<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- -
Act of 1934
For the fiscal quarter ended: March 31, 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 March 31, 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 months ended March 31, 1999 and 1998
and the period March 26, 1993 (inception) through March 31, 1999
Condensed Balance Sheet 4
March 31, 1999
Condensed Statements of Cash Flows 5
three months ended March 31, 1999 and 1998
and the period March 26, 1993 (inception) through March 31, 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 6 Exhibits and Reports on Form 8-K 14
Signature 15
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
SoloPoint, Inc.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Period from
March 26, 1993
(inception)
Three months ended through
March 31 March 31,
1999 1998 1999
--------------------- ------------
Net revenues $ 176,550 $ 105,637 $ 1,620,714
Cost of sales 167,748 63,782 2,031,761
--------- --------- ------------
Gross margin 8,802 41,855 (411,047)
Costs and expenses:
Research and development 180,353 286,391 5,849,156
Sales and marketing 158,394 157,302 4,101,681
General and administrative 235,207 267,674 5,116,301
--------- --------- ------------
573,954 711,367 15,067,138
--------- --------- ------------
Loss from operations (565,152) (669,512) (15,478,185)
Interest income, net 120 21,733 174,268
--------- --------- ------------
Net loss $(565,032) $(647,779) $(15,303,917)
========= ========= ============
Basic and diluted net loss $ (.27) $ (.31)
per share ========= =========
Shares used in computing
basic and diluted net loss per 2,076,455 2,076,455
share ========= =========
See accompanying notes.
3
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SoloPoint, Inc.
(a development stage company)
CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
March 31, 1999
--------------
Current assets:
Cash $ 525,453
Accounts receivable, net 176,724
Inventories 351,933
Other current assets 58,833
------------
Total current assets 1,112,943
Furniture and equipment, at cost:
Computers and software 278,453
Furniture and fixtures 284,963
Accumulated depreciation and amortization (432,126)
------------
131,290
Other non-current assets 37,997
------------
Total assets $ 1,282,230
============
Current liabilities:
Accounts payable $ 426,873
Accrued compensation 12,433
Other accrued liabilities 47,469
Bank line of credit 100,000
Deferred revenue 58,660
Notes payable, current portion 51,601
------------
Total current liabilities 697,036
Notes payable, non-current portion 25,549
Shareholders' equity:
Common stock 15,956,449
Deficit accumulated during the development stage (15,337,034)
Notes receivable from shareholders (59,770)
------------
Total shareholders' equity 559,645
------------
Total liabilities and shareholders' equity $ 1,282,230
============
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)
Three months ended through
March 31 March 31,
1999 1998 1999
------------------------ --------------
<S> <C> <C> <C>
Operating activities
Net loss $ (565,032) $ (647,779) $(15,303,916)
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 23,289 29,187 432,127
Changes in operating assets and liabilities 81,523 (287,145) (849,475)
---------- ---------- --------------
Net cash used in operating activities (460,220) (905,737) (14,773,313)
Investing activities
Acquisitions of furniture and equipment (7,503) (2,650) (549,019)
Loan to shareholder - - (35,000)
Payment received from shareholder - - 1,500
Deposits and other assets - - (37,997)
---------- ---------- --------------
Net cash used in investing activities (7,503) (2,650) (620,516)
Financing activities
Proceeds from convertible notes payable to shareholders - - 1,120,000
Proceeds from bank line of credit - - 100,000
Proceeds from convertible notes payable - - 1,813,000
Proceeds from notes payable - - 191,496
Principal payments on capital lease obligations (12,669) (16,144) (128,741)
Proceeds from notes receivable from shareholders - 6,156 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 - 3,763,901 8,774,175
---------- ---------- --------------
Net cash (used in) provided by financing activities (12,669) 3,753,913 15,919,282
---------- ---------- --------------
Net increase (decrease) in cash (480,392) 2,845,526 525,453
Cash at beginning of period 1,005,845 65,858 -
---------- ---------- --------------
Cash at end of period $ 525,453 $2,911,384 $ 525,453
========== ========== ==============
</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 month periods
ended March 31, 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 month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
2. 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 month periods
ended March 31, 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
quarter ended March 31, 1999, two customers accounted for approximately 44%
and 31% of SoloPoint's net revenues compared to one customer during the
quarter ended March 31, 1998 which accounted for approximately 60% 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.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
establishes guidelines for the accounting for the costs of all computer-
software developed or obtained for internal use. The Company has adopted
SOP 98-1 effective January 1, 1999 and the adoption of SOP 98-1 has not had
a material impact on the Company's financial statements.
