UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-16675
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
(Address of principal executive offices)
(619) 551-1090
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 November
6, 1995, was 3,453,129.
<PAGE>
TABLE OF CONTENTS
FORM 10-Q/A
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statement of Stockholders' Equity (Deficiency) 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview 8
Results of Operations 8
Liquidity and Capital Resources 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR DEBT SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
PART III. SIGNATURES 12
2
<PAGE>
SGI INTERNATIONAL
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1995 1994
(Unaudited)
=================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 69,041 $ 551,299
Receivable from joint venture partner - 45,823
Other 35,833 120,284
- -------------------------------------------------------------------------------------------------
Total current assets 104,874 717,406
- -------------------------------------------------------------------------------------------------
Receivable from officers and directors - 396,961
LFC Process related assets:
Notes receivable 1,103,622 1,241,183
Royalty rights 2,278,313 2,514,000
LFC cogeneration project 658,026 736,989
Investment in TEK-KOL Partnership 534,276 412,276
Australia LFC project 180,994 202,714
Other technological assets 70,645 988,638
Process demonstration equipment, net 320,859 541,772
- -------------------------------------------------------------------------------------------------
5,146,735 6,637,572
Other assets, net 580,336 446,423
- -------------------------------------------------------------------------------------------------
$ 5,831,945 $ 8,198,362
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 284,780 $ 306,632
Current maturities of long-term obligations 3,251,554 3,251,530
Accrued salaries 48,996 84,630
Royalties payable to related parties 129,290 229,854
Interest payable 437,601 193,015
Other current liabilities 120,665 -
- -------------------------------------------------------------------------------------------------
Total current liabilities 4,272,886 4,065,661
Long-term notes payable, less current maturities 3,858,083 3,575,835
- -------------------------------------------------------------------------------------------------
Total liabilities 8,130,969 7,641,496
- -------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' equity (deficiency):
Convertible preferred stock, $.01 par value;
20,000,000 shares authorized, 116,070 shares
issued and outstanding (107,101 at Decemeber 31, 1994) 1,161 1,071
Common stock, no par value; 75,000,000 shares
authorized, 3,413,627 shares issued and
outstanding (2,104,447 at December 31, 1994) 31,842,544 29,377,998
Paid-in capital 2,595,340 2,512,621
Deficit accumulated during the development stage (36,738,069) (31,334,824)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity (deficiency) (2,299,024) 556,866
- -------------------------------------------------------------------------------------------------
$ 5,831,945 $ 8,198,362
=================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SGI INTERNATIONAL
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
July 22, 1980
(inception) to Three Months ended Nine Months ended
September 30, September 30, September 30,
1995 1995 1994 1995 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues:
Research and LFC consulting fees $ 3,624,401 $ - $ - $ - $ -
Engineering services revenue from
related party 422,565 - - - 117,294
Contract revenue 431,108 - 20,047 9,282 20,047
Net gain from related party for sale
of LFC technology 1,347,603 - 120,000 - 360,000
Interest income 770,996 242 12,578 24,537 36,937
- ---------------------------------------------------------------------------------------------------------------------------------
6,596,673 242 152,625 33,819 534,278
Expenses:
Engineering, research and consulting 15,886,517 179,439 724,615 1,294,508 2,329,749
General and administrative 11,068,622 637,647 243,387 1,224,573 710,771
Legal and accounting 4,689,889 131,600 158,640 483,859 463,631
Depreciation and amortization 5,516,594 1,162,945 236,465 1,665,551 700,410
Interest 6,173,120 293,890 233,826 768,573 684,226
- ---------------------------------------------------------------------------------------------------------------------------------
43,334,742 2,405,521 1,596,933 5,437,064 4,888,787
Net loss $ (36,738,069) $ (2,405,279) $ (1,444,308) $ (5,403,245) $ (4,354,509)
=================================================================================================================================
Net loss per share $ (0.81) $ (0.75) $ (2.15) $ (2.32)
=================================================================================================================================
Weighted average shares outstanding 2,969,233 1,932,500 2,510,031 1,877,673
=================================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SGI INTERNATIONAL
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
<TABLE>
Deficit
Convertible preferred accumulated Total
stock Common stock during the stockholders'
--------------------- -------------------------- development equity
Shares Amount Shares Amount Paid-in capital stage (deficiency)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 107,101 $ 1,071 2,104,447 $ 29,377,998 $ 2,512,621 $ (31,334,824) $ 556,866
Issuance of common
stock for cash 786,844 883,865 883,865
Issuance of common
stock for services 120,000 231,000 231,000
Exercise of warrants
to purchase common
stock for cash and
notes 274,829 318,548 318,548
Issuance of convertible
preferred stock for cash 125,002 1,250 1,112,692 1,113,942
Conversion of convertible
preferred stock into
common stock (116,033) (1,160) 127,507 1,031,133 (1,029,973) -
