SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission File Number: 0-29664
SOLUCORP INDUSTRIES LTD.
(Exact Name of registrant as Specified in its Charter)
YUKON N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
250 West Nyack Road, West Nyack, New York 10994
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code: (914) 623 2333
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 twelve (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
ninety (90) days. Yes [ X ] No [ ]
As of September 30, 1999, there were 22,507,248 shares of the
registrant's common stock, no par value, issued and outstanding.
BASIS OF PRESENTATION
The following unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information without audit. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These unaudited statements should be read in
conjunction with the audited financial statements of the Company and notes
thereto included in the Company's Report for the twelve months ended December
31, 1998. The results of operations for the nine months ended September 30,
1999, are not necessarily indicative of the results which may be expected for
the full year ending December 31, 1999.
PART 1 - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SOLUCORP INDUSTRIES LTD
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(UNAUDITED - PREPARED BY MANAGEMENT)
(IN U.S. DOLLARS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
------------------ -------------------
Revenues
Environmental clean-up and waste disposal $439,995 $381,433 $2,852,590 $1,367,996
Training Institute 0 1,000 3,990 9,396
Allowances (671,286)(1) 0 (671,286) 0
-------------- ---------- ---------- ----------
(231,291) 382,433 2,185,294 1,377,392
-------------- ---------- ---------- ----------
Cost of Sales and Revenue
Environmental clean-up and waste disposal 859,724 345,083 3,256,508 1,200,793
Training Institute 0 6,039 65,470 9,003
Inventory storage costs 0 112,843 29,643 252,589
-------------- ---------- --------- ----------
859,724 463,965 3,351,621 1,462,385
-------------- ---------- --------- ----------
Gross Margin (1,091,015) (81,532) (1,166,327) (84,993)
Investment and Other Income 56,650 30,701 307,477 139,075
License fees 500,000 500,000 1,500,000 1,575,758
-------------- ---------- --------- ----------
(534,365) 449,169 641,150 1,629,840
-------------- ---------- --------- ----------
Expenses
Administrative and general 505,384 737,939 2,002,900 2,507,011
Corporate development and marketing 0 85,726 1,389 342,173
Depreciation and amortization 74,962 91,243 224,888 248,905
-------------- ---------- --------- ---------
580,346 914,899 2,229,177 3,098,089
-------------- ---------- --------- ---------
Earnings (loss) from operations (1,114,711) (465,730) (1,588,027) (1,468,249)
Other Income (expense) 1,007,233(2) (527,979) 1,007,233 (1,055,947)
-------------- ---------- --------- ---------
Earnings (loss) for the period (107,478) (993,709) (580,794) (2,524,196)
Deficit, beginning of period (17,271,263) (14,778,225)(16,797,947)(13,247,738)
-------------- ---------- --------- ----------
Deficit, end of period (17,378,741) (15,771,934)(17,378,741)(15,771,934)
========= ========= ========= =========
Earnings (loss) per share ($0.005) ($0.05) ($0.03) ($0.13)
========= ========= ========= =========
(1) Reflects adjustments on contract with Western Steel Limited made in this
period
(2) Reflects adjustments and settlements of Accounts Payable in this
amount made in this period
The accompanying notes are an integral part of this statement.
SOLUCORP INDUSTRIES LTD.
CONSOLIDATED BALANCE SHEET
(IN U.S. DOLLARS)
September 30, December 31,
1999 1998
-------------- -------------
(Unaudited) (Audited)
ASSETS
Current
Cash $ 0 $ 0
Accounts receivable (Note 2) 349,915 2,399,401
License fees (Note 3) - 90,910
Due from related parties (Note 5) 1,302,171 1,690,482
Other receivables 75,700 66,635
Inventories (Note 6) 2,127,092 1,538,560
Prepaid expenses (Note 7) 3,210,827 247,238
------------- ------------
7,065,705 6,033,226
Long-term investment (Note 8) 342,343 265,421
Capital assets (Note 9) 156,284 311,124
------------- ------------
TOTAL ASSETS $ 7,564,332 $ 6,609,771
========= ==========
LIABILITIES
Current
Bank indebtedness $ 371,117 $ 58,359
Accounts payable and accrued liabilities 2,104,650 1,708,195
Customer deposits 77,854 77,854
Loans payable (Note 10) 1,028,527 347,319
------------- -----------
3,582,148 2,191,727
------------- -----------
SHAREHOLDERS' EQUITY
Subscriptions received - 1,161,901
Share capital (Note 11) 21,360,925 20,054,090
Deficit (17,378,741) (16,797,947)
------------- -----------
3,982,184 4,418,044
------------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY 7,564,332 6,609,771
========= =========
Subsequent events (Note 13)
Contingencies (Note 15)
Commitments (Note 17)
The accompanying notes are an integral part of this statement.
