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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: June 30, 1998 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 JUNE 30, 1998
Common Stock - no par value 8,305,818
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SOLOPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations 3
three and six months ended June 30, 1998 and 1997
and the period March 26, 1993 (inception) through June 30, 1998
Condensed Balance Sheet 4
June 30, 1998
Condensed Statements of Cash Flows 5
three and six months ended June 30, 1998 and 1997
and the period March 26, 1993 (inception) through June 30, 1998
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 4 Submission of Matters to a Vote of Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
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PART I. FINANCIAL INFORMATION
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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 SIX MONTHS ENDED THROUGH
JUNE 30 JUNE 30 JUNE 30,
1998 1997 1998 1997 1998
------------------------- ------------------------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 132,595 $ 284,293 $ 238,232 $ 362,847 $ 1,110,605
Cost of sales 84,965 205,952 148,747 260,434 1,378,619
--------- ----------- ----------- ----------- ------------
Gross margin 47,630 78,341 89,485 102,413 (268,014)
Costs and expenses:
Research and development 276,425 367,359 562,816 761,716 5,302,077
Sales and marketing 206,180 531,900 363,482 1,073,003 3,681,483
General and administrative 294,134 312,732 561,808 576,280 4,279,421
--------- ----------- ----------- ----------- ------------
776,739 1,211,991 1,488,106 2,410,999 13,262,981
--------- ----------- ----------- ----------- ------------
Loss from operations (729,109) (1,133,650) (1,398,621) (2,308,586) (13,530,995)
Interest income, net 26,787 15,803 48,520 48,928 147,364
--------- ----------- ----------- ----------- ------------
Net loss $(702,322) $(1,117,847) $(1,350,101) $(2,259,658) $(13,383,631)
========= =========== =========== =========== ============
Basic and diluted net loss
per share $ (.08) $ (.32) $ (.16) $ (.65)
========= =========== =========== ===========
Shares used in computing
basic and diluted net loss
per share 8,305,818 3,499,780 8,305,818 3,499,780
========= =========== =========== ===========
</TABLE>
See accompanying notes.
3
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SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Current assets:
Cash $ 2,284,198
Accounts receivable, net 210,112
Inventories 359,697
Other current assets 40,131
-------------
Total current assets 2,894,138
Furniture and equipment, at cost:
Computers and software 275,150
Furniture and fixtures 230,559
Accumulated depreciation and amortization (378,407)
-------------
127,302
Other non-current assets 37,997
-------------
Total assets $ 3,059,437
=============
Current liabilities: --
Accounts payable $ 367,645
Accrued compensation 51,262
Other accrued liabilities 44,914
Notes payable, current portion 45,443
-------------
Total current liabilities 509,264
Notes payable, non-current portion 63,090
Shareholders' equity:
Common stock 15,962,397
Deficit accumulated during the development stage (13,416,749)
Notes receivable from shareholders (58,565)
-------------
Total shareholders' equity 2,487,083
-------------
Total liabilities and shareholders' equity $ 3,059,437
=============
</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)
SIX MONTHS ENDED THROUGH
JUNE 30 JUNE 30,
1998 1997 1998
-------------------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,350,101) $(2,259,658) $(13,383,631)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and preferred stock issued for services - - 90,700
Preferred stock issued for interest payable - - 49,832
Provision for inventory - - 600,000
Depreciation and amortization 58,375 58,375 378,516
Reduction in notes receivable from shareholders in lieu of salary 26,935 - 26,935
Changes in operating assets and liabilities 1,300 (160,406) (746,119)
----------- ----------- ------------
Net cash used in operating activities (1,263,491) (2,361,689) (12,983,767)
INVESTING ACTIVITIES
Acquisitions of furniture and equipment (26,950) (79,225) (491,311)
Loan to shareholder - - (35,000)
Payment received from shareholder - - 1,500
Deposits and other assets - - (38,107)
----------- ----------- ------------
Net cash used in investing activities (26,950) (79,225) (562,918)
FINANCING ACTIVITIES
Proceeds from convertible notes payable to shareholders - - 1,120,000
Proceeds from convertible notes payable - - 1,813,000
Proceeds from notes payable - - 191,496
Principal payments on capital lease obligations (29,780) (21,170) (97,358)
Proceeds from notes receivable from shareholders - 72,000 72,000
Proceeds from sale of preferred stock, net of issuance costs - - 3,951,622
Issuance of common stock, net of repurchases and
