<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1996
------------------------------------------------------
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 2-93124
---------------------------------------------------------
SGI International
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 33-0119035
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Prospect Street, Suite 325, La Jolla, California 92037
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(Address of principal executive offices)
(619) 551-1090
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Registrant's telephone number, including area code
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.
[X] Yes [ ] No
The number of shares of Common Stock, no par value, outstanding as of May 10,
1996 was 5,252,000.
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TABLE OF CONTENTS
FORM 10-Q/A
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<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3 - 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statement of Stockholders' Deficit 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9 - 11
PART II. OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
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SGI INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash $ 285,589 $ 74,154
Trade accounts receivable, less allowance for doubtful
accounts of $7,343 in 1996 and 1995 649,501 341,352
Costs and estimated earnings in excess of billings
on uncompleted contracts 86,074 271,448
Inventories 69,292 68,289
Prepaid expenses and other current assets 117,940 114,143
-------------------------
Total current assets 1,208,396 869,386
LFC Process related assets:
Notes receivable 1,067,932 1,123,948
Royalty rights 2,121,188 2,199,750
LFC cogeneration project 605,384 631,705
Investment in TEK-KOL partnership 672,379 596,276
Australia LFC project 166,515 173,754
Other technological assets 26,440 26,440
Process demonstration equipment, net
of accumulated depreciation of
$646,711 and $608,592 in 1996
and 1995, respectively 115,662 153,781
-------------------------
4,775,500 4,905,654
Property and equipment, net of accumulated
depreciation and amortization of $291,072
and $269,040 in 1996 and 1995, respectively 252,250 249,328
Other assets -- 12,876
Goodwill, net 467,335 479,318
-------------------------
$6,703,481 $6,516,562
=========================
</TABLE>
See notes to condensed consolidated financial statements.
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SGI INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------------------
(UNAUDITED)
<S> <C> <C>
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 566,461 $ 683,583
Billings in excess of costs and estimated earnings
on uncompleted contracts 184,403 175,745
Current maturities of long-term obligations 511,625 909,016
Notes payable to Director -- 304,000
Accrued salaries, benefits and related taxes 650,975 139,103
Royalties payable to related party -- 141,790
Contributions payable to TEK-KOL Partnership 336,476 336,476
Interest payable 78,219 139,663
Other accrued expenses 477,241 409,089
------------------------------
Total current liabilities 2,805,400 3,238,465
Interest payable 377,275 276,425
Long-term notes payable, less current maturities 4,524,246 4,631,250
Commitments and contingencies
Stockholders' deficit:
Convertible preferred stock, $.01 par value;
20,000,000 shares authorized 103,765
shares issued and outstanding (103,729 at
December 31, 1995), preference in
liquidation of $2,960,000 1,037 1,037
Common stock, no par value; 75,000,000 shares
authorized, 4,826,770 shares issued and
outstanding (3,859,671 at December 31, 1995) 33,369,542 32,255,357
Paid-in capital 5,131,397 4,582,215
Accumulated deficit (39,196,993) (38,159,764)
Notes receivable from employees for common stock (308,423) (308,423)
------------------------------
Total stockholders' deficit (1,003,440) (1,629,578)
------------------------------
$ 6,703,481 $ 6,516,562
==============================
</TABLE>
See notes to condensed consolidated financial statements.
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SGI International
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
-----------------------------
<S> <C> <C>
Revenues:
Net sales $ 1,056,677 $ --
Income from Investment in TEK-KOL 76,103 --
Other 141,936 11,856
-----------------------------
1,274,716 11,856
Expenses:
Cost of sales 794,066
Engineering, research and consulting 154,774 665,654
Selling, general and administrative 590,379 276,577
Legal and accounting 455,214 207,166
Depreciation and amortization 165,734 251,110
Interest 151,778 241,516
-----------------------------
2,311,945 1,642,023
-----------------------------
Net loss $(1,037,229) $(1,630,167)
=============================
Net loss per share $ (.24) $ (.76)
=============================
Weighted average shares outstanding 4,270,607 2,138,618
=============================
</TABLE>
See notes to condensed consolidated financial statements.
