<PAGE>
SECURITIES AND EXCHANGE COMMISSION
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: September 30, 1997 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 95032
(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 Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
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 SEPTEMBER 30, 1997
Common Stock - no par value 3,505,818
1
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SOLOPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations 3
three and nine months ended September 30, 1997 and
1996
and the period March 26, 1993 (inception) through
September 30, 1997
Condensed Balance Sheet 4
September 30, 1997
Condensed Statements of Cash Flows 5
nine months ended September 30, 1997 and 1996 and the
period March 26, 1993 (inception) through September 30, 1997
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 10
Signature 11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 26, 1993
(INCEPTION)
THREE MONTHS ENDED NINE MONTHS ENDED THROUGH
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30,
1997 1996 1997 1996 1997
----------------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,719 $ 69,769 $ 366,566 $ 103,910 $ 746,679
Cost of sales 2,477 46,037 262,911 85,884 551,961
---------- ---------- ----------- ----------- ------------
Gross margin 1,242 23,732 103,655 18,026 194,718
Costs and expenses:
Research and development 320,940 310,728 1,082,656 1,111,844 4,436,373
Sales and marketing 318,685 329,150 1,391,688 727,461 3,013,668
General and administrative 251,231 265,912 827,511 799,572 3,369,901
---------- ---------- ----------- ----------- ------------
890,856 905,790 3,301,855 2,638,877 10,819,942
---------- ---------- ----------- ----------- ------------
Loss from operations (889,614) (882,058) (3,198,200) (2,620,851) (10,625,224)
Interest income (expense), net (6,622) 26,514 42,306 20,739 111,179
---------- ---------- ----------- ----------- ------------
Net loss $ (896,236) $ (855,544) $(3,155,894) $(2,600,112) $(10,514,045)
========== ========== =========== =========== ============
Net loss per share $ (.26) $ (.33) $ (.90) $ (2.02)
========== ========== =========== ===========
Shares used in computing
net loss per share 3,505,818 2,570,875 3,501,793 1,284,936
========== ========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1997
------------------
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash $ 620,855
Accounts receivable, net 281,040
Inventories 1,025,326
Other current assets 233,737
------------
Total current assets 2,160,958
Furniture and equipment, at cost:
Computers and software 275,150
Furniture and fixtures 203,609
Accumulated depreciation and amortization (292,727)
------------
186,032
Other non-current assets 37,997
------------
Total assets $ 2,384,987
============
Current liabilities:
Accounts payable $ 327,099
Accrued compensation 76,586
Other accrued liabilities 42,111
Notes payable, current portion 28,066
------------
Total current liabilities 473,862
Notes payable, non-current portion 119,952
Shareholders' equity:
Common stock 12,423,836
Deficit accumulated during the development stage (10,547,163)
Notes receivable from shareholders (85,500)
------------
Total shareholders' equity 1,791,173
------------
Total liabilities and shareholders' equity $ 2,384,987
============
</TABLE>
See accompanying notes.
4
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SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 26, 1993
(INCEPTION)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30 SEPTEMBER 30,
1997 1996 1997
---------------------------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,155,894) $(2,600,112) $(10,514,045)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock and preferred stock issued for services 12,000 28,405 90,700
Preferred stock issued for interest payable - 33,767 49,832
Depreciation and amortization 87,562 76,368 292,836
Changes in operating assets and liabilities (333,392) (234,448) (1,094,307)
---------- ---------- ---------
Net cash used in operating activities (3,389,724) (2,696,020) (11,174,984)
INVESTING ACTIVITIES
Acquisitions of furniture and equipment (98,336) (98,304) (464,361)
Loan to shareholder - - (35,000)
Payment received from shareholder - 1,500 1,500
Deposits and other assets - - (38,107)
---------- ---------- ----------
Net cash used in investing activities (98,336) (96,804) (535,968)
FINANCING ACTIVITIES
Proceeds from convertible notes payable to shareholders - - 1,120,000
Proceeds from convertible notes payable - 1,500,000 1,813,000
Proceeds from notes payable - 92,408 191,496
Principal payments on capital lease obligations (31,741) (6,621) (57,875)
Proceeds from notes receivable from shareholders 72,000 - 72,000
Proceeds from sale of preferred stock, net of issuance costs - 1,178,657 3,951,622
Issuance of common stock, net of repurchases and
issuance costs 1,831 5,256,322 5,241,564
---------- ---------- ----------
Net cash provided by financing activities 42,090 8,020,766 12,331,807
---------- ---------- ----------
Net increase (decrease) in cash (3,445,970) 5,227,942 620,855
Cash at beginning of period 4,066,825 331,017 -
---------- ---------- ----------
Cash at end of period $ 620,855 $ 5,558,959 $ 620,855
========== ========== ==========
</TABLE>
See accompanying notes.