Net loss (5,403,245) (5,403,245)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at
September 30, 1995 116,070 $ 1,161 3,413,627 $ 31,842,544 $ 2,595,340 $ (36,738,069) $ 2,299,024
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SGI INTERNATIONAL
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine months ended September 30, 1995 1994
==============================================================================================================
<S> <C> <C>
Operating activities:
Net loss $ (5,403,245) $ (4,354,509)
Adjustments to reconcile net loss to net
cash flows used for operating activities:
Depreciation and amortization 755,556 700,410
Write down of LFC Process related assets 909,995 -
Amortization of note discounts and contingent interest 119,011 176,471
Amortization of deferred compensation - -
Stock and warrants issued in lieu of compensation and interest 231,000 28,333
Changes in assets and liabilities:
Receivable from related party 45,823 (10,439)
Contract receivable - -
Receivable from officers and directors 396,961 (48,853)
Other current assets 84,451 34,568
Accounts payable (21,852) 149,814
Accrued salaries (35,634) 11,091
Royalty payable (100,564) 37,500
Interest and other current liabilities 365,251 189,708
- --------------------------------------------------------------------------------------------------------------
Net cash flows used for operating activities (2,653,247) (3,085,906)
- --------------------------------------------------------------------------------------------------------------
Investing activities:
Collection of notes receivable 137,561 -
Additions to investment in TEK-KOL (122,000) -
Additions to other technological assets (33,183) (94,262)
Additions to process demonstration equipment (31,512) (16,923)
Additions to (disposal of) other assets 48,930 (135,534)
- --------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (204) (246,719)
- --------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of notes payable 699,286 1,997,512
Payments of notes payable (536,025) (1,287,233)
Proceeds from issuance of convertible preferred stock 1,113,942 243,713
Proceeds from issuance of common stock 893,990 3,434,801
- --------------------------------------------------------------------------------------------------------------
Net cash flows provided by financing activities 2,171,193 4,388,793
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (482,258) 1,056,168
Cash and cash equivalents at beginning of the period 551,299 805,699
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 69,041 $ 1,861,867
==============================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
SGI International
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 1995
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of SGI
International (the "Company") for the nine months ended September 30, 1995, and
1994, 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 September 30, 1995, and the consolidated results of operations
for the three and nine month periods ended September 30, 1995, and 1994. The
results of operations for the three and nine month periods ended September 30,
1995, are not necessarily indicative of the results to be expected for the year
ending December 31, 1995. 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,
1994, included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
(2) ORGANIZATION AND BUSINESS
The principal business of the Company is to market licenses for the
Liquids from Coal (LFC) Process Technology as licensing agent for the TEK-KOL
Partnership, to provide expert technical services to LFC Process related
activities and projects and to further research, develop and license the OCET
Technology.
The recovery of amounts invested in SGI's principal assets, the LFC
Process related assets, is dependent upon the Company's ability to successfully
license the LFC and OCET technologies or attract sufficient additional financing
to complete commercialization of the LFC and OCET technologies. The Company is
engaged in such license marketing activities and negotiations to secure
additional financing. There is no assurance that such efforts will be
successful.
(3) SUBSEQUENT EVENT
As previously reported on Form 8-K, SGI entered into an agreement to
acquire 100% of the outstanding common stock of Assembly Manufacturing Systems,
Inc. ("AMS"). AMS is a Simi Valley, California based manufacturer of robotic
assembly systems. SGI issued three preferred shares (convertible after two years
into 444,445 common shares) pursuant to the acquisition agreement as amended on
October 20, 1995. The transaction will be recorded in the Company's fourth
quarter using the purchase method of accounting. The fair market value of the
assets and liabilities acquired approximates their book value.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Although the Company's current financial condition remains weak,
management feels improvement was made during the quarter ended September 30,
1995. The Company is restructuring its debt by deferring principal payments
until September 30, 1997, or converting principal and interest amounts into
equity. Accrued interest and interest earned for the twelve month period ended
September 30, 1996, will be paid on September 30, 1997, or will be currently
converted to equity. Interest for the twelve month period ended September 30,
1997, will be paid quarterly beginning December 31, 1996, or will be converted
to equity in the fourth quarter of 1996. As discussed in Part II Item 5, the
Company recently acquired Assembly Manufacturing Systems, Inc. ("AMS"). This
acquisition is expected to generate positive cash flows and income before taxes
for AMS and the Company. Non-recurring sources of working capital are currently
being pursued and Management's immediate focus is to continue to improve the
Company's current financial condition.