issuance costs 3,538,561 1,636 8,780,123
----------- ----------- ------------
Net cash provided by financing activities 3,508,781 52,466 15,830,883
----------- ----------- ------------
Net increase (decrease) in cash (2,218,340) (2,388,448) 2,284,198
Cash at beginning of period 65,858 4,066,825 -
----------- ----------- ------------
Cash at end of period $ 2,284,198 $ 1,678,377 $ 2,284,198
=========== =========== ============
</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 six month
periods ended June 30, 1998 and 1997 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 Form 10-KSB for the year ended December 31,
1997. The results of operations for the six month period ended June 30,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. Basic and Diluted per Share Data In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" ("FAS 128"),
which the company adopted for the period ended December 31, 1997. FAS 128
replaced the calculation of primary and fully diluted net income (loss) per
share with the basic diluted net income (loss) per share. Unlike primary
net income (loss) per share, basic net income (loss) per share excludes any
dilutive effects of options, warrants and convertible securities.
In February 1998, Staff Accounting Bulletin No. 98 ("SAB 98") was issued
and amends the existing Securities and Exchange Commission staff guidance
primarily to give effect to FAS 128. Topic 4.D of SAB 98 revises the
instructions regarding the dilutive effects of stock issued for
consideration below the initial public offering ("IPO") price or options
and warrants to purchase common stock with exercise prices below the IPO
price, previously referred to as cheap stock. The new guidance highlights
the treatment that should be given to the dilutive effect of common stock
or options and warrants to purchase common stock issued for nominal
consideration.
All net loss per share amounts for all periods have been presented, and
where appropriate, restated to conform to the FAS 128 and SAB 98
requirements. Common stock equivalent shares from stock options and
warrants are not included, as the effect is anti-dilutive.
3. Comprehensive Income Comprehensive income includes changes in the balances
of items that are reported directly in a separate component of
shareholders' equity on the balance sheet. The Company does not have any
items reported directly in a separate component of shareholders' equity and
therefore is not required to report comprehensive income for the three and
six month periods ended June 30, 1998 and 1997 or the period from March 26,
1993 (inception) through June 30, 1998.
4. Recently Issued Pronouncements Statement of Financial Accounting Standards
No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") was issued in June 1997. SFAS 131 requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, financial information
is required to be reported on the basis used internally for evaluating
segment performance and resource allocation. SFAS 131 is effective for
fiscal years beginning after December 31, 1997, however, disclosure is not
required in interim financial statements in the initial year of adoption.
Accordingly, the Company will make the required disclosures for the year
ending December 31, 1998.
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: the ability of the Company to obtain
additional funding, 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
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 products currently have 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 revenue and accounts receivable.
Net revenues for the three month period ended June 30, 1998, were $132,595 as
compared to net revenues for the three month period ended June 30, 1997 of
$284,293. Net revenues for the six-month period ended June 30, 1998 were
$238,232 as compared to $362,847 for the six month period ended June 30, 1997.
The decrease in net revenues for both the three and six month periods was
primarily due to the Company's strategic shift in distribution to focus on the
RBOC, LEC and Wireless channels beginning in the second half of fiscal 1997.
Gross Margin
Cost of sales for the three month period ended June 30, 1998 was $84,965 as
compared to cost of sales for the three month period ended June 30, 1997 of
$205,952. Cost of sales for the six month period ended June 30, 1998 was
$148,747 compared to $260,434 for the six month period ended June 30, 1997.
Gross margin for the three and six month periods ended June 30, 1998 was 36% and
38% respectively, compared to 28% for the three and six month periods ended June
30, 1997. The gross margin for the three and six month periods ended June 30,
1998 were positively impacted by product mix due to the higher margin on the
Company's SmartScreen product as compared to the margins on the SmartMonitor and
SmartCenter products which were sold during the three and six month periods
ended June 30, 1997.
