<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _____
COMMISSION FILE NUMBER 0-9897
SOLV-EX CORPORATION
(Exact name of Registrant as specified in its charter)
New Mexico 85-0283729
---------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2127 Menaul NE, Albuquerque, NM 87107
-------------------------------------
(Address of principal executive offices)
(505)-883-0331
--------------
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report:
Not Applicable
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 such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___ No XX
--
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No. XX
--
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as April 30, 1999 was 32,048,593.
<PAGE>
SOL-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and June 30, 1998
(Unaudited) 3
Consolidated Statements of Operations for the three months ended March
31, 1999 and 1998 and nine months ended March 31, 1999 and 1998, and
Cumulative from Inception (Unaudited) 4
Consolidated Statement of Stockholders' Equity for the nine months
ended March 31, 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine months ended March
31, 1999 and 1998, and Cumulative from Inception (Unaudited) 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17-19
Item 6. Exhibits and Reports on Form 8-K 19
Each of the other items of information required under Part II are not
applicable for the quarter ended March 31, 1999
SIGNATURE 20
</TABLE>
Page 2
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Balance Sheets
March 31, 1999 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
Assets 1999 1998
- ------ ----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 894,266 $ 14,970,429
Other receivables 10,830 890,509
Prepaid expenses 494 496
----------------- ------------------
Total current assets 905,590 15,861,434
----------------- ------------------
Property, plant and equipment, net 1,554,119 1,950,658
Patents, net 371,621 352,375
Other assets 1,334,821 1,667,358
================= ==================
Total Assets $ 4,166,151 $ 19,831,825
================= ==================
<CAPTION>
March 31, June 30,
Liabilities and Stockholders' Equity 1999 1998
- ------------------------------------ ----------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 555,450 $ 9,245,513
Accrued expenses 227,565 827,513
Due to related parties 395,108 2,645,667
Current portion of long-term debt 2,603,803 57,912
----------------- ------------------
Total current liabilities 3,781,926 12,776,605
----------------- ------------------
Long-term debt, net of current portion 115,127 7,313,108
----------------- ------------------
Total liabilities 3,897,053 20,089,713
----------------- ------------------
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares; issued 31,673,260
shares at March 31, 1999, and 26,082,278
shares at June 30, 1998 316,733 260,823
Preferred stock authorized 50,000,000
shares; no shares issued
Additional paid-in capital 86,078,796 82,372,792
Unearned compensation (22,917) -
Deficit accumulated during development
stage (86,103,514) (82,891,503)
----------------- ------------------
Total stockholders' equity 269,098 (257,888)
----------------- ------------------
Commitments and contingencies
================= ==================
Total Liabilities and Stockholders' Equity $ 4,166,151 $ 19,831,825
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements Page 3
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998
Nine months ended March 31, 1999 and 1998
and Cumulative from July 2, 1980 (inception)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------
March 31,
------------------------------------------
1999 1998
------------------ -------------------
<S> <C> <C>
Revenues:
Contract fees $ - $ -
Interest 15,124 724
Gain on sale of equipment 4,989 -
Other income 6,100 -
State grant - -
------------------ -------------------
26,213 724
------------------ -------------------
Expenses:
Research and development 176,507 191,446
Research and development
funded by others - -
General and administrative 429,038 875,724
Interest expense 61,740 557,199
Loss on sale of assets - 15,471
Write-off of mineral lease - -
------------------ -------------------
667,285 1,639,840
------------------ -------------------
Minority interest in loss
of subsidiary - -
------------------ -------------------
Net loss before extraordinary item (641,072) (1,639,116)
------------------ -------------------
Extraordinary item - 33,806,368
================== ===================
Net income (loss) $ (641,072) $ 32,167,252
================== ===================
Loss per share - basic, before extraordinary item $ (0.02) $ (0.06)
Earnings per share - basic, extraordinary item $ - $ 1.33
================== ===================
Net income (loss) per share - basic $ (0.02) $ 1.27
================== ===================
Weighted average number of common shares and
equivalents: basic 31,429,676 25,294,919
================== ===================
<CAPTION>
Nine months ended Cumulative
------------------------------------------
March 31, from July 2, 1980
------------------------------------------
1999 1998 (inception)
------------------- ------------------- -----------------------
<S> <C>
Revenues:
Contract fees $ - $ - $ 5,278,637
Interest 402,013 3,677 3,778,524
Gain on sale of equipment 15,528 - 330,915
Other income 6,100 - 6,100
State grant - - 407,760
------------------- ------------------- -----------------------
423,641 3,677 9,801,936
------------------- ------------------- -----------------------
Expenses:
Research and development 417,116 796,509 26,807,136
Research and development
funded by others - - (2,032,956)
General and administrative 2,142,453 5,543,103 31,940,074
Interest expense 378,459 3,569,574 7,581,511
Loss on sale of assets 697,624 1,803,886 64,082,520
Write-off of mineral lease - - 1,447,453
------------------- ------------------- -----------------------
3,635,652 11,713,072 129,825,738
------------------- ------------------- -----------------------
Minority interest in loss
of subsidiary - - 113,920
------------------- ------------------- -----------------------
Net loss before extraordinary item (3,212,011) (11,709,395) (119,909,882)
------------------- ------------------- -----------------------
Extraordinary item - 33,806,368 33,806,368
=================== =================== =======================
Net income (loss) $ (3,212,011) $ 22,096,973 $ (86,103,514)
=================== =================== =======================
Loss per share - basic, before extraordinary item $ (0.11) $ (0.47) $ (7.50)
Earnings per share - basic, extraordinary item $ - $ 1.35 $ 2.11
