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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: September 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 SEPTEMBER 30, 1998
Common Stock - no par value 2,076,455
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SOLOPOINT, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations 3
three and nine months ended September 30, 1998 and 1997
and the period March 26, 1993 (inception) through September 30, 1998
Condensed Balance Sheet 4
September 30, 1998
Condensed Statements of Cash Flows 5
nine months ended September 30, 1998 and 1997
and the period March 26, 1993 (inception) through September 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 5 Deadline for Receipt of Shareholder Proposals 13
Item 6 Exhibits and Reports on Form 8-K 13
Signature 14
</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,
1998 1997 1998 1997 1998
-------------------------- -------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 222,879 $ 3,719 $ 461,111 $ 366,566 $ 1,333,484
Cost of sales 175,917 2,477 324,664 262,911 1,554,536
------------ ------------ ------------ ------------ ------------
Gross margin 46,962 1,242 136,447 103,655 (221,052)
Costs and expenses:
Research and development 215,042 320,940 777,858 1,082,656 5,517,119
Sales and marketing 128,381 318,685 491,863 1,391,688 3,809,864
General and administrative 207,343 251,231 769,151 827,511 4,486,764
------------ ------------ ------------ ------------ ------------
550,766 890,856 2,038,872 3,301,855 13,813,747
------------ ------------ ------------ ------------ ------------
Loss from operations (503,804) (889,614) (1,902,425) (3,198,200) (14,034,799)
Interest income (expense), net 23,862 (6,622) 72,382 42,306 171,226
------------ ------------ ------------ ------------ ------------
Net loss $ (479,942) $ (896,236) $ (1,830,043) $ (3,155,894) $(13,863,573)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (.23) $ (1.02) $ (.88) $ (3.60)
============ ============ ============ ============
Shares used in computing
basic and diluted net loss per share 2,076,455 876,455 2,076,455 875,448
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
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SOLOPOINT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
Current assets:
Cash $ 1,554,845
Accounts receivable, net 336,680
Inventories 345,185
Other current assets 106,961
------------
Total current assets 2,343,671
Furniture and equipment, at cost:
Computers and software 275,150
Furniture and fixtures 248,640
Accumulated depreciation and amortization (394,371)
------------
129,419
Other non-current assets 37,997
------------
Total assets $ 2,511,087
============
Current liabilities:
Bank line of credit $ 100,000
Accounts payable 172,502
Accrued compensation 37,605
Other accrued liabilities 87,889
Notes payable, current portion 51,664
------------
Total current liabilities 449,660
Notes payable, non-current portion 50,491
Shareholders' equity:
Common stock 15,967,397
Deficit accumulated during the development stage (13,896,691)
Notes receivable from shareholders (59,770)
------------
Total shareholders' equity 2,010,936
------------
Total liabilities and shareholders' equity $ 2,511,087
============
</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
MARCH 31 SEPTEMBER 30,
1998 1997 1998
--------------------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,830,043) $ (3,155,894) $ (13,863,573)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock and preferred stock issued for services - 12,000 90,700
Preferred stock issued for interest payable - - 49,832
Provision for inventory - - 600,000
Depreciation and amortization 74,339 87,562 394,480
Reduction in notes receivable from shareholders in lieu of salary 25,730 - 25,730
Changes in operating assets and liabilities (343,411) (333,392) (1,090,830)
------------ ------------ ------------
Net cash used in operating activities (2,073,385) (3,389,724) (13,793,661)
INVESTING ACTIVITIES
Acquisitions of furniture and equipment (45,031) (98,336) (509,392)
Loan to shareholder - - (35,000)
Payment received from shareholder - - 1,500
Deposits and other assets - - (38,107)
------------ ------------ ------------
Net cash used in investing activities (45,031) (98,336) (580,999)
FINANCING ACTIVITIES
Proceeds from bank line of credit 100,000 - 100,000
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 (36,158) (31,741) (103,736)
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 3,543,561 1,831 8,785,123
------------ ------------ ------------
Net cash provided by financing activities 3,607,403 42,090 15,929,505
------------ ------------ ------------
Net increase (decrease) in cash 1,488,987 (3,445,970) 1,554,845
Cash at beginning of period 65,858 4,066,825 -
------------ ------------ ------------
Cash at end of period $ 1,554,845 $ 620,855 $ 1,554,845
============ ============ ============
</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, 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 nine month period ended September
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 and 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.