Operating Expenses
Research and Development. Research and development expenses were $276,425
for the three month period ended June 30, 1998 as compared to $367,359 for the
three month period ended June 30, 1997. Research and development expenses for
the six month period ended June 30, 1998 were $562,816 as compared to $761,716
for the six month period ended June 30, 1997. The decrease of 25% and 26% for
the three and six month periods, respectively resulted principally from a
reduction in consultants utilized and lower headcount and personnel related
expenses for the three months ended June 30, 1998 relative to the prior year
offset slightly by increased engineering expenses incurred for prototypes and
tooling for products under development. 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 $206,180 for the
three month period ended June 30, 1998 as compared to $531,900 for the three
month period ended June 30, 1997, a decrease of 61%. Sales and marketing
expenses decreased 66% during the six month period ended June 30, 1998 to
$363,482 as compared to
7
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expenses of $1,073,003 for the six month period ended June 30, 1997. The
decrease for both the three and six month periods ended June 30, 1998 compared
to the same periods of 1997 was primarily due to a decrease in personnel and
related costs, reduced levels of advertising and marketing efforts to support
the Company's product line and less participation in industry tradeshows. The
Company anticipates that sales and marketing expenses may 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
$294,134 for the three month period ended June 30, 1998, as compared to $312,732
for the three month period ended June 30, 1997. This decrease of 6%, as well as
the decrease of 3% during the six month period ended June 30, 1998 to $561,808
from $576,280 in the first six months of 1997, was primarily due to a reduction
in consultants utilized and lower bad debt expense offset somewhat by increased
headcount and the higher professional services costs. 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, Net
Interest income for the three and six months ended June 30, 1998 reflects
primarily interest on cash balances from the Company's completion of a secondary
offering in January 1998 as compared to interest income for the three and six
months ended June 30, 1997 which resulted primarily from interest on cash
balances from the Company's initial public offering in August 1996. The net
proceeds from both offerings earned interest through investment in money market
funds. For the three month period ended June 30, 1998 the Company recognized
interest income of $29,296 offset by interest expense of $2,509 as compared with
interest income of $23,299 offset by interest expense of $7,496 for the same
period of the prior year. For the six month period ended June 30, 1998 the
Company recognized interest income of $64,146 offset by interest expense of
$15,626 as compared with interest income of $63,276 offset by interest expense
of $14,348 for the same period of the prior year.
Provision for Income Taxes
There was no provision for federal or state income taxes for the three and six
month periods ended June 30, 1998, as the Company incurred a net operating
loss. The Company expects to incur a net operating loss for the year ending
December 31, 1998. As a result, the net operating loss carryforwards will
increase. At December 31, 1997, the Company had federal and state net operating
loss carryforwards of approximately $6,000,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$100,000 and $150,000, respectively. The net operating loss carryforwards will
expire at various dates beginning in 1998 through 2012, if not utilized. The
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 (the "Code") and similar state provisions. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $2,284,198 as of June 30, 1998 and working capital
of $2,384,874. The Company used cash of $1,263,491 in its operating activities
for the six months ended June 30, 1998. During the six months ended June 30,
1998 the Company's principal uses of cash were to fund the Company's working
capital requirements.
The Company expects to incur additional substantial losses at least through
the end of calendar 1999, but anticipates that its capital resources at June 30,
1998 will provide adequate cash to fund its operations for the next twelve
months at its anticipated level of operations. However, the Company may seek
additional funding during
8
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calendar 1998 and will likely require 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. Failure to obtain
funding would have a material adverse effect on the Company's business,
financial condition and results of operations. In May 1998, the Company renewed
its line of credit with Silicon Valley Bank in the amount of $1,000,000, which
is based upon the Company's 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 prime plus 1%. The line of
credit expires in March 1999. No amounts have been drawn on the line of credit
as of June 30, 1998. The Company as of June 30, 1998 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 June
30, 1998, the Company had an accumulated deficit of $13,416,749, and had
incurred an operating loss of $1,398,621 for the six months ended June 30, 1998.