=================== =================== =======================
Net income (loss) per share - basic $ (0.11) $ 0.88 $ (5.38)
=================== =================== =======================
Weighted average number of common shares and
equivalents: basic 29,913,051 24,969,137 15,990,469
=================== =================== =======================
</TABLE>
See accompanying notes to consolidated financial statements Page 4
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Price Common stock Additional Common
per ----------------------------- paid-in stock
share Shares Amount capital subscribed
---------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1998 26,082,278 $ 260,823 $ 82,372,792 $ -
Issued to employees as compensation
October 1, 1998 0.500 30,000 300 14,700 -
October 1, 1998 - adjustment - - (115,000) -
January 14, 1999 0.500 100,000 1,000 49,000
Issued as indemnification
October 1, 1998 0.500 29,603 296 14,505 -
January 13, 1999 0.500 20,000 200 9,800 -
Issued to individuals/entities as compensation
July 31, 1998 1.100 300,000 3,000 327,000 -
October 1, 1998 0.500 290,670 2,907 142,428 -
January 14,1999 0.500 100,470 1,005 52,445
Issued in settlement of claim:
March 1, 1999 0.500 200,000 2,000 52,821 -
Issued through private placement
November 23, 1998 0.500 1,624,000 16,240 795,760 -
Converted Debentures:
October 1, 1998 0.400 5,728,767 57,288 2,234,219 -
January, 1999 .230-.310 379,627 3,796 96,204 -
Shares not exchanged by December 1, 1998, as
adjusted, as per the Plan of Reorganization 0.010 (3,212,155) (32,122) 32,122 -
Net (loss) - - - -
------------- ----------- ------------- ------------
Balance at March 31, 1999 31,673,260 $ 316,733 $ 86,078,796 $ -
============= =========== ============= ============
<CAPTION>
Deficit
Common accumulated
stock Unearned during
subscriptions Compem- development
receivable sation stage Total
----------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Balance at July 1, 1998 $ - $ - $ (82,891,503) $ (257,888)
Issued to employees as compensation
October 1, 1998 - (4,167) - 10,833
October 1, 1998 - adjustment - - - (115,000)
January 14, 1999 50,000
Issued as indemnification
October 1, 1998 - - - 14,801
January 13, 1999 - - - 10,000
Issued to individuals / entities as compensation
July 31, 1998 - - - 330,000
October 1, 1998 - (18,750) - 126,585
January 14,1999 53,450
Issued in settlement of claim:
March 1, 1999 - - - 54,821
Issued through private placement
November 23, 1998 - - - 812,000
Converted Debentures:
October 1, 1998 - - - 2,291,507
January, 1999 - - - 100,000
Shares not exchanged by December 1, 1998, as
adjusted, as per the Plan of Reorganization - - - -
Net (loss) - - (3,212,011) (3,212,011)
----------- --------- --------------- ------------
Balance at March 31, 1999 $ - $ (22,917) $ (86,103,514) $ 269,098
=========== ========= =============== ============
</TABLE>
See accompanyinmg notes to consolidated financial statements. Page 5
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended March 31, 1999 and 1998
and Cumulative from July 2, 1980 (inception)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
March 31 Cumulative
------------------------------- from July 2, 1980
1999 1998 (inception)
-------------- ------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,212,011) $ 22,096,973 $ (86,103,514)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Depreciation and amortization 431,986 1,372,073 5,206,567
Amortization of Financing Costs - - 2,827,304
Write-off of mineral leases and other - - 2,783,817
Cancellation of indebtedness (1) - (33,806,368) (33,806,368)
Loss on sale of equipment - 1,803,886 61,791,233
Issuance of stock - settlement of obligations 535,491 - 3,407,554
Minority interest in loss of subsidiary - - (113,920)
Changes in certain assets and liabilities:
Receivables and other assets 879,681 1,648,632 (1,199,500)
Accounts payable and accrued expenses (9,420,777) 2,434,506 (305,010)
Due to related parties (2,250,559) 36,713 296,108
Accrued deferred interest - - 167,260
Deferred compensation - - 370,250
------------- ------------ ---------------------
Net cash provided by (used for) operating activities (13,036,189) (4,413,585) (44,678,219)
------------- ------------ ---------------------
Cash flows from investing activities:
Proceeds from short-term investments - - 2,296,745
Additions to property, plant and equipment (14,886) (2,175,429) (103,678,075)
Proceeds from sale and/or return of equipment - 6,797,686 32,931,175
Expenditures for short-term investments - - (2,100,000)
Cash acquired in excess of payment for the purchase
of a majority interest in Can-Amera Oil Sands, Inc. - - 97,976
Expenditures for patents (39,807) (38,318) (547,257)
Expenditures for other 332,537 9,964 (179,900)
------------- ------------- ---------------------
Net cash (used for) investing activities 277,844 4,593,903 (71,179,336)
------------- ------------- ---------------------
Cash flows from financing activities:
Proceeds from issuance of short and long-term debt 48,000 1,890,727 61,095,606
Proceeds from loan from stockholder - - -
Issuance of common stock 3,334,272 3,597,765 83,883,008
Principal payments on short and long-term debt (4,700,090) (6,217,660) (25,359,776)
Payment of costs associated with proposed financing - - (2,885,392)
Other - - 18,375
------------- ------------ ---------------------
Net cash provided by financing activities (1,317,818) (729,169) 116,751,821
------------- ------------ ---------------------
Change in cash and cash equivalents $ (14,076,163) $ (548,851) $ 894,266
============= ============ =====================
(continued)
Page 6
</TABLE>
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended March 31, 1999 and 1998
and Cumulative from July 2, 1980 (Inception)
<TABLE>
<CAPTION>
Nine months ended Cumulative
-----------------------------
March 31 from July 2, 1980
----------------------------
1999 1998 (inception)
------------ ----------- --------------
<S> <C> <C> <C>
Change in cash and cash equivalents $(14,076,163) $ (548,851) $ 894,266
Cash and cash equivalents at beginning of period 14,970,429 608,799 -
------------- ----------- ---------------
Cash and cash equivalents at end of period $ 894,266 $ 59,948 $ 894,266
============= =========== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 1,219,331 $2,143,534 $ 11,837,191
============= =========== ===============
Noncash investing and financing activities:
issurance of stock for minerals lease $ - $ - $ 281,000
============= =========== ===============
Acquisition of controlling interest in
Can-Amera Oil Sands, Inc. for cash of $150,000
and 75,000 shares of common stock valued at $122,250.
