<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- -
Act of 1934
For the fiscal quarter ended: September 30, 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 September 30, 1999
Common Stock - no par value 4,981,284
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SOLOPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations 3
three and nine months ended September 30, 1999 and 1998
and the period March 26, 1993 (inception) through September 30, 1999
Condensed Balance Sheet 4
September 30, 1999
Condensed Statements of Cash Flows 5
nine months ended September 30, 1999 and 1998
and the period March 26, 1993 (inception) through September 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. 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,
1999 1998 1999 1998 1999
-------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 684,065 $ 222,879 $ 1,241,519 $ 461,111 $ 2,685,683
Cost of sales 691,535 175,917 1,213,419 324,664 3,077,432
---------- ---------- ----------- ------------ ------------
Gross margin (7,470) 46,962 28,100 136,447 (391,749)
Costs and expenses:
Research and development 179,481 215,042 526,902 777,858 6,195,705
Sales and marketing 91,289 128,381 352,269 491,863 4,295,556
General and administrative 306,880 207,343 739,885 769,151 5,620,979
---------- ---------- ----------- ------------ ------------
577,650 550,766 1,619,056 2,038,872 16,112,240
---------- ---------- ----------- ------------ ------------
Loss from operations (585,120) (503,804) (1,590,956) (1,902,425) (16,503,989)
Interest (expense)income, net (1,538) 23,862 (3,278) 72,382 170,870
---------- ---------- ----------- ------------ ------------
Net loss $ (586,658) $ (479,942) $(1,594,234) $ (1,830,043) $(16,333,119)
========== ========== =========== ============ ============
Basic and diluted net loss per share $ (.23) $ (.23) $ (.71) $ (.88)
========== ========== =========== ============
Shares used in computing
basic and diluted net loss per share 2,550,068 2,076,455 2,236,061 2,076,455
========== ========== =========== ============
</TABLE>
See accompanying notes.
3
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SoloPoint, Inc.
(a development stage company)
CONDENSED BALANCE SHEET
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Current assets:
Cash $ 2,755,057
Accounts receivable, net 163,751
Inventories 243,116
Other current assets 82,253
------------
Total current assets 3,244,177
Furniture and equipment, at cost:
Computers and software 282,696
Furniture and fixtures 284,963
Accumulated depreciation and amortization (478,703)
------------
88,956
Other non-current assets 37,997
------------
Total assets $ 3,371,130
============
Current liabilities:
Accounts payable $ 590,713
Accrued compensation 17,218
Other accrued liabilities 62,777
Deferred revenue 6,626
Notes payable, current portion 35,659
------------
Total current liabilities 712,993
Notes payable, non-current portion 14,798
Shareholders' equity:
Common stock 19,009,574
Deficit accumulated during the development stage (16,366,235)
------------
Total shareholders' equity 2,643,339
------------
Total liabilities and shareholders' equity $ 3,371,130
============
</TABLE>
See accompanying notes
4
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SoloPoint, Inc.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
March 26, 1993
(inception)
Nine months ended through
September 30 September 30,
1999 1998 1999
---------------------------- -------------
<S> <C> <C> <C>
Operating activities
Net loss $(1,594,234) $(1,830,043) $(16,333,119)
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 69,865 74,339 478,703
Changes in operating assets and liabilities 311,794 (343,411) (619,203)
----------- ----------- ------------
Net cash used in operating activities (1,212,575) (2,099,115) (15,525,668)
Investing activities
Acquisitions of furniture and equipment (11,746) (45,031) (553,262)
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) (45,031) (624,759)
Financing activities
Proceeds from convertible notes payable to shareholders - - 1,120,000
Proceeds from bank line of credit 100,000 100,000
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 (39,362) (36,158) (155,434)
Proceeds from notes receivable from shareholders 59,770 - 157,500
Proceeds from sale of preferred stock, net of issuance costs - - 3,951,622
Issuance of common stock, net of repurchases and
issuance costs 3,053,125 3,543,561 11,827,300
----------- ----------- ------------
Net cash provided by financing activities 2,973,533 3,607,403 18,905,484
Net increase (decrease) in cash 1,749,212 1,488,987 2,755,057
Cash at beginning of period 1,005,845 65,858 -
----------- ----------- ------------
Cash at end of period $ 2,755,057 $ 1,554,845 $ 2,755,057
=========== =========== ============
</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, 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 nine month periods ended
September 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 loss per share
divided by the weighted average number of common shares outstanding. Diluted
net 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 (loss) 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, 1999 and 1998.
