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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, 1999 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, 1999
Common Stock - no par value 2,076,455
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SOLOPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations 3
three and six months ended June 30, 1999 and 1998
and the period March 26, 1993 (inception) through
June 30, 1999
Condensed Balance Sheet 4
June 30, 1999
Condensed Statements of Cash Flows 5
six months ended June 30, 1999 and 1998 and the
period March 26, 1993 (inception) through
June 30, 1999
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 13
Item 6 Exhibits and Reports on Form 8-K 14
Signature 15
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 Six Months Ended Through
June 30 June 30 June 30,
1999 1998 1999 1998 1999
-------------------------- ------------------------- --------------
<S> <C> <C> <C> <C> <C>
Net Revenues $ 380,904 $ 132,595 $ 557,454 $ 238,232 $ 2,001,618
Cost of Sales 354,136 84,965 521,884 148,747 2,385,897
----------- ----------- ----------- ----------- ------------
Gross margin 26,768 47,630 35,570 89,485 (384,279)
Costs and expenses:
Research and development 167,068 276,425 347,421 562,816 6,016,224
Sales and marketing 102,586 206,180 260,980 363,482 4,204,267
General and administrative 197,798 294,134 433,005 561,808 5,314,099
----------- ----------- ----------- ----------- ------------
467,452 776,739 1,041,406 1,488,106 15,534,590
----------- ----------- ----------- ----------- ------------
Loss from operations (440,684) (729,109) (1,005,836) (1,398,621) (15,918,869)
Interest income (expense), net (1,860) 26,787 (1,740) 48,520 172,408
----------- ----------- ----------- ----------- ------------
Net loss $ (442,544) $ (702,322) $(1,007,576) $(1,350,101) $(15,746,461)
=========== =========== =========== =========== ============
Basic and diluted net loss per share $ (.21) $ (.34) $ (.49) $ (.65)
=========== =========== =========== ============
Shares used in computing
basic and diluted net loss per share 2,076,455 2,076,455 2,076,455 2,076,455
=========== =========== =========== ============
</TABLE>
See accompanying notes.
3
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SoloPoint, Inc.
(a development stage company)
CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
June 30, 1999
-------------
Current assets:
Cash $ 310,156
Accounts receivable, net 145,199
Inventories 192,307
Other current assets 59,919
------------
Total current assets 707,581
Furniture and equipment, at cost:
Computers and software 282,696
Furniture and fixtures 284,963
Accumulated depreciation and amortization (455,415)
------------
112,244
Other non-current assets 87,997
------------
Total assets $ 907,822
============
Current liabilities:
Accounts payable $ 679,129
Accrued compensation 19,533
Other accrued liabilities 13,090
Deferred revenue 14,909
Notes payable, current portion 36,720
------------
Total current liabilities 763,381
Notes payable, non-current portion 27,340
Shareholders' equity:
Common stock 15,956,449
Deficit accumulated during the development stage (15,779,578)
Notes receivable from shareholders (59,770)
------------
Total shareholders' equity 117,101
------------
Total liabilities and shareholders' equity $ 907,822
============
See accompanying notes
4
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SoloPoint, Inc.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
March 26, 1993
(inception)
Six months ended through
March 31 June 30,
1999 1998 1999
----------------------------- -------------
Operating activities
Net loss $(1,007,576) $(1,350,101) $(15,746,461)
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 - - 807,419
Depreciation and
amortization 46,578 58,375 455,416
Changes in operating
assets and liabilities 402,813 1,300 (528,184)
----------- ----------- ------------
Net cash used in operating
activities (558,185) (1,290,426) (14,871,278)
Investing activities
Acquisitions of furniture
and equipment (11,746) (26,950) (553,263)
Loan to shareholder - - (35,000)
Payment received from
shareholder - - 1,500
Deposits and other assets - - (37,997)
----------- ----------- ------------
Net cash used in investing
activities (11,746) (26,950) (624,759)
Financing activities
Proceeds from convertible
notes payable to
shareholders - - 1,120,000
Proceeds from bank lines
of credit - - 100,000
Principal payment on bank
line of credit (100,000) - (100,000)
Proceeds from convertible
notes payable - - 1,813,000
Proceeds from notes payable - - 191,496
Principal payments on
capital lease obligations (25,758) (29,780) (141,830)
Proceeds from notes
receivable from
shareholders - 26,935 97,730
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 8,774,175
----------- ----------- ------------
Net cash (used) provided by
financing activities (125,758) 3,535,716 15,806,193
Net increase (decrease) in
cash (695,689) (2,218,340) 310,156
Cash at beginning of period 1,005,845 65,858 -
----------- ----------- ------------
Cash at end of period $ 310,156 $ 2,284,198 $ 310,156
=========== =========== ============
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, 1999 and 1998 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,
1998. The results of operations for the three and six month periods ended
June 30, 1999 are not necessarily indicative of the results to be
expected for the entire fiscal year.
