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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-12694
SOLIGEN TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
WYOMING 95-4440838
(State of (I.R.S. Employer
incorporation) Identification No.)
19408 Londelius St., Northridge, California 91324
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (818) 718-1221
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common stock without par value American Stock Exchange
(Emerging Company Marketplace)
Securities registered under Section 12(g) of the Exchange Act: None
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended March 31, 1997 were
$4,203,000.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of June 3 1997, was approximately
$15,717,000.
As of June 3, 1997, there were 31,434,283 shares of common stock, no par
value, outstanding.
The index to exhibits appears on page 17 of this document.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of this Form 10-KSB by
reference portions of its Proxy Statement for the 1997 Annual Meeting of
Shareholders.
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SOLIGEN TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE YEAR ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters. . 11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . 12
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . 16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act. . . 17
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . 17
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . 17
Item 12. Certain Relationships and Related Transactions. . . . . . . 17
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. SEE
ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS."
The Company is a Wyoming corporation which was organized in 1993. The Company's
wholly-owned subsidiary, Soligen, Inc. ("Soligen"), is a Delaware corporation
which was organized in 1991 and commenced operations in 1992. The Company is
the successor to an inactive British Columbia corporation organized in 1988
under the name Pars Resources, Ltd., which name was subsequently changed to WDF
Capital Corp. In connection with its reincorporation in Wyoming in 1993, the
Company changed its name to Soligen Technologies, Inc. The Company's principal
executive office is located at 19408 Londelius Street, Northridge, California
91324, telephone (818) 718-1221. References to the Company include Soligen
Technologies, Inc., and its subsidiaries and predecessors unless the context
indicates otherwise.
The Company is completing its transition from the development stage to that of a
revenue generating company. In the last six months of fiscal 1997, the Company
has been virtually break even; however, the Company will need to raise
additional capital to fund future operations. See Part II, Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Sources of Liquidity."
BUSINESS OF COMPANY
The Company has developed a proprietary technology known as Direct Shell
Production Casting ("DSPC-Registered Trademark-"). This technology is embodied
in the Company's DSPC 300 System (the "DSPC System"), which produces ceramic
casting molds directly from Computer Aided Design ("CAD") files. These ceramic
molds are used to cast metal parts which conform to the CAD design. This unique
capability distinguishes the DSPC System from rapid prototyping technologies
which are characterized by the ability to produce non-functional, three-
dimensional representations of parts from CAD files. The Company's DSPC System
is based upon proprietary technology developed by the Company and certain patent
and other proprietary rights licensed to Soligen, Inc. ("Soligen"), a wholly-
owned subsidiary of the Company, by the Massachusetts Institute of Technology
("MIT") pursuant to a license agreement (the "License") dated October 18, 1991,
as amended. Pursuant to the License, MIT granted Soligen an exclusive, world-
wide license to develop, manufacture, market and sell products utilizing certain
technology and processes for the production of ceramic casting molds for casting
metal parts patented by MIT until October 1, 2006, and on a non-exclusive basis
thereafter until the expiration of the last patent relating to the licensed
technology. The exclusive period may be extended by mutual agreement of both
parties.
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The Company believes that the rapid mold production capabilities of the DSPC
System provide a substantial competitive advantage over existing producers of
cast metal parts. Use of the DSPC System eliminates the need to produce tooling
(patterns and core boxes) for limited runs of metal parts, thereby reducing both
the time and the labor otherwise required to produce ceramic casting molds for
casting the metal parts. It provides for a paradigm shift by enabling engineers
to postpone the design or the fabrication of production casting tooling until
after the designed part has been functionally tested. This ability, in addition
to expediting the design verification and testing, enables manufacturers to save
time and money by designing the production casting tools, which are required for
large production runs, once and most likely correctly on the first attempt. The
DSPC System can be also used to produce the production tooling (usually made of
steel), required to cast the parts in larger production runs. To capitalize on
this advantage, the Company plans to form a network of rapid response production
facilities owned either by the Company or by licensed third parties. This
network will operate under the trade name Parts Now-Registered Trademark-
service. These facilities will include DSPC production facilities and foundries
with in-house machine shops. The Company intends to establish itself as a
leading manufacturer of cast metal parts by providing a seamless transition from
CAD file to finished part.
