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Previous: GINTEL FUND, 24F-2NT, 1999-02-22 |
Next: ACTIVE ASSETS GOVERNMENT SECURITIES TRUST, N-30D, 1999-02-22 |
<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 DECEMBER 31, 1998
[ ] 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:
500 Marquette, NW, Suite 300, Albuquerque, NM 87102
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 January 31, 1999 was 31,469,555.
<PAGE>
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and June 30,
1998 (Unaudited)
Consolidated Statements of Operations for the three months ended
December 31, 1998 and 1997 and six months ended December 31, 1998
and 1997, and Cumulative from Inception (Unaudited)
Consolidated Statement of Stockholders' Equity Cumulative from
Inception (Unaudited)
Consolidated Statements of Cash Flows for the six months ended
December 31, 1998 and 1997, and Cumulative from Inception
(Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item. 2 Change in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
Each of the other items of information required under Part II is
not applicable for the quarter ended December 31, 1998
SIGNATURE
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Balance Sheets
December 31, 1998 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1998 1998
- ------ ----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,601,944 14,970,429
Other receivables 47,146 890,509
Prepaid expenses 3,545 496
----------------- ----------------
Total current assets 1,652,635 15,861,434
----------------- ----------------
Property, plant and equipment, net 1,694,090 1,950,658
Patents, net 365,879 352,375
Other assets 1,290,151 1,667,358
----------------- ----------------
Total Assets $ 5,002,755 19,831,825
================= ================
<CAPTION>
December 31, June 30,
Liabilities and Stockholders' Equity 1998 1998
----------------- ----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 895,222 9,245,513
Accrued expenses 156,618 827,513
Due to related parties 387,694 2,645,667
Current portion of long-term debt 2,806,136 57,912
----------------- ----------------
Total current liabilities 4,245,670 12,776,605
----------------- ----------------
Long-term debt, net of current portion 119,936 7,313,108
----------------- ----------------
Total liabilities 4,365,606 20,089,713
----------------- ----------------
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares; issued 30,869,458
shares at December 31, 1998, and
26,082,278 shares at June 30, 1998 308,695 260,823
Preferred stock authorized 50,000,000
shares; no shares issued
Additional paid-in capital 85,827,563 82,372,792
Unearned compensation (36,667) -
Deficit accumulated during development
stage (85,462,442) (82,891,503)
----------------- ----------------
Total stockholders' equity 637,149 (257,888)
----------------- ----------------
Commitments and contingencies
----------------- ----------------
Total Liabilities and Stockholders' Equity $ 5,002,755 19,831,825
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Operations
Three months ended December 31, 1998 and 1997
Six months ended December 31, 1998 and 1997
and Cumulative from July 2, 1980 (inception)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------------- ----------------------------------------
December 31, December 31,
------------------------------------- ----------------------------------------
1998 1997 1998 1997
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Contract fees $ - - $ - -
Interest 20,045 284 386,890 2,954
Gain on sale of assets - 10,539 -
State grant - - - -
---------------- ---------------- ------------------ ------------------
20,045 284 397,429 2,954
---------------- ---------------- ------------------ ------------------
Expenses:
Research and development 56,538 198,327 240,609 605,307
Research and development
funded by others - - - -
General and administrative 629,861 2,267,701 1,713,415 4,667,135
Interest expense 68,688 1,509,688 316,720 3,012,375
Loss on sale of assets 2,263 1,788,415 697,624 1,788,415
Write-off of mineral lease - - -
---------------- ---------------- ------------------ ------------------
757,350 5,764,131 2,968,368 10,073,232
---------------- ---------------- ------------------ ------------------
Minority interest in loss
of subsidiary - - - -
---------------- ---------------- ------------------ ------------------
Net (loss) before extraoradinary item (737,305) (5,763,847) (2,570,939) (10,070,278)
---------------- ---------------- ------------------ ------------------
Extraordinary item
================ ================ ================== ==================
Net (loss) $ (737,305) (5,763,847) $ (2,570,939) (10,070,278)
================ ================ ================== ==================
Weighted average number of
common shares outstanding 32,057,966 25,235,515 29,171,224 24,809,787
================ ================ ================== ==================
(Loss) per common share $ (0.02) (0.23) $ (0.09) (0.41)
================ ================ ================== ==================
<CAPTION>
Cumulative
from July 2, 1980
(inception)
------------------------
<S> <C>
Revenues:
Contract fees $ 5,278,637
Interest 3,763,401
Gain on sale of assets 325,926
State grant 407,760
------------------------
9,775,724
------------------------
Expenses:
Research and development 26,630,630
Research and development
funded by others (2,032,956)
General and administrative 31,511,036
Interest expense 6,713,403
Loss on sale of assets 64,082,520
Write-off of mineral lease 1,447,453
------------------------
128,352,086
------------------------
Minority interest in loss
of subsidiary 113,920
------------------------
Net (loss) before extraoradinary item (118,462,442)
------------------------
Extraordinary item 33,000,000
========================
Net (loss) $ (85,462,442)
========================
Weighted average number of
common shares outstanding 15,784,796
========================
(Loss) per common share $ (5.41)
========================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Issued to officers/directors:
For costs related to patent, July 2, 1980 $ 0.010 2,700,000 $ 27,000 $ - $ -
For cash, September 1, 1980 0.010 1,500,000 15,000 - -
For services, September 1, 1980 0.010 750,000 7,500 - -
Sold to nonaffiliated parties for cash:
September 10, 1980 0.010 100,000 1,000 - -
September 15, 1980 0.125 200,000 2,000 23,000 -
October 10 and December 31, 1980 0.250 1,520,000 15,200 364,800 -
Subscribed, net of offering costs and commissions - - - 3,392,736 40,000
Common stock warrants - - - 400 -
Net (loss) - - - - -
--------------- ------------- --------------- ----------
Balance at June 30, 1981 6,770,000 67,700 3,780,936 40,000
--------------- ------------- --------------- ----------
Sold for cash in public offering, July 17, 1981 1.000 4,000,000 40,000 - (40,000)
Issued to officers/directors, November 2, 1981:
For costs related to patent 0.010 200,000 2,000 - -
For cash 0.010 200,000 2,000 - -
Sold to nonaffiliated parties for cash,
December 22, 1981 1.000 225,000 2,250 222,750 -
