UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-12694
SOLIGEN TECHNOLOGIES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
WYOMING 95-4440838
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
19408 LONDELIUS STREET
NORTHRIDGE, CALIFORNIA 91324
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(818) 718-1221
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of November 3, 1998:
32,682,338
Transitional Small Business Disclosure Format: Yes [ ] No [X]
SOLIGEN TECHNOLOGIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1998 (unaudited)
and March 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the six months ended
September 30, 1998 and 1997 (unaudited) . . . . . . . . . . . . . . 4
Consolidated Statements of Cash flows for the six months ended
September 30, 1998 and 1997 (unaudited) . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
1998 1998
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 682,000 $ 215,000
Accounts receivable 748,000 1,258,000
Inventories 119,000 118,000
Prepaid expenses 90,000 104,000
----------- -----------
Total current assets 1,639,000 1,695,000
Property, plant and equipment 2,303,000 2,197,000
Less allowance for depreciation and amortization 1,553,000 1,350,000
----------- -----------
Net property, plant and equipment 750,000 847,000
Other assets 33,000 37,000
----------- -----------
TOTAL ASSETS $ 2,422,000 $ 2,579,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 430,000 $ 566,000
Trade accounts payable 207,000 485,000
Payroll and related expenses 162,000 186,000
Accrued expenses 331,000 184,000
Deferred revenue 71,000 97,000
----------- -----------
Total current liabilities 1,201,000 1,518,000
Notes payable, net of current portion 35,000 25,000
Stockholders' equity:
Preferred stock, no par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,000 shares at
September 30, 1998 957,000 --
Common stock, no par value:
Authorized - 90,000,000 shares
Issued and outstanding - 32,682,338 shares
at September 30, 1998 and at March 31, 1998 10,405,000 10,294,000
Accumulated deficit (10,176,000) (9,258,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,186,000 1,036,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,422,000 $ 2,579,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
3
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -----------------
1998 1997 1998 1997
------ ----- ---- -----
REVENUES $1,167,000 $1,264,000 $2,807,000 $2,497,000
COST OF REVENUES 1,068,000 890,000 2,164,000 1,770,000
---------- ---------- ---------- ----------
Gross profit 99,000 374,000 643,000 727,000
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Research and development 263,000 256,000 507,000 519,000
Selling 192,000 129,000 372,000 265,000
General and
administrative 270,000 302,000 506,000 512,000
Non-cash compensation 38,000 39,000 76,000 78,000
---------- ---------- ---------- ----------
Total operating
expenses 763,000 726,000 1,461,000 1,374,000
---------- ---------- ---------- ----------
Loss from operations (664,000) (352,000) (818,000) (647,000)
OTHER INCOME (EXPENSE):
Interest income 4,000 1,000 5,000 2,000
Interest expense (55,000) (11,000) (111,000) (15,000)
Other income -- -- 8,000 --
---------- ---------- ---------- ----------
Total other income
(expense) (51,000) (10,000) (98,000) (13,000)
---------- ---------- ---------- ----------
LOSS BEFORE PROVISION
FOR INCOME TAXES (715,000) (362,000) (916,000) (660,000)
Provision for state income -- -- 2,000 1,000
---------- ---------- ---------- ----------
NET LOSS $ (715,000) $ (362,000) $ (918,000) $ (661,000)
---------- ---------- ---------- ----------
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.02) $ (0.01) $ (0.03) $ (0.02)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
4
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
--------------
1998 1997
---- ------
Cash flows from operating activities
Net loss $ (918,000) $ (661,000)
Depreciation and amortization 203,000 197,000
Non-cash interest expense 70,000 --
Non-cash compensation expense 76,000 78,000
Changes in assets and liabilities:
Decrease in accounts receivable 510,000 146,000
(Increase) decrease in inventories (1,000) 42,000
Increase in prepaid expenses (21,000) (49,000)
Decrease in trade accounts payable (278,000) (59,000)
Decrease in payroll and related expenses (24,000) (30,000)
Increase in accrued expenses 147,000 48,000
Decrease in deferred revenues (26,000) (29,000)
(Increase) decrease in other assets 4,000 (6,000)
---------- ----------
Net cash used for operating activities (258,000) (323,000)
---------- ----------
Cash flows from investing activities:
Additions in property, plant and equipment (106,000) (97,000)
---------- ----------
Net cash used for investing activities (106,000) (97,000)
---------- ----------
Cash flows from financing activities:
Principal payments under capital lease
obligations 10,000 (28,000)
Payments on notes payable (136,000) 21,000
Preferred stock, net of issuance costs 957,000 --
Convertible debentures, net of issuance costs -- 282,000
---------- ----------
Net cash provided by financing activities 831,000 275,000
---------- ----------
Net increase (decrease) in cash 467,000 (145,000)
Cash - beginning of period 215,000 506,000
---------- ----------
Cash - end of period $ 682,000 $ 361,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
5
SOLIGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The financial information included herein for the six month period ended
September 30, 1998 and 1997 is unaudited; however, such information reflects
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
financial information as of March 31, 1998, is derived from Soligen
Technologies, Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1998. The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1998 Form 10-KSB.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
ACCOUNTING POLICIES
Reference is made to Note 1 of Notes to Financial Statements in the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 for the
summary of significant accounting policies.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis. Inventories consist of the following:
September 30, 1998
-------------------
Raw materials and parts $ 73,000
Work in process 21,000
Finished goods 25,000
------------
Total inventories $ 119,000
------------
------------
DEFERRED REVENUE
Deferred revenue relates to the DSPC technology profit center. The deferred
revenue related to machine revenues results mainly from the Company's
issuance of licenses for the use of the machines, or to support the machines
in the form of maintenance, rather than the outright sale of machines.
6
DEBT
NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consists of the following at September 30, 1998
Notes payable to former owners of A-RPM, bearing
no interest, due in November 1998 $ 12,000
Notes to various investors and related parties,
bearing interest at 12 percent, due in October
1998 210,000
Note to insurance company, bearing interest at
5.4 percent, due in November 1998 13,000
Note to GMAC, bearing interest at 1/2 percent,
due in August 2001 24,000
Revolving line of credit, secured by certain
assets bearing interest at the bank's prime
rate (8 1/2 percent at September 30, 1998)
plus 3 percent 140,000
Capital leases 66,000
--------
465,000
Less - current portion (430,000)
--------
$ 35,000
--------
--------
In December 1997, the Company's Board of Directors approved a short-term debt
and warrant financing. The offering was completed in a private placement
transaction to accredited investors only pursuant to Regulation D and Rule
506 thereunder. A total of six investors loaned a total of $220,000 to the
Company in December 1997, and one investor loaned an additional $40,000 to
the Company in January 1998. Each investor received a promissory note in the
principal amount of the amount loaned, bearing interest at the rate of 12%
per annum and due six months from the date of the promissory note. In
addition, for each dollar loaned to the Company the investors received a
common stock purchase warrant exercisable for two shares of the Company's
common stock (resulting in the issuance of warrants exercisable for a
cumulative total of 520,000 shares of the Company's common stock). The
warrants are exercisable for a period of five years at $0.50 per share. A
finder's fee in the amount of $17,000 was paid to a non-employee member of
the Company's Board of Directors in consideration of services provided in
connection with the financing. One of the investors was a non-employee
member of the Company's Board of Directors, one investor was an employee
member of the Company's Board of Directors, and the remaining five investors
were private investors. On June 12, 1998, the Company extended $220,000
notes payable under the same terms and conditions for an additional 45 days.
In connection with this extension, warrants exercisable for 110,000 shares of
the Company's common stock were issued to the investors. On July 27, 1998,
the Company extended $210,000 notes payable under the same terms and
conditions for an additional 90 days. In connection with this extension,
warrants exercisable for 210,000 shares of the Company's common stock were
issued to the investors. On October 25, 1998, the Company extended $140,000
notes payable for
7
an additional six months under the same terms and conditions except for a
change in the exercise price of issued warrants. In connection with this
extension, warrants exercisable for 280,000 shares of the Company's common
stock exercisable at $0.375 per share were issued to the investors.