SOLUCORP INDUSTRIES LTD.
SCHEDULE OF ADMINISTRATIVE AND GENERAL EXPENSES (U.S. Dollars)
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 & 1998
Three Months Ended September 30,
----------------------------------------
1999 1998
--------------------------------------------- ------
U.S. Canada Total Total
------------- -------------- ----------- ------
Advertising and promotion $ (1,111) - $ (1,111) 0
Automobile 2,111 - 2,111 5,393
Bad debts 200 - 200 0
Bank charges and interest 72,012 230 72,242 1,443
Consulting and management fees (500) - (500) 126,291
Foreign exchange (gain) loss - - - 8,354
Insurance (1,135) - (1,135) 19,826
Investor and public relations - - - 0
Legal, accounting and audit 261,119 - 261,119 142,936
Office, printing and related 7,902 - 7,902 58,596
Rent 64,435 - 64,435 34,430
Salaries and wages 43,128 20,086 63,214 289,573
Telephone 12,345 - 12,345 34,980
Transfer and filing fees - - - (7)
Travel 24,562 - 24,562 16,124
------------- --------------- ----------- -------
$ 485,068 $ 20,316 $505,384 $ 737,939
======== ========= ========= ========
Nine Months Ended September 30,
-----------------------------------------------------
1999 1998
--------------------------------------------- ------
U.S. Canada Total Total
------------- -------------- ----------- ------
Advertising and promotion $ 10,001 - 10,001 $ 0
Automobile 18,552 - 18,552 23,780
Bad debts 200 - 200 86,600
Bank charges and interest 102,165 230 102,165 0
Consulting and management fees 137,460 - 137,460 541,102
Foreign exchange (gain) loss 0 - 0 61,255
Insurance 70,720 - 70,720 20,261
Investor and public relations 3,791 - 3,791 40,087
Legal, accounting and audit 515,428 - 515,428 479,206
Office, printing and related 208,357 3,978 212,335 227,768
Rent 114,30 3,497 117,805 97,927
Salaries and wages 623,672 63,194 686,866 797,099
Telephone 91,521 3,635 95,156 76,278
Transfer and filing fees 0 - 0 394
Travel 32,191 - 32,191 63,381
------------- --------------- ---------- ---------
$1,928,366 $ 74,534 $2,002,900 $2,507,011
======== ========= ========= ========
SOLUCORP INDUSTRIES LTD
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED - PREPARED BY MANAGEMENT)
(IN U.S. DOLLARS)
Nine Months Ended
September 30,
-----------------------------------
1999 1998
-----------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net profit (loss) for the period $ (580,794) $(2,524,196)
Items not involving cash:
Depreciation and amortization 224,888 248,905
--------------- --------------
Funds provided (used) from operations (355,906) (2,275,291)
Non-cash working capital changes (1,015,270) ( 373,752)
--------------- --------------
Cash provided by (used in) operating activities (1,371,176) (2,649,043)
--------------- --------------
Financing activities
Issue of common shares 144,934 1,987,100
Due from related parties 388,311 330,137
Loans receivable (9,065) 50,000
Loans payable 681,208 225,109
--------------- --------------
Cash provided by (used in) financing activities 1,205,388 2,592,346
--------------- --------------
Investment activities
(Increase) decrease in capital assets (70,048) (29,836)
(Increase) decrease in long-term investments (76,922) (11,432)
--------------- --------------
Cash provided by (used in) investment activities (146,970) (41,268)
--------------- --------------
Increase (decrease) in cash position (312,758) (97,965)
Cash position, beginning of period (58,359) 26,646
--------------- --------------
Cash position, end of period ($ 371,117) ($ 71,319)
========== =========
The accompanying notes are an integral part of this statement.
1. Significant Accounting Policies
(a) Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada, which differ
in some respects from those in the United States. (See also Note 19.)