In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ - $ - $ 1,659,211
Cash and stock paid for capital stock - - (272,250)
Minority interest - - (113,920)
------------- ----------- ---------------
Liabilities assumed $ - $ - $ 1,273,041
============= =========== ===============
Liabilities assumed
Issuance of stock for deferred compensation $ - $ - $ 271,250
============= =========== ===============
Issuance of subsidiary stock for redemption
of Can-Amera notes $ - $ - $ 1,447,980
============= =========== ===============
</TABLE>
________________
(1) Cancellation of $33 million of debt pursuant to Plan of Reorganization. See
Part 1, Item 2 - Management Discussion and Analysis of Condition and Results
of Operations - Results of Operations.
See accompanying notes to consolidated financial statements.
Page 7
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
(1) Basis of Presentation
- --- ----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
The financial information presented reflects all adjustments consisting of
normal recurring accruals and the impairment of long-lived assets which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
All amounts herein are stated in US dollars except amounts preceded by a "C"
denoting Canadian dollars.
These consolidated financial statements should be read in conjunction with the
audited balance sheet at August 31, 1998 and notes thereto filed under Form 8-K
and the Form 10-Q filed for the quarter ended December 31, 1998. The Company
emerged from bankruptcy with an effective date of August 31, 1998. Because of
the significant cost to prepare and, the Company believes, the limited
usefulness of the information, the Company has not and does not intend to file a
Form 10-K for the fiscal year ended June 30, 1998. Included in the Form 10-Q
filed for the quarter ended December 31, 1998 is a detailed presentation of
Stockholders' Equity from inception to December 31, 1998.
Since the Company incurred net losses before extraordinary items for the three
months ended March 31, 1999 and 1998 and for the nine months ended March 31,
1999 and 1998, both basic and diluted per share calculations are the same. The
inclusion of additional shares assuming the exercise of stock options and
warrants and the conversion of convertible debentures would have been
antidilutive. Options and warrants to purchase 13,208,177 and 909,334 shares of
common stock were outstanding at March 31, 1999 and 1998, respectively.
(2) Going Concern
-------------
The Company has been in the development stage since its inception on July 2,
1980. Realization of a major portion of the assets is dependent upon the
Company's ability to meet its future financing requirements, and the success of
future operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. See Item 2 of Part I. Management's
Discussion and Analysis ("MD&A") of Financial Condition and Results of
Operation.
Page 8
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
(3) Plan of Reorganization
----------------------
On August 1, 1997, the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code, having previously filed on July 14, 1997 for
similar protection in Canada under the Companies' Creditors Arrangement Act (the
"CCAA") (collectively the "Bankruptcy Proceedings").
On July 31, 1998, an order was entered in the United States Bankruptcy Court for
the District of New Mexico confirming the Company's Amended Plan of
Reorganization (the "Plan of Reorganization"). A similar order was entered in
Canada under the CCAA. Effective August 31, 1998, the Company emerged from the
Bankruptcy Proceedings.
(4) Related Party Transactions
--------------------------
Mr. Rendall, the Company's Chairman and Chief Executive Officer, loaned the
Company $2,000,000 on March 26, 1997, which was payable on March 31, 1999 with
interest at 10% per annum. On September 9, 1998, Mr. Rendall converted the loan
and accrued interest of $291,506 into 5,728,767 shares of the Company's common
stock. As of March 31, 1999, the Company owes $395,108 to Mr. Rendall, which is
set forth in the balance sheet as Due to related parties.
On September 9, 1998, the Board of Directors authorized the issuance of common
stock, to certain officers and directors in payment of services rendered and
indemnification of expenses. Messrs. Anderson, Campbell, Davey and MacDonald
received 55,000 shares, 29,603 shares, 80,000 shares and 65,670 shares,
respectively.
On August 31, 1998, the Canadian Monitor made distributions to unsecured
creditors in accordance with the Plan of Reorganization that included
distributions to Messrs. Anderson and Davey in the amounts of C$1,797 and
$73,774, respectively.
(5) Accumulated and Other Comprehensive Income
------------------------------------------
Statement of Financial Accounting Standards 130 ("SFAS 130") requires a
supplemental examination of income, showing net income adjusted by transactions
and events, which were not reflected in net income that occurred during the
period, and that affected the Company's equity from non-owner sources.
Typically, comprehensive income includes equity adjustments for unrealized gains
and losses on available-for-sale securities, minimum pension liability
adjustments, and foreign currency translation adjustments. On this basis, at
June 30, 1998 and March 31, 1999, the Company recognized as a component of
stockholders' equity accumulated comprehensive income of $138,200 and $182,824,
respectively, related to foreign currency translation adjustments. Other
comprehensive income (loss) for the three and nine months ended March 31, 1999
was ($18,593) and $44,624, respectively, related to foreign currency translation
adjustments.