2. Earnings Per Share The Company computes net loss per share based on
Financial Accounting Standards Board Statement No. 128 "Earnings per
Share," ("FAS 128"). In accordance with FAS 128, basic net loss per share
excludes dilutive common stock equivalents and is calculated as net
income (loss) per share divided by the weighted average number of common
shares outstanding. Diluted net income (loss) per share is computed using
the weighted average number of common shares outstanding and dilutive
common stock equivalents outstanding during the period. Common equivalent
shares from stock options and warrants (using the treasury stock method)
are excluded from the calculation of net loss per share as their 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 shareholder's equity and therefore is
not required to report comprehensive income for the three and six month
periods ended June 30, 1999 and 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 including products and services,
geographic areas and major customers. Generally, financial information is
required to be reported on the basis used internally for evaluating
segment performance and resource allocation. The Company operates in one
business segment, the sale of personal communication equipment. All of
the Company's sales are to customers in the United States. During the six
months ended June 30, 1999, two customers accounted for approximately 56%
and 21% of SoloPoint's net revenues compared to one customer during the
six months ended June 30, 1998 which accounted for approximately 62% of
revenue. We cannot assure you that these customers will continue to order
similar volume of product from us. A significant reduction in sales
volume attributable to the loss of any of our customers, or our inability
to collect accounts receivable from any major customer could have a
materially adverse effect on our business, financial condition and
results of operations.
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 SoloPoint's existing capital resources will meet our
future capital needs;
. SoloPoint's operating results;
. the market acceptance of our products;
. SoloPoint's efforts to establish and maintain distribution partners;
. the development of new products; and
. SoloPoint's planned investment in the marketing and distribution of its
current products and research and development with regard to future
products.
SoloPoint's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including:
. the ability of SoloPoint 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;
. SoloPoint'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.
To date, SoloPoint's working capital requirements have been met through the sale
of equity and debt securities and minimal revenues from product sales. SoloPoint
has sustained significant operating losses in every fiscal period since
inception and expects to incur substantial quarterly operating losses at least
through the end of calendar year 1999 and possibly longer. SoloPoint has
insufficient cash to continue its operations beyond September 1999 at its
projected level of operations. SoloPoint's ability to continue as a going
concern is dependent upon it successfully raising additional cash through equity
or debt financings and, ultimately, upon achieving profitable operations.
However, we cannot assure you that additional funding will be available to us on
acceptable terms, if at all, or that we will achieve profitable operations.
Results of Operations
- ---------------------
Net Revenues
Since inception, SoloPoint's focus has been on the design and development of
personal communications management solutions for communications-dependent
individuals. We introduced our first product, SmartCenter, at the end of March
1996 with the initial shipment of our second product, SmartMonitor, at the end
of September 1996. We recorded our initial revenues in the quarter ended June
30, 1996. SoloPoint's products currently have a 30-day, unconditional, money-
back guarantee. We recognize revenue when our 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 months ended June 30, 1999, were $380,904 compared to
$132,595 for the three months ended June 30, 1998, an increase of 187%. Net
revenues for the six month period ended June 30, 1999 were $557,454 compared to
$238,232 for the six month period ended June 30, 1998, an increase of 134%. The
increase in net revenues for both the three and six month periods is mainly
attributable to revenues from the initial customer shipment of our new S-310
Complete Call Manager.
7
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Gross Margin
Cost of sales for the three months ended June 30, 1999 was $354,136,which was
93% of revenue as compared to $84,965 for the three months ended June 30, 1998
which was 64% of revenue for that period. Cost of sales for the six month
period ended June 30, 1999 was $521,884 which was 94% of revenue compared to
$148,747 which was 62% of revenue for the six month period ended June 30,
1998. Gross margin percentage for the three and six month periods ended June
30, 1999 declined primarily due to our aggressive initial pricing of our new S-
310 product as well as the impact of a price reduction of the SmartScreen
product during the second quarter of 1998.