4. Segment Information 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 nine months ended September 30,
1999, two customers accounted for approximately 74% and 14% of SoloPoint's
net revenues compared to one customer during the nine months ended September
30, 1998 which accounted for approximately 44% 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. During the quarter
ended September 30, 1999 SoloPoint completed a Private Placement of Common Stock
for $3,150,000. We believe this funding provides us with adequate working
capital through at least the year 2000. However, we cannot assure you that
additional funding may not be necessary in the future or that funding will be
available to us on acceptable terms, if at all, if needed 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. One major customer does not have
this 30 day money back guarantee and therefore revenues are recognized upon
shipment. 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 September 30, 1999, were $684,065
compared to $222,879 for the three months ended September 30, 1998, an increase
of 207%. Net revenues for the nine month period ended September 30, 1999 were
$1,241,519 compared to $461,111 for the nine month period ended September 30,
1998, an increase
7
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of 169%. The increase in net revenues for both the three and nine month periods
is mainly attributable to revenues from the initial customer shipments of our
new S-310 Complete Call Manager.
Gross Margin
Cost of sales for the three months ended September 30, 1999, was $691,535, which
was 101% of revenue as compared to $175,917 for the three months ended September
30, 1998 which was 79% of revenue for that period. Cost of sales for the nine
month period ended September 30, 1999 was $1,213,419 which was 98% of revenue
compared to $324,664 which was 70% of revenue for the nine month period ended
September 30, 1998. Gross margin percentage for the three and nine month periods
ended September 30, 1999 declined primarily due to our aggressive initial
pricing of our new S-310 product, higher freight costs incurred in order to meet
our customer delivery schedules, 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 $179,481 for
the three months ended September 30, 1999 compared to $215,042 for the three
months ended September 30, 1998, a decline of 17%. Research and development
expenses for the nine months ended September 30, 1999 were $526,902 as compared
to $777,858 for the nine month period ended September 30, 1998, a decline of
32%. The decline for the three and nine month periods ended September 30, 1999
is mainly due to reduced headcount, a reduction in the utilization of outside
contractors for development during both of these periods as well as reduced
spending for beta components. We anticipate that research and development
expenses for the balance of 1999 will remain relatively consistent with the
first three quarters of 1999.
Sales and Marketing. Sales and marketing expenses for the three months ended
September 30, 1999, were $91,289 as compared to expenses of $128,381 for the
three months ended September 30, 1998, a decrease of 29%. Sales and marketing
expenses for the nine month period ended September 30, 1999 were $352,269
compared to $491,863 for the nine month period ended September 30, 1998, a
decline of 28%. The decline for the three and nine month periods ended September
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 nine 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 $306,880
for the three months ended September 30, 1999, as compared to $207,343 for the
three months ended September 30, 1998. This increase of 48% is attributable to a
one time bonus of $50,000 of fully vested common stock paid to one of our
suppliers in exchange for past extension of payment terms as well as the payment
of cash bonuses which were then used to pay off shareholder notes as reflected
in the cash flow. If these one-time charges were not incurred, expenses would
have decreased by 4% for the three months ended September 30, 1999, compared to
the same period last year. General and administrative expenses decreased 4% for
the nine month period ended September 30, 1999 to $739,885 from $769,151 in the
first nine months of 1998. The decrease for the nine months ended September 30,
1999 is primarily due to a 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
$1,659 for the three months ended September 30, 1999 primarily reflects interest
on cash balances as compared to interest income of $35,105 for the three months
ended September 30, 1998 which resulted from interest earned on the proceeds
from the completion of our secondary offering in January 1998. For the nine
months ended September 30, 1999 we recognized interest income of $8,808 offset
by interest expense of $12,086 as compared with interest income of $99,252
offset by interest expense of $26,870 for the same period of the prior year.
Provision for Income Taxes
8
<PAGE>
There was no provision for federal or state income taxes for the three and nine
month periods ending September 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.