Page 9
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
(6) Commitments and Contingencies
-----------------------------
(a) Lease
In connection with its activities in Alberta, Canada during 1996 and 1997,
the Company leased an approximately 50-acre tract (known as the Ruth Lake
site) from the Province of Alberta (the "Province"), Miscellaneous Lease
No. MLL 960020. The original planned use for the leased land, which is
located north of Fort McMurray on Highway 63, was for the construction of a
plant to recover minerals from oil sands tailings generated by others. The
site was also used by the Company as a staging area for its construction
activities on its own oil sands lease. The Company spent $1,041,779 as of
March 31, 1999 for site preparation, most of which was for clearing and
ground preparation and also posted a C$100,000 security deposit as a
reclamation bond ($66,150 current value as of March 31, 1999), which
amounts are recorded in Other Assets on the Company's balance sheet, in
anticipation of further use of the site. The lease, as amended, required
the Company to commence construction of the plant by August 1, 1998, which
the Company was unable to do. In April 1999, the Province and the Company
reached an agreement for the three- (3) year extension of the lease until
July 30, 2002. The extension terms require the Company to maintain the
security deposit and to maintain the lease in good standing. In addition,
the Company must present to the Province a functional proposal for
utilization of the site by July 30, 2001. If the Company meets the
requirements for the functional proposal and pursues the necessary
approvals, an extension of the lease will be granted for the required
tenure, otherwise, the Company will have until October 1, 2002 to reclaim
the land or assign the lease to an alternative user.
(b) Environmental Liability
In November 1997, the State of New Mexico Environmental Department ("NMED")
identified an area next to the Company's pilot plant building where soil
vapor testing indicated solvent contamination. The matter was deferred
until after the emergence of the Company from bankruptcy. The Company has
contacted the NMED to discuss the environmental cleanup requirements and is
waiting for the NMED to set a date for the testing. The NMED will test the
site to identify the area of contamination and thereafter, the Company will
have a 60-day period to present to the NMED, a Voluntary Abatement Plan
("VAP") as prescribed in the New Mexico Water Quality Control Commission
Regulations, Subpart 4106. Upon public notification and approval by the
Secretary of the NMED, the Company will execute the VAP. At present, the
Company is unable to determine the amount of cleanup that will be required
or the cost thereof.
(c) Canadian Tax Assessment
As part of obtaining Bankruptcy Court approval for the sale of the
Company's assets (see Item 2. MD&A. Changes in Financial Position), orders
------------------------------
were entered by the US and
Page 10
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
Canadian Courts court requiring the Company to pay C$2,700,000 to Revenue
Canada for withholding purposes pursuant to the Canadian Income Tax Act,
contemplating and without prejudice to the Company's right to dispute or to
seek a refund of all or part of the withholding amount. In March 1998, the
Company filed an objection to the assessment of Part XIII withholding tax
related to the years ended June 30, 1996 and 1997. The tax assessed for the
1996 and 1997 years was C$1,457,527 and C$345,015, respectively, plus
penalties and interest. On March 10, 1999, Revenue Canada issued a
preliminary ruling upholding the assessment of the Part XIII taxes,
however, allowing the Company thirty days to submit additional information
for their consideration. On April 9, 1999, the Company filed a timely
submission of additional information for consideration by Revenue Canada.
Revenue Canada currently has the Company's submission under consideration,
and therefore, no final decision has been rendered in the matter. The
potential refunds, if any, are pledged as security to the 8% Secured
Convertible Debentures. At present, the Company is unable to determine the
result of its objections to the assessment of the Part XIII withholding tax
filed with Revenue Canada and therefore, no asset or liability has been
recorded on the accompanying balance sheet.
(7) Subsequent Events
-----------------
In April 1999, $50,000 principal amount of the 5% Convertible Debenture was
converted into the Company's common stock. As part of the conversion, 333,333
shares of the Company's common stock were issued to the debenture holder.
In February 1999, the Company settled the balance of the claim of GFL Advantage
Fund Limited ("Advantage") (see Item 2. MD&A. Changes in Financial Position).
------------------------------
The second installment of the settlement of the Advantage claim was satisfied
with a cash payment of $12,500 in April 1999 and the issuance of an additional
200,000 shares of the Company's common stock in May 1999 ($130,766 was accrued
in accounts payable as of March 31, 1999 related to this obligation).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO. CERTAIN STATEMENTS MADE
HEREIN ARE FORWARD-LOOKING WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINITIES WHICH MAY CAUSE
RESULTS TO DIFFER MATERIALLY FROM THOSE IN THESE STATEMENTS. IN PARTICULAR, SUCH
FACTORS ARE: GENERAL BUSINESS AND ECONOMIC CONDITIONS; NO REVENUES FROM
OPERATIONS; COMMODITY PRICING; NEED FOR ADDITIONAL FINANCING; THE COMPANY'S
STATUS AS A DEVELOPMENT STAGE COMPANY; RISKS INVOLVED IN COMMERCIALIZING THE
TECHNOLOGIES; COMPETITION; LACK OF OR CHALLENGES TO PATENT PROTECTION OF KEY
PROCESSES; POTENTIAL INABILITY TO COMPLY WITH GOVERNMENT ENVIRONMENTAL
REGULATIONS; DEPENDENCE ON KEY PERSONNEL; HIGH VOLATILITY OF SHARE PRICE;
LITIGATION IN WHICH THE COMPANY IS CURRENTLY INVOLVED; AND OTHER RISK FACTORS
Page 11
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
LISTED FROM TIME TO TIME IN DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
CHANGES IN FINANCIAL POSITION
- -----------------------------
In connection with the Bankruptcy Proceedings, the Company sold its interest in
the two Alberta oil sands leases (including related property, plant and
equipment) for a total of C$34,400,000 plus 5 million shares of United Tri-Star
Resources Ltd. ("UTS"). The sales proceeds were utilized to pay approved
secured and unsecured creditors (including interest on their claims) and to
provide a minimal amount of working capital to commence operations of the
Company under the Plan of Reorganization. On August 31, 1998, the effective date
of the Plan of Reorganization, the Canadian Monitor, PricewaterhouseCoopers,
made distributions to unsecured US creditors in the amount of $4,360,263 and to
unsecured Canadian creditors in the amount of C$6,056,978; distributions to
secured and unsecured convertible debenture holders of $2,509,246; priority
employees claims in the US of $57,124 and in Canada of C$28,949; priority tax
claims of $62,000; US Trustee payment of $20,750; and administrative claims of
$324,423. In addition, administrative claims paid in the nine months ended
March 31, 1999, excluding amounts referenced above, were $176,790 and C$371,763.