The Company expects to continue to incur substantial operating losses at least
through its fiscal year ending December 31, 1999.
The Company anticipates that it will experience significant fluctuations in
operating results in the future. 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, 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. In addition, due to the short product life cycles that
characterize the personal communications management market, the Company's
failure to introduce competitive new and enhanced products in a timely manner
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
research and development and sales and marketing 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. Once commitments for such expenditures are
undertaken, the Company may be unable to reduce them quickly if product revenues
are less than expected. 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.
RISK FACTORS
Year 2000 Compliance The Company does not expect any year 2000 compliance
issues to arise related to primary internal business information systems. The
Company is not aware of any material operational issues or costs associated with
preparing internal systems for the year 2000. However, the Company utilizes
other third party vendor network equipment, telecommunication products, and
other third party software products which may or may not be Year 2000 compliant.
Although the Company is currently taking steps to address the impact, if any, of
the Year 2000 issue surrounding such third party products, failure of any
critical technology components to operate properly in the Year 2000 may have an
adverse impact on business operations or require the Company to incur
unanticipated expenses to remedy any problems.
Recent Product Introductions; Emerging Market; Dependence on Market Acceptance
of Products; Lack of Adequate Marketing Resources The Company has only recently
introduced its current products and to date the
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Company has received only limited revenue from the sale of these products. The
market for personal communications management products is only beginning to
emerge, and there can be no assurance that it will develop sufficiently to
enable the Company to achieve broad commercial acceptance of its products.
Because this market is relatively new and because current and future competitors
are likely to introduce a variety of competing products and services, it is
difficult to predict the rate at which this market will grow, if at all, or the
degree of market penetration which the Company will be able to achieve, if any.
To date, the market for personal communications management products has
developed at a significantly slower rate than the Company had originally
anticipated. If the personal communications management market fails to grow or
grows at a slower rate than the Company currently anticipates, or if the Company
fails to achieve sufficient market penetration, the Company's business,
financial condition and results of operations will be materially adversely
affected. Even if the market for personal communications management products
does grow, there can be no assurance that the Company's current products or any
future personal communications management products introduced by the Company
will achieve commercial acceptance within such a market. Marketing newly
introduced products such as those of the Company in a developing market requires
extensive financial resources and marketing efforts. To date, the Company has
not had sufficient financial resources to adequately market its products.
Risks Associated with Strategic Relationships The Company believes that its
future success, if any, will be largely dependent on its ability to either sell
its products to or enter into joint marketing arrangements with RBOCs and LECs
in the United States. In particular, the Company believes that certain of its
products can be sold profitably only if they are sold to or in conjunction with
RBOCs and LECs. Selling a product to or entering into a marketing relationship
with an RBOC or LEC is generally a lengthy process. A failure by the Company to
develop significant relationships with RBOCs and LECs would have a materially
adverse effect on the Company's business and operating results. The Company has
entered into a marketing agreement with Pacific Bell which calls for Pacific
Bell to market a co-branded version of the Company's SmartScreen S-100 product.
There can be no assurance that the marketing agreement with Pacific Bell will be
successful or that the Company will be able to establish relationships with
other RBOCs. Even if the Company is successful in establishing alliances or
relationships with RBOCs, LECs or other strategic partners, there can be no
assurance that such alliances or relationships will result in an increase in the
Company's distribution channels or product revenues or otherwise provide any
benefit to the Company. In addition, the strategic partners may be in direct or
indirect competition with the Company or among each other. The presence of
potential or actual conflicts of interest could materially adversely affect the
Company's relationships with potential strategic partners, which in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Limited Number of Customers The Company expects that sales to
relatively few customers will continue to account for a significant percentage
of the Company's revenues for the foreseeable future. Substantially all of the
Company's sales are made on a purchase order basis, and none of the Company's
customers have entered into an agreement requiring them to purchase the
Company's products. The loss of, or any reduction in orders or returns of
product from a current customer could have a material adverse effect on the
Company's business, financial condition and results of operations in the near
term.