(b) Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. At September 30, 1999, the Company's
subsidiaries and its percentage equity in each are as follows:
BSM Industries (Canada), Inc. 100%
World Travel Plaza, Inc. 100%
World Tec Equities, Inc. 100%
EPS Environmental, Inc. 100%
Environmental Training Institute, Inc. 100%
(incorporated in the USA)
(c) Cash and Cash Equivalents
For purposes of balance sheet clarification and the statements of cash
flows, the Company considers all highly liquid investments purchased
with an original maturity of three (3) months or less to be cash
equivalents.
(d) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(e) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, loans and other receivables, accounts
payable and accrued liabilities and loans payable approximate fair
market value because of the immediate short-term maturity of these
financial accounts. The fair value of the long-term investments are not
readily determinable due to uncertainties in their realization;
however, where available, the quoted market prices have been disclosed.
(f) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost
is determined on a first-in, first-out basis.
(g) Long-term Investments
Investments are recorded at cost less a provision for permanent
impairment in value.
(h) Capital Assets
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of the assets on the following basis:
Computer 30% declining balance
Furniture and office equipment 20% declining balance
Leasehold improvements 5 years straight-line
Remediation equipment 30% declining balance
Patent costs 10 years straight-line
(i) Reporting Currency and Translation of Foreign Currency
The Company has adopted the United States dollar as its reporting
currency for its financial statements prepared after March 31, 1996.
The U.S. dollar is the currency of the primary economic environment in
which the Company conducts its business and is considered appropriate
functional currency for its operations. Accordingly, the financial
statements of the Company have been translated using the temporal
method with translation gains and losses included in the earnings.
Under this method the operations of the Company have been converted
into U.S. dollars at the following rates of exchange:
(i) Monetary assets and liabilities - at the rate of
exchange prevailing at the balance sheet date.
(ii) All other assets and liabilities - at the exchange
rate prevailing at the time of the transactions
(iii) Revenue and expenses - at the average exchange rates
prevailing during the period
(j) Share Issue Costs
Share issue costs are charged directly to the deficit.
(k) Revenue Recognition
Revenue from on-site remediation projects is recognized using the
percentage of completion method of accounting. Under this method
contract revenue is determined by applying to the total estimated
income on each contract, a percentage which is equal to the ratio of
contract costs incurred to date, to the most recent estimate of total
costs which will have to be incurred upon the completion of the
contract. Costs and estimated earnings in excess of billings represents
additional earnings over billings, based upon percentage completed, as
outlined above. Similarly, billings in excess of costs and estimated
earnings represent excess of amounts billed over income recognized.
Provision for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. As at September 30, 1999,
there were no on-site projects in progress.
Revenue from in-line remediation projects is recognized using the
completed contract method. Under this method revenue is recognized when
work is completed and invoiced.
Revenue from license fees, option payments and royalties are recognized
as they accrue in accordance with the terms of the relevant agreements.
(l) Research and Development
Research and development expenditures less related government grants
are charged to operations.
(m) Earnings (Loss) Per Share
The earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during the period.
n) Accounting for Stock-Based Compensation
In October 1995 the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation". The statement encourages all entities to
adopt a new method of accounting to measure compensation cost of all
employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed to
continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies
that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statement pro forma net income
and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15,
1995. Currently, the Company's stock-based compensation plan is
accounted for using Canadian generally accepted accounting principles
similar to the intrinsic value method prescribed by APB No. 25. The
Company is in the process of computing the effect of adopting SFAS No.
123 and has not yet made a decision on whether to adopt the U.S.
accounting for the fiscal period ended September 30, 1999. Management
believes the financial impact of adopting SFAS No.
123 would be immaterial.
2. Accounts Receivable (Audited)
September 30, December 31,
1999 1998
-------------- --------------
Smart International Ltd. - $2,006,984
Other 459,353 804,156
-------------- --------------
$ 459,353 $2,811,140
Allowance for bad debts $( 109,438) $( 411,739)
-------------- --------------
$ 349,915 $2,399,401
======== ========
3. License Fees
By a letter of intent dated June 4, 1997, and an agreement dated
September 15, 1997, the Company granted to Smart International Ltd.
(Smart) the right to manufacture chemicals for the Company and the
right to exclusively engage in remediation projects in China using the
Company's technology. The agreement is for a ten-year term commencing
June 1, 1997, with an option to renew for a further 10 years. As
consideration, Smart has agreed to pay an annual license fee of
$2,000,000 per year plus a royalty of $5 per ton for each ton of
processed material in excess of 100,000 tons per contract year. The
Company billed $500,000 towards the license fee for the quarter ended
September 30, 1999. Pursuant to the agreement with Smart which allows
payments to be offset against amounts owed to Smart for inventory
purchases, this amount is included in the deposit on inventory
purchases, and reflected in the total value of $3,165,489 for available
inventory recorded for the period. No royalties were payable.
