<PAGE>
SECURITES AND EXCHANGE COMMISION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal quarter ended: June 30, 1996 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission file number: 0-21037
SOLOPOINT, INC.
(Exact name of registrant as specified in its charter)
California 77-0337580
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
130B Knowles Drive
Los Gatos, CA 95030
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408)364-8850
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 Echange Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
--- ----
Indicate the number of shares outstanding of each of the issuer's class of
common ("Common Stock"), as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 8, 1996
Common Stock - no par value 3,504,352
<PAGE>
SOLOPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Statement of Operations 2
three and six months ended June 30, 1996 and 1995
and the period March 26, 1993 (inception) thru June 30, 1996
Condensed Balance Sheet 3
June 30, 1996
Condensed Statements of Cash Flows 5
six months ended June 30, 1996 and 1995
and the period March 26, 1993 (inception) thru June 30, 1996
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
Signature 10
1
<PAGE>
PART 1. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION> SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM
MARCH 26, 1993
(INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30 JUNE 30 JUNE 30,
1996 1995 1996 1995 1996
--------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 34,141 $ - $ 34,141 $ - $ 34,141
Cost of sales 39,847 - 39,847 - 39,847
--------- -------- --------- -------- -----------
Gross margin (5,706) - (5,706) - (5,706)
Costs and expenses:
Research and development 277,124 326,791 747,783 579,337 2,577,901
Sales and marketing 184,382 126,845 362,963 209,247 864,543
General and administrative 265,318 118,597 622,341 192,767 2,046,757
--------- -------- -------- -------- ---------
726,824 572,233 1,733,087 981,351 5,489,201
--------- -------- ---------- -------- ----------
Loss from operations (732,530) (572,233) (1,738,793) (981,351) (5,494,907)
Interest income (expense), net (9,056) 5,265 (5,775) 5,889 (14,200)
--------- -------- ---------- -------- ----------
Net loss $(741,586) $(566,968) $(1,744,568) $(975,462) $(5,509,107)
========= ========= =========== ========= ===========
Pro forma net loss per share $ (.38) $ (.88)
========= ===========
Shares used in computing pro
forma net loss per share 1,957,087 1,972,933
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
Current assets:
Cash $1,035,034
Accounts receivable 33,895
Inventories 447,909
Other current assets 24,216
----------
Total current assets 1,541,054
Furniture and equipment, at cost:
Computers and software 143,911
Furniture and fixtures 171,156
Accumulated depreciation and amortization (146,790)
----------
168,277
Deposits and other assets 28,000
Notes receivable from shareholders 33,500
----------
$1,770,831
==========
</TABLE>
See accompanying notes.
3
<PAGE>
SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
Current liabilities:
Accounts payable $ 271,394
Accrued compensation 77,432
Other accrued liabilities 23,243
Notes payable, current portion 23,321
Convertible notes payable 1,250,000
----------
Total current liabilities 1,645,390
Notes payable, non-current portion 168,174
Commitments
Redeemable convertible preferred stock; aggregate
liquidation preference - $8,700,582 5,454,977
Shareholders' equity (net capital deficiency):
Common stock 202,016
Deficit accumulated during the development stage (5,542,226)
Notes receivable from shareholders (157,500)
----------
Total shareholders' equity (net capital
deficiency) (5,497,710)
----------
$ 1,770,831
===========
</TABLE>
See accompanying notes.