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SGI International
Consolidated Statement of Stockholders' Deficit
(Unaudited)
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock
--------------- -------------------- Accumulated
Shares Amount Shares Amount Paid-in capital deficit
------ ------ ------ ------ --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 103,729 $1,037 3,859,671 $32,255,357 $4,582,215 $(38,159,764)
Issuance of common stock for cash 677,306 737,392
Exercise of warrants to purchase common stock for cash 6,593 1,654
Issuance of convertible preferred stock for notes
payable and interest 36 -- 407,579
Issuance of common stock for notes payable and interest 283,200 375,139
Warrants granted for accounts payable, notes
payable, interest and services 141,603
Net loss (1,037,229)
--------------------------------------------------------------------
Balances at March 31, 1996 103,765 $1,037 4,826,770 $33,369,542 $5,131,397 $(39,196,993)
====================================================================
<CAPTION>
Total
Notes stockholders'
receivable deficit
---------- -------
<S> <C> <C>
Balances at December 31, 1995 $(308,423) $(1,629,578)
Issuance of common stock for cash 737,392
Exercise of warrants to purchase common stock for cash 1,654
Issuance of convertible preferred stock for notes
payable and interest 407,579
Issuance of common stock for notes payable and interest 375,139
Warrants granted for accounts payable, notes
payable, interest and services 141,603
Net loss (1,037,229)
-----------------------
Balances at March 31, 1996 $(308,423) $(1,003,440)
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
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SGI International
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
----------------------------
<S> <C> <C>
Operating activities
Net loss $(1,037,229) $(1,630,167)
Adjustments to reconcile net loss to net cash flows used for
operating activities:
Depreciation and amortization 184,256 251,110
Amortization of note discounts -- 46,610
Preferred stock issued for interest 23,170 --
Changes in assets and liabilities:
Receivable from joint venture partner -- 45,823
Trade accounts receivable (122,775) --
Inventories (1,003) --
Receivable from officers and directors -- (7,752)
Prepaid expenses and other current assets (3,797) 842
Accounts payable (117,122) 2,922
Billings in excess of costs and estimated earnings
uncompleted contracts 8,658 --
Accrued salaries, benefits and related taxes 511,872 (4,841)
Royalty payable to related party (141,790) 12,500
Interest payable 100,162 21,976
Other accrued expenses 68,152 --
----------------------------
Net cash flows used for operating activities (527,446) (1,260,977)
Investing activities
LFC process related assets:
Collection of notes receivable and related interest 56,016 --
Additions to other technological assets -- (20,876)
Additions to process demonstration equipment -- (23,268)
Investment in TEK-KOL (76,103) --
Purchase of property and equipment (24,954) --
Other assets 12,876 (406)
----------------------------
Net cash flows used for investing activities (32,165) (44,550)
Financing activities
Proceeds from issuance of notes payable 50,000 14,696
Payments of notes payable (18,000) (419,750)
Proceeds from issuance of preferred stock -- 1,113,943
Proceeds from issuance of common stock 739,046 280,125
----------------------------
Net cash flows provided by financing activities 771,046 989,014
----------------------------
Net increase (decrease) in cash 211,435 (316,513)
Cash at beginning of the period 74,154 551,299
----------------------------
Cash at end of the period $ 285,589 $ 234,786
============================
Supplemental disclosure of non-cash activities:
Series 96 convertible preferred stock issued for notes payable $ 360,000 --
============================
Warrants granted for accounts payable, notes
payable, interest and services $ 141,603 --
============================
</TABLE>
See accompanying notes to consolidated financial statements.
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SGI International
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of SGI
International (the Company) for the three months ended March 31, 1996 and
1995 are unaudited. These financial statements reflect all adjustments,
consisting of only normal recurring adjustments which, in the opinion of
management, are necessary for a fair statement of the consolidated
financial position as of March 31, 1996, and the consolidated results of
operations for the three months ended March 31, 1996 and 1995. The results
of operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the year ending December 31,
1996. For more complete financial information, these financial statements,
and the notes thereto, should be read in conjunction with the consolidated
audited financial statements for the year ended December 31, 1995 included
in the Company's Form 10-K filed with the Securities and Exchange
Commission.
(2) ORGANIZATION AND BUSINESS
The principal businesses of the Company are developing, commercializing,
and licensing new energy technologies; and manufacturing automated assembly
equipment.
The Company's principal assets are related to the LFC (Liquid From Coal)
Process. The recovery of these assets is dependent upon future events,
including the Company's ability to attract sufficient additional equity
and/or financing needed to fund its portion of the TEK-KOL Partnership,
that is responsible for completion and commercialization of the LFC
Process. The Company is engaged in continuing negotiations to secure
additional capital and financing, and while management believes it will be
successful, there is no assurance that these efforts will be successful.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PROJECTIONS AND ESTIMATES
The projections, estimates and opinions of management contained herein
relative to the LFC and OCET Processes and to the business of Company set forth
herein are forward looking statements and statements of management's belief:
thus, there can be no assurance that these projections, estimates, or opinions
of management will ultimately be correct or that actual results or events will
not differ materially from those discussed herein. Further, until agreements are
actually executed, LFC plants actually begin construction, the OCET Process is
actually commercialized and operating revenues are actually earned, there can be
no assurance that such events will occur. The Company undertakes no obligation
to publicly release the results of any revisions to these forward- looking
statements, which are made herein to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
The Company's stockholders' deficit has decreased from $1.63 million at
December 31, 1995 to $1.04 million at March 31, 1996. The improvement results
from the continuing conversion of debt into equity and significantly reduced
expenditure of the Company's funds. Management believes the financial condition
of the Company has improved and will continue to improve in the coming months.