(See also Note 7)
4. Loans Receivable
Nil
5. Due From Related Parties
Advances, primarily to directors and employees, related to directors in
the amount of $1,302,171 (December 31, 1998 - $1,690,482), bear
interest at 8.5% and have no specific term of repayment. These advances
were secured by marketable securities (market value December 31, 1998 -
approximately $50,000). During the quarter ended September 30, 1999,
the Company received repayments of $0 from the proceeds of the sale of
the marketable securities and $515,524, which was offset against loans
payable by the Company to a third party. Additional advances of $0 were
made to the related parties and interest of $27,095 was charged for the
current quarter. As at September 30, 1999, the value of the remaining
security has remained at approximately $50,000. Management expects that
the value of the security will recover and that the amounts due,
including the current accrued interest, will be fully recovered.
6. Inventories (Audited)
September 30, December 31,
1999 1998
-------------- --------------
Raw chemicals $2,122,028 $1,515,550
Blended chemicals 3,035 16,056
Goods for resale 2,029 6,954
-------------- --------------
$2,127,092 $1,538,560
======== ========
7. Prepaid Expenses (Audited)
September 30, December 31,
1999 1998
-------------- --------------
Consulting agreements $ 5,041 $ 5,041
Rental expense 36,360 36,360
Deposit on inventory purchases (Note 7a) 3,165,489 201,900
Other 3,937 3,937
-------------- --------------
$3,210,827 $ 247,238
======== ========
a) Deposit On Inventory Purchases
Pursuant to the agreement with Smart, the Company may offset license
fee payments against amounts owed to Smart for inventory purchases. Due
to the anticipated, and now realized, increased requirement for large
volumes of chemical reagents for remediation projects in 1999, the
Company has offset Smart's fees as deposits on current and future
inventory. (See also Management Discussion and Analysis section on Cash
Flow.)
8. Long-term Investments
(Audited)
September 30, December 31,
1999 1998
-------------- --------------
(a) Shares of Earthworks Industries Inc. accrued (see Note 17d). 46,598 46,598
(b) Convertible debenture from Travel Plaza Developments, Inc.
(Travel Plaza). The Company elected on December 28, 1994, to
convert the Cdn $50,000 debenture into 250,000 shares of
Travel Plaza. Final regulatory approval for this conversion
from the Alberta Stock Exchange is still pending subject to
their acceptance of a financing arrangement and the approval
of minority shareholders. On August 21, 1996, pending the
finalization of the required financing to complete the
project, construction was temporarily suspended and the
stock of Travel Plaza has been halted from trading. Due to
these uncertainties, the Company has written this down to a
nominal value. 1 1
(c) Convertible loan to Cortina Integrated Waste Management,
Inc., a subsidiary of Earthworks Industries, Inc. (public
company), due September 5, 2000, with interest at 15% per
annum. The Company is entitled to convert all or a portion
of the loan into shares of Earthworks Industries, Inc. at
any time. During the term of this loan, the Company has the
right to offset royalty payments due to Earthworks
Industries, Inc. against the loan balance. 295,743 218,821
(d) A 25% interest in John Beech Remediation Limited
(no market value). 1 1
(e) 70,000 shares of Global Technologies, Inc. (Note 10). 0 0
-------- ---------
$ 342,343 $ 265,421
======== =========
9. Capital Assets
(Audited)
September 30, December 31,
1999 1998
-------------- -------------
Computers $ 24,047 $ 24,047
Furniture and office equipment 121,292 121,292
Remediation equipment 449,675 454,327
Leasehold improvements 15,927 15,927
Incorporation costs 688 688
Patent costs 70,583 70,583
-------------- --------------
$ 682,212 $ 686,864
Less: Accumulated amortization 525,928 375,740
-------------- --------------
$ 156,284 $ 311,124
======== =========
10. Loans Payable
September 30, December 31,
1999 1998
-------------- --------------
(Unaudited) (Audited)
IDM Environmental Corp., 10.25%, payable in monthly installments of
$22,008, including principal and interest, maturing on July 1, 1998,
secured by the Company's treasury stock, 100,500 shares of Earthworks
Industries, Inc. (Note 8a) and 70,000 shares of Global Technologies,
Inc. (Note 8e) held as investments by the Company. The Company has not
made any payments and IDM liquidated all of the collateral and applied
the proceeds towards the loan. IDM has subsequently secured a judgment
against the Company for the balance of the debt.