Increase in additional paid-in capital for
stock options - - - 161,875 -
Issued for mineral leases, February 2, 1982 1.875 150,000 1,500 279,500 -
Subscribed - - - 26,625 250
Net (loss) - - - - -
--------------- ------------- --------------- ----------
Balance at June 30, 1982 11,545,000 115,450 4,471,686 250
--------------- ------------- --------------- ----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Issued to officers/directors:
For costs related to patent, July 2, 1980 $ - $ - $ - $ 27,000
For cash, September 1, 1980 - - - 15,000
For services, September 1, 1980 - - - 7,500
Sold to nonaffiliated parties for cash:
September 10, 1980 - - - 1,000
September 15, 1980 - - - 25,000
October 10 and December 31, 1980 - - - 380,000
Subscribed, net of offering costs and commissions - - - 3,432,736
Common stock warrants - - - 400
Net (loss) - - (72,058) (72,058)
------------ --------------- ------------------ ---------------
Balance at June 30, 1981 - - (72,058) 3,816,578
------------ --------------- ------------------ ---------------
Sold for cash in public offering, July 17, 1981 - - - -
Issued to officers/directors, November 2, 1981:
For costs related to patent - - - 2,000
For cash - - - 2,000
Sold to nonaffiliated parties for cash,
December 22, 1981 - - - 225,000
Increase in additional paid-in capital for
stock options - - - 161,875
Issued for mineral leases, February 2, 1982 - - - 281,000
Subscribed (22,000) - - 4,875
Net (loss) - - (499,100) (499,100)
------------ --------------- ------------------ ---------------
Balance at June 30, 1982 (22,000) - (571,158) 3,994,228
------------ --------------- ------------------ ---------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
----------------------------
share Shares Amount capital subscribed
-------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Increase in additional paid-in capital for stock
warrants - - - 468,000 -
Increase in additional paid-in capital for stock
options and subscriptions - - - 247,600 -
Collection on stock subscription receivable - - - - -
Net (loss) - - - - -
------------ ----------- ------------ -----------
Balance at June 30, 1983 11,545,000 115,450 5,187,286 250
------------ ----------- ------------ -----------
Sold for cash in private placements net of
placement costs, July 7 and July 18, 1983 4.250 1,000,000 10,000 3,966,680 -
Increase in additional paid-in capital for stock
options - - - 20,525 -
Stock subscription receivable:
Collection - - - 10,000 -
Issuance of stock, March 21, 1984 1.000 25,000 250 - (250)
Net (loss) - - - - -
------------ ----------- ------------ -----------
Balance at June 30, 1984 12,570,000 125,700 9,174,491 -
------------ ----------- ------------ -----------
Net (loss) - - - - -
------------- ----------- ------------ -----------
Balance at June 30, 1985 12,570,000 125,700 9,174,491 -
------------- ----------- ------------ -----------
Stock options exercised:
September 9, 1985 through June 3, 1986 1.380 22,103 221 30,281 -
October 25, 1985 and May 8, 1986 1.047 10,000 100 10,368 -
February 4, 1986 0.750 20,000 200 14,800 -
February 5 through April 30, 1986 1.200 450,000 4,500 535,500 -
February 10 and May 29, 1986 1.219 23,897 239 28,886 -
Net (loss) - - - - -
------------- ----------- ------------ -----------
Balance at June 30, 1986 13,096,000 130,960 9,794,326 -
------------- ----------- ------------ -----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Increase in additional paid-in capital for stock
warrants - - - 468,000
Increase in additional paid-in capital for stock
options and subscriptions - - - 247,600
Collection on stock subscription receivable 12,000 - - 12,000
Net (loss) - - (1,646,475) (1,646,475)
------------ -------------- ------------------ --------------
Balance at June 30, 1983 (10,000) - (2,217,633) 3,075,353
------------ -------------- ------------------ --------------
Sold for cash in private placements net of
placement costs, July 7 and July 18, 1983 - - - 3,976,680
Increase in additional paid-in capital for stock
options - - - 20,525
Stock subscription receivable:
Collection - - - 10,000
Issuance of stock, March 21, 1984 - - - -
Net (loss) - - (3,823,647) (3,823,647)
------------ -------------- ------------------ --------------
Balance at June 30, 1984 - - (6,041,280) 3,258,911
------------ -------------- ------------------ --------------
Net (loss) - - (1,786,696) (1,786,696)
------------ -------------- ------------------ --------------
Balance at June 30, 1985 - - (7,827,976) 1,472,215
------------ -------------- ------------------ --------------
Stock options exercised:
September 9, 1985 through June 3, 1986 - - - 30,502
October 25, 1985 and May 8, 1986 - - - 10,468
February 4, 1986 - - - 15,000
February 5 through April 30, 1986 - - - 540,000
February 10 and May 29, 1986 - - - 29,125
Net (loss) - - (947,636) (947,636)
------------ -------------- ------------------ --------------
Balance at June 30, 1986 - - (8,775,612) 1,149,674
------------ -------------- ------------------ --------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Common stock warrant exercised:
April 13, 1987 1.500 2,172 22 3,236 -
Stock options exercised:
April 14 through June 2, 1987 1.000 14,000 140 13,860 -
May 11, 1987 1.047 5,000 50 5,184 -
Net (loss) - - - - -
--------------- ------------- --------------- ----------
Balance at June 30, 1987 13,117,172 131,172 9,816,606 -
--------------- ------------- --------------- ----------
Stock options exercised:
July 1 through August 31, 1987 1.000 36,000 360 35,640 -
July 23 through September 30, 1987 2.000 30,000 300 59,700 -
July 29 through August 26, 1987 1.625 8,000 80 12,920 -
May 20, 1988 1.062 20,000 200 21,050 -
Sold for cash in private placement net of
placement costs, August 10, 1987 through
September 22, 1987 1.875 715,000 7,150 1,203,763 -
Acquisition and retirement of treasury stock,
September 16, 1987 2.125 (5,000) (50) (10,575) -
Sold to directors for cash, April 25 and 26, 1988 1.125 27,778 278 30,972 -
Net (loss) - - - - -
--------------- ------------- --------------- ----------
Balance at June 30, 1988 13,948,950 139,490 11,170,076 -
--------------- ------------- --------------- ----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Common stock warrant exercised:
April 13, 1987 - - - 3,258
Stock options exercised:
April 14 through June 2, 1987 - - - 14,000
May 11, 1987 - - - 5,234
Net (loss) - - (86,296) (86,296)
------------ --------------- ------------------ ----------------
Balance at June 30, 1987 - - (8,861,908) 1,085,870
------------ --------------- ------------------ ----------------
Stock options exercised:
July 1 through August 31, 1987 - - - 36,000
July 23 through September 30, 1987 - - - 60,000
July 29 through August 26, 1987 - - - 13,000
May 20, 1988 - - - 21,250
Sold for cash in private placement net of
placement costs, August 10, 1987 through
September 22, 1987 - - - 1,210,913
Acquisition and retirement of treasury stock,
September 16, 1987 - - - (10,625)
Sold to directors for cash, April 25 and 26, 1988 - - - 31,250
Net (loss) - - (556,490) (556,490)