Many challenges are ahead as the Company and TEK-KOL commercialize the LFC
process. Expenditures for OCET process development are continuing and are
expected to increase.
During the first quarter, TEK-KOL entered into an agreement with Mitsubishi
pursuant to which MHI will pay a royalty to TEK-KOL based on the revenue
received by MHI from its sale of equipment and services to LFC plants, if and
when constructed. MHI will also assist in completing engineering for a potential
Powder River LFC plant and adapt that engineering to specific international
projects. Further, MHI has an option to obtain a four year scope-of-supply
exclusive in the Pacific Rim. If the option is exercised, MHI will pay TEK- KOL
$1 million per year during the exclusivity period, which is subject to
termination on written notice by either party. TEK-KOL representatives are
negotiating an agreement with Mitsui, which, if executed, will provide for a LFC
product marketing study by Mitsui, an analysis of the opportunity for
development of LFC plants at several Mitsui mines, and assistance by Mitsui in
developing and optimizing an upgrading process for CDL.
The OCET process is designed to convert refinery Resid into higher value
petroleum distillate products and a synthetic coal. OCET Corporation, a
wholly-owned SGI subsidiary, entered into an agreement in 1995 to test a series
of crude oil and Resid oil samples provided by Maraven, a Venezuelan state-owned
oil company. Laboratory data is currently being extrapolated to a larger bench
scale continuous process design in order to complete this testing. Favorable
results could lead to licensing and royalty agreements with Maraven and its
affiliates. The Company also continued discussions in the first quarter of 1996
with the Department of Energy regarding a cooperative agreement and funding for
OCET's research and development efforts. The Company is drafting a written
program plan to submit to the DOE, which management expects will form the basis
for a cooperative research and development agreement.
The continuing need to fund Company operations with equity based financing
is causing significant dilution. Management is committed to accelerating
commercialization of the LFC and OCET technologies and increasing cash flows
from AMS's operations, rather than obtaining funds through the sale of equity.
However, equity sales will be required in the short-term.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.
The Company acquired AMS effective October 30, 1995. AMS recorded net
sales, cost of sales, and selling, general and administrative expense of $1.1
million, $794,000, and $208,000 for the three months ended March 31, 1996. The
following discussion does not include AMS's results of operations for that
period.
The Company recorded $76,000 as its share of income from TEK-KOL for the
three months ended March 31, 1996. TEK-KOL recorded no activity during the three
months ended March 31, 1995 as the partners were bearing the expenses directly.
Other income for the three months ended March 31, 1996 includes $142,000 from
the forgiveness of certain royalty obligations by a related party.
Engineering, research and development expenses for the three months ended
March 31, 1996 decreased 77% ($511,000) from the same prior year period. SGI
previously incurred LFC process marketing and candidate coal testing
expenditures which are now TEK-KOL's responsibility.
General and administrative expense for the three months ended March 31,
1996 increased 38% ($105,000) over the same prior year period. After adjusting
for a 1996 non-cash stock compensation charge of $158,000, on-going general and
administrative expense decreased 19% ($52,000) from the same prior year period.
Personnel and overhead reductions, instituted during the last two quarters of
1995, have caused on-going general and administrative expenses to decrease.
Legal and accounting expense for the three months ended March 31, 1996
increased 120% ($248,000) over the same prior year period. After adjusting for a
1996 non-cash stock compensation charge of $316,000, on-going legal and
accounting expense for the three months ended March 31, 1996 decreased 33%
($68,000) from the same prior year period. The prior year period included legal
expense related to implementing the one-for-twenty share reduction.
Depreciation and amortization expense for the three months ended March 31,
1996 decreased 34% ($85,000) from the same prior year period. Certain LFC
process related assets were written down in 1995 based on management's net
realizable value estimates. The 1995 write-downs cause depreciation and
amortization to be lower future periods.
Interest expense deceased 37% ($90,000) from the same prior year period.
The conversion of debt into equity during 1995 and 1996 has caused interest
expense to decrease.
LIQUIDITY AND CAPITAL RESOURCES
The Company acquired AMS effective October 30, 1995. The discussion on
Liquidity and Capital Resources includes the effect of this transaction unless
otherwise indicated.