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 the 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 August 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 March 31, 1999, were $176,550 compared
to $105,637 for the three months ended March 31, 1998, an increase of 67%. The
increase in net revenues is mainly attributable to revenues from the initial
customer shipment of our new S-310 Complete Call Manager.
7
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Cost of Sales
Cost of sales for the three months ended March 31, 1999 was $167,748,which was
95% of revenue as compared to $63,782 for the three months ended March 31, 1998
which was 60% for that period. Gross margin percentage for the three months
ended March 31, 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 declined 37% in the
------------------------
three months ended March 31, 1999 to $180,353 as compared with expenses of
$286,391 for the three months ended March 31, 1998, mainly due to reduced
headcount for the three months ended March 31, 1999 as well as a reduction in
the utilization of outside contractors for development. The Company anticipates
that research and development expenses will remain relatively consistent with
the first quarter of 1999 level for the balance of 1999.
Sales and Marketing Sales and marketing expenses remained flat in the three
-------------------
months ended March 31, 1999 at $158,394 as compared to expenses of $157,302
for the three months ended March 31, 1998 as a result of cost controls
implemented by us during the second half of 1998. We anticipate that sales and
marketing expenses will grow in future quarters from the level experienced in
the first quarter 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 decreased 12%
--------------------------
in the three months ended March 31, 1999 to $235,207 from $267,674 in the three
months ended March 31, 1998. The decrease 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 add the infrastructure necessary to accommodate expanded
operations and to support a growing customer base.
Other Income (Expense)
Other income is comprised primarily of interest on cash balances. Interest
income for the three months ended March 31, 1999 primarily reflects interest on
cash balances from the completion of our secondary offering of our common stock
in January 1998, which secured net proceeds of $3.5 million, as compared to
interest income for the three months ended March 31, 1998 also from the
completion of our secondary offering in January 1998. The net proceeds from the
secondary offering earned interest through investment in money market funds. For
the quarter ended March 31, 1999 the Company recognized interest income of
$5,053 offset by interest expense of $4,933 as compared with interest income of
$34,850 offset by interest expense of $13,117 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 month
period ending March 31, 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
8
<PAGE>
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.
Liquidity and Capital Resources
As of March 31, 1999, SoloPoint had cash of $525,453 and working capital of
$415,907 as compared to cash of $2,911,384 and working capital of $3,320,555 at
March 31, 1998. We used cash of $460,220 in our operating activities for the
quarter ended March 31, 1999. During the quarter ended March 31, 1999 the
Company's 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. 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.
There can be no assurance 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. As of
March 31, 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
March 31, 1999, we have an accumulated deficit of $15,337,034, and have incurred
an operating loss of $565,152 in the quarter ended March 31, 1999. We expect to
continue to incur substantial operating losses at least through its fiscal year
ending December 31, 1999.
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.
9
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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.
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 second 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 during the second
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 March 31, 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 in the
second quarter of 1999, and the activities that remain to be completed, we do
not consider contingency planning to be necessary at this time.
10
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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 nor
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 $15,337,034
as of March 31, 1999. We will require additional funding during 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 for only 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 intend to seek additional funding during the next three months
and will possibly seek additional funding after that time. We cannot assure
you that any additional financing will be available on acceptable terms, if at
all when we need such financing. 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 its
products.
Risks Associated with Strategic Relationships We believes 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
the Company's 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. There can be no assurance 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, there
can be no assurance 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.
11
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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 its
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, 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 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, the
our 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 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 such Common Stock in the secondary market. We have recently
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
have submitted a response to Nasdaq, which provides a plan on how we will meet
this requirement in the near term. We are awaiting a response to our plan.
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 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 we assume no
12
<PAGE>
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.
13
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 - Financial Data Schedule
b) Reports on Form 8-K
- 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: May 14, 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 MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 525,453
<SECURITIES> 0
<RECEIVABLES> 309,469
<ALLOWANCES> 132,925
<INVENTORY> 351,932
<CURRENT-ASSETS> 1,112,943
<PP&E> 563,416
<DEPRECIATION> 432,126
<TOTAL-ASSETS> 1,282,230
<CURRENT-LIABILITIES> 697,036
<BONDS> 0
0
0
<COMMON> 1,515,896,679
<OTHER-SE> (15,337,034)
<TOTAL-LIABILITY-AND-EQUITY> 559,645
<SALES> 176,550
<TOTAL-REVENUES> 176,550
<CGS> 167,748
<TOTAL-COSTS> 573,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,053
<INCOME-PRETAX> (565,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (565,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (565,032)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