The first rapid response production facility consists of an aluminum foundry and
machine shop located in Santa Ana, California and a DSPC production center
located at the Company's headquarters in Northridge, California. At the DSPC
production facility, the Company uses CAD files obtained from customers to
produce ceramic molds. Metal is then cast into the ceramic molds in a foundry to
yield metal parts identical to the customer's CAD files. The parts are cast
either at the Company's aluminum foundry, or at other foundries. The customer
is free to experiment with different designs or alloys. To better and more
quickly service its customers, the Company has established a Parts Now on-line
service on the Company's dedicated computerized bulletin board and an
interactive Web site on the Internet. The customer's CAD file can be transmitted
by modem, Internet or delivery of a standard disk or tape.
CORE TECHNOLOGY
DSPC is based on Three Dimensional Printing ("3DP-TM-"), a technology invented
at the Massachusetts Institute of Technology in Cambridge, Massachusetts. 3DP
automatically generates solid objects directly from computer-aided design
("CAD") files by selectively bonding together particles of powdered material
with a liquid binder.
By using ceramic materials similar to those traditionally used for high
precision castings, 3DP technology can be applied to directly fabricate a
ceramic casting mold, or "shell." This process is known as Direct Shell
Production Casting.
DIRECT SHELL PRODUCTION CASTING SYSTEM
Soligen's Direct Shell Production Casting system is a computer-controlled system
that generates ceramic casting molds. The geometry of the ceramic casting mold
is generated from the Computer Aided Design (CAD) file of the part.
To create a typical cast part, the part is first designed by the customer using
commercially available CAD software. This CAD file is transferred to Soligen,
and used to design a casting mold by adding a gating or
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"plumbing" system for distributing molten metal from a central pouring cup to
the cavities of the casting mold. As with all metal casting processes, several
parts may be cast at once by joining individual molds with gating into a "tree"
or multi-cavity structure. With DSPC, the part or tree is constructed on the
screen of Soligen's CAD system, appearing as a graphical representation, and
where the design may be adjusted as needed to ensure distribution of the molten
metal.
Once a satisfactory mold has been designed, the computer file is used to
automatically generate the mold. The DSPC system includes a bin which contains
powder. The bin is fitted with a piston which can be moved vertically in
precise increments under computer control. Above the piston is a hopper
containing finely-divided ceramic powder. A roller located at the upper edge of
the bin rotates while moving across the powder. Above the bin containing powder
is a continuous-jet printhead. The printhead is supplied with a liquid binder
and is moved across the powder surface under computer control, ejecting tiny
drops of binder downward in a pattern which corresponds to the layer cross-
section.
The binder bonds the powder particles together. Once a given layer is
completed, the computerized model of the mold is sectioned again, and the cycle
is repeated until all layers are formed. The unbound ceramic powder is removed,
the ceramic mold is fired, and the mold filled with molten metal. Once the
metal has solidified, the mold is broken away, the gating system is removed, and
the cast metal part is then finished (sanded, machined or sandblasted) and
inspected.
A DSPC mold may contain integral ceramic cores, allowing a hollow metal part to
be produced. Virtually any molten metal can be cast in DSPC molds. Parts have
already been manufactured in such materials as aluminum, iron (including ductile
iron), steel, stainless steel, magnesium, brass, bronze, copper, zinc, cobalt-
chrome, and inconel (a high-performance nickel alloy).