The Company's shareholders approved a one-for-four reverse stock split
which was effective July 7, 1998. All share information reflects the one-
for-four reverse stock split.
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
nine month periods ended September 30, 1998 and 1997 or the period from
March 26, 1993 (inception) through September 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; dependence on a limited number of customers;
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 September 30, 1998, were
$222,879 as compared to net revenue for the three month period ended September
30, 1997 of $3,719. Net revenues for the nine-month period ended September 30,
1998 were $461,111 compared to $366,566 for the nine month period ended
September 30, 1997. The increase in net revenues for both the three and nine
month periods was primarily due to the Company's strategic shift in distribution
to focus on the Regional Bell Operating Companies ("RBOC"), Local Exchange
Carriers ("LEC") and Wireless channels beginning in the second half of fiscal
1997. Due to the Company's strategic shift in distribution during the third
quarter of 1997, net revenue for that quarter reflected product returns from
certain distributors and customers totaling $134,069.
Gross Margin
Cost of sales for the three month period ended September 30, 1998 was
$175,917 as compared to cost of sales for the three month period ended September
30, 1997 of $2,477. Cost of sales for the nine month period ended September 30,
1998 was $324,664 compared to $262,911 for the nine month period ended September
30, 1997. Gross margin for the three and nine month periods ended September 30,
1998 was 21% and 30% respectively, compared to 33% and 28% for the three and
nine month periods ended September 30, 1997, respectively. The gross margin for
the three and nine month periods ended September 30, 1998 were impacted by
product mix due to the lower margin on the Company's Message Light product as
compared to the margins on the SmartScreen, SmartMonitor and SmartCenter
products which were sold during the three and nine month periods ended September
30, 1997. The Company also incurred higher shipping and handling costs in the
three and nine month periods ended September 30, 1998 related to RBOC programs.
7
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Operating Expenses
Research and Development. Research and development expenses were
$215,042 for the three month period ended September 30, 1998 as compared to
$320,940 for the three month period ended September 30, 1997. Research and
development expenses for the nine month period ended September 30, 1998 were
$777,858 as compared to $1,082,656 for the nine month period ended September 30,
1997. The decrease of 33% and 28% for the three and nine month periods,
respectively resulted principally from a reduction in consultants utilized and
lower headcount and personnel related expenses for the three months ended
September 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 in the foreseeable future should the Company expand its existing
product line.
Sales and Marketing. Sales and marketing expenses were $128,381 for
the three month period ended September 30, 1998 as compared to $318,685 for the
three month period ended September 30, 1997, a decrease of 60%. Sales and
marketing expenses decreased 65% during the nine month period ended September
30, 1998 to $491,863 as compared to expenses of $1,391,688 for the nine month
period ended September 30, 1997. The decrease for both the three and nine month
periods ended September 30, 1998 compared to the same periods of 1997 was
primarily due to a decrease in personnel and related costs, a significant
reduction in advertising and a reduced level of marketing efforts to support the
Company's expanded 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
$207,343 for the three month period ended September 30, 1998, as compared to
$251,231 for the three month period ended September 30, 1997. This decrease of
17%, as well as the decrease of 7% during the nine month period ended September
30, 1998 to $769,151 from $827,511 in the first nine 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 (Expense), Net
Interest income for the three and nine months ended September 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 nine months ended September 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 September 30, 1998 the Company
recognized interest income of $35,105 offset by interest expense of $11,243 as
compared with interest income of $7,454 offset by interest expense of $14,076
for the same period of the prior year. For the nine month period ended September
30, 1998 the Company recognized interest income of $99,252 offset by interest
expense of $26,870 as compared with interest income of $70,733 offset by
interest expense of $28,427 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 nine month periods ended September 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
8
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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 $1,554,845 as of September 30, 1998 and
working capital of $1,894,011. The Company used cash of $2,073,385 in its
operating activities for the nine months ended September 30, 1998. During the
nine months ended September 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
September 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 the fourth quarter of 1998 and early 1999 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. In August 1998 the Company had drawn $100,000 against its line of credit.