------------ --------------- ------------------ ----------------
Balance at June 30, 1988 - - (9,418,398) 1,891,168
------------ --------------- ------------------ ----------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
----------------------------
share Shares Amount capital subscribed
--------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stock options exercised:
September 2, 1988 through June 8, 1989 1.000 54,478 545 53,933 -
September 6, 1988 through June 28, 1989 1.047 25,522 255 26,464 -
September 13, 1988 through May 3, 1989 1.625 36,500 365 58,948 -
October 7, 1988 through May 8, 1989 2.125 20,000 200 42,300 -
December 29, 1988 through March 29, 1989 2.312 13,757 137 31,676 -
January 9 through June 30, 1989 1.219 75,000 750 90,655 -
January 17 through January 23, 1989 1.438 91,208 912 135,825 -
March 10, 1989 1.656 10,000 100 16,462 -
June 2 through June 8, 1989 1.078 15,000 150 16,022 -
Sold to director for cash, September 3, 1988 1.750 20,000 200 34,800 -
Net (loss) - - - - -
------------ ------------ ------------- ----------
Balance at June 30, 1989 14,310,415 143,104 11,677,161 -
------------ ------------ ------------- ----------
Stock options exercised:
July 10, 1989 through September 8, 1989 1.078 77,753 778 83,050 -
July 21, 1989 through October 6, 1989 1.047 55,000 550 57,028 -
July 25, 1989 through October 4, 1989 1.219 148,076 1,480 178,986 -
September 11 through September 20, 1989 1.234 81,012 810 99,190 -
October 6, 1989 2.156 10,000 100 21,463 -
October 6, 1989 0.813 10,000 100 8,025 -
October 18, 1989 1.984 10,000 100 19,743 -
May 11, 1990 through May 25, 1990 1.844 20,760 208 38,069 -
May 18, 1990 1.656 15,000 150 24,694 -
May 18, 1990 1.625 10,000 100 16,150 -
Stock issued in connection with acquisition of
controlling interest in Can-Amera Oil Sands, Inc.,
December 18, 1989 1.630 75,000 750 121,500 -
Sold to director for cash, June 7, 1990 0.500 50,000 500 24,500 -
<CAPTION>
Deficit
Common accumulated
stock during
subscriptions Unearned development
receivable Compensation stage Total
------------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
Stock options exercised:
September 2, 1988 through June 8, 1989 - - - 54,478
September 6, 1988 through June 28, 1989 - - - 26,719
September 13, 1988 through May 3, 1989 - - - 59,313
October 7, 1988 through May 8, 1989 - - - 42,500
December 29, 1988 through March 29, 1989 - - - 31,813
January 9 through June 30, 1989 - - - 91,405
January 17 through January 23, 1989 - - - 136,737
March 10, 1989 - - - 16,562
June 2 through June 8, 1989 - - - 16,172
Sold to director for cash, September 3, 1988 - - - 35,000
Net (loss) - - (1,035,074) (1,035,074)
------------- ------------ -------------- ----------
Balance at June 30, 1989 - - (10,453,472) 1,366,793
------------- ------------ -------------- ----------
Stock options exercised:
July 10, 1989 through September 8, 1989 - - - 83,828
July 21, 1989 through October 6, 1989 - - - 57,578
July 25, 1989 through October 4, 1989 - - - 180,466
September 11 through September 20, 1989 - - - 100,000
October 6, 1989 - - - 21,563
October 6, 1989 - - - 8,125
October 18, 1989 - - - 19,843
May 11, 1990 through May 25, 1990 - - - 38,277
May 18, 1990 - - - 24,844
May 18, 1990 - - - 16,250
Stock issued in connection with acquisition of
controlling interest in Can-Amera Oil Sands, Inc.,
December 18, 1989 - - - 122,250
Sold to director for cash, June 7, 1990 - - - 25,000
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
-----------------------------
share Shares Amount capital subscribed
-------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Increase in additional paid-in capital for stock
options - - - 87,350 -
Increase in additional paid-in capital for Directors
Compensation-Stock Purchase - - - 428,000 -
Net (loss) - - - - -
------------- ------------ ------------- ----------
Balance at June 30, 1990 14,873,016 148,730 12,884,909 -
------------- ------------ ------------- ----------
Sold to director for cash, July 27, 1990 0.500 100,000 1,000 49,000 -
Stock options exercised:
August 16, 1990 through August 20, 1990 1.500 20,000 200 29,800 -
September 13, 1990 1.625 5,500 55 8,882 -
May 1, 1991 1.500 10,000 100 14,900 -
May 2, 1991 0.750 30,000 300 22,200 -
May 2, 1991 1.000 25,000 250 24,750 -
June 4, 1991 1.156 10,000 100 11,463 -
Issued to individuals as compensation for services,
November 8, 1990 1.250 1,000 10 1,240 -
Sold to director for cash, March 12, 1991 1.156 21,620 216 24,784 -
Sold to director for cash, April 29, 1991 0.500 100,000 1,000 49,000 -
Increase in additional paid-in capital for
Director Compensation-Stock Purchase - - - - 78,125
Net (loss) - - - - -
------------- ------------ ------------- ----------
Balance at June 30, 1991 15,196,136 151,961 13,199,053 -
------------- ------------ ------------- ----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Increase in additional paid-in capital for stock
options - - - 87,350
Increase in additional paid-in capital for Directors
Compensation-Stock Purchase - - - 428,000
Net (loss) - - (1,384,785) (1,384,785)
----------- ------------- ------------- ------------
Balance at June 30, 1990 - - (11,838,257) 1,195,382
----------- ------------- ------------- ------------
Sold to director for cash, July 27, 1990 - - - 50,000
Stock options exercised:
August 16, 1990 through August 20, 1990 - - - 30,000
September 13, 1990 - - - 8,937
May 1, 1991 - - - 15,000
May 2, 1991 - - - 22,500
May 2, 1991 - - - 25,000
June 4, 1991 - - - 11,563
Issued to individuals as compensation for services,
November 8, 1990 - - - 1,250
Sold to director for cash, March 12, 1991 - - - 25,000
Sold to director for cash, April 29, 1991 - - - 50,000
Increase in additional paid-in capital for
Director Compensation-Stock Purchase - - - 78,125
Net (loss) - - (700,382) (700,382)
---------- ------------ ------------- ------------
Balance at June 30, 1991 - - (12,538,639) 812,375
---------- ------------ ------------- ------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Stock options exercised:
July 19, 1991 1.500 7,000 70 10,430 -
July 22, 1991 1.063 12,000 120 12,630 -
July 31, 1991 1.500 8,000 80 11,920 -
October 17, 1991 through November 7, 1991 1.380 35,000 350 47,950 -
December 3, 1991 1.500 7,211 72 10,745 -
January 15, 1992 through April 13, 1992 1.438 35,000 350 49,962 -
February 26, 1992 1.840 19,500 195 35,685 -
March 2, 1992 1.500 10,000 100 14,900 -
March 31, 1992 1.690 15,000 150 25,163 -
June 10, 1992 1.500 12,000 120 17,880 -
Sold to director for cash, August 23, 1991 0.500 100,000 1,000 49,000 -
Increases in additional paid-in capital for
Directors Compensation-Stock Purchase - - - 87,500 -
Issued to individuals as compensation for services
January 16, 1992 1.380 28,985 290 39,710 -
Issued to individuals for deferred and other
compensation 1.250 217,000 2,170 269,080 -
Net (loss) - - - - -
-------------- ------------- -------------- ----------
Balance at June 30, 1992 15,702,832 157,028 13,881,608 -
-------------- ------------- -------------- ----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Stock options exercised:
July 19, 1991 - - - 10,500
July 22, 1991 - - - 12,750
July 31, 1991 - - - 12,000
October 17, 1991 through November 7, 1991 - - - 48,300
December 3, 1991 - - - 10,817
January 15, 1992 through April 13, 1992 - - - 50,312
February 26, 1992 - - - 35,880
March 2, 1992 - - - 15,000
March 31, 1992 - - - 25,313
June 10, 1992 - - - 18,000
Sold to director for cash, August 23, 1991 - - - 50,000
Increases in additional paid-in capital for
Directors Compensation-Stock Purchase - - - 87,500
Issued to individuals as compensation for services
January 16, 1992 - - - 40,000
Issued to individuals for deferred and other
compensation - - - 271,250
Net (loss) - - (758,434) (758,434)
------------ -------------- ----------------- --------------
Balance at June 30, 1992 - - (13,297,073) 741,563
------------ -------------- ----------------- --------------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
---------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Sold for cash in private placements, net of offering
costs and commissions:
July 7, 1992 through September 9, 1992 0.750 600,001 6,000 444,000 -
October 30, 1992 through December 1, 1992 0.750 466,665 4,667 345,333 -
December 31, 1992 1.341 157,500 1,575 209,705 -
January 15, 1993 1.418 25,600 256 36,032 -
February 28, 1993 1.358 120,000 1,200 161,813 -
March 1, 1993 1.358 132,000 1,320 177,970 -
April 6, 1993 2.500 100,000 1,000 222,750 -
May 31, 1993 3.750 278,777 2,788 1,035,477 -
June 30, 1993 3.750 28,000 280 104,720 -
June 30, 1993 3.500 100,000 1,000 349,000 -
Issued to individuals as compensation for services
and expenses, October 9, 1992 1.250 30,065 301 37,280 -
Issued as compensation to an officer,
October 9, 1992 1.313 50,000 500 65,125 -
Redemption of consolidated subsidiary,
Can-Amera Oil Sands, Inc., long-term debt with
Can-Amera Oil Sands, Inc. common stock - - - 1,447,980 -
Stock options exercised:
December 9, 1992 1.188 10,000 100 11,775 -
December 22, 1992 1.500 10,000 100 14,900 -
January 15, 1993 1.500 10,000 100 14,900 -
March 19, 1993 1.000 25,000 250 24,750 -
March 19, 1993 1.188 17,211 172 20,266 -
April 14, 1993 1.000 10,000 100 9,900 -
June 30, 1993 1.500 13,000 130 19,370 -
June 30, 1993 2.600 5,000 50 12,950 -
Sold to directors for cash,
August 6, 1992 through October 16, 1992 0.500 600,000 6,000 294,000 -
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ ----------
<S> <C> <C> <C> <C>
Sold for cash in private placements, net of offering
costs and commissions:
July 7, 1992 through September 9, 1992 - - - 450,000
October 30, 1992 through December 1, 1992 - - - 350,000
December 31, 1992 - - - 211,280
January 15, 1993 - - - 36,288
February 28, 1993 - - - 163,013
March 1, 1993 - - - 179,290
April 6, 1993 - - - 223,750
May 31, 1993 - - - 1,038,265
June 30, 1993 - - - 105,000
June 30, 1993 - - - 350,000
Issued to individuals as compensation for services
and expenses, October 9, 1992 - - - 37,581
Issued as compensation to an officer,
October 9, 1992 - (24,608) - 41,017
Redemption of consolidated subsidiary,
Can-Amera Oil Sands, Inc., long-term debt with
Can-Amera Oil Sands, Inc. common stock - - - 1,447,980
Stock options exercised:
December 9, 1992 - - - 11,875
December 22, 1992 - - - 15,000
January 15, 1993 - - - 15,000
March 19, 1993 - - - 25,000
March 19, 1993 - - - 20,438
April 14, 1993 - - - 10,000
June 30, 1993 - - - 19,500
June 30, 1993 - - - 13,000
Sold to directors for cash,
August 6, 1992 through October 16, 1992 - - - 300,000
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
---------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Increase in additional paid-in capital for
Directors Compensation-Stock Purchase - - - 150,000 -
Net (loss) - - - - -
-------------- ------------- -------------- ----------
Balance at June 30, 1993 18,491,651 184,917 19,091,604 -
-------------- ------------- -------------- ----------
Offering costs and commissions - - - (74,662) -
Earned compensation - - - - -
Sold for cash in private placements, net of offering
costs and commissions:
December 27, 1993 3.000 168,000 1,680 474,600 -
March 8, 1994 3.249 100,000 1,000 299,982 -
May 4, 1994 2.720 60,000 600 161,784 -
May 16, 1994 2.820 75,000 750 209,692 -
June 3, 1994 2.750 350,000 3,500 954,187 -
June 16, 1994 2.410 196,000 1,960 468,038 -
Issued to individuals as compensation for
services and expenses:
September 23, 1993 5.200 25,000 250 129,750 -
March 1, 1994 5.200 10,000 100 51,900 -
June 28, 1994 2.688 7,800 78 20,885 -
June 28, 1994 5.000/5.700 22,200 222 119,298 -
June 28, 1994 0.750 10,000 100 7,400 -
June 28, 1994 1.500 5,000 50 7,450 -
Stock options exercised:
December 14, 1994 1.500 8,334 83 12,418 -
Net (loss) - - - - -
-------------- ------------- -------------- ----------
Balance June 30, 1994 19,528,985 195,290 21,934,326 -
-------------- ------------- -------------- ----------
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Increase in additional paid-in capital for
Directors Compensation-Stock Purchase - - - 150,000
Net (loss) - - (2,249,607) (2,249,607)
------------ --------------- ------------------ ----------------
Balance at June 30, 1993 - (24,608) (15,546,680) 3,705,233
------------ --------------- ------------------ ----------------
Offering costs and commissions - - - (74,662)
Earned compensation - 24,608 - 24,608
Sold for cash in private placements, net of offering
costs and commissions:
December 27, 1993 - - - 476,280
March 8, 1994 - - - 300,982
May 4, 1994 - - - 162,384
May 16, 1994 - - - 210,442
June 3, 1994 - - - 957,687
June 16, 1994 - - - 469,998
Issued to individuals as compensation for
services and expenses:
September 23, 1993 - (52,000) - 78,000
March 1, 1994 - (43,256) - 8,744
June 28, 1994 - - - 20,963
June 28, 1994 - - - 119,520
June 28, 1994 - - - 7,500
June 28, 1994 - - - 7,500
Stock options exercised:
December 14, 1994 - - - 12,501
Net (loss) - - (2,439,471) (2,439,471)
------------ --------------- ------------------ ----------------
Balance June 30, 1994 - (95,256) (17,986,151) 4,048,209
------------ --------------- ------------------ ----------------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
SOLVEX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholder' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock Paid-in stock
----------------------------
share Shares Amount capital subscribed
------- ---------------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Earned compensation - - - - -
Issued to individual as compensation
July 1, 1994 2.440 10,000 100 24,275 -
Sold for cash in private placements, net of
offering costs and commissions
December 7, 1994 2.318 668,300 6,683 1,542,670 -
Stock options exercised:
October 11, 1994 1.840 20,000 200 36,600 -
November 10, 1994 1.500 8,334 83 12,418 -
Stock options exercised with stock 1.840/1.500 41,821 418 (418) -
Net (loss) - - - - -
------------ ---------- ------------ ---------
Balance at June 30, 1995 20,277,440 202,774 23,549,871 -
------------ ---------- ------------ ---------
Earned compensation - - - - -
Issued to individual as compensation