MARKETS
The total annual market size for production of raw metal cast parts is
approximately $120 billion worldwide, according to the American Foundrymen's
Society. The Company concentrates on producing cast metal parts with complex
geometry and core cavities, thin walls and high dollar value per part. Some of
the Company's primary customers include companies in industries such as
automotive, construction equipment, aerospace, and other Original Equipment
Manufacturers ("OEMs"). Customers who could maximize the employment of
Soligen's technological competitive advantage typically consist of companies
which experience rapid rates of technological innovation, frequent design
changes, and requirements to dramatically reduce "time to market." Their
products consist of metal parts which frequently contain complex geometric
configurations, especially in the interior of the part. The Company has focused
on five market segments:
- The primary and aftermarket automotive with focus on engine blocks,
cylinder heads, transmission cases, axles, manifolds and other cast
metal parts with complex core cavities and or geometry. The Company
has established repeat business with Ford Motor Company, General
Motors Corporation, Chrysler Corporation and some of their tier 1 and
tier 2 suppliers such as Allied Signal, Inc., Navistar International
Transportation Corporation, as well as major OEMs in Europe and Japan.
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- The marine, off-road, motorcycle and construction equipment
manufacturers. In this market segment the Company has established
repeat business with Caterpillar, Inc., Deere & Company, Harley-
Davidson Motor Company, Mercury Marine, Inc. and other engine
manufacturers.
- The aerospace industry with focus on parts with complex geometry and
core cavities. Presently the Company does not produce parts which are
used for actual flight tests, or for critical parts for airplanes,
since the DSPC is not a flight certified manufacturing process The
Company has not yet undertaken an effort to certify its facilities to
comply with military and aerospace specifications.
- The pump, valve and turbine industries with focus on hydraulic,
pneumatic and ground base compressors, turbochargers, turbines and
power generators. The Company has established repeat business with
such companies as Goulds Pump, Inc., Reda, Sulzer Turbo GmbH.,
Capstone Turbine Corporation and others.
- In the fifth market segment the Company includes all other casting
customers with various applications. The Company has established
repeat business with Walt Disney Imagineering, Qualcomm, Inc., JBL
Professional, ITT Industries, Motorola, Inc. and others.
DISTRIBUTION
Sales and distribution activities for the Company are currently handled by
management and staff at the Company's facilities in California and in a regional
sales office in Tama, Iowa. The Iowa office directs the Company's sales and
technical support requirements to sales representatives in the Midwest. The
Company plans to open additional regional sales offices, initially in the USA
and later, internationally. In territories which currently are not covered by
the Company's sales staff, the Company employs independent manufacturer's
representatives.
The Company launched its Parts Now on-line service during fiscal 1996. Parts
Now on-line is available on the Internet as well as through the Company's
dedicated bulletin board. With this service, the Company entered the electronic
commerce environment and enables customers to receive price quotations and order
parts electronically. The Company plans to increase the capabilities of Parts
Now on-line to enable customers to monitor the progress of their orders via the
Parts Now on-line service.
CURRENT STATUS
In the first three years ending fiscal 1995, the Company focused its efforts on
the commercialization of the DSPC equipment; this effort is substantially
complete. During the development program, the Company sold and installed
developmental DSPC machines as well as several commercial DSPC 300 machines. The
Company continues to enhance the performance of the DSPC machines. In January
1995, the Company established the first DSPC center at the Company's
headquarters in Northridge, California. At present it operates four DSPC 300
machines and two DSPC 300G (a new version of the DSPC 300, on which development
was completed during fiscal 1996). Additional DSPC 300G machines are being
assembled and tested at Soligen.
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INTERNATIONAL
During fiscal 1997, Soligen entered the European market through the license of a
DSPC machine with Centre De Transfert De Technologie Du Mans ("CTTM"). CTTM
formed a consortium with several French companies including Renault, Peugeot,
Snecma, Aerospatiale, Dassault and Thomson Electricite to launch the use of DSPC
within the consortium. CTTM, which has a long and positive history of
commercializing new manufacturing technologies in France, started marketing the
unique capabilities of DSPC technologies in France. The parties plan to upgrade
the DSPC center from a testing site to a Parts Now center, which is a full
manufacturing center. Such upgrade will include additional DSPC machines as
well as additional investments.