The Company's ability to increase its sales will depend in part upon its
ability to obtain orders from new customers. In this regard, the Company intends
to expand its efforts to sell to RBOCs and LECs. The Company has had only
nominal sales to one RBOC to date and there can be no assurance of significant
sales to any RBOC or LEC in the future. In the event that such sales do not
materialize, the Company's business, financial condition and results of
operations would be materially adversely affected.
Delisting of Securities from the Nasdaq Market; Limited Liquidity of Trading
Market Shares of the Company's Common Stock are quoted on the Nasdaq SmallCap
Market. The Nasdaq SmallCap Market is a significantly less liquid market than
the Nasdaq National Market. If the Company should continue to experience losses
from operations, it may be unable to maintain the standards for continued
quotation on the Nasdaq SmallCap Market. Trading, if any, in the Common Stock
would therefore be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq SmallCap
Market listing requirements, or in what are commonly referred to as the "pink
sheets." As a result, an investor would find it more difficult to dispose of,
or to obtain accurate quotations of the price of, the Company's Common Stock.
Nasdaq has
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recently promulgated new rules that make continued listing of companies on the
Nasdaq SmallCap Market more difficult and has significantly increased its
enforcement efforts with regard to the Nasdaq standards for such listing. In
addition, if the Company's Common Stock were removed from the Nasdaq SmallCap
Market, the Company's Common Stock would be subject to so-called "penny stock"
rules that impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities. Consequently,
removal from the Nasdaq SmallCap Market, if it were to occur, could affect the
ability or willingness of broker-dealers to sell and/or make a market in the
Company's Common Stock and the ability of purchasers of the Company's Common
Stock to sell their securities in the secondary market. In addition, because the
market price of the Company's Common stock is less than $5.00 per share, the
Company may become subject to certain penny stock rules even if still quoted on
the Nasdaq SmallCap Market. Such rules may further limit the market liquidity of
the Company's Common Stock and the ability of purchasers to sell such Common
Stock in the secondary market. The Company is currently in the appeal process
regarding Nasdaq's decision to delist the Company's Common Stock from the Nasdaq
SmallCap Market.
Forward-looking Statements This 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 forward-looking statements may be
deemed to include the Company's plans to create a line of personal
communications management products, establish strategic alliances and business
relationships, implement a multichannel distribution strategy and expend
resources to create end-user demand. Such forward-looking statements may also be
deemed to include the Company's expectations concerning factors affecting the
market for its current products and any future personal communications
management products it may develop, including growth in the personal
communications management product marketplace, the dependence of mobile
individuals on the ability to manage business communications effectively in a
mobile environment and the shortcomings of commercially available personal
communications management products. Actual results could differ from those
projected in any forward-looking statements for the reasons detailed in the
other sections of this Form 10-QSB. The forward-looking statements are made as
of the date of this Form 10-QSB and the Company assumes no obligation to update
the forward-looking statements, or to update the reasons why actual results
could differ from those projected in the forward-looking statements.
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PART II. OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An annual meeting of shareholders was held on June 2, 1998 to vote on the
following:
1. To elect Charlie Bass, Edward M. Esber, Jr., Patrick Grady and Arthur G.
Chang as directors to serve for the following year and until their
successors are elected.
2. To increase the number of shares of Common Stock reserved for issuance
under the Company's 1993 Incentive Stock Plan from 897,000 to 1,397,000
shares.
2. To amend the Company's Articles of Incorporation to effect a one-for-
four reverse stock split of the Company's outstanding Common Stock.
3. To ratify the appointment of Ernst & Young LLP as independent public
accountants of the corporation for the year ending December 31, 1998.