As part of the Plan of Reorganization, the Company was required to pay certain
of the 8% Secured Convertible Debenture holders a total $1,784,246 through
distribution of market value of the UTS stock referenced above. In May 1998,
when the Company received the UTS stock, its market value was $2,578,125.
However, at the time of plan distribution as of August 31, 1998, the effective
date of the Plan of Reorganization, the market value of the UTS stock had
declined in value to $1,206,656 as a result of both a decline in market price of
the UTS stock and a decline in the value of the Canadian dollar versus the US
dollar. As a result of the decline in the UTS stock value, the Company was
deficient in the amount of $577,590 in terms of meeting the commitment to pay
the debenture holders the $1,784,246 per the Plan of Reorganization. Through
negotiations with the debenture holders, an agreement was reached wherein the
Company paid an additional $125,000 as of August 31, 1998 to the debenture
holders (such amount is included in the payment amounts referenced above) and
the balance of $452,590 was added to the 8% Secured Convertible Debentures. As
of June 30, 1998, the market value of the UTS stock was considered a cash
equivalent for financial statement purposes.
The Canadian dollar continued to decline in value versus the US dollar during
the nine months ended March 31, 1999. The exchange rate of the Canadian dollar
to the US dollar was .68010 and .6615 at June 30, 1998 and March 31, 1999,
respectively. At June 30, 1998, the Company held C$20,429,836 of cash and cash
equivalents, most of which were being held for distribution upon the effective
date of the Plan of Reorganization.
In September 1998, the Company received the proceeds from the sale of its acid
plant located in Canada. The total proceeds amounted to C$596,618. Also, in
September 1998 the Company received a refund of C$840,698 from the Alberta
Environmental Protection Agency relating to reclamation bonds posted by the
Company on Lease 5, one of the oil sands leases sold as referenced
Page 12
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
above. In accordance with the Plan of Reorganization, the entire amount of the
proceeds from the sale of the acid plant and refund of the reclamation bonds
were paid to the holders of the 8% Secured Convertible Debentures.
As of December 31, 1998, the maturity date of the 8% Secured Convertible
Debentures was extended from December 31, 1998 to June 30, 1999. As
consideration for the extension of the maturity date, a $200,000 principal
reduction was made, accrued interest to December 31, 1998 was paid and the
interest rate was increased from 6% to 8% per annum effective January 1, 1999.
In January 1999, $100,000 principal amount of the 5% Convertible Debenture was
converted into the Company's common stock. As part of the conversion, 379,627
shares of the Company's common stock were issued to the debenture holder. The
debenture holder has questioned the method used by the Company to determine the
market price of the Company's common stock utilized in the conversion
computation and the Company has reserved its rights to adjust the number of
shares issued based on the market activity in its common stock. Based on
negotiations in process with the debenture holder, additional shares of the
Company's common stock may be issued in order to achieve an agreement on the
conversion computation.
In February 1999, the Company settled the balance of the claim of GFL Advantage
Fund Limited ("Advantage"). Advantage filed a proof of claim filed in the
amount of $1,789,088 in bankruptcy proceedings of the Company. The claim
asserted was for damages relating to failure to register the stock purchased by
Advantage from the Company in 1995. As part of the Plan of Reorganization,
$1,600,000 of the claim was paid on the effective date of August 31, 1998. The
balance of the Advantage claim was compromised with the Company agreeing to pay
$25,000 in cash and $175,000 in value of the Company's common stock in two
installments. In February 1999, $12,500 was paid and in March 1999, 200,000
shares of the Company's common stock were issued as the first installment of the
settlement.
Mr. Rendall, the Company's Chairman and Chief Executive Officer loaned the
Company $2,000,000 on March 26, 1997, which was payable on March 31, 1999 with
interest at 10% per annum. On September 9, 1998, Mr. Rendall converted the loan
and accrued interest of $291,506 into 5,728,767 shares of the Company's common
stock.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
The Company has funded its operations to date primarily from the proceeds of
sales of its common stock, together with the sale of assets pursuant to the Plan
of Reorganization. In November 1998, the Company completed a private placement
of shares of restricted common stock and warrants to certain "accredited
investor" shareholders of the Company (as the term "accredited investor" is
defined under the Securities Act of 1933, the "1933 Act"). The Company issued
1,624,000 shares of common stock, $.01 par value and 919,400 warrants resulting
in proceeds to the Company of $812,000. The warrants are exercisable at $1.00
per share of common stock with a maturity date of November 1, 2003. The
majority of the proceeds of the private placement has been earmarked for the
costs of defending the SEC enforcement action and for prosecuting the suit
Page 13
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
filed against Deutsche Bank and the short-sellers. See Part II, Item 1. Legal
-----
Proceedings. However, approximately $300,000 of the proceeds was used for
- ------------
working capital purposes.
