941
------------------------------------------------------
Operating earnings (loss) (504,590) - (504,590)
Administrative and general (287,027) 145,922 (141,105)
Corporate development and marketing 166,617 (6,106) 160,511
Research and development 1,968,537 373 1,968,910
Amortization and depreciation 147,384 - 147,384
------------------------------------------------------
Segmented loss $ (2,500,101) $ (140,189) (2,640,290)
-------------------------------------
Unallocated:
Writedown of investment (36,013)
Investment and other income 8,999
----------------
LOSS FOR THE PERIOD $ (2,667,304)
================
IDENTIFIABLE ASSETS $ 3,118,451 $ 749,187 $ 3,867,638
======================================================
18
</TABLE>
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
17. Contingencies
a) Pending Litigation
During May 1998, the Company and two of its officers were served with a
putative class action complaint alleging purported violations of the federal
securities laws [GESTEN v. SOLUCORP INDUSTRIES, LTD., et al,. 98 Civ. 3248 (LMM)
(SDNY)]. Since that time, three additional class action complaints were filed
against the Company and various of its personnel. The substantive allegations of
all four of the complaints, some of which have never been served on the Company
or the individual defendants, consist of no more than extensive quotations from
prior statements purportedly made by the Company and general allegations that
such statements were false and misleading. The Company has reviewed its prior
statements and is convinced that none of such statements were false or
misleading. The Company and the individuals named in the four complaints, after
consultation with their attorneys, concluded that the actions filed against them
have no merit and determined to vigorously defend the actions.
The Company and the individuals named in the GESTEN action filed a motion
to dismiss that complaint. While that motion to dismiss was pending, the
plaintiffs in the four class actions filed a motion to consolidate the four
actions into one action, as part of the GESTEN case, and to file one amended
consolidated complaint if the motion is granted. The Company and the individual
defendants have not opposed consolidation and agreed to withdraw their motion to
dismiss the GESTEN complaint until after the Court rules on the consolidation
motion. The consolidation motion currently is pending before the Court.
b) Waste Disposal Rights
Recoverability of the waste disposal rights is subject to the realization of
management's assumptions as discussed in note 10.
18. Related Party Transactions
During the three and six month periods ended June 30, 1998, the Company
paid consulting fees and salaries of $102,154 and $206,824, respectively
(June 30, 1997 - $93,791 and $201,616, respectively) to directors, former
directors and/or private companies controlled by directors and/or
individuals related to directors.
19
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
19. Commitments
a) The Company has a lease for the building it presently occupies in New
York which requires the following payments:
1998 $144,000
1999 $144,000
2000 $144,000
2001 $144,000
2002 and subsequent $ 24,000
b) The Company has entered into numerous non-exclusive finder's
agreements with third parties to promote the company's soil
remediation process. The company will pay between 1% and 7% for
commissions on gross revenues generated by the third parties. These
agreements expire between one and two years.
c) The Company has agreed to pay royalties to Earthworks Industries Inc.
(Earthworks) (a Canadian public company) based on $1/ton (Cdn) for
soil remediated in Canada or $1/ton (US) if soil is remediated in the
United States. The Company will receive one share for each $1 of
royalty paid, to a maximum of 200,000 shares, in minimum blocks of
50,000. These shares are accrued as the soil is remediated. An
additional $1 (Cdn or US) will be paid for each ton remediated on
contracts resulting from the efforts of Earthworks. The Company has
the right to offset royalty payments against the convertible loan from
Cortina Integrated Waste Management, Inc. (note 8(c)).
d) The Company entered into a consulting agreement with a third party who
will provide business development and operational support. The Company
will pay the third party $3,000 per month plus any costs over and
above the monthly consulting fee. The agreement expires on October 1,
1998 with an annual renewal option.
e) In October 1995 the Company entered into an exclusive licensing
agreement with a United Kingdom company for the U.K. company to
utilize the Company's soil remediation process and to market the
company's soil remediation technology in the U.K. The agreement
required an annual licensing fee and a royalty per ton of soil
remediated. This agreement will be superseded by a new agreement dated
August 1, 1997, when the U.K. company obtains an official listing on
the Alternative Investment Market. The Company also granted an option
for a twelve month period to the U.K. company for similar licensing
agreements related to various European territories. Consideration
received for granting the option was $200,000. On December 10, 1997
the U.K. company advised its intention to exercise the option and to
proceed with drafting agreements for France, Poland, Hungary and
Portugal.