July 1, 1995 through November 30, 1995 7.44-11.00 10,200 102 39,652 -
December 1, 1995 through June 30, 1996 6.25-38.00 13,000 130 133,744 -
Issued to GFL Advantage per private placement
agreement 17.270 30,000 300 (300)
Sold for cash in private placements, net of
offering costs and commissions
July 21, 1995 5.696 100,000 1,000 568,625 -
August 1, 1995 5.688 500,000 5,000 2,839,115 -
January 23, 1996 15.00-19.00 543,860 5,439 8,994,561 -
March 8, 1996 28.365 1,081,967 10,820 30,679,180 -
</TABLE>
<TABLE>
<CAPTION>
Deficit
Common accumulated
stock Unearned during
subscriptions Compen- development
receivable sation stage Total
--------- ---------- -------------- ----------------
<S> <C> <C> <C> <C>
Earned compensation - 95,256 - 95,256
Issued to individual as compensation
July 1, 1994 - (12,187) - 12,188
Sold for cash in private placements, net of
offering costs and commissions
December 7, 1994 - - - 1,549,353
Stock options exercised:
October 11, 1994 - - - 36,800
November 10, 1994 - - - 12,501
Stock options exercised with stock - - - -
Net (loss) - - (1,079,600) (1,079,600)
-------- ---------- ----------------- ----------------
Balance at June 30, 1995 - (12,187) (19,065,751) 4,674,707
-------- ---------- ----------------- ----------------
Earned compensation - 12,187 - 12,187
Issued to individual as compensation
July 1, 1995 through November 30, 1995 - - - 39,754
December 1, 1995 through June 30, 1996 - - - 133,874
Issued to GFL Advantage per private placement
agreement -
Sold for cash in private placements, net of
offering costs and commissions
July 21, 1995 - - - 569,625
August 1, 1995 - - - 2,844,115
January 23, 1996 - - - 9,000,000
March 8, 1996 - - - 30,690,000
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLVEX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock Paid-in stock
----------------------------
share Shares Amount capital subscribed
-------- ---------------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Stock options exercised:
September 7, 1995 2.600 6,000 60 15,540 -
October 5, 1995 1.500 10,000 100 14,900 -
October 24, 1995 2.600 5,000 50 12,950 -
December 12, 1995 1.500 8,332 83 12,415 -
February 28, 1996 2.56-5.75 37,500 375 162,424 -
March 1, 1996 1.38-2.56 12,500 125 17,715 -
March 5, 1996 2.56-5.75 18,000 180 93,750 -
March 8, 1996 2.56-5.75 44,000 440 200,185 -
March 12, 1996 2.560 2,500 25 6,375 -
March 26, 1996 2.560 10,000 100 25,500 -
March 27, 1996 2.560 2,500 25 6,375 -
April 3, 1996 2.560 500 5 1,275 -
April 18, 1996 1.500 19,400 194 28,906 -
April 24, 1996 2.560 500 5 1,275 -
April 30, 1996 1.50-4.91 41,080 411 (411) -
May 22, 1996 2.560 1,000 10 2,550 -
May 24, 1996 2.560 1,500 15 3,825 -
June 10, 1996 1.500 50,000 500 74,500 -
Warrants exercised:
December 3, 1995 3.625 10,237 102 37,007 -
June 11, 1996 3.625 9,633 96 34,823 -
Prior period adjustment - - - (201,736) -
Net (loss) - - - - -
------------ ---------- ------------ ----------
Balance at June 30, 1996 22,846,649 228,466 67,354,592 -
------------ ---------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Common Accumulated
stock during
subscriptions Unearned development
receivable Compensation stage Total
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Stock options exercised:
September 7, 1995 - - - 15,600
October 5, 1995 - - - 15,000
October 24, 1995 - - - 13,000
December 12, 1995 - - - 12,498
February 28, 1996 - - - 162,799
March 1, 1996 - - - 17,840
March 5, 1996 - - - 93,930
March 8, 1996 - - - 200,625
March 12, 1996 - - - 6,400
March 26, 1996 - - - 25,600
March 27, 1996 - - - 6,400
April 3, 1996 - - - 1,280
April 18, 1996 - - - 29,100
April 24, 1996 - - - 1,280
April 30, 1996 - - - -
May 22, 1996 - - - 2,560
May 24, 1996 - - - 3,840
June 10, 1996 - - - 75,000
Warrants exercised:
December 3, 1995 - - - 37,109
June 11, 1996 - - - 34,920
Prior period adjustment - - 201,736 -
Net (loss) - - (6,197,747) (6,197,747)
------------- ------------ ----------- ----------
Balance at June 30, 1996 - - (25,061,762) 42,521,296
------------- ------------ ----------- ----------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Issued to employees as compensation - - 288,750 -
Issued to individual as compensation
July 1, 1996 through September 30, 1996 4.92-8.00 25,653 256 179,868 -
October 1, 1996 through December 31, 1996 6.94-7.66 4,900 49 35,845 -
January 1, 1997 through March 31, 1997 10.625-17.50 7,166 72 112,532 -
April 1, 1997 through June 30, 1997 6.13-12.69 289 3 3,272 -
Due to GFL Advantage per private placement
agreement 17.270 (30,000) (300) (1,647,544) -
Converted Debentures:
January 31, 1997 11.760 283,402 2,834 3,330,166 -
February 25, 1997 12.620 139,761 1,397 1,761,935 -
March 31, 1997 8.910 887,264 8,874 7,894,794 -
May 6, 1997 11.000 24,590 246 270,244 -
Stock options exercised:
August 12, 1996 1.500 15,600 156 23,244 -
September 3, 1996 2.560 500 5 1,275 -
September 20, 1996 2.56-8.53 12,500 125 91,575 -
September 24, 1996 2.560 12,500 125 31,875 -
October 7, 1996 2.560 5,000 50 12,750 -
October 16, 1996 2.560 5,000 50 12,750 -
December 18, 1996 2.560 1,000 10 2,550 -
January 30, 1997 2.560 1,000 10 2,550 -
January 30, 1997 9.060 2,000 20 18,100 -
March 31, 1997 2.560 500 5 1,275 -
April 17, 1997 9.060 1,000 10 9,050 -
April 21, 1997 9.060 2,500 25 22,625 -
June 30, 1997 3.560 50,000 500 177,500 -
Stock options exercised with stock:
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Issued to employees as compensation - (165,000) - 123,750
Issued to individual as compensation
July 1, 1996 through September 30, 1996 - - - 180,123
October 1, 1996 through December 31, 1996 - - - 35,894
January 1, 1997 through March 31, 1997 - - - 112,604
April 1, 1997 through June 30, 1997 - - - 3,275
Due to GFL Advantage per private placement
agreement - - - (1,647,844)
Converted Debentures:
January 31, 1997 - - - 3,333,000
February 25, 1997 - - - 1,763,333
March 31, 1997 - - - 7,903,668
May 6, 1997 - - - 270,490
Stock options exercised:
August 12, 1996 - - - 23,400
September 3, 1996 - - - 1,280
September 20, 1996 - - - 91,700
September 24, 1996 - - - 32,000
October 7, 1996 - - - 12,800
October 16, 1996 - - - 12,800
December 18, 1996 - - - 2,560
January 30, 1997 - - - 2,560
January 30, 1997 - - - 18,120
March 31, 1997 - - - 1,280
April 17, 1997 - - - 9,060
April 21, 1997 - - - 22,650
June 30, 1997 - - - 178,000
Stock options exercised with stock: (continued)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
October 17, 1996 1.500 85,285 853 (853) -
Net (loss) - - - -
============== ============= ============ ==========
Balance at June 30, 1997 24,384,059 243,841 79,990,720 -
============== ============= ============ ==========
Issued to employees as compensation-adjusted - - (165,000) -
Due to GFL Advantage per private placement
agreement - - (718,138) -
Converted Debentures
October 7, 1997 2.780 910,860 9,109 2,523,082 -
June 30, 1998 0.990 787,359 7,873 742,127 -
Net (loss)
============== ============ ============ ==========
Balance at June 30, 1998 26,082,278 260,823 82,372,791 -
============== ============ ============ ==========
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