OCET Corporation, a wholly-owned SGI subsidiary, the Company and Asian
Investment Advisors ("AIA"), a venture capital group, recently entered into an
agreement whereby AIA funded testing of the OCET process applied to crude oil
and resid samples supplied by Maraven. The OCET process is designed to convert
refinery residual oil into higher value petroleum products and synthetic coal.
Maraven is a Venezuelan government owned company, and results of these tests
will help determine the degree of economic viability of the OCET process as
applied to Maraven's products. Favorable results could lead to licensing and
royalty agreements with Maraven and its subsidiaries. TEK-KOL and Mitsubishi are
currently negotiating terms of a memorandum of understanding for project funding
and payment for exclusive marketing rights in the Pacific Rim. TEK-KOL
representatives continue to discuss LFC marketing and licensing arrangements
with Mitsui and Ube Industries.
The Company is committed to pursuing these opportunities and others
that may be presented in the future in order to achieve its long term objective,
the successful commercialization of the LFC and OCET technologies.
The report of the Company's independent auditors for the year ended
December 31, 1994, contains an emphasis paragraph as to the Company's ability to
continue as a going concern. As discussed in Liquidity and Capital Resources,
the Company has short-term and long-term liquidity deficiencies. The Company's
ability to continue as a going concern is dependent upon successful financing of
its immediate working capital requirements and successful commercialization of
the LFC and OCET technologies. The Company is engaged in license marketing
activities and negotiations to secure additional financing. If immediate working
capital requirements are not successfully financed and/or the LFC and OCET
technologies cannot be successfully commercialized, then the adverse impact on
the business and operations of the Company could be material.
Results of Operations
The Company's coal testing and analysis contract with the U.S.
Department of Energy was completed during the three months ended June 30, 1995,
and the appropriate revenue was recorded. The Company provided no contract
engineering services to ENCOAL during the nine months ended September 30, 1995;
therefore, revenues declined during the three and nine month periods compared to
the same 1994 periods. Also, all deferred technology purchase payments were
received prior to 1995; therefore, no gain on sale of technology was recorded in
1995. Interest income has decreased in 1995 as the Company's cash balances have
been lower than in 1994.
8
<PAGE>
The Company's engineering, research and development activities for the
three months ended September 30, 1995, were significantly curtailed due to a
conscious business decision to reduce uncompensated engineering services
provided to ENCOAL. Consequently, expenses related to these activities for the
three and nine month periods ended September 30, 1995, have decreased
significantly compared to the same 1994 periods. As the Company obtains
financing, certain engineering and research activities may be resumed.
General and administrative expense for the three months ended September
30, 1995, includes a non-cash charge of $390,000 to reserve for loans to former
officers, employees and consultants which may not be collectible. General and
administrative expense during the nine months ended September 30, 1995, includes
the aforementioned non-cash charges and the $231,000 stock for services charge
reported in the second quarter. After excluding these one-time non-cash charges,
general and administrative expense for the three and nine month periods ended
September 30, 1995, has remained stable and significantly declined,
respectively, compared to the same 1994 periods. Personnel reductions and other
cost cutting measures helped achieve these reduced expenditure levels.
The Company has determined that the carrying values of certain LFC
process related assets should be reduced to their estimated net realizable
value. Accordingly, depreciation and amortization for the three months ended
September 30, 1995, includes a charge of $0.9 million to reflect management's
estimates.
Interest expense for the three and nine month periods ended September
30, 1995, has increased compared to the same 1994 periods because of a reduction
in capitalized interest and an interest premium offered to certain noteholders
to compensate for extension of the related notes' due date.
Liquidity and Capital Resources
The Company's financing activities raised approximately $2.7 million
and $5.7 million during the nine months ended September 30, 1995, and 1994,
respectively. These funds were raised primarily through the private placement of
debt and equity securities. Current management has lowered the importance of
generating cash flows through financing activities; consequently, the 1995 cash
flows provided by the Company's financing activities have decreased from 1994.
Cash flows provided by future financing activities will be required to fund
future operating activities.