20
<PAGE>
SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
- --------------------------------------------------------------------------------
20. Comparative Figures
The Company changed its year-end to December 31. In accordance with SEC
guidelines the consolidated statement of operations and the consolidated
statement of cash flow for the three month period ended March 31, 1998 was
compared to the comparable period in 1997, whereas the consolidated balance
sheet at March 31, 1998 was compared to the previous year ended date of
December 31, 1997.
21. Economic Dependence
During the six months ended June 30, 1998, revenues of $383,800 and
$328,000 were earned from two customers, of which $56,875 and $Nil is
included in accounts receivable, respectively.
License fees of $1,075,758 were recognized in the six months ended June 30,
1998. See note 3.
22. Reconciliation to United States Generally Accepted Accounting Principles
As discussed in Significant Accounting Policies, these consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in Canada. Differences in accounting principles as they pertain to
these consolidated financial statements are as follows:
Marketable Securities
Under GAAP, the accounting for marketable securities depends on the
classification of securities as held to maturity, trading or available for
sale. The classification would be based on management's intent. Marketable
securities included in long-term investments (note 8) would be classified
as being available for sale. Under U.S. GAAP, such securities would be
recorded at fair value with any changes recorded in a separate component of
shareholder's equity. Realized gains or losses would be recorded on the
income statements. At June 30, 1998 the effect on the presentation of
long-term investment for U.S. GAAP purposes would not be material.
21
<PAGE>
<TABLE>
<CAPTION>
SOLUCORP INDUSTRIES LTD.
Schedule of Administrative and General Expenses (US Dollars)
Three and Six Month Periods Ended June 30, 1998 and 1997
Three Months Ended June 30, June 30,
1998 1997
----------------------------------------------- -----------
U.S. Canada Total Total
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Automobile $ 7,378 $ 0 $ 7,378 ($ 858)
Bad Debts 86,600 0 86,600 41,690
Bank charges and interest 6,695 123 6,818 9,405
Consulting and management fees 305,704 0 305,704 (147,182)
Foreign exchange (gain) loss (25,307) 789 (24,518) (34,328)
Insurance 4,397 0 4,397 (24,387)
Legal, accounting and audit 224,658 28,442 253,100 153,024
Office, printing and related 123,542 3,003 126,545 (102,876)
Rent 33,282 1,762 35,044 (21,558)
Salaries and wages 245,146 18,409 263,555 (551,261)
Telephone 17,652 2,692 20,344 (56,568)
Transfer and filing fees 0 (2) (2) 17,361
Travel 29,695 1,508 31,203 (33,174)
-------------- ----------- ------------- -----------
$1,059,442 $56,726 $1,116,168 ($750,712)
============== =========== ============= ===========
<CAPTION>
Six Months Ended June 30, June 30,
1998 1997
----------------------------------------------- -----------
U.S. Canada Total Total
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Automobile $ 18,387 $ 0 $ 18,387 $ 8,485
Bad Debts 86,600 86,600 41,690
Bank charges and interest 10,490 201 10,691 20,965
Consulting and management fees 414,811 414,811 (100,776)
Foreign exchange (gain) loss 52,112 789 52,901 (6,006)
Insurance 20,261 20,261 (13,129)
Legal, accounting and audit 301,884 34,386 336,270 187,707
Office, printing and related 162,375 6,797 169,172 (70,503)
Rent 59,952 3,545 63,497 39,868
Salaries and wages 469,277 38,249 507,526 (233,548)
Telephone 35,805 5,493 41,298 (26,108)
Transfer and filing fees 401 401 17,890
Travel 45,416 1,841 47,257 (7,640)
------------- ------------ ------------- -----------
$1,677,370 $91,702 $1,769,072 ($141,105)
============= ============ ============= ===========
22
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Results of Operations
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997.
Aggregate revenue (environmental clean-ups and waste disposal projects, Training
Institute fees and license fees) increased to $2,070,717 from $6,351; an
increase of $2,064,366 for the six months ended June 30, 1998 when compared to
the comparable period last year. This resulted primarily from increased
transportation and disposal activity and from license fees in the current
period. Given the Company's reliance on a relatively small number of customers
at this stage, revenue may vary significantly from period to period.
Accordingly, no specific trend can be identified. (For the quarter ended June
30, 1997 an in-line job was projected to be a loss. Accordingly, the reversal of
previously anticipated profits utilizing the percentage of completion
methodology had the effect of reducing revenue by approximately $279,000).
Cost of sales increased $487,479 or 95%. This increase was due to the abnormally
high inventory storage costs and from the increased revenues in 1998.