Results of the Shareholder Vote:
1. Election of Directors:
The election of directors was approved as follows:
<TABLE>
<CAPTION>
In Favor Against Withheld
-------------- -------------- --------------
<S> <C> <C> <C>
Charlie Bass 7,409,312 161,901 0
Edward M. Esber, Jr. 7,409,312 161,901 0
Patrick Grady 7,345,917 225,296 0
Arthur G. Chang 7,470,412 100,801 0
In Favor Against Withheld
-------------- -------------- --------------
2. Approval of Amendment of 1993 Incentive Stock
Plan: 2,749,969 281,800 24,680
In Favor Against Withheld
-------------- -------------- --------------
3. Approval of amendment of Company's Articles of 7,328,833 209,450 13,830
Incorporation to effect a one-for-four reverse
stock split of the Company's outstanding Common
Stock:
In Favor Against Withheld
-------------- -------------- --------------
4. Approval of Ratification of Ernst & Young LLP as 7,494,883 41,800 34,530
independent public accountants of the corporation
for the year ending December 31, 1998:
</TABLE>
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
10.16 Loan Modification Agreement between the Company and Silicon Valley Bank
dated May 20, 1998.
27 - Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ending June 30, 1998.
13
<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: August 14, 1998 SOLOPOINT, INC.
by:/s/Arthur G. Chang by:/s/Ronald J. Tchorzewski
- ------------------------------ ------------------------------
Arthur G. Chang Ronald J. Tchorzewski
President and CEO Chief Financial Officer
(Duly Authorized Officer) (Principal Accounting Officer)
14
<PAGE>
Exhibit 10.16
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 20, 1998, by
and between SoloPoint, Inc. ("Borrower") whose address is 130-B Knowles Drive,
Los Gatos, CA 95303, and Silicon Valley Bank ("Lender") whose address is 3003
Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to,
among other documents, a Promissory Note, dated February 7, 1997, in the
original principal amount of One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00), as amended from time to time (the "Note"). The Note,
together with other promissory notes from Borrower to Lender, is governed by the
terms of a Business Loan Agreement, dated February 7, 1997, as such agreement
may be amended from time to time, between Borrower and Lender (the "Loan
Agreement"). Prior to entering into this Loan Modification Agreement, the
obligations evidenced by the Existing Loan Documents, including the Note, were
paid in full as of February 6, 1998. However, the parties hereto now desire and
intend that the Existing Loan Documents shall be revived and considered to be in
full force and effect, and that the Note, when taken with this Loan Modification
Agreement, Loan Agreement, the Security Agreement, and any other documents
evidencing the obligations shall reflect a full agreement of the parties with
respect to the subject matter thereof.
Defined terms used but not otherwise defined herein shall have the same meanings
as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness
----------------------------------------
is secured by a Commercial Security Agreement, dated February 7, 1997.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Note.
-----------------------
1. The principal amount of the Note is hereby decreased to
One Million and 00/100 Dollars ($1,000,000.00).
2. Payable in one payment of all outstanding principal plus
all accrued unpaid interest on March 31, 1999. In
addition, Borrower will pay regular monthly payments of
all accrued unpaid interest due as of each payment date
beginning April 30, 1998 and all subsequent payments
shall be on the last day of each month thereafter.
B. Modification(s) to Loan Agreement.
---------------------------------
1. The paragraph entitled "Accounts Receivable and Accounts
Payable" is hereby amended in its entirety to read as
follows:
At such times as there are outstandings under the Note,
and prior to an advance when there are no outstandings
under the Note, provide to Lender not later than twenty
(20) days after and as of the end of each month, with a
borrowing base certificate and aged lists of accounts
receivable and accounts payable. Lender
<PAGE>
shall conduct an audit of Borrower's accounts receivable on a
semi-annual basis at such times as outstandings under the Note
exceed One Hundred Thousand and 00/100 Dollars ($100,000.00).
2. The paragraph entitled "Financial Covenants and Ratios" is hereby
amended in its entirety to read as follows:
Borrower shall maintain on a monthly basis, a minimum quick ratio
of 1.50 to 1.00. Additionally, Borrower may incur losses,
provide such losses shall not exceed $850,000.00 for the quarter
ended March 31, 1998, $1,025,000.00 for the quarter ending June
30, 1998, $975,000.00 for each of the quarters ending September
30, 1998 and December 31, 1998.