Operating Expenses
Research and Development. Research and development expenses were $167,068 for
the three months ended June 30, 1999 compared to $276,425 for the three months
ended June 30, 1998, a decline of 40%. Research and development expenses for
the six months ended June 30, 1999 were $347,421 as compared to $562,816 for
the six month period ended June 30, 1998, a decline of 38%. The decline for
the three and six month periods ended June 30, 1999 is mainly due to reduced
headcount as well as a reduction in the utilization of outside contractors for
development during both of these for the balance periods. We anticipate that
research and development expenses will remain at a relatively consistent level
with the first two quarters of 1999 for the balance of 1999.
Sales and Marketing. Sales and marketing expenses for the three months ended
June 30, 1999 were $102,586 as compared to expenses of $206,180 for the three
months ended June 30, 1998, a decrease of 50%. Sales and marketing expenses
for the six month period ended June 30, 1999 were $260,980 compared to
$363,482 for the six month period ended June 30, 1998, a decline of 28%. The
decline for the three and six month periods ended June 30, 1999 is a result of
the continued cost controls implemented by us during the second half of 1998
along with a reduction in sales personnel and related expenses. We anticipate
that sales and marketing expenses may grow in future quarters from the level
experienced in the first six months of 1999 as we increase marketing
activities and efforts to expand distribution of our current and anticipated
future products.
General and Administrative. General and administrative expenses were $197,798
for the three months ended June 30, 1999, as compared to $294,134 for the three
months ended June 30, 1998, This decrease of 33%, as well as the decrease of 23%
during the six month period ended June 30, 1999 to $433,005 from $561,808 in the
first six months of 1998, is primarily due to reduction in our utilization of an
outside consultant in the MIS area and reduced headcount and related personnel
expenses. We anticipate that general and administrative expenses may grow
modestly in absolute dollars, but may decrease as a percentage of revenue, as we
build the infrastructure necessary to support a growing customer base and
accommodate expanded operations.
Other Income (Expense)
Other income (expense) is comprised primarily of interest expense on our
equipment lease line offset by interest on cash balances. Interest income of
$2,095 for the three months ended June 30, 1999 primarily reflects interest on
cash balances, as compared to interest income of $29,296 for the three months
ended June 30, 1998 also from the completion of our secondary offering in
January 1998. For the six months ended June 30, 1999 we recognized interest
income of $$7,149 offset by interest expense of $8,889 as compared with
interest income of $64,146 offset by interest expense of $15,626 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 ending June 30, 1999, as SoloPoint incurred a net operating loss.
SoloPoint expects to incur a net operating loss for the year ending December 31,
1999. As a result, the net operating loss carryforwards will increase. At
December 31, 1998, SoloPoint had federal and state net operating loss
carryforwards of approximately $7,700,000. We also had federal and state
research and development tax credit carryforwards of approximately $150,000 and
$75,000, 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. If an ownership
change were to occur, net operating loss and tax credit carryforwards could
expire before utilization. For financial reporting purposes, a valuation
allowance of $5,900,000 has been recorded to offset deferred tax assets
recognized under the Financial Accounting Standards No. 109, "Accounting for
Income Taxes," primarily related to the net operating loss carryforwards and
capitalized research and development expenses.
8
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Liquidity and Capital Resources
As of June 30, 1999, SoloPoint had cash of $310,156 and a working capital
deficit of $55,800 as compared to cash of $2,284,198 and working capital of
$2,384,874 at June 30, 1998. We used cash of $558,185 in our operating
activities for the six months ended June 30, 1999. During the six months ended
June 30, 1999 our principal uses of cash were to fund the Company's working
capital requirements.
We expect to incur additional substantial losses at least through the end of
calendar 1999. However, we will need to seek additional funding during calendar
1999. We are currently in the process of raising approximately $3,150,000
through a private placement of our common stock. As of August 10, 1999 we have
the aforementioned funds in escrow. Release of these funds to SoloPoint is
conditioned on a decision by Nasdaq to allow SoloPoint to remain listed on the
Nasdaq SmallCap Market (see additional information in Risk Factors Delisting of
Securities). In the absence of receiving additional funding, we anticipate that
our existing capital resources and cash generated from operations, if any, will
be adequate to meet our cash requirements for only the next several months at
our anticipated level of operations. Failure to obtain funding would have a
material adverse effect on our business, financial condition and results of
operations. We cannot assure that any additional financing will be available
on acceptable terms, or at all, when required by us. In April 1999 we repaid
our draw down of $100,000 under our line of credit with Silicon Valley Bank
which was not renewed. As of June 30, 1999 we did not have any significant
commitments for capital or other expenditures.