Gross margin went from a loss of $504,590 in the six months ended June 30, 1997
to a loss of $3,461 in the current six-month period. At this point in the
Company's development its project costs do not yet reflect the economy of scale
needed for a normal operation. In addition, the abnormally high inventory
storage costs have also hindered profitability.
Investment and other income increased to $108,374 from $8,999 This increase
occurred primarily from interest charged on related party loans.
For the six months ended June 30, 1998 total operating expenses were $2,183,190
versus $2,135,700 in the comparable period last year; an increase of $47,490 or
2%. Current expenses focused primarily on the Company becoming a reporting
entity with the SEC, the protection and final issuance of the Company's patents,
and the Company's cooperation with an ongoing investigation by the SEC. In the
comparable period last year operating expenses were geared primarliy toward the
successful demonstrations of its MBS technology for the EPA, and finding
reliable chemical suppliers for the reagents used in MBS.
Other expenses in the six months ended June 30, 1998 were $527,968 versus
$36,013 in the comparable period in 1997. The current amount was mostly a
reserve established against a prepaid employment agreement, and other advances
made to Tristate Restoration and its officers which the Company is suing to
recover. The $36,013 in 1997 reflects the writedown of an investment.
For the six months ended June 30, 1998 the Company experienced a loss of
$1,530,487 compared to a loss of $2,667,304 in the comparable period lin 1997.
In addition to the low volume in relation to the Company's costs and other
23
<PAGE>
operating expenses in both six-month periods, the Company experienced
significant abnormal expenses in both periods which are discussed above.
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997.
Aggregate revenue as defined above increased to $1,012,396 from $(278,670) in
the comparable period last year; an increase of $1,291,066. As indicated above,
increased transportation and disposal activity, and license fees in the current
period more than offset the reversal of previously anticipated profits on an
in-line project that was utilizing the percentage of completion methodology in
the comparable period in 1997. In addition, as indicated above, the Company
relies on a relatively small number of customers at this stage, and therefore
revenue may vary significantly from period to period. Accordingly, no specific
trend can be identified.
Cost of sales increased $228,141 or 101%. As indicated above, this increase was
primarily due to the abnormally high inventory storage costs from the buildup in
inventory for the anticipated increased remediation activity in 1998, and from
increased transportation and disposal activity.
Gross margin reflected a profit of $28,573 for the three months ended June 30,
1998 versus a loss of $504,048 in the comparable period last year. Putting aside
the condition noted above regarding the accounting for an in-line project last
year, the Company's project costs do not yet reflect the economy of scale needed
for a normal operation. In addition, the abnormal inventory storage costs and
non-billable treatability work at the current revenue level have hindered
profitability.
Investment and other income increased to $44,828 from $7,499; an increase of
$37,329. As noted above this increase was due primarily from interest charged on
related party loans.
Total operating expenses in the current three-month period ended June 30, 1998
were essentially unchanged from the comparable period last year. However, as
noted above, last year these expenses focused mainly on the successful
demonstrations of the Company's MBS technology for the EPA, whereas this year it
was focused primarily on the Company becoming a reporting entity with the SEC,
the protection and final issuance of the Company's patents, and the Company's
cooperation with an ongoing investigation by the SEC.
Other expenses in the three months ended June 30, 1998 were $527,968 versus
$36,013 in the comparable period in 1997. As noted above, the current amount was
mostly a reserve established against a prepaid employment agreement and other
advances made to Tristate Restoration and its officers which the Company is
suing to recover. The $36,013 in 1997 reflects the writedown of an investment.
For the three months ended June 30, 1998 the Company experienced a loss of
$1,271,007 compared to a loss of $1,839,800 in the comparable period in 1997. As
indicated above, the low volume in relation to the Company's costs and other
operating expenses as well as the significant abnormal expenses in both periods,
accounted for these losses.
24
<PAGE>
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $3,025,638, a decrease of
$759,348, or 20% from the $3,784,986 reflected at December 31, 1997. Within the
current assets significant increases occurred in accounts receivable and
inventories; whereas significant decreases occurred in unbilled license fees,
due from related parties and prepaid expenses. Within the current liabilities,
accounts payable and accrued liabilities reflected the only significant
increase.
The Company has financed its operations through the sale of its securities
pursuant to the Company's stock option plans and to certain private investors,
and the Company expects to continue to provide for its cash and capital needs in
this manner until operations are sufficient to meet these needs.
Cash Flows
During the six months June March 30, 1998, the Company increased its cash
position $6,109 versus an increased cash position of $5,336 in the comparable
period in 1997. In the current period, cash was provided mainly from the
issuance of the Company's capital stock and the repayment of related party
loans. This was used primarily to fund the current loss, and from the incurrence
of a deferred charge.