Current management has significantly increased the importance of
reducing cash flows used for operations by efficiently focusing on revenue
generating activities and cost cutting measures. Net cash flows used for
operating activities were $2.7 million and $3.1 million for the nine months
ended September 30, 1995, and 1994, respectively. Future operating activities
will include continued development of the OCET process and marketing of both the
LFC and OCET processes. These activities will be financed until revenue sources,
if any, can be established. Certain operating activities will be curtailed if
financing cannot be obtained and revenues cannot be generated.
The Company invested approximately $0.2 million and $0.2 million in
additions to certain LFC Process related assets and other assets during the nine
months ended September 30, 1995, and 1994, respectively. The amount of funds
used for investing activities in a given period is directly related to
development requirements and fund availability.
As of September 30, 1995, the Company had current assets totaling
$105,000 including cash of $69,000, a working capital deficit of $4.2 million
and note obligations of $3.4 million and $2.0 million maturing in 1995 and 1996,
respectively. The Company is restructuring its debt as previously discussed in
the "Overview" section. The Company anticipates continued operating losses over
at least the next twelve months and has both short-term and long-term liquidity
deficiencies as of September 30, 1995.
Short-term liquidity requirements are expected to be satisfied from
existing cash balances, proceeds from the sale of equity securities and proceeds
from joint venture agreements. Management is
9
<PAGE>
currently examining methods of generating positive cash flows from LFC Process
related notes receivable, the Company's net operating loss carryforwards, and
through other creative means. In the event that the Company is unable to
finance operations at the current level, various administrative activities
would be curtailed and certain research efforts would be reduced. The Company
will not be able to sustain operations if it is unsuccessful in securing
sufficient financing and/or generating revenues from operations.
Long-term liquidity requirements are expected to be satisfied from
technology licensing payments and the continued sale of debt and equity
securities. Adequate funds, whether through financial markets or collaborative
or other arrangements with strategic partners or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient funds
may require the Company to delay, scale back or eliminate certain or all of its
development programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself, which may
affect the Company's long-term profitability.
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 (50%) of any such required capital
contributions, and has agreed to contribute up to $700,000 to the TEK-KOL
Partnership during 1995.
A United States patent was issued in 1983 for certain steps in the LFC
Process. The existing U.S. patent, which was assigned to TEK-KOL in 1989, will
expire in the year 2000. Currently, management does not anticipate any material
adverse impact caused by the expiration of the existing patent, based on the
Company's overall technical expertise, trade secrets and experience, in
comparison to the limited impact of the existing patent on the Company's
marketing of the LFC technology.
The Company does not have material commitments for capital expenditures
as of September 30, 1995.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Debt Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
SGI and Bentley Finance entered into a Second Amendment To
Acquisition and Funding Agreement (Exhibit 10.35.3 hereto)
effective as of October 20, 1995, wherein the entire
consideration to be paid to Bentley, in exchange for 100% of
the outstanding AMS common stock, would be: one share of SGI
Preferred Stock convertible into 300,000 shares of SGI common
stock; and, two shares of Redeemable Convertible Preferred
Stock convertible into a total of 144,445 shares of common
stock, replacing all previously agreed consideration paid
and/or payable to Bentley pursuant to the original Agreement,
and the First Amendment. The transaction was finalized October
30, 1995.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.35.3 Second Amendment to Acquisition and Funding Agreement*
b. Reports of Form 8-K
The Company filed a Form 8-K on October 6, 1995, reporting the
AMS stock acquisition (see Item 5 above).*
- --------------------
* Previously filed.
11
<PAGE>
PART III. 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 1, 1998
- ----------------------------------
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.
Name Title
/s/ Joseph A. Savoca Chief Executive Officer and June 1, 1998
- ---------------------
Joseph A. Savoca Chairman of the Board
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SGI
International's Form 10-Q for the nine month period ended September 30, 1995,
and is qualified in its entirely by reference to such financial statements.
</LEGEND>
<CIK> 0000737955
<NAME> SGI International
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1.000
<CASH> 69,041
<SECURITIES> 0
<RECEIVABLES> 35,833
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,874
<PP&E> 1,034,809
<DEPRECIATION> 284,388
<TOTAL-ASSETS> 5,831,945
<CURRENT-LIABILITIES> 4,272,886
<BONDS> 0
0
1,161
<COMMON> 31,842,544
<OTHER-SE> (34,142,729)
<TOTAL-LIABILITY-AND-EQUITY> 5,831,945
<SALES> 9,282
<TOTAL-REVENUES> 33,819
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,668,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 768,573
<INCOME-PRETAX> (5,403,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,403,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,403,245)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> (2.15)
</TABLE>