October 17, 1996 - - - -
Net (loss) - - (14,680,361) (14,680,361)
=========== ============= ================ =============
Balance at June 30, 1997 - (165,000) (39,742,123) 40,327,437
=========== ============= ================ =============
Issued to employees as compensation-adjusted - 165,000 - -
Due to GFL Advantage per private placement
agreement - - - (718,138)
Converted Debentures
October 7, 1997 - - - 2,532,191
June 30, 1998 - - - 750,000
Net (loss) (43,149,380) (43,149,380)
=========== ============= ================ ==============
Balance at June 30, 1998 - - (82,891,503) (257,889)
=========== ============= ================ ==============
(continued)
</TABLE>
Seeing accompanying notes to consolidated financial statements.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Stockholders' Equity
For the period from July 2, 1980 (inception)
through December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Price Additional Common
per Common stock paid-in stock
------------------------------
share Shares Amount capital subscribed
-------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Issued to employees as compensation
October 1, 1998 0.500 30,000 300 14,701 -
October 1, 1988-adjustment (115,000)
Issued to employees as indemnification-adjusted
October 1, 1998 0.500 29,603 296 14,505
Issued to individuals as compensation
July 31, 1998 1.100 300,000 3,000 327,000 -
October 1, 1998 0.500 290,670 2,907 142,428 -
Due to GFL Advantage per private placement
agreement - - 9,000 -
Issued through private placement
November 3, 1998 through December 31, 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 -
Shares not exchanged by December 31, 1998 as
per the Plan of Reorganization 0.010 (3,215,860) (32,159) 32,159 -
Net (loss)
=============== ============= =============== ==========
Balance at December 31, 1998 30,869,458 $ 308,695 $ 85,827,563 $ -
=============== ============= =============== ==========
<CAPTION>
Common Deficit
stock accumulated
subscrip- Unearned during
tions Compen- development
receivable sation stage Total
------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Issued to employees as compensation
October 1, 1998 - (6,667) - 8,334
October 1, 1988-adjustment (115,000)
Issued to employees as indemnification-adjusted
October 1, 1998
Issued to individuals as compensation
July 31, 1998 - - - 330,000
October 1, 1998 - (30,000) - 115,335
Due to GFL Advantage per private placement
agreement - - - 9,000
Issued through private placement
November 3, 1998 through December 31, 1998 - - - 812,000
Converted Debentures:
October 1, 1998 - - - 2,291,507
Shares not exchanged by December 31, 1998 as
per the Plan of Reorganization - - - -
Net (loss) (2,570,939) (2,570,939)
========== =============== ================== ================
Balance at December 31, 1998 $ - $ (36,667) $ (85,462,442) $ 637,149
========== =============== ================== ================
</TABLE>
See accompanying notes to consolidated financial statement.
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Cash Flows
Six months ended December 31, 1998 and 1997
and Cumulative from July 2, 1980 (inception)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Cumulative
----------------------------------
December 31 from July 2, 1980
-----------------------------------
1998 1997 (inception)
---------------- --------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,570,939) (10,070,278) $ (85,664,178)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 284,901 1,021,672 5,059,482
Amortization of financing costs 2,827,304
Write-off of mineral leases and other - - 2,783,817
(Gain) loss on sale of assets (10,539) 1,788,415 61,780,694
Issuance of stock, warrants, and options for -
services performed 353,469 - 3,225,532
Minority interest in loss of subsidiary - - (113,920)
Changes in certain assets and liabilities: -
Receivables and other assets 840,313 1,348,353 (65,236)
Accounts payable and accrued expenses (9,210,273) (557,579) (2,074,505)
Due to related parties (2,257,973) 127,398 288,694
Accrued deferred interest - - 167,260
Deferred compensation - - 370,250
---------------- --------------- ---------------------
Net cash used by operating activities (12,571,041) (6,342,019) (11,414,806)
---------------- --------------- ---------------------
Cash flows from investing activities:
Proceeds from short-term investments - 2,296,745
Additions to property, plant and equipment (14,837) (901,289) (103,678,026)
Proceeds from sale/return of assets 10,539 7,704,704 32,941,714
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 (26,997) (36,896) (534,447)
Expenditures for other 377,206 3,958 (135,231)
---------------- --------------- ---------------------
Net cash provided by (used for) investing activities 345,911 6,770,477 (71,111,269)
---------------- --------------- ---------------------
Cash flows from financing activities:
Proceeds from issuance of short and long-term debt - 850,000 61,047,606
Proceeds from loan from stockholder - -
Proceeds from issuance of common stock 3,301,593 3,744,640 84,052,065
Principal payments on short-term and long-term debt (4,444,948) (5,304,435) (25,104,634)
Payment of costs associated with financing - - (2,885,392)
Other - - (32,981,625)
---------------- --------------- ---------------------
Net cash provided by (used for) financing
activities (1,143,355) (709,795) 84,128,020
---------------- --------------- ---------------------
Change in cash and cash equivalents $ (13,368,485) (281,337) $ 1,601,944
================ =============== =====================
(continued)
</TABLE>
<PAGE>
SOLV-EX CORPORATION AND SUBSIDIARIES
(Development Stage Enterprises)
Consolidated Statements of Cash Flows
Six months ended December 31, 1998 and 1997
and Cumulative from July 2, 1980 (inception)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Cumulative
-------------------------------------
December 31 from July 2, 1980
-------------------------------------
1998 1997 (inception)
----------------- ---------------- ---------------------
<S> <C> <C> <C>
Change in cash and cash equivalents, forwarded $ (13,368,485) (281,337) $ 1,601,944
Cash and cash equivalents at beginning of period 14,970,429 608,799 -
----------------- ---------------- ---------------------
Cash and cash equivalents at end of period $ 1,601,944 327,462 $ 1,601,944
================= ================ =====================
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $ 316,720 3,012,375 $ 4,537,896
================= ================ =====================
Noncash investing and financing activities:
Issuance 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
================= ================= =====================
Issuance of stock for deferred compensation $ - - $ 271,250
================= ================= =====================
Issuance of subsidiary stock for redemption
of Can-Amera notes $ - - $ 1,447,980
================= ================= =====================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
(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.