With respect to cash and cash equivalents shown at March 31, 1999, only $50,524
was available for working capital to cover the cost of general operations of the
Company. At present, the balance of the funds is restricted for specific
purposes including settlement of bankruptcy claims and litigation expenses,
primarily the costs of defense with respect to the SEC action for injunctive
relief. In April 1999, the Company received a distribution of funds held in
escrow on the sale of its Canadian assets referenced above in the amount of
$170,758. These funds are available for the general operations of the Company.
On June 30, 1999, the 8% Secured Convertible Debentures mature. The outstanding
balance of these debentures as of March 31, 1999 was $2,260,555. As noted above
under Item (6)(c), Canadian Tax Assessment, the Company has filed for a refund
-----------------------
of the Part XIII withholding tax assessment in the amount of C$1,457,527 and
C$345,015, plus penalties and interest, for the years ended June 30, 1996 and
June 30, 1997, respectively. Any refund received, per the Plan of
Reorganization, will be utilized to reduce the outstanding balance of these
debentures.
The Company does not have any material commitments for capital expenditures nor
does the Company anticipate needing to make any major capital expenditure during
the balance of the current fiscal year.
The ability of the Company to service its debt obligations including the payment
of the 8% Secured Convertible Debentures on June 30, 1999, and to continue to
fund its operations, including its research and development activities, is
dependent upon the ability of the Company to raise additional funds either
through (i) additional sales of its common stock or convertible debt securities;
or (ii) completion of a licensing agreement, joint venture or similar
arrangement with respect to its technologies, which could provide cash to the
Company in the immediate future. There can be no assurance that the Company
will be able to raise the required working capital under either alternative or
that the Company will be able to continue as a going concern. Moreover, the
existing market price of the Company's common stock (range of sales from $.12 to
$.21 per share on March 31, 1999) is such that additional sales of equity
securities or convertible debt securities may not be a realistic expectation for
raising additional working capital.
RESULTS OF OPERATIONS
- ---------------------
In reviewing the results of operation for the comparative periods in 1999 versus
1998, the issues are similar for the nine month periods and the three month
periods, therefore, the analysis of the results of operations have been combined
into one section.
The Company is a development stage enterprise and has no revenues from the sale
of products or services. As noted in the analysis of Changes in Financial
--------------------
Position, the Company sold a significant portion of its assets as part of the
- --------
Bankruptcy Proceedings and the proceeds of sales were held in an interest
bearing account until distributed on the effective date of the Plan of
Reorganization. Therefore, a significant increase in interest income is
reported in the nine months ended March 31,
Page 14
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
1999 versus the comparable period of the prior year. In addition, for the three
months ended March 31, 1999, interest income was earned on the cash balances
even though such cash balances were restricted or earmarked for specified uses -
see Liquidity and Capital Resources.
-------------------------------
As a result of the filing of the Bankruptcy Proceedings, there was a significant
decrease in the operations of the Company which included the sale of
substantially all of the Company's assets located in Canada - see Changes in
----------
Financial Position. As a result of the decrease in operations of the Company,
- ------------------
there was a significant decrease in personnel both involved in the research and
development activities and general and administrative functions of the Company.
With the reduction in personnel costs, there was a corresponding reduction in
the other costs associated with both the research and development functions as
well as with the administrative functions of the Company.
Research and development costs were favorably impacted for the nine months ended
March 31, 1999 resulting from a recomputation of deferred compensation due
certain individuals.
General and administrative expenses for the three and nine months ended March
31, 1998 were substantially higher than the comparable periods ended March 31,
1999 as a result of (i) the high cost associated with the reorganization
proceedings both in Canada and the United States including, but not limited to,
the cost of the Canadian Monitor appointed by the Canadian Court and the various
legal professionals involved both on behalf of the Company and its creditors;
(ii) the cost of maintaining the assets of the Company located in Alberta,
Canada until such time as the assets were sold including, but not limited to,
the cost of winterizing the plant and equipment; (iii) depreciation and
amortization on the Canadian assets sold; and (iii) the foreign currency loss
incurred as a result of the decline in the Canadian dollar as compared to the US
dollar. The favorable comparison of general and administrative expenses incurred
in 1999 versus 1998, was offset in part by (i) legal fees and expenses incurred
by the Company in the various legal proceedings including, but not limited to,
the enforcement action of the Securities and Exchange Commission ("SEC") against
the Company and certain of its officers - See Part II, Item 1. Legal Proceedings
-----------------
and (ii) audit costs associated with the filing of an audited balance sheet as
of August 31, 1998, the effective date of the Plan of Reorganization.
The decrease in interest expense for the three and nine months ended March 31,
1999 compared to March 31, 1998 is primarily attributable to (i) a reduction in
long-term debt as a result of the sale of the Canadian assets and payment to
secured and unsecured creditors, including convertible debenture holders, as
part of the Plan of Reorganization - see Changes in Financial Position; (ii) the
-----------------------------
return of certain Canadian assets to lenders, thereby reducing the outstanding
debt and related interest cost; (iii) amortization and write-off of loan costs
related to the $33 million 12% convertible loan arrangement with PheMex
Establishment ("PheMex") - see below; and (iv) conversion of the $2 million
convertible debenture from Mr. Rendall to common stock in September 1998 - see
Part I, Item 1. Related Party Transactions.
--------------------------
PheMex, with respect to its $33 million 12% convertible loan arrangement, did
not assert a claim in the Bankruptcy Proceedings and; therefore, its rights were
disallowed and the Company's indebtedness extinguished pursuant to the Plan of
Reorganization. Interest expense
Page 15
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
in the amount of $1,980,000, which had been previously accrued on the PheMex
loan, was also disallowed.