Other
The carrying value of the waste disposal rights ($1,515,937) at June 30, 1998
represented a significant portion of the Company's assets. Measurement of the
recoverability of the carrying value was based on an assessment of the waste
disposal rates currently existing in the New York and New Jersey areas, and at
other areas where Thermo Tech plants are located, and on the assumption that the
Corinth plant will be in operation in the near future. However, it is reasonably
possible, based upon existing knowledge, that changes in future conditions in
the near term could require a material change in the estimated recoverable
amount. Accordingly, the Company is currently amortizing these rights $216,500
per year, which has left a net amount of $250,312 at June 30, 1998.
In anticipation of significantly increased remediation activity in 1998, and due
to the relatively long lead time required to purchase one of the main chemical
ingredients in MBS, the Company continued to increase its inventory of this
chemical in the three months ended June 30, 1998. This was the primary reason
for the inventory increasing $1,039,447 from the $784,079 at December 31, 1997.
In February 1998 The British Columbia Ministry of the Environment (BCMOE) issued
its first and only site permit allowing heavy metals contaminated soil that is
treated with the Company's Molecular Bonding System (MBS) to be disposed in an
authorized landfill as "nonspecial" waste. This officially waives the B.C. law
that all treated soil must be disposed of in a hazardous waste landfill, and
consequently allow for significant cost savings on disposal charges for
MBS-treated material.
25
<PAGE>
The Company filed a patent application which utilizes the Company's Molecular
Bonding System to eliminate heavy metals pollution from a variety of
manufactured items, including mercury switches and batteries commonly containing
lead, cadmium and nickel. These products previously found their way into
municipal landfills or incinerators which subsequently released the hazardous
pollution into the environment.
Laboratory tests conducted by Brookhaven National Laboratory with the Company's
MBS Technology successfully treated mixed radioactive waste. These tests
represent an important step in the Company's attempt to penetrate the
radioactive-based market by potentially providing the US Department of Energy
with a cost effective solution to dispose of mixed waste.
The Company was notified by the US Department of Commerce Patent and Trademark
Office that its MBS Soil Remediation Process Patent Application was examined and
allowed for issuance as a patent.
On May 1, 1998, the Company was informed by the Securities and Exchange
Commission (SEC) that it had temporarily suspended the over the counter trading
in the securities of the Company from May 1, 1998 through May 14, 1998. The
suspension was based upon questions that were raised concerning the accuracy and
adequacy of the public information about various aspects of the Company's
business, The Company is confident that it will demonstrate to the satisfaction
of the SEC that it acted properly.
Pending Litigation
During May 1998 the Company and two of its officers were served with a putative
class action complaint alleging purported violations of the securities laws [
GESTEN v SOLUCORP INDUSTRIES LTD, et al., 98 Civ. 3248 (LMM) (SDNY) ]. Since
that time, three additional class actions complaints were filed against the
Company and various of its personnel. The substantive allegations of the
complaint consist of no more than extensive quotations from prior statements
purportedly made by the Company and general allegations that such statements
were false and misleading. The Company has reviewed its prior statements and is
convinced that none of such statements were false or misleading. The Company and
the individuals named in the complaints, after consultation with their
attorneys, believe that the action filed against them has no merit and have
determined to vigorously defend the action.
The Company and the individuals named in the GESTEN action filed a motion to
dismiss that complaint. While the motion was pending the plaintiffs in the four
class actions filed a motion to consolidate the four actions into one action, as
part of the GESTEN case, and to file one amended consolidated complaint if the
motion is granted. The Company and the individual defendants have not opposed
consolidation and agreed to withdraw their motion to dismiss the GESTEN
complaint until after the Court rules on the consolidation motion. The
consolidation motion .is currently pending before the Court.
26
<PAGE>
Material Contracts
In March 1998 the Company entered into a world-wide license agreement with KBF
Pollution Management, Inc. (KBF). The five (5) year license with automatic
renewals for successive one year periods permits the Company to market KBF's
patented SST Water Treatment Technology, which removes and recovers metals from
waste water, facilitating beneficial reuse of the metals and purification of the
water. The agreement initially required the payment of an up-front license fee
of $500,000 in the form of 190,550 shares of common stock.
In June 1998 the Company was awarded a $1.1 million subcontract from
Environmental Waste Technology Inc. pursuant to their general contract with the
New York City Department of Environmental Protection. The contract involves lead
and asbestos abatement, and demolition services in Brooklyn, New York. Work on
the contract is scheduled to commence September 1998, and under the terms of the
agreement the Company will bill for its services as work is completed.