(See also Note 13) $ 206,277 $ 206,277
Global Technologies, Inc., due on demand ($100,000 Cdn). 65,308 65,308
London Venture Capital Corp. 741,942 60,734
Other 15,000 15,000
-------------- --------------
$1,028,527 $ 347,319
========= =========
11. Share Capital
a) Authorized:
200,000,000 common shares of no par value
b) Issued:
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Shares Amount Shares Amount
Balance, beginning 19,528,640 $20,054,640 18,652,497 $18,135,240
---------- ---------- ---------- -----------
Issued pursuant to
Stock options 0 0 494,000 959,100
Private placement 2,689,841 1,161,901 0 0
Warrants 0 0 36,557 63,975
Shares for debt settlement 288,767 144,384 50,000 100,000
Finders agreement 0 0 142,593 361,500
License agreement 0 0 190,550 500,000
--------------------------------- -----------------------------
2,978,608 1,306,285 913,700 $ 1,984,575
--------------------------------- -----------------------------
Allotted for cash 0 0 1,443 2,525
--------------------------------- -----------------------------
Balance, ending 22,507,248 21,360,925 19,567,640 $20,122,340
============================= ============================
c) During the nine month period ended September 30, 1999, no
stock options were granted by the Company to employees,
directors and other associated individuals. At September 30,
1999, stock options were outstanding as follows:
Shares Exercise Price Expiration Date
- --------------------------------------------------------------------------------
250,000 $1.38 December 21, 1999
47,500 $1.75 July 13, 2000
71,500 $1.75 September 12, 2000
47,000 $1.75 January 6, 2002
1,638,329 $1.75 June 9, 2002
872,210 $1.20 November 4, 2002
431,000 $1.20 February 19, 2003
1,985,000 $1.20 October 6, 2003
d) During the nine month period ended September 30, 1999, no
warrants were issued and outstanding warrants remained as
follows:
Shares Exercise Price Expiration Date
- --------------------------------------------------------------------------------
750,000 $2.75 September 10, 2000
25,000 $4.00 April 4, 2001
300,000 $7.50 June 3, 2002
e) At September 30, 1999, 1,675,000 common shares were
held in escrow (September 30, 1998 - 1,675,000).
Pursuant to an escrow agreement dated April 30, 1998,
these shares were subject to release on or before June 22,
1998, in the event that the Company attained certain
cash-flow targets. Since these cash-flow targets were
not achieved, these escrowed shares are in the process
of being canceled.
12. Income Taxes
At December 31, 1998, the Company had accumulated tax losses
aggregating approximately $13,100,000, which may be carried forward and
applied against taxable income in future years up to 2003. The Company
does not record the income tax benefit of these losses.
13. Subsequent Events
On October 7, 1999, a judgment in the amount of $288,833.20, to be paid
to Tellus Consultants, Inc. (Tellus) was recorded against the Company.
This concluded an issue in which Tellus had previously agreed to settle
a debt by accepting the Company's stock in lieu of payment. Due to
events beyond the Company's control, the stock certificate was not
delivered and the judgment was entered.
On October 20, 1999, IDM Environmental Corp. (IDM) obtained a judgment
against the Company in the amount of $325,702.50.