INDUSTRY/COMPETITION
For most metal parts, the two major fabrication alternatives are machining and
casting. Machining involves the removal of metal from the surface of a part or
a metal block (billet) using high-speed cutting tools, whereas casting involves
pouring molten metal into a specially-shaped mold and letting it cool and
solidify. Additionally, machining wastes materials, transforming a large
percentage of the initial metal into useless chips. Casting is usually used to
form parts with complex geometries and complex internal cavities (which could
not be machined due to the lack of access for the cutting tool). Most of the
cast parts are further machined to make them "ready for assembly."
Except for die casting which is limited to low melting temperature alloys,
casting involves creating a pattern (and sometimes core boxes, collectively
called "tooling" or "casting tools") which is used to create sand or ceramic
molds. Molten metal is poured into these molds, and the molds are destroyed
after the metal solidifies. Casting provides geometrical flexibility and allows
for the production of parts from virtually any metal with relatively little
material waste. Consequently, as production quantities increase, machining
costs become prohibitive, and casting becomes the fabrication process of choice.
Metal part designers are heavily constrained by conventional casting methods,
due to long lead times and high costs of production tools (patterns and core
boxes). The main constraint is the need to first produce patterns, or
production tooling, prior to creating a first article part. Any design change
is a multi-step process that requires modifying or often redoing the tooling, an
expensive and time consuming process that increases the probability of making
mistakes; therefore, the key to competitiveness in the parts production market
is the ability to create the production tooling (patterns, molds or dies)
quickly and cost effectively. One way to accomplish that is to find ways that
will make the production tooling once and correctly on this first attempt.
However, since casting require tooling even for making a single mold (and
therefore casting a single cast part), several design cycles, including patterns
and core boxes fabrication cycles, need to take place prior to the stage when
production tooling can be completed.
To shorten the time to market, and remain competitive in an environment of
constant change and innovation, end users of metal parts such as the automotive,
marine, construction equipment and other mass producers, have started to
implement concurrent engineering. In concurrent engineering, the mass producer
is selected at the beginning of the program of designing a new product. At the
same time as the design engineers are designing a new product and building and
testing a prototype, manufacturing engineers who are working closely with the
selected vendor, are designing the prototype production tools
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(sometimes referred to as "soft tools") which are less expensive than production
tools. The experience gained by using "soft tools" to manufacture prototype
castings is also used to assist the design team in their efforts to lower the
production cost of the part.
The customer expects the part vendor to take responsibility for tool making, and
also demands short run production, thus forcing the mass producer to produce
parts on an alternate casting line since costs associated with setting up a
volume production line for short runs are prohibitive.
DSPC, being an automated, patternless casting process that permits the
production of parts without tooling, makes the conventional casting techniques
obsolete for creating a first article part. The combination of DSPC technology
with traditional casting and machining perfectly positions the Company through
its Parts Now service to competitively address the growing need for carrying a
new design smoothly from an idea to production, thereby significantly reducing
time to market. By employing the Company's Parts Now service program, the
customer can realize the following advantages:
- MULTIPLE DESIGN ITERATIONS AT THE SAME TIME AND WITHIN BUDGET
CONSTRAINTS: Designer can rapidly incorporate design changes and
concurrently produce and test several versions of any design.
- THE ABILITY TO TEST DIFFERENT ALLOYS TO OPTIMIZE THE PART'S
PERFORMANCE: Designer can request the same part to be made from
different alloys (which otherwise require a different tool for each
alloy).
- CAD - CASTING: Designer can now elect to use the casting process even
for short runs.
- CASTING TOOL OPTIMIZATION: Design and fabrication of production tools
can be delayed until after the final design is verified.
- TOOLING ITERATIONS: The number of tooling design iterations can be
reduced and even eliminated and the goal of designing production
tooling directly from the CAD file of the approved part can be
attained.