Future Operating Results
Since our inception in 1993, we have incurred significant losses, have had
substantial negative cash flow, and have realized limited revenues. At June 30,
1999, we have an accumulated deficit of $15,779,578, and have incurred an
operating loss of $1,007,576 in the six months ended June 30, 1999. We expect to
continue to incur substantial operating losses at least through our fiscal year
ending December 31, 1999 and possibly into the year 2000.
We have experienced and expect to continue to experience significant
fluctuations in operating results. Fluctuations in our operating results may
result in volatility in the price of our common stock. Our 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 our average
selling prices;
. product announcements by us and our competition;
. our level of research and development and sales and marketing activities;
Many of these factors are beyond our control. In addition, due to the short
product life cycles that characterize the personal communications management
market, our failure to introduce competitive new and enhanced products in a
timely manner would have a material adverse effect on our business, financial
condition and results of operations.
Our 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, we generally must undertake our sales and marketing
and research and development activities and other commitments months or even
years in advance. Accordingly, any shortfall in product revenues, if any, in a
given quarter may materially adversely affect our 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, we may be unable to reduce
them quickly if product revenues are less than expected. In addition, our sales
expectations are based entirely on our internal estimates of future demand. Due
to these and other factors, we believe that quarter to quarter comparisons of
our results of operations are not necessarily meaningful, and should not be
relied upon as indications of future performance.
Risk Factors
Year 2000 Compliance The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. To be in "Year 2000 compliance"
a computer program must be written using four digits to define the year.
9
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We have developed a three-phased approach to eliminate the Year 2000 exposure.
The first phase is to identify those applications and systems as well as third
party relationships that have exposure to disruption in operations due to Year
2000 issues. The second phase is the development and implementation of action
plans in all areas prior to December 31, 1999 to achieve Year 2000 compliance.
The final phase is the testing or certification of testing each of the major
areas of exposure to ensure Year 2000 compliance. It is our intention to
complete all phases of the approach by December 31, 1999.
We have identified three areas which we determine to be key for successful Year
2000 compliance. The first area includes financial and administrative
informational system applications reliant on system software. The second area
includes any of our products that rely on date information. The third area
includes exposures that may exist in other companies that SoloPoint relies upon
in third party relationships.
Relating to the first key area we are having discussions with our software
vendors to determine the areas of Year 2000 exposure. These are suppliers of
software for our internal financial systems and internal systems network. Both
our internal financial systems and internal systems network are unmodified off-
the-shelf software products. Based upon discussions to date, our external
vendors have Year 2000 compliant versions of these products available and we
plan to purchase and implement upgrades to the Year 2000 compliant versions in
the third quarter of 1999.
We have reviewed our product line and determined that one product is impacted by
the Year 2000 issue. We have identified a solution that corrects the issue. We
plan to complete implementation and testing of the solution by the end of the
third quarter of 1999. We are also planning and discussing with our major
customers, the RBOCs and LECs, whether their internal systems have any Year 2000
exposure that would preclude their customers from using our products.
We also plan to contact and discuss with third party vendors our reliance on
their assurance of Year 2000 compliance. We generally do not have contractual
rights with third party vendors should their equipment or software fail due to
Year 2000 issues. We outsource the manufacture of nearly all our products and
the failure of any one of the subcontract manufacturers to continue to perform
on their obligations to us could severely disrupt our ability to carry on our
business. We also rely on phone companies, long distance carriers, financial
institutions and electric companies and the failure of any one of these could
also severely disrupt our ability to carry on our business.
As of December 31, 1998 we had identified the cost related to replacing and
testing the systems and applications mentioned as part of our internal financial
systems and internal systems network. This cost is estimated to be less than
$1,000. We have also identified the cost components related to correcting the
Year 2000 problem on our one product and estimated that the cost to complete the
correction will be less than $5,000. As of June 30, 1999 we believe these
estimates to still be accurate. We have yet to complete our efforts to contact
third party vendors and confirm their Year 2000 compliance but do not expect the
cost of this effort to be significant. We derived these estimates using a number
of assumptions, including the assumption that we have already identified our
most significant Year 2000 issues. However, these assumptions may not be
accurate, and actual results could differ materially from those anticipated. In
view of our Year 2000 review and remediation efforts to date, our planned
upgrade to Year 2000 compliant internal financial and networking systems by the
end of the third quarter of 1999, and the activities that remain to be
completed, we do not consider contingency planning to be necessary at this time.