PREFERRED STOCK
On April 24, 1998, the Company entered into a Series A Convertible Preferred
Stock Purchase Agreement providing for the private placement of up to 3,000
shares of a newly authorized series of preferred stock. The Company received
gross proceeds of $800,000 in April 1998, $100,000 in July 1998 and $100,000
in September 1998 from the sale of 1,600, 200 and 200 shares, respectively,
of Series A Preferred Stock to three private investors pursuant to the Series
A Convertible Preferred Stock Purchase Agreement
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENT AND ASSOCIATED RISKS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE
COMPANY'S CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES INCLUDING, AMONG OTHERS (I) CUSTOMER ACCEPTANCE OF THE
COMPANY'S "ONE STOP SHOP" PARTS NOW PROGRAM; (II) THE POSSIBLE EMERGENCE OF
COMPETING TECHNOLOGIES; AND (III) THE COMPANY'S ABILITY TO OBTAIN ADDITIONAL
FINANCING REQUIRED TO SUPPORT ITS CONTINUING OPERATIONS AND PROJECTED REVENUE
GROWTH. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS. IN VIEW OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY
REPORT ON FORM 10-QSB WILL IN FACT TRANSPIRE.
The following discussion should be read in conjunction with the accompanying
Financial Statements of Soligen Technologies, Inc. ("STI") and its
wholly-owned subsidiaries Soligen, Inc. ("Soligen") and Altop, Inc. ("Altop")
(collectively referred to herein as the "Company") including the notes
thereto, included elsewhere in this Quarterly Report.
OVERVIEW
The Company has developed a proprietary technology known as Direct Shell
Production Casting ("DSPC-Registered Trademark-"). This technology is
embodied in the Company's DSPC 300 System (the "DSPC System"), which produces
ceramic casting molds directly from Computer Aided Design ("CAD") files.
These ceramic molds are used to cast metal parts, which conform to the CAD
design. This unique capability distinguishes the DSPC System from rapid
prototyping technologies that are characterized by the ability to produce
non-functional, three-dimensional representations of parts from CAD files.
8
The Company's DSPC System is based upon proprietary technology developed by
the Company and certain patent and other proprietary rights licensed to
Soligen, a wholly-owned subsidiary of the Company, by the Massachusetts
Institute of Technology ("MIT") pursuant to a license agreement (the
"License") dated October 18, 1991, as amended. Pursuant to the License, MIT
granted Soligen an exclusive, world-wide license until October 1, 2006 to
develop, manufacture, market and sell products utilizing certain technology
and processes for the production of ceramic casting molds for casting metal
parts. The license continues on a non-exclusive basis thereafter until the
expiration of the last patent relating to the licensed technology. The
exclusive period may be extended by mutual agreement of both parties.
The Company believes that the rapid mold production capabilities of the DSPC
System provide a substantial competitive advantage over existing producers of
cast metal parts. Use of the DSPC System eliminates the need to produce
tooling (patterns and core boxes) for limited runs of metal parts, thereby
reducing both the time and the labor otherwise required to produce ceramic
casting molds for casting the metal parts. It provides for a paradigm shift
by enabling engineers to postpone the design or the fabrication of production
casting tooling until after the designed part has been functionally tested.
This ability, in addition to expediting the design verification and testing,
enables manufacturers to save time and money by designing the production
casting tools, which are required for large production runs, with very little
chance for error, on the first attempt.
The DSPC System can also be used to produce the production tooling (usually
made of steel), required to cast the parts in larger production runs. To
capitalize on this advantage, the Company plans to form a network of rapid
response production facilities owned either by the Company or by licensed
third parties. This network will operate under the trade name Parts
Now-Registered Trademark-service. These facilities will include DSPC
production facilities and foundries with in-house machine shops. The Company
intends to establish itself as a leading manufacturer of cast metal parts by
providing a seamless transition from CAD file to finished part.
The Company operates the following four major revenue-generating profit
centers:
1. PARTS NOW CENTER ("PARTS NOW"): Oversees the "one stop shop" production
services from receipt of the customer's CAD file through production. Parts
Now is responsible for any contract which requires a combination of the
DSPC production center and conventional casting and CNC machining
expertise. It consists of program managers who oversee the transition from
CAD to first article, to tooling, to conventional casting and later to mass
production. It acquires services from the DSPC Production Center and the
conventional casting center at cost.
2. DSPC PRODUCTION CENTER: Revenues result from the production and sale of
first article and short run quantities of cast metal parts made directly
from the customer's CAD file. This center also provides DSPC parts and
tool making services to the Parts Now Center. These services are charged
to Parts Now at cost.
