UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-QSB
[X] QUARTERLY RE PORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 February 3, 1999:
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 December 31, 1998 (unaudited)
and March 31, 1998......................................................... 3
Consolidated Statements of Operations for the nine months ended
December 31, 1998 and 1997 (unaudited)..................................... 4
Consolidated Statements of Cash flows for the nine months ended
December 31, 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 5. Other Information ........................................................ 14
Item 6. Exhibits and Reports on Form 8-K........................................... 15
Signatures ............................................................... 16
2
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1998 1998
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash $ 644,000 $ 215,000
Accounts receivable 860,000 1,258,000
Inventories 99,000 118,000
Prepaid expenses 43,000 104,000
--------------- --------------
Total current assets 1,646,000 1,695,000
Property, plant and equipment 2,279,000 2,197,000
Less: allowance for depreciation and amortization 1,644,000 1,350,000
--------------- --------------
Net property, plant and equipment 635,000 847,000
Other assets 22,000 37,000
--------------- --------------
TOTAL ASSETS $ 2,303,000 $ 2,579,000
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 557,000 $ 566,000
Trade accounts payable 195,000 485,000
Payroll and related expenses 215,000 186,000
Accrued expenses 364,000 184,000
Deferred revenue 154,000 97,000
--------------- --------------
Total current liabilities 1,485,000 1,518,000
Notes payable, net of current portion 14,000 25,000
Stockholders' equity:
Preferred stock, no par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,000 shares at December 31, 1998 957,000 --
Common stock, no par value:
Authorized - 90,000,000 shares
Issued and outstanding - 32,682,338 shares
at December 31, 1998 and at March 31, 1998 10,478,000 10,294,000
Accumulated deficit (10,631,000) (9,258,000)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 804,000 1,036,000
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,303,000 $ 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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -------------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
REVENUES $ 1,317,000 $ 1,188,000 $ 4,124,000 $ 3,685,000
COST OF REVENUES 1,025,000 818,000 3,189,000 2,588,000
----------- ----------- ------------ ------------
Gross profit 292,000 370,000 935,000 1,097,000
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Research and development 251,000 261,000 758,000 780,000
Selling 179,000 143,000 551,000 408,000
General and administrative 233,000 278,000 739,000 790,000
Non-cash compensation 38,000 39,000 114,000 117,000
----------- ----------- ------------ ------------
Total operating expenses 701,000 721,000 2,162,000 2,095,000
----------- ----------- ------------ ------------
Loss from operations (409,000) (351,000) (1,227,000) (998,000)
OTHER INCOME (EXPENSE):
Interest income 5,000 -- 10,000 2,000
Interest expense (49,000) (8,000) (160,000) (23,000)
Other income -- 152,000 8,000 152,000
----------- ----------- ------------ ------------
Total other income (expense) (44,000) 144,000 (142,000) (131,000)
----------- ----------- ------------ ------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (453,000) (207,000) (1,369,000) (867,000)
Provision for state income taxes 2,000 -- 4,000 1,000
----------- ----------- ------------ ------------
NET LOSS $ (455,000) $ (207,000) $ (1,373,000) $ (868,000)
----------- ----------- ------------ ------------
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.04) $ (0.03)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
The accompanying notes are an integral part of these financial statements.
4
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
-----------------
1998 1997
------ ------
Cash flows from operating activities
Net loss $ (1,373,000) $ (868,000)
Depreciation and amortization 294,000 293,000
Non-cash interest expense 105,000 --
Non-cash compensation expense 114,000 117,000
Changes in assets and liabilities:
Decrease in accounts receivable 398,000 76,000
Decrease in inventories 19,000 63,000
(Increase) decrease in prepaid expenses 26,000 (7,000)
Increase (decrease) in trade accounts payable (290,000) 159,000
Increase in payroll and related expenses 29,000 5,000
Increase in accrued expenses 180,000 4,000
Increase in deferred revenues 57,000 38,000
(Increase) decrease in other assets 15,000 (6,000)
------------- -----------
Net cash used for operating activities (426,000) (126,000)
------------- -----------
Cash flows from investing activities:
Additions in property, plant and equipment (82,000) (126,000)
------------- -----------
Net cash used for investing activities (82,000) (126,000)
------------- -----------
Cash flows from financing activities:
Principal payments under capital lease obligations (42,000) (27,000)
Payments on notes payable (187,000) (4,000)
Cancellation of notes payable to former owners of A-RPM -- (205,000)
Exercise of warrants and sale of common stock -- 291,000
Net borrowings under revolving line of credit 179,000 --
Proceeds from issuance of notes payable 30,000 220,000
Preferred stock, net of issuance costs 957,000 --
------------- -----------
Net cash provided by financing activities 937,000 275,000
------------- -----------
Net increase (decrease) in cash 429,000 23,000
Cash - beginning of period 215,000 506,000
------------- -----------
Cash - end of period $ 644,000 $ 529,000
------------- -----------
------------- -----------
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 nine month period ended
December 31, 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:
DECEMBER 31, 1998
-------------------
Raw materials and parts $ 90,000
Work in process 1,000
Finished goods 8,000
--------------
Total inventories $ 99,000
--------------
--------------
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 December 31, 1998:
Notes to various investors and related parties, bearing
interest at 12 percent, due in April 1999 170,000
Note to GMAC, bearing interest at 1/2 percent, due in
August 2001 21,000
Revolving line of credit, secured by certain assets
bearing interest at the bank's prime rate (7 3/4 percent
at December 31, 1998) plus 3 percent 325,000
Capital leases 55,000
------------
571,000
Less - current portion (557,000)
------------
$ 14,000
------------
------------
In December 1997, the Company's Board of Directors approved a short-term
subordinated promissory note 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 the 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.