In June 1998 the Company entered into a contract with Geomar Holdings Limited, a
recently formed Delaware limited liability company. Subject to Geomar raising a
specified amount of capital, it will be responsible for funding the acquisition
and development of real estate interests in selected sites which require
remediation of contamination before they can be developed. The contract also
specifies that Solucorp will have exclusive rights as general contractor to
manage all remediation work.
In July 1998 the Company was awarded a subcontract by Roy F. Weston Inc. from
their contract with the US Army Corps of Engineers to remediate hazardous soils
utilizing its MBS technology at the former Waldon Spring Ordnance Work in St.
Charles, MO. The subcontract, which is valued at $352,000, is scheduled to
commence in September 1998.
The Company was recently informed that the Basic Ordering Agreement issued to
IDM Environmental Inc. for various services at the Los Alamos National
Laboratory has terminated. Accordingly, Solucorp's subcontract with IDM, which
involved remediation services, will not be rendered. The termination of the
contract has had no effect on the Company's operations.
The Company was recently informed that the OENJ project to remediate 1,400 tons
of classified hazardous soils (VOC's & volitile organics) on site was disposed
of. Therefore, Solucorp will not render its services for this project.
Year 2000 Issue
The Company's services do not utilize equipment or systems that depend on
computer software. The Company's accounting systems are personal computer based
and presently utilize off the shelf accounting software. The Company plans to
purchase software upgrades from software vendors, and these purchases are not
expected to have a material impact on the Company's results of operations.
Forward Looking Statements
Certain matters discussed herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve risks and uncertainties. These forward-looking statements
27
<PAGE>
relate to, among other things, expectations of business environment in which the
Company operates, projections of future performance, perceived opportunities in
the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements.
28
<PAGE>
<TABLE>
SOLUCORP INDUSTRIES LTD
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended
June 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Primary Earnings: (*)
Net Income (Loss) ($1,271,007) ($1,875,813)
============ ============
Shares:
Weighted average number of common shares issued and outstanding 19,018,892 15,878,790
Assuming conversion of options issued and outstanding (*)
-------------------------------
Weighted average number of common shares as adjusted 19,018,892 15,878,790
========== ==========
Primary earnings/(loss) per common share (*) ($0.07) ($0.12)
======= =======
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1998 1997
---- ----
Primary Earnings: (*)
Net Income (Loss) ($1,530,487) ($2,667,304)
============ ============
Shares:
Weighted average number of common shares issued and outstanding 18,895,908 15,570,933
Assuming conversion of options issued and outstanding (*)
-------------------------------
Weighted average number of common shares as adjusted 18,895,908 15,570,933
========== ==========
Primary earnings/(loss) per common share (*) ($0.08) ($0.17)
======= =======
(*) Fully diluted earnings and other computations entailing conversions of options and warrants are omitted
since they would diminish the loss per share.
29
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) During the period covered by this report, the Company sold an
aggregate of 76,000 shares of common stock to officers, directors, employees and
consultants for cash consideration of $149,325.00 upon the exercise of stock
options which were granted before the Company was subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended. No commission was paid upon the exercise of the options nor was any
person acting as underwriter with respect to the sales. The offers and sales are
claimed to be exempt pursuant to Rule 701 under the Securities Act of 1933, as
amended in that such sales were offered and sold:
(1) pursuant to written option agreements issued prior to the time the
Company was subject to reporting obligations under the Exchange Act;
(2) the compenstation options were granted for bona fide services rendered
not related to capital raising transactions; and
(3) the number of shares issued does not exceed 15% of the shares of the
Company's common stock outstanding nor does the amount received upon the
exercise of the options exceed $5,000,000 during the preceding 12 months.
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
30
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: August 14, 1998
SOLUCORP INDUSTRIES LTD.
By: /s/ PETER MANTIA
--------------------------------
Peter Mantia, President
By: /s/ VICTOR HERMAN
--------------------------------
Victor Herman, CFO
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOLUCORP INDUSTRIES LTD FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 32,755
<SECURITIES> 0
<RECEIVABLES> 2,835,613
<ALLOWANCES> 104,397
<INVENTORY> 1,824,262
<CURRENT-ASSETS> 4,898,339
<PP&E> 339,301
<DEPRECIATION> 24,389
<TOTAL-ASSETS> 7,606,276
<CURRENT-LIABILITIES> 1,872,701
<BONDS> 0
0
0
<COMMON> 19,270,590
<OTHER-SE> 0
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</TABLE>