Liquidity and Capital Resources
As of September 30, 1999, SoloPoint had cash of $2,755,057 and working capital
of $2,531,184 as compared to cash of $1,554,845 and working capital of
$1,894,011 at September 30, 1998. We used cash of $1,212,575 in our operating
activities for the nine months ended September 30, 1999. During the nine months
ended September 30, 1999 our principal uses of cash were to fund the Company's
working capital requirements.
We expect to incur additional substantial losses through the end of calendar
1999 and possibly through 2000. During September 1999 we closed financing in the
amount of $3,150,000 which should provide working capital through at least the
year 2000, before expenses, through a private placement of our common stock. We
cannot assure that any additional financing will be required in the future or
that 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 September
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 September
30, 1999, we have an accumulated deficit of $16,366,235, and have incurred an
operating loss of $1,590,956 in the nine months ended September 30, 1999. We
expect to continue to incur substantial operating losses at least through our
fiscal year ending December 31, 1999 and possibly through 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
9
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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.
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 in the process of upgrading our internal
and administrative information systems to determine the areas of Year 2000
exposure. We plan to purchase and implement upgrades to the Year 2000 compliant
versions in the fourth 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
completed our implementation and testing of the solution during the third
quarter ended September 30, 1999. We are continually 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.
Indications are that they anticipate their systems will be Year 2000 compliant
by the end of December 1999.
We continue 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. As of September 30, 1999, we believe this estimate to still be accurate.
We have also identified the cost components related to correcting the Year 2000
problem on our one product. The cost to complete the correction was less than
$5,000. 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 anticipate this being completed by the end of 1999. 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 fourth 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 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 $16,333,119 as
of September 30, 1999. During September 1999 we closed financing in the amount
of $3,150,000, before expenses, through a private placement of our common stock.
We cannot assure that any additional financing will not be required in the
future or that additional financing will be available on acceptable terms, or at
all, when required by us. 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. Based upon the successful completion of our recent private placement
we believe we have adequate working capital through the end of calendar year
2000.
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 as 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 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 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 agreements with Pacific Bell and Cincinnati 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
11
<PAGE>
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 On August 12, 1999, we attended an oral hearing before the Nasdaq Panel
to determine if shares of SoloPoint's Common Stock were to be delisted from the
Nasdaq SmallCap Market. The Nasdaq Small-Cap Market is a significantly less
liquid market than the Nasdaq National Market. We requested an expedited
decision based upon our timing to complete our private placement which was
underway at the time of the hearing. On September 2, 1999, we were granted a
qualifications exception by the Nasdaq Listing Qualifications Panel based upon
SoloPoint meeting certain criteria by October 29, 1999. We complied with all but
one criteria. This criteria was that SoloPoint's stock price be at $1.00 or
above as of October 29, 1999, and remain at that level for a minimum of ten
consecutive business days. We held a Special Shareholders Meeting on October 26,
1999. One of the proposals to be voted on at this meeting was the approval for a
one for three reverse split which would have allowed the stock price to meet
Nasdaq's requirement. However, the one for three reverse split proposal was
voted down by a majority of the shareholders. Our stock price as of October 29,
1999 was below the $1.00 required by Nasdaq. This, in conjunction with the
defeat of the one for three reverse split proposal at our Shareholder meeting,
caused the Nasdaq to delist SoloPoint's common stock from the Nasdaq SmallCap
Market effective with the close of business on November 2, 1999. However, our
stock will be eligible to trade on the OTC ("Over the Counter") Bulletin Board.
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. 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 2000 Annual Meeting of shareholders must be received by the Company no
later than December 31, 1999, 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, 2000. 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 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 - Financial Data Schedule
b) Reports on Form 8-K
- None
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 15, 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)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,755,057
<SECURITIES> 0
<RECEIVABLES> 336,186
<ALLOWANCES> 172,435
<INVENTORY> 243,116
<CURRENT-ASSETS> 3,244,177
<PP&E> 567,659
<DEPRECIATION> 478,703
<TOTAL-ASSETS> 3,371,130
<CURRENT-LIABILITIES> 712,993
<BONDS> 0
0
0
<COMMON> 19,009,574
<OTHER-SE> (16,366,235)
<TOTAL-LIABILITY-AND-EQUITY> 3,371,130
<SALES> 684,065
<TOTAL-REVENUES> 684,065
<CGS> 691,535
<TOTAL-COSTS> 577,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,197
<INCOME-PRETAX> (586,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (586,658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,658)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