7
In December 1998, the Company's Board of Directors approved an additional
subordinated promissory note and warrant financing in the principal amount of up
to $500,000. The offering is for accredited investors only pursuant to
Regulation D and Rule 506 thereunder. Such notes are to bear interest at 12% per
annum and to be due April 25, 1999 and each such note purchaser to receive
warrants to purchase four shares of the Company's Common Stock exercisable at
$0.375 per share for each dollar of principal loaned to the Company per year of
the term of the note, pro-rated to the stated term of the note. Pursuant to this
financing, one investor loaned $30,000 to the Company in November 1998,
resulting in the issuance of warrants exercisable for a total of 50,000 shares
of the Company's common stock. The warrants are exercisable for a period of five
years.
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 STATEMENTS 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
subsidiary Soligen, Inc. ("Soligen") (collectively referred to herein as the
"Company" including the notes thereto, included elsewhere in this Quarterly
Report. On December 31, 1998, Altop, Inc., a wholly- owned subsidiary of Soligen
Technologies, Inc., was merged into Soligen, Inc. and will operate as Soligen
- - Santa Ana Division.
8
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.
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
9
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 its aluminum foundry and machine shop division in Santa Ana, CA.
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 September 30, 1998 and the three and nine
months ended December 31, 1998 and 1997 were as follows:
THREE MONTHS
ENDED THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
1998 1998 1997 1998 1997
---- ---- ---- ---- ----
Parts Now-Registered Trademarks- $ 467,000 $ 601,000 $ 457,000 $ 1,783,000 $ 1,081,000
DSPC-Registered Trademark- production 419,000 482,000 472,000 1,501,000 1,496,000
Production parts 231,000 204,000 188,000 723,000 635,000
DSPC-Registered Trademark- technology 50,000 30,000 71,000 117,000 473,000
--------------- -------------- --------------- -------------- --------------
Total revenues $ 1,167,000 $ 1,317,000 $ 1,188,000 $ 4,124,000 $ 3,685,000
--------------- -------------- --------------- -------------- --------------
--------------- -------------- --------------- -------------- --------------
Combined revenues for Parts Now and DSPC increased 22% to $1,083,000 in the
third quarter ended December 31, 1998 from $886,000 for the quarter ended
September 30, 1998. Parts Now and DSPC combined revenues increased 17% to
$1,083,000 in the third quarter ended December 31, 1998 from $929,000 in the
similar quarter last year. Combined revenues for Parts Now and DSPC for the nine
months ended December 31, 1998 increased to $3,284,000 from $2,577,000 or 27%
over the nine months ended December 31, 1997 reflecting increased acceptance of
the Company's core business in the market place.
Production parts revenues decreased to $204,000 for the quarter ended December
31, 1998 or 12% from $231,000 for the quarter ended September 30, 1998.
Production parts revenues increased to $204,000 for the three months ended
December 31, 1998 from $188,000 or 9% for
10
the similar period last year and revenues increased to $723,000 for the nine
months ended December 31, 1998 from $635,000 or 14% for the similar period last
year.
DSPC Technology revenues decreased to $30,000 for the quarter ended December 31,
1998 from $50,000 for the quarter ended September 30, 1998. In addition, DSPC
Technology revenues decreased to $30,000 from $71,000 for the quarters ended
September 30, 1998 and 1997, respectively, and decreased to $117,000 from
$473,000 for the nine months ended December 31, 1998 and 1997, respectively. The
nine months period ended December 31, 1997 included a $250,000 machine sale. The
sale of a DSPC machine is an unusual event and is 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.
The Company's total revenues increased to $1,317,000 or 13% for the third
quarter ended December 31, 1998 from $1,167,000 for the second quarter ended
September 30, 1998. Total revenues for the quarter ended December 31, 1998
increased 11% to $1,317,000 from $1,188,000 for the similar quarter last year.
Total revenues for the nine months ended December 31, 1998 increased 12% to
$4,124,000 from $3,685,000 for the nine months ended December 31, 1997.
Gross profit decreased to $292,000 for the quarter ended December 31, 1998 from
$370,000 in the similar quarter last year. For the nine months ended December
31, 1998, gross profit decreased to $935,000 from $1,097,000 for the similar
period last year. During fiscal 1998, the Company assembled a manufacturing
capacity to produce at revenue levels in excess of $7 million per annum. The
manufacturing capacity 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. As a result, gross margin for the quarter ended
December 31, 1998 increased to 22% from 8% for the quarter ended September 30,
1998 on an increased revenue of 13% during similar periods.