3. CONVENTIONAL CASTING CENTER ("PRODUCTION PARTS"): Revenues result from the
production, and sale of production quantities of cast and machined aluminum
parts for industrial customers. The Company generates revenues in this
area through Altop, its aluminum
9
foundry and machine shop. This center is limited to conventional
casting and machining of aluminum parts that do not utilize DSPC made
tooling.
4. DSPC TECHNOLOGY CENTER: Revenues result from the sale, lease, license or
maintenance of DSPC machines and from participation in research and
development projects wherein Soligen provides technological expertise.
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1998 and the three and six
months ended September 30, 1998 and 1997 were as follows:
THREE MONTHS
ENDED THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
------- ------------- --------------
1998 1998 1997 1998 1997
---- ---- ---- ---- -----
Parts Now $ 715,000 $ 467,000 $ 126,000 $ 1,182,000 $ 624,000
-Registered
Trademark-
DSPC-Registered 600,000 419,000 604,000 1,019,000 1,024,000
Trademark-
production
Production 288,000 231,000 229,000 519,000 447,000
parts
DSPC-Registered 37,000 50,000 305,000 87,000 402,000
Trademark- ---------- ---------- ---------- ---------- ---------
technology
Total revenues $ 1,640,000 $ 1,167,000 $ 1,264,000 $2,807,000 $ 2,497,000
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Combined revenues for Parts Now and DSPC increased 21% to $886,000 in the
second quarter ended September 30, 1998 from $730,000 in the similar period
last year. Combined revenues for Parts Now and DSPC for the six months ended
September 30, 1998 increased to $2,201,000 from $1,648,000 or 34% over the
six months ended September 30, 1997 reflecting acceptance of the Company's
core business in the market place. Parts Now and DSPC combined revenues
decreased 33% to $886,000 in the second quarter ended September 30, 1998 from
$1,315,000 in the first quarter ended June 30, 1998.
Production parts (Altop) revenues increased to $231,000 or 1% from $229,000
for the three months ended September 30, 1998 and 1997, respectively, and
increased to $519,000 or 16% from $447,000 for the six months ended September
30, 1998 and 1997, respectively. Production parts decreased to $231,000 or
20% in the second quarter ended September 30, 1998 from $288,000 in the first
quarter ended June 30, 1998. Revenues for production parts are in response
to the requirements of a repeatable base of customers and fluctuations of
this magnitude are considered normal.
DSPC Technology revenues decreased to $50,000 from $305,000 for the quarters
ended September 30, 1998 and 1997, respectively, and decreased to $87,000
from $402,000 for the six months ended September 30, 1998 and 1997,
respectively. The quarter ended September 30, 1997 included a $250,000
machine sale. The sale of a DSPC machine is an unusual event and is a part
of the Company's support of MIT's licensees. Future sales of machines to
other MIT licensees will depend on the development of their business. DSPC
Technology's revenues increased to $50,000 for the quarter ended September
30, 1998 from $37,000 for the quarter ended June 30, 1998.
10
Total revenues for the quarter ended September 30, 1998 decreased 8% to
$1,167,000 from $1,264,000 for the similar quarter last year. Total revenues
for the six months ended September 30, 1998 increased 12% to $2,807,000 from
$2,497,000 for the six months ended September 30, 1997. The Company's
revenues decreased to $1,167,000 or 29% for the second quarter ended
September 30, 1998 from $1,640,000 for the first quarter ended June 30, 1998.
Gross profit decreased to $99,000 for the quarter ended September 30, 1998
from $374,000 in the similar quarter last year. For the six months ended
September 30, 1998, gross profit decreased to $643,000 from $727,000 for the
quarter ended September 30, 1997. During fiscal 1998, the Company assembled
a manufacturing capacity to produce at revenue levels in excess of $7 million
per annum. The manufacturing capability was in place during the second
quarter of fiscal 1999 during which time a slowdown for prototype parts
occurred. This created idle capacity with redundant costs in place. The
Company reviewed its cost structure and during the third quarter of fiscal
1999 has taken action to bring costs more in line with production.
Research and development expenses were $263,000 and $256,000 for the quarters
ended September 30, 1998 and 1997, respectively. For the six months ended
September 30, 1998 and 1997, research and development expenses were $507,000
and $519,000, respectively. The Company intends to continue development of
the DSPC technology and its applications as a key to its business strategy.