The Company emerged from bankruptcy with an effective date of August 31, 1998
and will file an audited balance sheet in accordance with the requirements of
Staff Legal Bulletin No. 2 dated April 15, 1997, however the Company has not
filed a Form 10-K for the fiscal year ended June 30, 1998.
Since the Company incurred net losses for the three months ended December 31,
1998 and 1997 and the six months ended December 31, 1998 and 1997, both basic
and diluted per share calculations are the same. The inclusion of additional
shares assuming the exercise of stock options and warrants would have been
antidilutive. Options and warrants to purchase 13,193,894 and 784,334 shares of
common stock were outstanding at December 31, 1998 and 1997, 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 of Financial Condition and Results of Operation.
(3) 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
<PAGE>
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.
Also, 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$1,797and
$73,774, respectively.
(4) 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 liabilities
adjustments, and foreign currency translation adjustments. On this basis, at
June 30, 1998 and December 31, 1998, the Company recognized as a component of
stockholders' equity accumulated comprehensive income of $138,200 and $201,417,
respectively, related to foreign currency translation adjustments. Other
comprehensive income (loss) for the three and six months ended December 31, 1998
was ($1,626) and $63,217, respectively, related to foreign currency translation
adjustments.
(5) 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"). 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
for site preparation, most of which was for clearing and ground
preparation and also posted a C$100,000 reclamation bond ($65,350
current value as of December 31, 1998), which amounts are recorded in
Other Assets on the Company's balance sheet, in anticipation of
further use or disposal of the site. However, the lease, as amended,
required the Company to commence construction of the plant by August
1, 1998, which the Company was unable to do. Thereafter, the Company
requested an extension of the lease provision requiring the
commencement of construction. The request was denied, which is being
appealed by the Company. In the interim, the Company has been involved
in mediation with the Province in an effort to find an alternative
solution to proceeding with
<PAGE>
the appeal. The Province has set a deadline of July 30, 1999, by which
the Company must have completed a transaction for assignment of the
lease to another party for another use. If the Company is unable to do
so or if its appeal is not successful, the lease will be terminated
and the asset value will be written off. At present, the Company is
unable to determine the terms of any such assignment that may be made
or the consideration to be received from such assignment and,
therefore, is unable to determine the remaining carrying value of the
asset. In addition, the Company is unable to determine whether the
Province would in fact reclaim the site, which is in excellent
condition for other uses. Accordingly, a question remains as to how
much, if any, of the C$100,000 reclamation bond will be returned to
the Company.
(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. 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 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 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. Revenue Canada currently has the Company's
objections under consideration, and therefore, no 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 books of
the Company.
<PAGE>
(6) Subsequent Events
-----------------
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.
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 for failure to register the stock purchased by
Advantage from the Company in 1995. As part of the Plan of Reorganization, 1.6
million dollars 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 common stock of the Company.
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
TECHNOLOGY; 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
LISTED FROM TIME TO TIME IN DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
CHANGES IN FINANCIAL POSITION
- -----------------------------
On August 1, 1997, the Company filed for protection under Chapter 11 of the U.S.
Bankruptcy Code, having previously filed on July 14, 1997 for similar protection
in Canada under the Companies' Creditors Arrangements Act (the "CCAA").
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 ("Plan of
<PAGE>
Reorganization") filed as a part of the bankruptcy proceedings. A similar order
was entered in Canada under the CCAA, thereby marking the emergence of the
Company from bankruptcy proceedings in both countries.
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 $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 six months ended
December 31, 1998, excluding amounts referenced above, were $52,779 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 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.
The Canadian dollar continued to decline in value versus the US dollar during
the six months ended December 31, 1998. The exchange rate of the Canadian
dollar to the US dollar was .68010 and .6535 at June 30, 1998 and December 31,
1998, respectively. At June 30, 1998, the Company had 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 above. In
accordance with the Plan of Reorganization, the entire amount of the proceeds
from the
<PAGE>
sale of the acid plant and refund of the reclamation bonds were paid to 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.
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
Chapter 11 bankruptcy proceedings as described above. As set forth in Item 2.
Change in Securities and Use of Proceeds, the Company completed a private
- ----------------------------------------
placement of its common stock in November 1998, thereby raising $812,000. As
noted, 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 filed against Deutsche Bank and the short-sellers. However, approximately
$300,000 of the proceeds was available for working capital purposes.
Of the cash and cash equivalents of $1,601,944 available at December 31, 1998,
only $375,964 is neither restricted nor earmarked and is available for the
general operations of the Company. The Company is anticipating a distribution of
funds held in escrow on the sale of its Canadian assets referenced above in the
approximate amount of $171,500. These funds will be 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 January 31, 1999 was $2,280,984. As noted
above under Item (4)(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 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
<PAGE>
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 $.50 per share on
January 29, 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 1998 versus
1997, the issues are similar for the six month period and the three month
period, 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 1998 periods versus the 1997 periods.
As a result of the filing of the Company's petition for reorganization under
Chapter 11 of the United States Code on August 1, 1997 and having filed for
similar protection in Canada under the Companies' Creditors' Arrangement Act on
July 14, 1997, there was a significant decrease in the operations of the Company
including a reduction 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 in both the three months
and six months ended December 31, 1998 resulting from a recomputation of
deferred compensation due certain individuals.
General and administrative expenses for the three and six months ended December
31, 1997 were unfavorably impacted by (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 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 the costs realized in 1998 versus 1997, were offset
in part by legal fees and expenses incurred by the Company in the various legal
proceedings including, but not
<PAGE>
limited to, the enforcement action of the Securities and Exchange Commission
against the Company and certain of its officers - See Part II, Other
Information -Item 1. Legal Proceedings.
------------------
Interest expense for the three and six months ended December 31, 1997 was
significantly greater primarily as a result of the interest cost associated with
the 33 million-dollar 12% convertible loan arrangement with PheMex
Establishment. PheMex Establishment asserted no claim in the reorganization
proceedings both in the United States and Canada and; therefore, their rights
were terminated and the Company's indebtedness extinguished by the confirmed
restructuring plans in the reorganization proceedings. In addition, interest
cost was lower for 1998 versus 1997 as a result of the principal payments made
on the 8% Secured Convertible Debentures as part of the Plan of Reorganization.
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.
Proceeds from the sale of assets were used to pay the creditors of the Company.
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.
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
None
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
<PAGE>
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.
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
<PAGE>
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 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.
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 also has requested that it be
awarded its fees and other expenses in the matter pursuant to the Equal Access
to Justice Act.