The Year 2000 cost from the interruption of our current vendors and suppliers is
unknown. Any interruption of product supply, which impacts our ability to
deliver product to our customers, could have a negative impact on our results of
operations. The cost of interruption is unidentifiable at this point but would
be impacted by the type and timing of the interruption. We are making efforts to
avoid these potential issues but cannot assure you that we will receive full
cooperation from our suppliers to prevent such events. The most likely worst
case scenario is that our third party subcontract manufacturers could not
provide us with any services or subassemblies and we would be unable to ship any
products.
Going Concern Assumptions; Future Capital Needs Uncertain; No Assurance of
Future Financing SoloPoint has incurred cumulative net losses of $15,779,578 as
of June 30, 1999. We will require additional funding during the third quarter of
1999. If we are unable to secure additional funding, we anticipate that our
capital resources and cash generated from operations, if any, will be sufficient
to meet our cash requirements only through the next several months at our
anticipated level of operations. Our future capital requirements will depend
upon numerous factors, including the amount of revenues generated from
operations and our level of operating expenses, none of which can be predicted
with any certainty. We are currently in the process of securing approximately
$3,150,000 in financing through a private placement of SoloPoint Common Stock.
As of August 10,1999 we have the funds in escrow. The funds will be released to
SoloPoint upon a favorable decision by Nasdaq to allow SoloPoint to remain
listed on the Nasdaq SmallCap Market. We will attend a hearing before the Nasdaq
Panel on August 12, 1999 and we expect to receive their decision within a
reasonable timeframe. We cannot assure you that we will be granted a favorable
10
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decision or that any additional financing will be available on acceptable terms,
if SoloPoint is delisted or at all when such financing is needed. Moreover, if
additional financing is unavailable, we could be required to reduce or suspend
operations, seek an acquisition partner or sell securities on terms that may be
highly dilutive or otherwise disadvantageous to investors.
Recent Product Introductions; Emerging Market; Dependence on Market Acceptance
of Products; Lack of Adequate Marketing Resources We have only recently
introduced our current products and to date we have 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 us to achieve broad commercial
acceptance of our 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 we will be able
to achieve, if any. To date, the market for personal communications management
products has developed at a significantly slower rate than we had originally
anticipated. If the personal communications management market fails to grow or
grows at a slower rate than we currently anticipate, or if we fail to achieve
sufficient market penetration, our 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 our current products or any future personal communications management
products introduced by us will achieve commercial acceptance within such a
market. Marketing newly introduced products such ours in a developing market
requires extensive financial resources and marketing efforts. To date, we have
not had sufficient financial resources to adequately market our products.
Risks Associated with Strategic Relationships We believe that our future
success, if any, will be largely dependent on our ability to either sell our
products to or enter into joint marketing arrangements with RBOCs and LECs in
the United States. In particular, we believe that certain of our 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 us to develop significant
relationships with RBOCs and LECs would have a materially adverse effect on
our business and operating results. We have entered into a marketing
agreement with Pacific Bell, which calls for Pacific Bell to market a co-branded
version of our SmartScreen S-100 product. Also, during the first quarter of 1999
we have entered into an agreement with Cincinnati Bell for our S-310 product.
We cannot assure that the marketing agreement with Pacific Bell will be
successful or that we will be able to establish relationships with other RBOCs.
Even if we are successful in establishing alliances or relationships with RBOCs,
LECs or other strategic partners, we cannot assure that such alliances
or relationships will result in an increase in our distribution channels or
product revenues or otherwise provide any benefit to us. In addition, the
strategic partners may be in direct or indirect competition with us or among
each other. The presence of potential or actual conflicts of interest could
materially adversely affect our relationships with potential strategic partners,
which in turn could have a material adverse effect on our business, financial
condition and results of operations.
Dependence on Limited Number of Customers We expect that sales to relatively few
customers will continue to account for a significant percentage of our revenues
for the foreseeable future. Substantially all of our sales are made on a
purchase order basis, and none of our customers have entered into an agreement
requiring them to purchase our products. The loss of or any reduction in orders
or returns of product from a current customer could have a material adverse
effect on our business, financial condition and results of operations in the
near term.