3. The paragraph entitled "Borrowing Base Formula" is hereby amended
in its entirety to read as follows:
Funds shall be advanced under the Borrower's line of credit
facility according to a borrowing base formula, as determined by
Lender, defined as follows: the lesser of (a) $1,000,000.00 minus
the Cash Management Sublimit or (b) Eighty percent (80%) of
Eligible Accounts Receivable. Eligible Accounts Receivable shall
be defined as those accounts that arise in the ordinary course of
Borrower's business, including those accounts outstanding less
than 90 days (and 150 days for Pacific Bell) from the date of
invoice, but shall exclude foreign, government, contra and
intercompany accounts, and exclude accounts wherein 50% or more of
the account is outstanding more than 90 days from the date of
invoice. Except for accounts from Pacific Bell which shall be
eligible to 70%, any account which alone exceeds 25% of total
accounts will be ineligible to the extent said account exceeds 25%
of total accounts. Lender shall also deem ineligible any credit
balances which are aged past 90 days, and accounts generated by
the sale of demonstration or promotional equipment. The standards
of eligibility shall be fixed from time to time by Lender, in
Lender's reasonable judgment upon notification to Borrower.
Lender reserves the right to exclude any accounts the collection
of which Lender reasonably determines to be doubtful.
4. The paragraph entitled "Letters of Credit" and any reference
thereto is hereby deleted in its entirety.
5. The paragraph entitled "Foreign Exchange Sublimit" and any
reference thereto is hereby deleted in its entirety.
C. Waiver of Default(s).
--------------------
1. Lender hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the quick
ratio for the months ended October 31, 1997, November 30, 1997 and
December 31, 1997, the Tangible Net Worth covenant as of the
months ended November 30, 1997 and December 31, 1997, the Debt to
Tangible Net Worth covenant as of the month ended December 31,
1997 and the maximum loss covenant as of the quarter ended
December 31, 1997. Lender's waiver of Borrower's compliance of
these covenants shall apply to the foregoing periods. Accordingly,
for the month ended January 31, 1998 and the
2
<PAGE>
quarter ended March 31, 1998, Borrower shall be in compliance with
these covenants, as amended herein.
Lender's agreement to waive the above-described default (1) in no
way shall be deemed an agreement by the Lender to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Lender's right to
demand strict performance of these covenants as of all other dates
and (3) shall not limit or impair the Lender's right to demand
strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of
-------------------
Five Thousand and 00/100 Dollars ($5,000.00) (the "Loan Fee") plus all
out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
-----------------------
signing below) agrees that it has no defenses against the obligations to pay any
amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Lender's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Lender to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Lender and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Lender in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
----------
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: LENDER:
SOLOPOINT, INC. SILICON VALLEY BANK
By: /s/ Ronald J. Tchorzewski By: /s/ Sheila Colson
------------------------- ---------------------
Name: Ronald J. Tchorzewski Name: Sheila Colson
---------------------- -------------------
Title: CFO Title: AVP
--------------------- ------------------
3
<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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> $2,284,198
<SECURITIES> 0
<RECEIVABLES> $380,419
<ALLOWANCES> $170,307
<INVENTORY> $359,697
<CURRENT-ASSETS> $2,894,138
<PP&E> $505,709
<DEPRECIATION> $378,407
<TOTAL-ASSETS> $3,059,437
<CURRENT-LIABILITIES> $509,264
<BONDS> 0
0
0
<COMMON> $15,903,832
<OTHER-SE> ($13,416,749)
<TOTAL-LIABILITY-AND-EQUITY> $3,059,437
<SALES> $238,232
<TOTAL-REVENUES> $238,232
<CGS> $148,747
<TOTAL-COSTS> $1,488,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $15,626
<INCOME-PRETAX> ($1,350,101)
<INCOME-TAX> 0
<INCOME-CONTINUING> ($1,350,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ($1,350,101)
<EPS-PRIMARY> ($.16)
<EPS-DILUTED> ($.16)
</TABLE>