As of September 30, 1998 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, 1998, the Company had an accumulated deficit of
$13,896,691, and had incurred an operating loss of $1,902,425 for the nine
months ended September 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
9
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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 is currently engaged in conducting an
evaluation of its systems for 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. The
Company has evaluated the potential impact on its own products. The Company has
determined that the efforts to bring its products up to compliance would not
entail material efforts or cost. The Company anticipates this effort to be
completed by the end of the second quarter of 1999. Although the Company does
not expect that the impact of the Year 2000 issue will be material on its
systems under evaluation, there can be no assurance that the Company will not
discover Year 2000 issues in the course of its evaluation process that would
have a material effect on the business, results of operations or financial
condition of the Company.
The Company utilizes third party manufacturing, third party vendor network
equipment, telecommunication products, and other third party software products
which may or may not be Year 2000 compliant. The Company is in the process of
contacting its third party vendors to determine at what stage the vendors may be
in their compliance with the Year 2000 issue. The Company anticipates contacting
all critical third party vendors by the end of the second quarter of 1999
relating to Year 2000 compliance. 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 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
10
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calls for Pacific Bell to market a co-branded version of the Company's
SmartScreen S-100 product. The agreement has been in effect since May 1997,
however there can be no assurance that the marketing agreement with Pacific
Bell will continue to 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", known as delisting. 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 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.
On October 15, 1998 the Company received a letter from Nasdaq informing the
Company that for the 30 trading days prior to the letter the Company failed to
maintain a closing bid price greater than or equal to $1.00, which is one of the
requirements for continued listing on the Nasdaq National Market. The Company
has been provided 90 calendar days to regain compliance with the minimum bid
price requirement. In order to comply with this requirement the Company's common
stock must report a closing bid price of $1.00 or greater for ten consecutive
trading days. If the Company is unable to demonstrate compliance within the
designated timeframe the Company will be subject to delisting.
11
<PAGE>
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.
12
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 5. DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders are entitled to present proposals for action at a
forthcoming meeting if they comply with the requirements of the proxy rules
established by the Securities and Exchange Commission. Proposals of shareholders
of the Company that are intended to be presented by such shareholders at the
Company's 1999 Annual Meeting of shareholders must be received by the Company no
later than December 31, 1998 in order that they may be considered for inclusion
in the proxy statement and form of proxy relating to the meeting.
If a shareholder intends to submit a proposal at the Company's Annual
Meeting, which is not eligible for inclusion in the proxy statement relating to
that meeting, the shareholder must give the Company notice in accordance with
the requirements set forth in the Securities and Exchange Act of 1934, as
amended, no later than February 14, 1999. If such shareholder fails to comply
with the foregoing notice provision the proxy holders will be allowed to use
their discretionary authority when and if the proposal is raised at the
Company's Annual Meeting in 1999.
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, 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: November 13, 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB FOR
THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,554,845
<SECURITIES> 0
<RECEIVABLES> 422,823
<ALLOWANCES> 86,153
<INVENTORY> 345,185
<CURRENT-ASSETS> 2,343,671
<PP&E> 523,790
<DEPRECIATION> 394,371
<TOTAL-ASSETS> 2,511,087
<CURRENT-LIABILITIES> 449,660
<BONDS> 0
0
0
<COMMON> 15,967,397
<OTHER-SE> (13,896,691)
<TOTAL-LIABILITY-AND-EQUITY> 2,511,087
<SALES> 461,111
<TOTAL-REVENUES> 461,111
<CGS> 324,664
<TOTAL-COSTS> 2,038,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,870
<INCOME-PRETAX> (1,830,043)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,830,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,830,043)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