The extinguishment of the PheMex $33 million-dollar 12% convertible loan and
accrued interest offset by the write-off of the associated loan costs were
treated as an extraordinary gain in the three and nine months ended March 31,
1998.
The loss on sale of assets relates to the sale of certain Canadian assets that
occurred in the reporting periods as part of the Plan of Reorganization.
IMPACT OF YEAR 2000 ISSUE
- -------------------------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define years. Any of the Company's computer
programs or imbedded hardware that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.
Based on a recent assessment, the Company believes that it will not be necessary
to modify or replace any significant portions of its equipment or software so
that its computer systems will properly utilize dates beyond December 31, 1999.
The Year 2000 Issue is not expected to have a material impact on the stand-alone
operations of the Company. The Company does not expect to incur any material
expenses or costs related to the Year 2000 Issue to modify systems.
Based on a review of the nature and quantity of transactions with significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue, the Company has concluded that it does not materially rely on third
parties' systems for the continuance of its operations, except that the Company
does rely on utilities supplied by municipalities and power companies, the
disruption of which will cause the Company to shut down affected operations.
Extended disruption of utility service will have a material adverse effect on
the Company. With regard to other third party systems, there can be no
guarantee that a failure to convert by another company would not have a material
adverse effect on the Company. Since the Company is a Development Stage
Enterprise, the Company has no exposure to contingencies related to Year 2000
Issue for products or services it has sold.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
None
Page 16
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------------------
The Company and certain officers of the Company were defendants in securities
actions pending in the federal courts of New York and New Mexico and in state
courts in Arizona and New Mexico. In October 1996, the Company was served with
a complaint in the Sedita v. Solv-Ex Corporation, Butler, Campbell, Rendall and
------------------------------------------------------------
Deutsche Morgan Grenfell, Inc., case #96CIV7575, U.S. District Court, Southern
- -------------------------------
District of New York, and in December 1996, the Company was also served with a
complaint in Joseph B. Grossman and Stephen Disch v. Butler, Rendall, Campbell,
------------------------------------------------------------------
Deutsche Morgan Grenfell, Inc., Charles Maxwell, and Solv-Ex Corporation, case
- ------------------------------------------------------------------------
#96CIV8744, United States District Court, Southern District of New York. On
December 23, 1996 the New York federal court consolidated the two actions. The
complaints in the consolidated actions allege, among other things, damage to
shareholders of the Company by acts or conduct of the Company and its officers
in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, and the New Mexico Securities Act. The plaintiffs
asked that the court accord class action status to purchasers of the Company's
common stock between February 15, 1995 and September 30, 1996. Two similar
actions were filed in U.S. District Court, District of New Mexico, and served
upon the Company in November 1996. These two cases, Fournier v. Solv-Ex
-------------------
Corporation, Butler, Campbell, Rendall and Deutsche Morgan Grenfell, Inc., case
- -------------------------------------------------------------------------
#CIV961526JC, and Boyer v. Solv-Ex Corporation, Rendall and Deutsche Morgan
---------------------------------------------------------
Grenfell, Inc., case #CIV96602JC, were consolidated with the other actions in
- --------------
the U.S. District Court, Southern District of New York.
In November 1996, the Company was served with a complaint in Murken v. Solv-Ex
-----------------
Corporation, Rendall, Butler, Deutsche Morgan Grenfell, Inc., case CV9609869,
- ------------------------------------------------------------
Second Judicial District, Bernalillo County, New Mexico, in which plaintiffs
sought class action treatment for purchasers of the Company's common stock
between February 15, 1995 and September 10, 1996, alleging that shareholders
suffered damage as a result of violations of New Mexico securities laws and
negligent misrepresentation. The case was dismissed against the Company during
its Chapter 11 proceedings but is still pending against Deutsche Morgan Grenfell
and the individual defendants. The Company cannot determine at present how this
litigation will proceed and whether any further proceedings will be pursued
against the individual defendants, Messrs. Rendall and Butler. Mr. Rendall is a
director and the Chairman and Chief Executive Officer of the Company and Mr.
Butler is a former officer and director of the Company and, as such, both
individuals have certain rights of indemnification against the Company as
provided in the By-laws.
In December 1996, the Company was served with a complaint in Phoenix Pacific
---------------
Properties, Ltd., John C. Padelford III and Patricia J. Padelford v. Solv-Ex
- ----------------------------------------------------------------------------
Corporation, Rendall, and Campbell, case #CV96-20453, Superior Court, Maricopa
- ----------------------------------
County, Arizona. The plaintiffs alleged violation of the Arizona Securities
Act, fraud, consumer fraud, negligent misrepresentation, and breach of contract
resulting from the Plaintiffs' purchase of shares of the Company's common stock
in the open market and in a private placement directly from the Company. The
case was removed by the defendants to the United States District Court for the
District of Arizona (No. CIV 96-2765 PHX ROS), where it is pending against the
individual defendants.
Page 17
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
The Order of the United States Bankruptcy Court for the District of New Mexico
dated July 31, 1998, confirming the Company's Plan of Reorganization constitutes
a permanent injunction against the Plaintiffs in the Sedita and Phoenix Pacific
------ ---------------
Properties cases regarding further pursuit of the litigation claims against the
- ----------
Company other than as claims against the estate through the Bankruptcy Court.
The Court Order does not, however, affect the litigation claims against the
individual defendants, all of whom may have claims for indemnification against
the Company regarding defense of the actions.