Item 2. Change in Securities and Use of Proceeds
----------------------------------------
In accordance with the Company's Second Amended Plan of Reorganization dated
June 23, 1998 ("Plan of Reorganization"), the Bankruptcy Court Order established
a date of record of October 1, 1998 for the exchange of one share "old" common
stock for one share of "new" common stock. Shares not exchanged by December 1,
1998 were canceled. In addition, each shareholder or brokerage firm on behalf
of street name holders of the common stock, who provided the Company with
specified information prior to December 1, 1998, received one warrant for each
three shares of common stock held. Each warrant provides a right to purchase
one share of "new" common stock at $10 per share on or before August 31, 2000.
Also, under the Plan of Reorganization, certain shares of "new" common stock
were issued or reserved for satisfaction of other claims allowed in the
reorganization. As of December 1, 1998, there were 29,211,157 shares of "new"
common stock outstanding and 9,238,109 warrants to be issued as a result of the
Plan of Reorganization, subject to certain adjustments (not including shares and
warrants issued in the private placement referenced
<PAGE>
below). These securities generally were not subject to resale restrictions as
provided under 11 U.S.C. (S) 1145.
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 filed against
Deutsche Bank and the short-sellers. The securities were sold in reliance upon
the exemption from registration afforded by Section 4(2) of the 1933 Act, as
amended and Rule 506 of Regulation D promulgated thereunder.
Item 6. Exhibits and Reports on Form 10-K
---------------------------------
(a) Exhibits
(3)(i) - Amendment of Articles of Incorporation in Reorganization
Proceedings of Solv-Ex Corporation
(27) - Financial Data Schedule
(b) Reports on Form 8-K
(1) - Form 8-K filed 11/9/98 - Item 4. Change in Registrant's
----------------------
Certifying Accountants
----------------------
SIGNATURES
Pursuant to the requirements of Section 13, or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SOLV-EX CORPORATION
(Registrant)
Date: February 22,1999 By /s/ John S. Rendall
---------------- ----------------------
John S. Rendall
Chief Executive Officer
Date: February 22, 1999 By /s/ Frank Ciotti
----------------- -----------------
Frank Ciotti
Chief Financial Officer
<PAGE>
EXHIBIT 3 I
STATE OF NEW MEXICO
[SEAL APPEARS HERE]
OFFICE OF
THE STATE CORPORATION COMMISSION
CERTIFICATE OF AMENDMENT
OF
SOLV-EX CORPORATION
3168770
The State Corporation Commission certifies that duplicate originals of the
Articles of Amendment attached hereto, duly signed and verified pursuant to the
provisions of the
BUSINESS CORPORATION ACT
(53-11-1 to 53-18-12 NMSA 1978)
have been received by it and are found to conform to law.
Accordingly, by virtue of the authority vested in it by law, the State
Corporation Commission issues this Certificate of Amendment and attaches hereto
a duplicate original of the Articles of Amendment.
Dated: SEPTEMBER 1, 1998
IN TESTIMONY WHEREOF, THE STATE CORPORATION
COMMISSION OF THE STATE OF NEW MEXICO HAS CAUSED
[STAMP APPEARS HERE] THIS CERTIFICATE TO BE SIGNED BY ITS CHAIRMAN AND
THE SEAL OF SAID COMMISSION TO BE AFFIXED AT THE
CITY OF SANTA FE
/s/ [SIGNATURE]
-----------------------------------------
Chairman
/s/ [SIGNATURE]
-----------------------------------------
Director
<PAGE>
AMENDMENT OF
ARTICLES OF INCORPORATION
IN REORGANIZATION PROCEEDINGS
OF
SOLV-EX CORPORATION
(1063189)
Pursuant to the provisions of11 U.S.C. Section1123(a)(5)(1); Articles 4.1.A
and 4.3 of the Debtor's Second Amended Plan of Reorganization Dated June 23,
1998, confirmed by Order dated July 31, 1998, of the United States Bankruptcy
Court for the District of New Mexico in the matter styled as In re Solv-Ex
Corporation, Case No. 11- 97-14361MA; and applicable provisions of the New
Mexico Business Corporation Act found at Section 53-13-8, NMSA; the undersigned
corporation adopts the following Amendment of Articles of Incorporation in
Reorganization Proceedings:
FIRST: The corporate name of the corporation is Solv-Ex Corporation.
SECOND: The following Amendment of Articles of Incorporation in
Reorganization Proceedings of the present Articles of Incorporation of Solv-Ex
Corporation, as amended, was authorized and adopted by operation of Articles
4.1.A and 4.3 of the Debtor's Second Amended Plan of Reorganization Dated June
23, 1998, as follows:
Paragraph 1 of Article IV of the Articles of Incorporation is amended to read as
follows:
"1. The amount of total authorized capital stock of the Corporation shall
be as follows:
A. 100 million shares of common stock of par value of one cent
($.01) each; and
B. 50 million shares of voting preferred stock; and, with respect to
such preferred class, the Board of Directors is authorized to
establish out of authorized but unissued shares, series of such
preferred class, and, further, is authorized to determine, fix or
change the relative rights and preferences of the shares of any
series so established, including but not limited to, conversion
rights, yields, security or any other rights and preferences."
THIRD: The foregoing Amendment of Articles of Incorporation in Reorganization
Proceedings were authorized and approved in a manner authorized by law, pursuant
to the provisions of 11 U.S.C. Section 1123(a)(5)(I), as contemplated by
Articles 4.1.A and 4.3 of the Debtor's Second Amended Plan of Reorganization
Dated June 23, 1998, which was confirmed by the Order confirming the Debtor's
Second Amended Plan issued July 31,
<PAGE>
1998, by the United States Bankruptcy Court for the District of New Mexico, a
Court of competent jurisdiction of the reorganization case per Title XI, Chapter
11, United States Code, in the matter styled as In re Solv-Ex Corporation, Case
No. 11-97-14361MA.
DATED: August 31, 1998
SOLV-EX CORPORATION
/s/ John S. Rendall
- -------------------------------
John S. Rendall
Chairman and Chief Executive Officer
/s/ Herbert M. Campbell II
- -------------------------------
Herbert M. Campbell II
Senior Vice President and Secretary
VERIFICATION
Under penalty of perjury, the undersigned declares that the foregoing document
executed by the Corporation and that the statements contained therein are true
and correct to the best of my knowledge and belief.
/s/ Herbert M. Campbell II
- -------------------------------
Herbert M. Campbell II
Senior Vice President and Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1998 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,601,944
<SECURITIES> 0
<RECEIVABLES> 47,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,652,635
<PP&E> 3,897,635
<DEPRECIATION> 2,203,545
<TOTAL-ASSETS> 5,002,755
<CURRENT-LIABILITIES> 4,245,670
<BONDS> 119,936
0
0
<COMMON> 308,695
<OTHER-SE> 328,454
<TOTAL-LIABILITY-AND-EQUITY> 5,002,755
<SALES> 0
<TOTAL-REVENUES> 397,429
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,651,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 316,720
<INCOME-PRETAX> (2,570,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,570,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,570,939)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
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