4
<PAGE>
SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 26, 1993
(INCEPTION)
SIX MONTHS ENDED THROUGH
JUNE 30 JUNE 30,
1996 1995 1996
-------------------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,744,568) $ (975,462) $(5,509,107)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and preferred stock issued for services 17,817 - 29,750
Preferred stock issued for interest payable 33,767 - 37,112
Depreciation and amortization 47,181 28,527 146,899
Changes in operating assets and liabilities (140,652) 18,945 (133,952)
----------- --------- -----------
Net cash used in operating activities (1,786,455) (927,990) (5,429,298)
INVESTING ACTIVITIES
Acquisitions of furniture and equipment (38,917) (33,933) (300,669)
Loan to shareholder - - (35,000)
Payment received from shareholder 1,500 - 1,500
Deposit and other assets - (3,160) (28,110)
----------- --------- -----------
Net cash used in investing activities (37,417) (37,093) (362,279)
FINANCING ACTIVITIES
Proceeds from convertible notes payable to shareholders - - 1,120,000
Proceeds from convertible notes payable 1,250,000 - 1,563,000
Proceeds from notes payable 92,408 - 193,518
Principal payments on capital lease obligations (2,023) (7,597) (16,420)
Proceeds from sale of preferred stock, net of issuance costs 1,178,657 1,345,286 3,951,622
Issuance of common stock, net of repurchases 8,847 - 14,891
----------- --------- -----------
Net cash provided by financing activities 2,527,889 1,337,689 6,826,611
----------- --------- -----------
Net increase in cash 704,017 372,606 1,035,034
Cash at beginning of period 331,017 315,217 -
----------- --------- -----------
Cash at end of period $ 1,035,034 $ 687,823 $ 1,035,034
=========== ========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
SOLOPOINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. General The condensed financial statements for the three and six month
-------
periods ended June 30, 1996 and 1995 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
financial statements should be read in conjunction with the financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's amended Form SB-2 Registration Statement declared effective August
8, 1996. The results of operations for the three and six month periods ended
June 30, 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. Subsequent Events In August 1996, the Company completed an initial public
-----------------
offering of its common stock which provided the Company with net proceeds of
approximately $5.2 million.
3. Per Share Data Net loss per share is computed using the weighted average
--------------
number of shares of common stock outstanding. Common equivalent shares from
redeemable convertible preferred stock (using the if-converted method) and
from stock options and warrants (using the treasury stock method or the
modified treasury stock method where applicable) have been included in the
computation when dilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued by the Company at prices below the anticipated public offering price
during the period beginning one year prior to the initial filing of the
registration statement for the Company's proposed initial public offering
have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and the estimated initial
public offering price).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------------------- ----------------------------
1996 1995 1996 1995
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net loss per share $ (0.51) $ (0.39) $ (1.19) $ (0.67)
========= ========= ========= =========
Shares used in per share calculation 1,446,502 1,464,855 1,462,348 1,464,855
========= ========= ========= =========
</TABLE>
The pro forma calculation of net loss per share presented in the statement of
operations has been computed as described above and also gives effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
into shares of common stock upon the closing of the Company's initial public
offering of shares of its common stock using the if-converted method.
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
NET REVENUES
The Company recorded its initial revenues of $34,141 in the quarter ended
June 30, 1996. Since inception, the Company's focus has been on the design and
development of personal communications management solutions for communications-
dependent individuals. The Company's first product, SoloCall SmartCenter, is
targeted at mobile, communications-dependent individuals in the SOHO market. The
company introduced SoloCall SmartCenter at the end of March 1996. SoloCall
SmartCenter currently has a 30-day, unconditional, money-back guarantee. Revenue
is recognized when products are shipped and the 30-day money-back guarantee
period has lapsed. Allowances are provided for product returns based on
estimated future product returns, the timing of expected new product
introductions and other factors. These allowances are recorded as direct
reductions of accounts receivable.
Net revenues for the three and six months ended June 30, 1996, increased
$34,141 from zero revenues for the three and six months ended June 30, 1995. The
increase in net revenues is entirely attributable to shipment of the Company's
first product, SoloCall SmartCenter, at the end of March 1996. Sales were
limited due to the lack of financial resources to launch and market the product
and to expand distribution.
COSTS OF GOODS SOLD
Cost of goods sold for the three and six months ended June 30, 1996, were
117% of sales or $39,847, as compared with $0 for the three and six months ended
June 30, 1995. This was due to obsolete inventory write-downs of $15,000 for the
three months ended June 30, 1996; low priced units offered to beta customers;
free samples provided to prospective customers to open new distribution
channels; early, low production volume and the hand re-working of certain items.
GROSS MARGIN
Gross margin for the three and six months ended June 30, 1996, was negative
17%, or ($5,706) as compared with zero for the three and six months ended June
30, 1995. The negative gross margin was due to the high cost of goods sold
explained in the prior section.