(See also Note 10)
14. Segmented Information
US Services Consolidated Totals
& Products Canada Total
--------------- ------------- ---------------------
(a) Three Months Ended September 30, 1999:
(Unaudited)
Revenue $( 231,291) $ 0 $(231,291)
License Fees 500,000 0 500,000
Cost of Sales 859,724 0 859,724
----------------------------------------------------------------
Operating earnings (loss) ( 591,015) 0 (591,015)
Administrative and general 485,068 20,316 505,384
Corporate development and marketing 0 0 0
Amortization and depreciation 74,085 877 74,962
----------------------------------------------------------------
Segmented profit (loss) $(1,150,306) $( 21,193) $(1,171,361)
----------------------------------------------------------------
Unallocated:
Investment and other income 1,063,883
----------------
GAIN (LOSS) FOR THE PERIOD $ (107,478)
------------------
IDENTIFIABLE ASSETS $ 7,053,805 $ 483,432 $7,537,237
========= ========== ==========
(a) Three Months Ended September 30, 1998:
(Unaudited)
Revenue $ 382,433 $ 0 $ 382,433
License Fees 500,000 0 500,000
Cost of Sales 463,965 0 463,965
----------------------------------------------------------------
Operating earnings (loss) 418,468 0 418,468
Administrative and general 697,233 40,706 737,939
Corporate development and marketing 71,731 13,995 85,726
Amortization and depreciation 91,234 0 91,234
----------------------------------------------------------------
Segmented profit (loss) $( 441,730) $( 54,701) $(496,431)
----------------------------------------------------------------
Unallocated:
Other income (expense) (527,979)
Investment and other income $ 30,701
------------------
GAIN (LOSS) FOR THE PERIOD $( 993,709)
------------------
IDENTIFIABLE ASSETS $7,323,718 $ 560,597 $ 7,884,315
========= ========== ==========
14. Segmented Information
US Services Consolidated Totals
& Products Canada Total
--------------- ------------- ---------------------
(c) Nine Months Ended September 30, 1999:
(Unaudited)
Revenue $ 2,185,294 $ 0 $ 2,185,294
License Fees 1,500,000 0 1,500,000
Cost of Sales 3,351,621 0 3,351,621
----------------------------------------------------------------
Operating earnings (loss) 333,673 0 333,673
Administrative and general 1,928,366 74,534 2,002,900
Corporate development and marketing 1,389 0 1,389
Amortization and depreciation 222,257 2,631 224,888
----------------------------------------------------------------
Segmented profit (loss) $( 1,818,339) $( 77,165) $( 1,895,504)
----------------------------------------------------------------
Unallocated:
Other income (expense) 989,788
Investment and other income 324,922
------------------
GAIN (LOSS) FOR THE PERIOD $ (580,794)
------------------
IDENTIFIABLE ASSETS $ 7,053,805 $ 483,432 $ 7,537,237
========= ========== ==========
(d) Nine Months Ended September 30, 1998:
(Unaudited)
Revenue $ 1,377,392 $ 0 $ 1,377,392
License Fees 1,575,758 0 1,575,758
Cost of Sales 1,462,385 0 1,462,385
----------------------------------------------------------------
Operating earnings (loss) 1,490,765 0 1,490,765
Administrative and general 2,374,603 132,408 2,507,011
Corporate development and marketing 274,386 67,787 342,173
Amortization and depreciation 242,545 6,360 248,905
----------------------------------------------------------------
Segmented profit (loss) $(1,400,769) $( 206,555) $(1,607,324)
----------------------------------------------------------------
Unallocated:
Other income (expense) (1,055,947)
Investment and other income $ 139,075
------------------
GAIN (LOSS) FOR THE PERIOD $(2,524,196)
------------------
IDENTIFIABLE ASSETS $ 7,323,718 $ 560,597 $ 7,884,315
========= ========== ==========
15. Contingencies
Legal Proceedings
As previously reported, the staff of the Securities and Exchange
Commission has been investigating the affairs of the Company. The staff
has advised the Company's attorneys that the Commission intends to
initiate proceedings against the Company and certain persons associated
with the Company but no such proceedings have as yet been initiated.
16. Related Party Transactions
During the three months ended September 30, 1999, the Company paid
consulting fees and salaries of $0 (September 30, 1998 - $126,291) to
directors, former directors and/or private companies controlled by
directors and/or individuals related to directors.
17. Commitments
a) The Company has entered into numerous non-exclusive finder's
agreements with third parties to promote the Company's remediation
process for soil and industrial wastes. The Company will pay between 1%
and 7% commission on gross revenues generated by the third parties.
These agreements expire within one and two years.
b) The Company entered into a finder's agreement with a third party to
raise capital for the Company through private placements. The Company
will pay a 5% commission on private placements raised directly or
indirectly by the third party. The agreement expires on September 27,
2000, with an option to renew for another five years.
c) The Company has agreed to pay royalties to Earthworks Industries,
Inc. (Earthworks), a Canadian public company, based on Cdn $1/tonne
(metric ton) of soil remediated in Canada or the United States
($1/tonne will be U.S. dollars if soil is remediated in the USA). The
Company will receive one share in Earthworks for each $1of royalty
paid, to a maximum of 200,000 shares, in minimum blocks of 50,000.