Selling expenses increased to $192,000 for the quarter ended September 30,
1998 from $129,000 in the similar quarter last year. For the six months
ended September 30, 1998 and 1997, selling expenses increased to $372,000
from $265,000, respectively. The increase in selling expenses was the result
of costs associated with expansion of the mid-west sales force.
General and administrative expenses decreased to $270,000 for the quarter
ended September 30, 1998 from $302,000 for the quarter ended September 30,
1997. General and administrative expenses decreased to $506,000 for the six
months ended September 30, 1998 from $512,000 for the six months ended
September 30, 1997.
The Company issued stock options to non-employees in fiscal 1996 and,
according to SFAS No. 123 (Accounting for Stock-Based Compensation), non-cash
compensation expense is to be recognized over the expected period of benefit.
As a result, the Company recognized $38,000 and $76,000 non-cash
compensation expense, in the quarter and six months ended September 30, 1998
and $39,000 and $78,000 in the quarter and six months ended for similar
periods last year. The Company expects to recognize approximately $156,000
non-cash compensation expense during fiscal 1999.
Interest expense increased to $55,000 in the quarter ended September 30, 1998
from $11,000 in the similar quarter ended last year. For the six months ended
September 30, 1998 and 1997, interest expense increased to $111,000 from
$15,000. The Company issued warrants to the short-term debt investors and,
according to SFAS No. 123, non-cash interest expense related to
11
the warrants is to be recognized over the expected period of the loan. As a
result, the Company recognized $35,000 and $70,000 non-cash interest expense,
respectively, in the quarter and six months ended September 30, 1998. The
Company expects to recognize approximately $134,000 non-cash interest expense
during fiscal 1999. The additional interest expense in the amount of $20,000
and $41,000 for the quarter and six months ended September 30, 1998 was the
result of payments made for capital leases, other notes payable, short-term
debt investors and the commercial lender associated with the revolving line
of credit.
CASH AND SOURCES OF LIQUIDITY
At September 30, 1998, working capital decreased to $438,000 compared to
working capital of $838,000 at June 30, 1997 and increased from $177,000 at
March 31, 1998. The increase in working capital from March 31, 1998 to
September 30, 1998 was due primarily to the preferred stock offerings that
provided $957,000, net of issuance costs. At September 30, 1998, the Company
had $1,430,000 in cash and accounts receivable, compared to cash and accounts
receivable of $1,758,000 at June 30, 1998 and $1,473,000 at March 31, 1998.
In April 1998, the Company received net proceeds of $775,000 from the sale of
1,600 shares of Series A Preferred Stock to two private investors. The
Series A Convertible Preferred Stock Purchase Agreement, as amended, between
the Company and these investors, permitted additional sales of Series A
Preferred Stock to be completed prior to September 8, 1998. In July 1998,
the Company received additional net proceeds of $88,000 from the sale of 200
shares of Series A Preferred Stock to the same two private investors pursuant
to the Series A Convertible Preferred Stock Purchase Agreement. In addition,
in September 1998, the Company received additional net proceeds of $94,000
from the sale of 200 shares of Series A Preferred Stock to a third investor
pursuant to the Series A Convertible Preferred Stock Purchase Agreement.
In August 1997, the Company entered into an agreement with a commercial
lender for an up to $1 million revolving line of credit, collateralized by
accounts receivable, inventory and fixed assets. The credit facility
provides for an advance rate of 75% of eligible accounts receivable. In July
1998, the agreement was extended for an additional year to provide the $1
million revolving line of credit at an advance rate of 80% of eligible
accounts receivable. At September 30, 1998, the Company had $582,000
accounts receivables, net of Altop's accounts receivables; historically 35%
to 45% accounts receivable have been eligible for borrowing from the
commercial lender.
The Company requires significant funds to expand and continue operations.
The Company believes the current cash on hand and its revolving line of
credit will be sufficient to meet its working capital and capital
expenditures requirements through March 31, 1999. The Company is actively
seeking to raise additional funds; however, there can be no assurance to the
success of these efforts.
IMPACT OF YEAR 2000
The Company reviewed its hardware and related software used for operations and
financial management and made necessary changes to become Year 2000 compliant.