SoloPoint's ability to increase its sales will depend in part upon its ability
to obtain orders from new customers. In this regard, we intend to expand our
efforts to sell to RBOCs and LECs. SoloPoint has had only nominal sales to
several RBOCs 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, our
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 SoloPoint's Common Stock are quoted on the Nasdaq SmallCap
Market. The Nasdaq Small-Cap Market is a significantly less liquid market than
the Nasdaq National Market. If we should continue to experience losses from
operations, we may be unable to maintain the standards for continued quotation
on the Nasdaq SmallCap Market. Trading, if any, in our 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 on the price, of our 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 our Common Stock were removed from the Nasdaq SmallCap Market,
our Common Stock would then be subject to so-called "penny stock"
11
<PAGE>
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 our
Common Stock and the ability of purchasers of our Common Stock to sell their
securities in the secondary market. In addition, because the market price of our
Common stock is less than $5.00 per share, we 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 our Common Stock and the ability of
purchasers to sell our Common Stock in the secondary market.
In April 1999 we received a letter from Nasdaq discussing potential delisting
of our Common Stock due to non-maintenance of Nasdaq's minimum net tangible
asset requirement. We submitted a response to Nasdaq, which provided a plan on
how we would meet this requirement in the near term. Nasdaq responded that
there was inadequate definitive support that the plan would be executed and
based upon their review would proceed with the potential delisting of our
Common Stock. Upon receiving Nasdaq's response to our plan we immediately
requested an oral hearing with a Panel from Nasdaq to present additional
support for our plan of meeting Nasdaq's requirements for continued listing.
Nasdaq granted to the oral hearing, which was set for August 12, 1999. As of
the date of this filing we have yet to receive a definitive decision from the
Nasdaq Panel. Until we receive the Panel's decision, our Common Stock will
remain listed on 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 following:
Our plans to:
. create a line of personal communications management products;
. establish strategic alliances and business relationships;
. implement a multichannel distribution strategy;
. expend resources to create end-user demand and brand recognition and
. file additional patent applications.
These forward-looking statements may also be deemed to include our expectations
concerning factors affecting the market for our current products and any future
personal communications management products we 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 we assume 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 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 Edward M. Esber, Jr., Patrick Grady, Murali Narayanan 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 349,250 to 949,250
shares.
3. To ratify the appointment of Ernst & Young LLP as independent public
accountants of the corporation for the year ending December 31, 1999.
Results of the Shareholder Vote:
1. Election of Directors:
The election of directors was approved as follows:
-------------------------------
In Favor Against Withheld
-------- ------- --------
-------------------------------
Edward M. Esber, Jr. 1,600,389 50,190 26,525
-------------------------------
Patrick Grady 1,599,139 51,440 27,775
-------------------------------
Murali Narayanan 1,601,639 48,940 25,275
-------------------------------
Arthur G. Chang 1,619,414 31,165 7,500
-------------------------------
-------------------------------
In Favor Against Withheld
-------- ------- --------
-------------------------------
2. Approval of Amendment of 1993 Incentive
Stock Plan: 1,497,017 142,662 10,900
-------------------------------
-------------------------------
In Favor Against Withheld
-------- ------- --------
-------------------------------
3. Approval of Ratification of Ernst & Young
LLP as independent public accountants of
the corporation for the year ending
December 31, 1999: 1,555,817 36,325 58,437
-------------------------------
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 - Financial Data Schedule
b) Reports on Form 8-K
- None
14
<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 16, 1999 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)
15
<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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 310,156
<SECURITIES> 0
<RECEIVABLES> 306,699
<ALLOWANCES> 161,500
<INVENTORY> 192,307
<CURRENT-ASSETS> 707,581
<PP&E> 567,659
<DEPRECIATION> 455,415
<TOTAL-ASSETS> 907,822
<CURRENT-LIABILITIES> 763,381
<BONDS> 0
0
0
<COMMON> 15,956,449
<OTHER-SE> (15,779,578)
<TOTAL-LIABILITY-AND-EQUITY> 907,822
<SALES> 380,904
<TOTAL-REVENUES> 380,904
<CGS> 354,136
<TOTAL-COSTS> 467,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,889
<INCOME-PRETAX> (442,544)
<INCOME-TAX> 0
<INCOME-CONTINUING> (442,544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,544)
<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