5
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SOLOPOINT INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General The condensed financial statements for the three and nine month
periods ended September 30, 1997 and 1996 are unaudited but reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. Such adjustments included the recording of returns of product
previously sold totaling $134,069. 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 Form 10-KSB for the year
ended December 31, 1996. The results of operations for the three and nine
month periods ended September 30, 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year.
2. 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) are not included in the
computation as they are antidilutive. In accordance with Securities and
Exchange Commission Staff Accounting Bulletins, for periods prior to August
6, 1996, the effective date of the Company's initial public offering, common
and common equivalent shares issued by the Company at prices below the public
offering price during the period beginning one year prior to the initial
filing of the registration statement for the Company's initial public
offering have been included in the calculation as if they were outstanding
for all periods prior to the offering (using the treasury stock method and
the initial public offering price).
3. Recently Issued Pronouncements In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings per Share ("FAS 128"),
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and, if appropriate, restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. Because the Company has incurred
losses since inception, and expects to incur losses for the remainder of
1997, the implementation of FAS 128 is not expected to have a material impact
on the Company's loss per share.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("FAS 130"), which is effective for
financial statements for periods beginning after December 15, 1997, and
applies to both public and non-public companies. FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosure about Segments of an Enterprise and Related Information ("FAS
131"). This Statement changes the way public companies report segment
information in annual Financial Statements and also requires those companies
to report selected segment information in interim financial reporting to
shareholders. FAS 131 supersedes SFAS No. 14 on segment reporting. FAS 131 is
effective for financial statements for periods beginning after December 15,
1997, and applies to public companies.
6
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following section contains forward-looking statements that involve risks and
uncertainties, including those referring to the period of time the Company's
existing capital resources will meet the Company's future capital needs, the
Company's future operating results, the market acceptance of the products of the
Company, the Company's efforts to establish and maintain distribution partners,
the development of new products, and the Company's planned investment in the
marketing and distribution of its current products and research and development
with regard to future products. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including: dependence on market acceptance of
multifunction personal communications management products; lack of significant
sales and distribution channels; the Company's ability to timely develop new
products; business conditions and growth in the personal communications
management industry and general economy; competitive factors, such as rival
providers of personal communications management products and services and price
pressures; compatibility with a wide variety of switching configurations;
reliance on sole source contract manufacturers and component suppliers;
dependence on a limited number of key personnel; rapid technological changes; as
well as other factors set forth elsewhere in this Form 10-QSB.
RESULTS OF OPERATIONS
Net Revenues
Net revenues for the three month period ended September 30, 1997, were $3,719
as compared to net revenues for the three month period ended September 30, 1996
of $69,769. The decrease in net revenues for the three month period was
primarily due to the acceptance by the Company of product returns from certain
distributors and customers totaling $134,069. The Company's decision to accept
such returns was based, in part, on the Company's implementation of a strategic
shift in distribution to the Regional Bell Operating Companies ("RBOCs") and
Local exchange Carriers ("LECs") and away from the retail channel. The amount of
returns for the quarter was approximately equal to new product revenues for the
quarter ended September 30, 1997. Net revenues for the nine month period ended
September 30, 1997 were $366,566 compared to $103,910 for the nine month period
ended September 30, 1996. The increase in net revenues was primarily due to
revenues generated from sales of the Company's SmartCenter, SmartMonitor and
SmartScreen products which were in distribution during the first nine months of
1997 as compared to only the Company's SmartCenter product being sold during the
same periods of 1996. One customer accounted for 23% of the net revenues for the
nine month period ended September 30, 1997.
Gross Margin
Cost of sales for the three month period ended September 30, 1997 was $2,477
as compared to cost of sales for the three month period ended September 30, 1996
of $46,037. Cost of sales for the nine month period ended September 30, 1997 was
$262,911 compared to $85,884 for the nine month period ended September 30, 1996.
Gross margin for the three and nine month periods ended September 30, 1997 was
33% and 28% respectively compared to 34% and 17% respectively for the three and
nine month periods ended September 30, 1996. Although gross margin for the three
and nine month periods ended September 30, 1997 was positively impacted by
product mix due to the higher margins on the Company's SmartScreen and
SmartMonitor products, overall gross margin remained low due to costs associated
with the commencement of manufacturing of these products and low production
volume.