The incremental
12
costs to become compliant did not have a material effect on the Company's
consolidated financial statements. The Company is attempting to contact
major vendors and other third parties that do business with the Company to
check on the status of their efforts to resolve any Year 2000 issues. The
Company is presently unable to assess the likelihood that it will experience
significant operational problems due to unresolved third party issues; there
can be no assurance that these entities will achieve timely Year 2000
compliance and therefore could have a material impact on the Company's
operations.
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 24, 1998, the Company entered into a Series A Convertible Preferred
Stock Purchase Agreement providing for the private placement of up to 3,000
shares of a newly authorized series of preferred stock. The Company received
gross proceeds of $800,000 in April 1998, $100,000 in July 1998 and $100,000
in September 1998 from the sale of 1,600, 200 and 200 shares, respectively,
of Series A Preferred Stock to three private investors pursuant to the Series
A Convertible Preferred Stock Purchase Agreement.
In December 1997, the Company's Board of Directors approved a short-term debt
and warrant financing. The offering was completed in a private placement
transaction to accredited investors only pursuant to Regulation D and Rule
506 thereunder. A total of six investors loaned a total of $220,000 to the
Company in December 1997, and one investor loaned an additional $40,000 to
the Company in January 1998. Each investor received a promissory note in the
principal amount of the amount loaned, bearing interest at the rate of 12%
per annum and due six months from the date of the promissory note. In
addition, for each dollar loaned to the Company the investors received a
common stock purchase warrant exercisable for two shares of the Company's
common stock (resulting in the issuance of warrants exercisable for a
cumulative total of 520,000 shares of the Company's common stock). The
warrants are exercisable for a period of five years at $0.50 per share. A
finder's fee in the amount of $17,000 was paid to a non-employee member of
the Company's Board of Directors in consideration of services provided in
connection with the financing. One of the investors was a non-employee
member of the Company's Board of Directors, one investor was an employee
member of the Company's Board of Directors, and the remaining five investors
were private investors. On June 12, 1998, the Company extended $220,000
notes payable under the same terms and conditions for an additional 45 days.
In connection with this extension, warrants exercisable for 110,000 shares of
the Company's common stock were issued to the investors. On July 27, 1998,
the Company extended $210,000 notes payable under the same terms and
conditions for an additional 90 days. In connection with this extension,
warrants exercisable for 210,000 shares of the Company's common stock were
issued to the investors. On October 25, 1998, the Company extended $140,000
notes payable for an additional six months under the same terms and
conditions except for a change in the exercise price of issued warrants. In
connection with this extension, warrants exercisable for 280,000 shares of
the Company's common stock exercisable at $0.375 per share were issued to the
investors.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On August 17, 1998, the Company held its 1998 Annual Meeting of Shareholders,
at which the following actions were taken:
1. The Shareholders elected the five nominees for Director to the Board of
Directors of the Company. The five Directors elected were Yehoram
Uziel, Mark W. Dowley, Kenneth T. Friedman, Patrick J. Lavelle and
Darryl J. Yea (23,418,207, 23,418,507, 23,418,507, 23,418,607 and
23,418,507 shares were voted affirmatively and 35,240, 34,940, 34,940,
34,840 and 34,940, shares abstained from voting for each of the nominees
named, respectively).
2. The Shareholders ratified the selection of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal year ended
March 31, 1999 (23,411,307 shares were voted affirmatively, 22,940
shares voted negatively and 19,200 shares abstained from voting on this
proposal).
ITEM 5. OTHER INFORMATION
See Notes to Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations - Cash and
Sources of Liquidity above for description of sale of additional shares of
Series A Preferred Stock that occurred in April, 1998, July 1998 and
September 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
------ -------------
11.1 Computation of Net Loss Per Share
27 Financial Data Schedule for the Quarter Ended
September 30, 1998
(b) Reports on Form 8-K.
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
SOLIGEN TECHNOLOGIES, INC.
Date: November 11, 1998 By: /s/ Yehoram Uziel
----------------------------
Yehoram Uziel
President, CEO and Chairman of the Board
(Principal executive officer)
Date: November 11, 1998 By: /s/ Robert Kassel
------------------------------
Robert Kassel
Chief Financial Officer
(Principal financial officer)
15