The Company had short-term liquidity deficiencies at March 31, 1996 and
1995 of $1.1 million and $3.4 million, respectively. The net improvement was
achieved primarily through the conversion of notes payable and accrued interest
into equity. Current notes payable and accrued interest of $590,000 contribute
to the Company's short-term deficiency at March 31, 1996. Based on continuing
interaction with the noteholders, management believes that the Company should
procure subscriptions to convert the remaining current notes payable to
preferred stock or secure agreements to extend the note due dates to September
30, 1997. Dr. Esztergar has agreed to forego any and all royalties owed him for
the transfer of the LFC process patent to the Company. The Company raised
approximately $1.58 million through the issuance of 1,084,000 common shares
through May 10, 1996. These funds have been used to fund current operations and
to satisfy a portion of the Company's short-term liquidity deficiency. The
Company plans to satisfy the remaining short-term liquidity deficiency through
the sale of equity securities and the collection of receivables.
The Company had a long-term liquidity deficiency at March 31, 1996. The
Company expects this long-term liquidity deficiency to be satisfied by equity
sales, and increased positive cash flows from AMS's operations until such
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the collection of receivables.
The Company had a long-term liquidity deficiency at March 31, 1996. The
Company expects this long-term liquidity deficiency to be satisfied by equity
sales, and increased positive cash flows from AMS's operations until such time
as the commercialization of the LFC and OCET Processes results in positive
cash flows.
The Company's first quarter 1996 cash flows used for operating activities
decreased 59% ($746,000) from 1995. This decrease is primarily attributable to
TEK-KOL's assuming candidate coal testing and LFC plant marketing activities,
and the personnel and overhead reductions made in 1995.
The Company's financing activities raised approximately $789,000 and
$1,409,000 during the first quarter of 1996 and 1995, respectively. These funds
were raised primarily through the private placement of debt and equity
securities. The amount of money raised during a given period is dependent upon
financial market conditions, technological progress, and the Company's projected
funding requirements. The Company anticipates that future financing activities
will be influenced by the aforementioned factors. Significant future financing
activities will be required to fund future operating and investing activities
and to maintain debt service. At present, the Company has no commitments for
future purchases of its securities.
The Company's investing activities were minimal in the first quarter of
1996 and 1995.
Additional capital contributions to the TEK-KOL Partnership are expected to
be required from time to time prior to profitable operations. The Company is
required to contribute one-half of any such required capital contributions. The
Company has recorded contributions payable to TEK-KOL of $412,000 at March 31,
1996. Management believes substantially all of the 1996 funding requirements for
TEK-KOL will be paid by third parties with whom TEK-KOL has or expects to have
agreements. The Company will be required to contribute approximately $750,000
towards the 1996 TEK-KOL operating budget if none of these agreements are
consummated.
The Company does not have material commitments for capital expenditures as
of March 31, 1996.
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PART II. OTHER INFORMATION
================================================================================
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
1. EXHIBITS
4.44 Form of Series 96-A Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.44 of
Registrant's Form 10-Q for quarter ended March 31, 1996)
10.3.3 Second Amendment to Assignment Agreement and Release
dated as of 3/29/96 with Ernest P. Esztergar
(Incorporated by reference to Exhibit 10.3.3 of
Registrant's Form 10-Q for quarter ended March 31, 1996)
27 Financial Data Schedule (filed herewith)
28.9 Acquisition Agreement dated as of 3/4/96 with Kerr
Foundation (Incorporated by reference to Exhibit 28.9 of
Registrant's Form 10-Q for quarter ended March 31, 1996)
28.9.1 Settlement & General Release dated as of 3/4/96 with Kerr
Foundation (Incorporated by reference to Exhibit 28.9.1
of Registrant's Form 10-Q for quarter ended March 31,
1996)
2. REPORTS ON FORM 8-K
None
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================================================================================
SIGNATURES
================================================================================
Pursuant to the requirements of Section 13 or 15(d) 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.
SGI INTERNATIONAL
By: /s/ JOSEPH A. SAVOCA June 5, 1996
-------------------------
Joseph A. Savoca,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Chief Executive Officer June 5, 1996
/s/JOSEPH A. SAVOCA and Chairman of the Board
- --------------------
Joseph A. Savoca
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 285,589
<SECURITIES> 0
<RECEIVABLES> 656,844
<ALLOWANCES> 7,343
<INVENTORY> 69,292
<CURRENT-ASSETS> 1,208,396
<PP&E> 367,912
<DEPRECIATION> 937,783
<TOTAL-ASSETS> 6,703,481
<CURRENT-LIABILITIES> 2,805,400
<BONDS> 4,524,246
0
1,037
<COMMON> 33,369,542
<OTHER-SE> (39,196,993)
<TOTAL-LIABILITY-AND-EQUITY> 6,703,481
<SALES> 1,056,677
<TOTAL-REVENUES> 1,274,716
<CGS> 794,066
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,517,879
<LOSS-PROVISION> 7,343
<INTEREST-EXPENSE> 151,778
<INCOME-PRETAX> (1,037,229)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,037,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,037,229)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