OPERATING EXPENSES
Research and Development Research and development expenses declined 15%
------------------------
in the quarter ending June 30, 1996, as compared with the quarter ending June
30, 1995, primarily due to reduced headcount. Research and development expenses
increased 29% for the six months ending June 30, 1996 as compared with the six
months ending June 30, 1995. The increase was due to increased headcount and
increased engineering expenses incurred for prototypes and tooling for products
under development. The Company anticipates that research and development
expenses will grow in the third quarter and again in the fourth quarter of 1996,
as it adds additional engineers and programmers, as well as incurs additional
prototype and tooling costs for an expanded product line.
Sales and Marketing Sales and marketing expenses increased 45% and 73%,
-------------------
respectively, in the three and six months ending June 30, 1996, as compared with
the three and six months ending June 30, 1995, primarily due to increased
expenses related to the launch of the company's first product, SoloCall
SmartCenter. The Company anticipates that sales and marketing expenses will grow
substantially in the third quarter and fourth quarter of 1996, as it increases
marketing activities and efforts to expand distribution of its current and
anticipated future products.
7
<PAGE>
General and Administrative General and administrative expenses increased
--------------------------
124% and 223%, respectively, in the three and six months ending June 30, 1996,
as compared with the three and six months ending June 30, 1995, primarily due to
increased headcount. The Company anticipates that general and administrative
expenses will grow modestly in the third and fourth quarters of 1996 as it adds
the additional finance and administrative personnel it needs to meet the
increased reporting requirements of being a public company.
INTEREST INCOME (EXPENSE), NET
For the three and six months ending June 30, 1996, the Company incurred
interest expense of $9,056 and $5,775 respectively, as compared with interest
income of $5,265 and $5,889 in the three and six months ending, June 30, 1995.
The Company anticipates interest income will increase in the third and fourth
quarters of 1996 primarily due to higher average cash balances resulting from
the receipt of proceeds of the Company's initial public offering.
PROVISION FOR INCOME TAXES
There was no provision for federal or state income taxes for the three and
six month periods ending June 30, 1996, as the Company incurred net operating
losses. The Company expects to incur a net operating loss for the year ending
December 31,1996. As a result, the net operating loss carryforwards will
increase. At December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $1,800,000. The Company also had federal and
state research and development tax credit carryforwards of approximately $63,000
and $58,000, respectively. The utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986 (the "Code")
and similar state provisions. The Company's recent public offering may result in
such an ownership change for purposes of Section 382 of the Code. If an
ownership change were to occur, net operating losses and credits could expire
before utilization. For financial reporting purposes, a valuation allowance of
$1,500,000 has been recorded to offset deferred tax assets recognized under the
Financial Accounting Standards No. 109, "Accounting for Income Taxes," primarily
related to the net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $1,786,455 in its operating activities for the six
months ending June 30, 1996. During the six months ending June 30, 1996, the
Company financed its working capital requirements and capital expenditures
primarily from the proceeds of the issuance of preferred stock totaling
$1,178,657 and a convertible loan from Ameritech and 4C Ventures of $1,500,000
($1,250,000 received in the quarter ended June 30, 1996 and $250,000 received in
July 1996). The Company also increased the amount of its borrowings under its
equipment lease line with Venture Lending and Leasing from $99,087 in the
quarter endinG March 31, 1996, to $191,495 in the quarter ending June 30, 1996,
as compared with $0 for the three and six months ending June 30, 1995.
In August 1996, the Company completed an initial public offering of its
common stock which provided the company with net proceeds of approximately $5.2
million. The Company expects to incur additional substantial losses at least
through the end of calendar 1997, but anticipates that the net proceeds from its
initial public offering, together with existing sources of liquidity, will
provide adequate cash to fund its operations for the next twelve months at its
anticipated level of operations.
FUTURE OPERATING RESULTS
Since its inception in 1993, the Company has incurred significant losses,
has had substantial negative cash flow, and has realized limited revenues. At
June 30, 1996, the Company had an accumulated deficit of $5,542,226, and had
incurred operating losses of $1,738,793 in the six months ended June 30, 1996
and $732,530 in the three months ended June 30, 1996. The Company expects to
continue to incur substantial operating losses at least through its fiscal year
ending December 31, 1997.