These shares are accrued as the soil is remediated. An additional $1
(Cdn or U.S.) will be paid for each tonne of soil remediated on
contracts resulting from the efforts of Earthworks. The Company has the
right to offset royalty payments against the convertible loan from
Cortina Integrated Waste Management, Inc. (See also Note 8c).
18. Economic Dependence
During the nine months ended September 30, 1999, revenues of $439,995
were earned from six customers, of which $349,915 is included in
accounts receivable.
License fees of $1,500,000 (September 30, 1998 - $1,575,758) were
recognized in the nine months ended September 30, 1999, as disclosed in
Note 3.
19. Reconciliation to United States Generally Accepted Accounting
Principles
As discussed in Significant Accounting Policies (Note 1), these
consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Differences in
accounting principles as they pertain to these consolidated financial
statements are as follows:
Marketable Securities
Under GAAP, the accounting for marketable securities depends on the
classification of securities as held to maturity, trading or available
for sale. The classification would be based on management's intent.
Marketable securities included in long-term investments (Note 8) would
be classified as being available for sale. Under U.S. GAAP, such
securities would be recorded at fair value, with any changes recorded
in a separate component of shareholder's equity. Realized gains or
losses would be recorded on the income statements. At September 30,
1999, the effect on the presentation of long-term investment for U.S.
GAAP purposes would not be material.
20. Uncertainties - Year 2000 Computer Issue
The effect of the Year 2000 Issue on the Company may be experienced
before, on, or after January 1, 2000, and, if not satisfactorily
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect the
conduct of normal business operations. The Company's services do not
utilize equipment or systems that depend on computer software. The
Company's accounting systems are personal computer based and presently
utilize off-the-shelf accounting software. The Company plans to
purchase software upgrades from software vendors, and these purchases
are not expected to have a material impact on the Company's results of
operations. It is not possible, at the present time, to be certain of
all aspects of the Year 2000 Issue affecting the Company, including
those related to he efforts of customers, suppliers, or third parties,
will be satisfactorily resolved.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Nine Months Ended September 30, 1999, Compared to the Nine Months Ended
September 30, 1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had a working capital of $3,483,557, a
decrease of $357,942 or 9.3% from the $3,841,499 reflected at December
31, 1998. Within the current liabilities, significant increases occurred in
accounts payable, accrued expenses and loans payable as a result of preparing
for projects which commenced during the nine-month period of 1999.
The Company has financed its operations through revenues received from MBS
sales, projects and related revenues. Extraordinary expenses associated with
Legal Proceedings are being financed through the sale of the Company's
securities to certain private investors. The Company expects to continue to
provide for its cash and capital needs in this manner until operations are
sufficient to meet these needs.
Cash Flows
During the nine-month period ended September 30, 1999, the Company increased its
cash overdraft position $312,758 versus an overdraft cash position of $58,359 in
the comparable period in 1998. In the current period, cash was provided mainly
from sales revenues, and from non-interest bearing demand loans. Cash-flow
further reflects the out-flow of monies required to finance work in progress for
which revenues and profits will not be fully realized until later in 1999 or
2000.
The Company notes that the multi-faceted agreement that it and Smart
International reached with BOHAI Chemical group Co. to commence Phase 1 of
remediating a stockpile of chromium contaminated soil and slag and to install
two In-line remediation systems at BOHAI plants in China should generate cash
flow and reduce current inventory in or by the first quarter of 2000. This
agreement was publicly announced by the Company on September 1, 1999.
Results of Operations
Aggregate revenue (environmental clean-ups and waste disposal projects, Training
Institute fees and license fees) increased to $3,685,294 from $2,935,150; an
increase of $750,144, or 25.6%, for the nine-month period ended September 30,
1999. This resulted primarily from increased remediation activity as projects
that were initially obtained during 1998 reached their on-site start-up and
operational phases.
Cost of sales increased to $3,351,621, representing an increase of $1,889,236,
or 129.2%, over the comparable 1998 period's $1,462,385, when revenues were
significantly lower. As the period entailed costs associated with large project
start-ups and simultaneous running, for which invoicing will not be completed
until the fourth quarter of 1999 or later, and high inventory purchase costs
incurred in preparation for these projects and other contemplated projects.