7
<PAGE>
Operating Expenses
Research and Development. Research and development expenses were $320,940
for the three month period ended September 30, 1997 as compared to $310,728 for
the three month period ended September 30, 1996. This increase of 3% resulted
principally from higher average headcount and personnel related expenses for the
three months ended September 30, 1997 relative to the prior year, offset
slightly by decreased engineering expenses incurred for prototypes and tooling
for products under development. Research and development expenses for the nine
month period ended September 30, 1997 were $1,082,656 as compared to $1,111,844
for the nine month period ended September 30, 1996, a decrease of 3%. The
decrease was the result of a combination of lower prototype and tooling expenses
offset by higher personnel related expenses during the nine months. The Company
anticipates that research and development expenses may increase slightly in the
foreseeable future should the Company expand its existing product line.
Sales and Marketing. Sales and marketing expenses were $318,685 for the
three month period ended September 30, 1997 as compared to $329,150 for the
three month period ended September 30, 1996, a decrease of 3%. The slight
decrease for the three month period ended September 30, 1997 compared to the
three month period ended September 30, 1996 was due primarily to a reduction in
utilization of outside consultants and reduced employee related expenses offset
by an increase in advertising and marketing programs as well as customer
training activity. Sales and marketing expenses increased 91% during the nine
month period ended September 30, 1997 to $1,391,688 as compared to expenses of
$727,461 for the nine month period ended September 30, 1996. The increase for
the nine month period ended September 30, 1997 as compared to the nine month
period ended September 30, 1996 was primarily due to an increase in personnel
and related costs as well as advertising and marketing efforts to support the
Company's expanded product line and RBOC relationship activity. The Company
anticipates that sales and marketing expenses will continue to grow in future
periods should the Company increase marketing activities and efforts to expand
distribution of its products.
General and Administrative. General and administrative expenses were
$251,231 for the three month period ended September 30, 1997, as compared to
$265,912 for the three month period ended September 30, 1996. This decrease of
6% was primarily due to personnel related expenses. General and administrative
expenses increased 3% during the nine month period ended September 30, 1997 to
$827,511 from $799,572 during the nine month period ended September 30, 1996.
The increase was primarily due to higher headcount and related personnel
expenses as well as additional expenses associated with being a public company.
The Company anticipates that general and administrative expenses may grow
modestly in future periods in the event it is necessary to accommodate expanded
operations and to support a growing customer base.
Interest Income (Expense)
Other income is comprised primarily of interest income on cash balances, which
had been nominal until the completion of the Company's initial public offering
in August 1996. The net proceeds from the initial public offering earned
interest through investment in money market funds. For the three month period
ended September 30, 1997 the Company recognized interest income of $7,454 offset
by interest expense of $14,076 as compared to interest income of $43,540 offset
by interest expense of $17,026 for the same period of 1996. For the nine month
period ended September 30, 1997 the Company recognized interest income of
$70,731 offset by interest expense of $28,425 as compared with interest and
other income of $49,423 offset by interest expense of $28,684 for the same
period of the prior year.
Provision for Income Taxes
There was no provision for federal or state income taxes for the year ended
December 31, 1996 or the nine months ended September 30, 1997, as the Company
incurred net operating losses. As a result, the net operating loss carryforwards
increased. At December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $3,800,000 and $3,700,000, respectively. The
Company also had federal and
8
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state research and development tax credit carryforwards of approximately $80,000
and $50,000, respectively. The net operating loss carryforwards will expire at
various dates beginning in 1998 through 2011, if not utilized. Utilization of
the net operating losses and credits is subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash of $620,855 and working capital
of $1,687,096. The Company used cash of $3,389,724 in its operating activities
for the nine month period ended September 30, 1997. During the nine month period
ended September 30, 1997, the Company's principal uses of cash were to fund the
Company's working capital requirements and an increase in inventory levels. The
Company filed an amended Form SB-2 on November 13, 1997 to sell an additional
3,000,000 shares of Common Stock. This offering is not yet effective. In the
absence of receiving the proceeds of this Offering, the Company anticipates that
its existing capital resources and cash generated from operations, if any, will
be sufficient to meet the Company's cash requirement only through the end of
1997 at its anticipated level of operations.
The Company expects to incur additional substantial losses at least through
the end of calendar year 1998, and possibly longer. The Company's future capital
requirements will depend upon numerous factors, including the amount of revenues
generated from operations, the cost of the Company's sales and marketing
activities and the extent of the Company's research and development activities,
none of which can be predicted with certainty. The Company anticipates that the
proceeds of the Company's proposed public offering of an additional 3,000,000
shares of Common Stock in the fourth quarter of 1997, together with existing
capital resources and cash generated from operations, if any, will be sufficient
to meet the Company's cash requirements through the end of 1998. There can be no
assurance that the Company will successfully complete such proposed public
offering of additional shares. Even if such offering is successfully completed,
the Company may seek additional funding during the next 12 months and will
likely be required to seek additional funding after such time. There can be no
assurance that any additional financing will be available on acceptable terms,
or at all, when required by the Company. Moreover, if additional financing is
not available, the Company could be required to reduce or suspend its
operations, seek an acquisition partner or sell securities on terms that may be
highly dilutive or otherwise disadvantageous to investors purchasing the shares
of Common Stock offered hereby. The Company has experienced in the past, and may
continue to experience, operational difficulties, delays and reduced levels of
product development and marketing activities due to working capital constraints.