The Company intends to vigorously defend the claims filed against it if such
actions are pursued as claims in the U.S. Bankruptcy Court and believes that the
allegations made against the Company, its officers and directors are without
merit. Within limits of its financial capability, the Company also intends to
provide the legal defense for the individual officer and director defendants
named in the New York, New Mexico and Arizona actions described above.
The Company brought an action, Solv-Ex Corporation v. Quillen, Quilcap
---------------------------------------
Corporation, Zweig, Zweig Advisors, Weir Jones Engineering Consultants, Ltd.,
- ----------------------------------------------------------------------------
case # 96-6057(JSR), United States District Court, Southern District of New
York, on August 9, 1996. The Company's complaint alleged, among other things,
defendants' breach of Confidentiality Agreements, interference with prospective
economic advantage, fraud, breach of trust and unjust enrichment, and that the
Zweig and Quillen defendants used information gained from the Company to damage
the Company and further their own short selling schemes. Damages in excess of
$12,000,000 were sought. The action was dismissed without prejudice in the
early stages of discovery as a result of the Company's bankruptcy proceedings,
at which time the discovery, which was previously obtained, supported the
Company's position concerning the conduct of defendants.
On December 4, 1998, the Company brought an action styled as, Solv-Ex
-------
Corporation, et. al. v. Deutsche Bank AG, et al., in the District Court for the
- ------------------------------------------------
State of New Mexico, Bernalillo County, case #CV98-11647, against Deutsche Bank
AG, and its affiliates, Deutsche Morgan Grenfell, Inc., and Morgan Grenfell
Asset Management Ltd., as well as against certain short-sellers of the Company's
common stock, including Parker Quillen, Quilcap Corporation, Martin Zweig, Zweig
Advisors, Michelle Sarian, Fahnestock & Co. Inc., George Voelker, Tim Rice, Rice
Voelker Bros. & Frantzen, Lee Mikles, Mark Miller, Mikles/Miller Management
Inc., Stanley Trilling, Trilling Partners, Paine Webber Group, Inc., Manuel
Asensio, Asensio & Co., and Weir-Jones Engineering Consultants, Ltd.
In the suit, the Company alleges damages caused by a campaign to destroy the
Company as an ongoing concern, misuse of its confidential information and
manipulation of its common stock. The Company also alleges that it was forced to
seek bankruptcy protection as a result of the alleged wrongdoing. The Zweig,
Quilcap and Weir-Jones defendants attempted to block this action as to them by
claiming that the suit was brought in violation of the New York Federal Court's
order in Solv-Ex v. Quillen et al., which was dismissed without prejudice as
-------------------------
described above. On January 29, 1999, the New York Court ruled against the
defendants, which allows the suit to continue in New Mexico. In New Mexico, the
defendants have removed the suit to the United States District
Page 18
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
Court for the District of New Mexico. The Company does not believe that the
basis for removal is proper and is seeking to have the case remanded to the New
Mexico State Court.
The law firm of Yetter and Warden of Houston, Texas represents the Company in
this lawsuit on a success-based fee arrangement; however the Company is
responsible for all litigation expenses.
On July 20, 1998, the Securities and Exchange Commission ("SEC") filed a civil
action against the Company and two of its senior officers, Securities and
--------------
Exchange Commission v. Solv-Ex Corporation, et al., Civil No. 98-860 BB/RLP,
- --------------------------------------------------
United States District Court, District of New Mexico. The complaint alleges
among other things that the Company, John S. Rendall (Chairman and CEO) and
Herbert M. Campbell II (Senior Vice President), violated the securities laws
through issuance of false, misleading or deficient public statements and filings
during the period January 1995 through April 1997 regarding the Company's
processes developed to extract oil and industrial minerals from oil sands, as
well as its technology to produce metallic aluminum. The complaint also alleges
that the Company understated its outstanding common stock by 3 million shares in
the Form 10-Q filed for the period ending March 31, 1996. This allegation
relates to a 3 million-share certificate issued in the name of Mr. Rendall
(which was subsequently cancelled) in connection with a transaction, which was
never completed.
The complaint seeks injunctive relief against the defendants with respect to
future violations of the securities laws and, in the case of Mr. Rendall and Mr.
Campbell, civil penalties in an amount to be determined by the Court. No civil
penalties are being sought against the Company.
In its Answer, the Company denies any allegations of wrongdoing and, in a
separate motion filed concurrently, specifically asked that the Court dismiss
the complaint with respect to allegations involving issuance of the 3 million-
share certificate to Mr. Rendall. The Company and its two senior officers also
have requested that they be awarded its fees and other expenses in the matter
pursuant to the Equal Access to Justice Act.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(27) - Financial Data Schedule
(b) Reports on Form 8-K
(1) - Form 8-K filed 3/17/99 - Item 3. Bankruptcy or Receivership.
--------------------------
Page 19
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISES)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOLV-EX CORPORATION
(Registrant)
Date: May 14,1999 By /s/ John S. Rendall
----------- --------------------
John S. Rendall
Chief Executive Officer
Date: May 14, 1999 By /s/ Frank Ciotti
------------ -----------------
Frank Ciotti
Chief Financial Officer
Page 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FIANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1999 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 894,266
<SECURITIES> 0
<RECEIVABLES> 10,830
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 905,590
<PP&E> 3,897,685
<DEPRECIATION> (2,343,566)
<TOTAL-ASSETS> 4,166,151
<CURRENT-LIABILITIES> 3,781,926
<BONDS> 115,127
0
0
<COMMON> 316,733
<OTHER-SE> (47,635)
<TOTAL-LIABILITY-AND-EQUITY> 4,166,151
<SALES> 0
<TOTAL-REVENUES> 423,641
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,257,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,459
<INCOME-PRETAX> (3,212,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,212,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,212,011)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