8
<PAGE>
The Company's operating results have in the past been, and are expected in
the future to be, subject to significant fluctuations on both a quarterly and
annual basis. Specifically, the Company expects that operating results will
fluctuate as a result of the timing and success of the Company's efforts to
establish and maintain distribution partners, the ability of the Company to
develop new products on a timely basis, and the successful marketing and
customer acceptance of its products. The Company's results are also affected by
the timing and extent of product development, engineering, and sales and
marketing expenses. The Company presently intends to devote substantial
resources towards product development, which may affect its investment and
performance in other activities and in turn affect reported operating results in
future periods. In addition, the Company's results may be affected by seasonal
and other fluctuations in demand for its products, as well as by the general
state of the domestic and global economy. The Company is currently in the
process of investing substantial resources in the marketing and distribution of
its product and there can be no assurance that these investments will produce
operating results.
This Report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements include those referring to the
Company's future capital needs and operating results, the acceptance of the
products of the Company and its distribution partners and the extent of the
Company's investment in the marketing and distribution of its product. Actual
events and results could differ materially from those projected in the forward-
looking statements as a result of a variety of factors, including those risk
factors set forth in the preceding two paragraphs, elsewhere in this report, and
in the Company's amended Form SB-2 declared effective August 8, 1996; especially
those regarding the Company's operating results and future activities and those
regarding the personal communications management market.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
11.1 - Weighted Average Shares Computation
27 - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ending June 30, 1996.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 19, 1996 SOLOPOINT, INC.
By: /s/ Edward M. Esber, Jr.
--------------------------
Edward M. Esber, Jr.
CEO & President
(Duly Authorized Officer
and Principal Financial Officer)
10
<PAGE>
EXHIBIT 11.1
SoloPoint Inc.
Weighted Average Shares Computation
June 30, 1996
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
--------------------------- -------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding.......... 358,707 414,670 374,553 414,670
Common equivalent shares from stock options,
warrants, and Series A-B and A-7
preferred stock granted or issued
during the twelve-month period (1)................ 1,050,185 1,050,185 1,050,185 1,050,185
Additional stock options granted during the period
June 15, 1996 through June 30, 1996, assuming
use of the treasury stock method 37,610 37,610
--------- --------- --------- ---------
1,446,502 1,464,855 1,462,348 1,464,855
========= ========= ========= =========
Convertible preferred stock, as if converted........ 510,585 510,585
--------- ---------
Pro forma........................................... 1,957,087 1,972,933
========= =========
(1) Calculated as follows:
Series A-6 and A-7 convertible preferred
stock issued during the period June 15,
1995 through June 14, 1996.................... 642,853
Issuance of common stock during the period
June 15, 1995 through June 14, 1996........... 362,062
Options granted during the period June 15,
1995 through June 14, 1996.................... 50,300
---------
1,055,215
Shares assumed repurchased under the
treasury stock method......................... (5,030)
---------
1,050,185
=========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE FISCAL QUARTER ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> $1,035,034
<SECURITIES> 0
<RECEIVABLES> $33,895
<ALLOWANCES> 0
<INVENTORY> $447,909
<CURRENT-ASSETS> $1,541,054
<PP&E> $315,067
<DEPRECIATION> $146,790
<TOTAL-ASSETS> $1,770,831
<CURRENT-LIABILITIES> $1,645,390
<BONDS> 0
$5,454,977
0
<COMMON> $202,016
<OTHER-SE> ($5,699,726)
<TOTAL-LIABILITY-AND-EQUITY> $1,770,831
<SALES> $34,141
<TOTAL-REVENUES> $34,141
<CGS> $39,847
<TOTAL-COSTS> $1,733,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $5,775
<INCOME-PRETAX> ($1,744,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> ($1,744,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ($1,744,568)
<EPS-PRIMARY> ($0.88)
<EPS-DILUTED> 0
</TABLE>