Any such difficulties or delays could have a material adverse effect on the
Company's business, financial condition and results of operations. In February
1997, the Company entered into a $1,500,000 line of credit with Silicon Valley
Bank, which is based upon accounts receivable. Subject to meeting certain
covenants, the Company is entitled to borrow up to 80% of the value of eligible
accounts receivable at an interest rate equal to the prime rate plus 1%. This
line of credit expires in February 1998. No amounts have been drawn on the line
as of September 30, 1997. As of September 30, 1997, the Company did not have any
significant commitments for capital or other expenditures.
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
September 30, 1997, the Company had an accumulated deficit of $10,547,163, and
had incurred operating losses of $3,198,200 in the nine month period ended
September 30, 1997 and $2,620,851 in the nine month period ended September 30,
1996. The Company expects to continue to incur substantial operating losses at
least through its fiscal year ending December 31, 1998.
The Company has experienced and expects to continue to experience fluctuations
in operating results. In particular, the Company experienced product returns
approximately equal to new product revenues for the quarter ended September 30,
1997. The Company believes that the shortfall in net revenues for the third
quarter is principally the result of a continued shift in its distribution
emphasis from retail distribution channels to
9
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telecommunication carriers such as RBOCs and LECs. Fluctuations in operating
results may result in volatility in the price of the Company's common stock.
Operating results may fluctuate as a result of many factors, including the
volume and timing of orders received or product returns, if any, during the
period, the timing of commercial introduction of future products and
enhancements, competitive products and the impact of price competition on the
Company's average selling prices, product announcements by the Company and its
competition and the Company's level of research and development and sales and
marketing activities. Many of these factors are beyond the Company's control,
particularly those related to sales and product returns.
As a result of slower than anticipated sales growth and the shift in the
Company's distribution strategy, the Company's current level of inventory is
significantly higher than the current rate of usage or the expected rate of
usage of inventory during the next several quarters. If the Company is not
successful in establishing relationships with additional RBOCs and LECs or in
substantially increasing its sales volume and usage of existing inventory in the
near term, it may be required to write-down inventory carrying values by a
significant amount. The write-down of inventory carrying values, if significant,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's operating and other expenses are relatively fixed in the short
term. As a result, variations in timing of revenues, if any, will cause
significant variations in quarterly results of operations. Notwithstanding the
difficulty in forecasting future sales, the Company generally must undertake its
sales and marketing and research and development activities and other
commitments months or years in advance. Accordingly, any shortfall in product
revenues, if any, in a given quarter may materially adversely affect the
Company's business, financial condition and results of operations due to the
inability to adjust expenses during the quarter to match the level of product
revenues, if any, for the quarter. In addition, the Company's sales expectations
are based entirely on its internal estimates of future demand. Due to these and
other factors, the Company believes that quarter to quarter comparisons of its
results of operations are not necessarily meaningful, and should not be relied
upon as indications of future performance.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ending September 30,
1997.
10
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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.
<TABLE>
<CAPTION>
<C> <S>
Date: November 14, 1997 SOLOPOINT, INC.
by:/s/Ronald J. Tchorzewski
---------------------------
Ronald J. Tchorzewski
Chief Financial Officer and Vice President of Finance
(Duly Authorized Officer and Principal Financial Officer)
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1997,AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 620,855
<SECURITIES> 0
<RECEIVABLES> 367,026
<ALLOWANCES> 85,986
<INVENTORY> 1,025,326
<CURRENT-ASSETS> 2,160,958
<PP&E> 478,759
<DEPRECIATION> 292,757
<TOTAL-ASSETS> 2,384,987
<CURRENT-LIABILITIES> 473,862
<BONDS> 0
0
0
<COMMON> 12,338,336
<OTHER-SE> (10,547,163)
<TOTAL-LIABILITY-AND-EQUITY> 2,384,987
<SALES> 366,566
<TOTAL-REVENUES> 366,566
<CGS> 262,911
<TOTAL-COSTS> 3,301,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,425
<INCOME-PRETAX> (3,155,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,155,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,155,894)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> 0
</TABLE>