The Company reported a Gross Margin Loss of $1,166,327 for the current period,
which was an increase versus the loss of $84,993 recorded in the nine-month
period ended September 30, 1998. The Company notes that the currently
non-billable project work and high costs associated with inventory purchases
have restricted profitability. In addition, the Company believes that project
costs do not yet reflect the full economy of scale potential for operations at
this stage in its development.
Investment and other income increased to $307,477 from $139,075 in the
comparable period in 1998, an increase of $168,402. This increase resulted
primarily from an equivalent change to the income received from interest on
related party loans and a settlement payment from the Tristate Restoration
Company, Inc. lawsuit which was resolved during the first quarter.
Selling, general and administrative expenses (SG&A) decreased $504,111, or
20.1%, to $2,002,900 in the nine-month period ended September 30, 1999, versus
the 1998 comparable period's $2,507,011. While significant contributions to the
1999 expenses were made by legal costs incurred by the Company.
For the nine-month period ended September 30, 1999, the Company is reporting a
loss from operations of $1,588,027, versus a loss of $1,468,249 in the
comparable period of 1998. This loss, which reflects an increase of $119,778, or
8.2%, is disappointing, although the Company recognizes it to be a further
indicator of the large abnormal expenses that the Company experienced in the
1999 period, which are discussed above.
Other
In anticipation of significantly increased remediation in 1999 and thereafter,
the Company has been progressively increasing its inventory of the main chemical
ingredient in MBS since mid-1998, as the chemical has a relatively long
lead-time prior to availability. Although several major projects have commenced
in 1999, this build-up of inventory is still the primary reason for the value of
inventory increasing $588,532 to a total of $2,127,092 from the $1,538,560
recorded at December 31, 1998. The Company believes that demand for product for
contracts already issued, most particularly the BOHAI agreement discussed above,
and contracts in process and pending in 1999 and 2000 will result in a need
exceeding full utilization of the currently held inventory.
Three Months Ended September 30, 1999, Compared to the Three Months Ended
September 30, 1998.
Aggregate revenue (environmental clean-ups and waste disposal projects, Training
Institute fees and license fees) decreased to $439,995 from $882,433; a decrease
of $442,438, or 50.1%, for the three-month period ended September 30, 1999. This
resulted primarily from an adjustment to the Company's contract with Western
Steel Limited in the quarter, as noted in Item 1 - Consolidated Statement of
Operations and Deficit.
Cost of sales increased to $859,724, representing an increase of $395,759, or
80.3%, over the comparable 1998 period's $463,965. The period entailed costs
associated with large project start-ups and simultaneous running, for which
invoicing will not be completed until the fourth quarter of 1999.
The Company reported a Gross Margin Loss of $1,091,015 for the current period,
which was an increase versus the loss of $81,532 recorded in the three-month
period ended September 30, 1998.
Investment and other income increased to $56,650 from $30,701 in the comparable
period in 1998, an increase of $25,949. This increase resulted primarily from an
equivalent change to the income received from interest on related party loans.
Selling, general and administrative expenses (SG&A) decreased $232,555, or
31.5%, to $505,384 in the three-month period ended September 30, 1999, versus
the 1998 comparable period's $737,939. As previously noted, legal costs
contributed significantly to this situation.
For the three-month period ended September 30, 1999, the Company is reporting a
loss from operations of $1,114,711, versus a loss of $465,730 in the comparable
period of 1998. This loss, which represents an increase of $648,981, or 139.3%,
is viewed as a part of the Company's large abnormal expenses experienced in the
1999 period, as previously discussed.
Year 2000 Issue
The effect of the Year 2000 Issue on the Company may be experienced before, on,
or after January 1, 2000, and, if not satisfactorily addressed, the impact on
operations and financial reporting may range from minor errors to significant
systems failure which could affect the conduct of normal business operations.
The Company's services do not utilize equipment or systems that depend on
computer software. The Company's accounting systems are personal computer based
and presently utilize off-the-shelf accounting software. The Company plans to
purchase software upgrades from software vendors, and these purchases are not
expected to have a material impact on the Company's results of operations. It is
not possible, at the present time, to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or third parties, will be satisfactorily resolved.
Forward-looking Statements
Certain matters discussed herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and,
as such, may involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 15.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) During the quarter ended September 30, 1999, the Company
issued 288,767 shares of stock in exchange for cash and
forgiveness of debt in the amount of $144,384.
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report:
- Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 18, 1999 SOLUCORP INDUSTRIES LTD.
By: /s/
Peter Mantia - President