Research and development expenses were $251,000 and $261,000 for the quarters
ended December 31, 1998 and 1997, respectively. For the nine months ended
December 31, 1998 and 1997, research and development expenses were $758,000 and
$780,000, 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 $179,000 for the quarter ended December 31, 1998
from $143,000 in the similar quarter last year and increased to $551,000 for the
nine months ended December 31 1998, from $408,000 in the similar period last
year. 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 $233,000 for the quarter ended
December 31, 1998 from $278,000 for the quarter ended December 31, 1997. General
and administrative expenses decreased to $739,000 for the nine months ended
December 31, 1998 from $790,000 for the nine months ended December 31, 1997.
11
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 $114,000 non-cash compensation expense, in
the quarter and nine months ended December 31, 1998 and $39,000 and $117,000 in
the quarter and nine months ended for similar periods last year. The Company
expects to recognize approximately $150,000 non-cash compensation expense during
fiscal 1999.
Interest expense increased to $49,000 in the quarter ended December 31, 1998
from $8,000 in the similar quarter ended last year. For the nine months ended
December 31, 1998 and 1997, interest expense increased to $160,000 from $23,000.
The Company issued warrants to the short-term debt investors and, according to
SFAS No. 123, non-cash interest expense related to the warrants is to be
recognized over the expected period of the loan. As a result, the Company
recognized $35,000 and $105,000 non-cash interest expense, respectively, in the
quarter and nine months ended December 31, 1998. The Company expects to
recognize approximately $134,000 non-cash interest expense during fiscal 1999.
The additional interest expense in the amount of $14,000 and $55,000 for the
quarter and nine months ended December 31, 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 December 31, 1998, working capital decreased to $161,000 compared to working
capital of $438,000 at September 30, 1998, $838,000 at June 30, 1998 and
$177,000 at March 31, 1998. At December 31, 1998, the Company had $1,504,000 in
cash and accounts receivable, compared to cash and accounts receivable of
$1,430,000 at September 30, 1998, $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 December
31, 1998, the Company had $746,000 accounts receivables, net of Soligen's Santa
Ana Division accounts receivables; historically 35% to 45% accounts receivable
have been eligible for borrowing from the commercial lender.
12
The Company requires significant funds to expand and continue operations. Based
upon current projections 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 August 1999. The Company is actively
seeking to raise additional funds; however, there can be no assurance as 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 costs to become compliant did not have a material effect on the
Company's consolidated financial statements. The Company has and continues 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 will prepare a contingency plan, where possible and as necessary, based
on Year 2000 readiness of major vendors and customers. 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
subordinated promissory note 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
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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 the 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.
In December 1998, the Company's Board of Directors approved an additional
subordinated promissory note and warrant financing in the principal amount of up
to $500,000. The offering is for accredited investors only pursuant to
Regulation D and Rule 506 thereunder. Such notes are to bear interest at 12% per
annum and to be due April 25, 1999 and each such note purchaser to receive
warrants to purchase four shares of the Company's Common Stock exercisable at
$0.375 per share for each dollar of principal loaned to the Company per year of
the term of the note, pro-rated to the stated term of the note. Pursuant to this
financing, one investor loaned $30,000 to the Company in November 1998,
resulting in the issuance of warrants exercisable for a total of 50,000 shares
of the Company's common stock. The warrants are exercisable for a period of five
years.
ITEM 5. OTHER INFORMATION
1. 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.
2. The Nasdaq-Amex staff has notified the Company of their determination
to proceed with the filing of an application with the SEC to strike the
Company's Common Stock from listing and registration on the Emerging
Company Marketplace of the Exchange. This determination is based on the
Company not meeting the continued listing guidelines. This notification
indicated that with a stock of $0.31 per share and shareholders' equity of
$1,200,000 at September 30, 1998, the Company did not meet the continued
listing guideline requiring shareholders' equity of $2,000,000 (if the
market price of a company's common shares is below $1.00 per share). The
Company has appealed this determination and a hearing is to be held March
29, 1999. In the event the Company's Common Stock is delisted from the
American Stock Exchange's Emerging Company Marketplace, trading in the
Company's Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" published by the
National Quotation Bureau or the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. and on the Vancouver Stock
14
Exchange under the symbol SGT. As a consequence of such delisting by
Nasdaq-Amex, the Company may find it more difficult to raise additional
funds.
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 December 31, 1998
(b) Reports on Form 8-K.
None
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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: February 10, 1999 By: /S/ YEHORAM UZIEL
----------------------------------------
Yehoram Uziel
President, CEO and Chairman of the Board
(Principal executive officer)
Date: February 10, 1999 By: /S/ ROBERT KASSEL
----------------------------------------
Robert Kassel
Chief Financial Officer
(Principal financial officer)
16