Since DSPC creates a usable part directly and automatically from the designer's
CAD file, it is the only existing fabrication method in which "what you see (on
the computer screen) is what you get (as a cast part)." Management believes
that by eliminating tooling, this unique ability reduces the possibility of
errors introduced during the course of normal production, thereby improving
process quality.
DSPC is loosely related to another technology called rapid prototyping,
pioneered several years ago by 3D Systems, Inc. of Valencia, California. Rapid
prototyping allows the production of three-dimensional models or prototypes
directly from CAD files. DSPC is similar to rapid prototyping in the sense that
a solid object is produced directly from a computer-generated model. Such
models could be used as patterns. However, with DSPC, ceramic casting molds
with integral cores of virtually any shape are directly generated from CAD
designs by a fast, automated process. These molds are then used to cast metal
(such as steel and aluminum or steel) into functional parts. In the case of
rapid prototyping, the end
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product is not a usable part, but a plastic, wax or paper model or pattern
For metal casting, DSPC provides direct linkage from CAD to casting while
Rapid Prototyping, at best, assists pattern making.
It is management's opinion that the Company's competitive environment
involves foundries, differentiated in accordance with the size of the
required production runs.
Mass production is defined as annual production quantities in excess of a few
thousand identical parts. Industries which require mass production runs
include automotive, construction equipment and OEM suppliers. Mass
production contracts are generally awarded during the design phase of a part,
and include services ranging from first article parts through toolmaking,
short pilot runs and, ultimately, mass production runs. The Company competes
with either captive or independent short run foundries servicing the mass
production foundries as well as their tool makers.
Industries, such as aerospace and capital equipment manufacturing, typically
utilize medium scale production vendors. For certain customers in this
category, especially for aerospace companies, certification of compliance
with military and federal aerospace standards are required as a pre-requisite
to become a vendor; this requirement represents a temporary barrier for
competing with foundries who are already certified and approved as vendors to
such companies. Currently the Company is limiting itself to producing non
flight certified parts (unless certified by the vendor).
For relatively small quantities (up to few thousand parts per year) the
Company competes with CNC job shops, model makers and very small job shop
foundries providing custom made parts and short production runs. These
competitors must still create tools and patterns for small quantities of
parts.
The Company believes it offers distinct advantages over all three market
segments due to its ability to provide customers with a higher quality
product in less time, at a lower cost.
RAW MATERIAL AVAILABILITY AND SUPPLIERS
The Company generally attempts to procure materials and components for the
DSPC machine from multiple sources. However, the DSPC printhead, used in the
DSPC machine, is commercially available from a single U.S. ink-jet
manufacturer. The Company believes that if the supplier were to discontinues
this line of printheads, it could develop a printhead using available
components from alternative sources without having a material effect on the
DSPC machine cost or performance.
Raw materials used in the DSPC process are generally available from several
suppliers in the quantities needed. Multiple vendor sources for critical raw
materials and supplies have been established over the past two years.
Additional potential vendor sources are being identified and qualified on an
on-going basis.
The Parts Now service center generally obtains services and supplies for metal
castings from foundries and machine shops in southern California. Multiple
alternative vendor sources have been established over the last year. Multiple
vendor sources have also been established over the prior years for post-
processing of and nondestructive testing of parts. Raw materials for castings
used by Altop are generally available
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from numerous suppliers in the quantities needed. Major suppliers for aluminum
include Alcoa Aluminum and Kaiser Aluminum.
MAJOR CUSTOMERS
During fiscal 1997, the Company established repeat business with companies of
different sizes, in different industries and geographical areas. Among
companies with whom the Company has established repeat business are Ford Motor
Company, General Motors Corporation, Honda, Toyota, Harley Davidson Motor
Company, Allied Signal, Inc., Navistar International Transportation Corporation,
Caterpillar, Inc., Deere & Company, Mercury Marine, Inc., Allison Engine
Turbine, Goulds Pump, Inc., Reda, Sulzer Turbo GmbH., Capstone Turbine
Corporation, Walt Disney Imagineering, Qualcomm, Inc., JBL Professional, ITT
Industries and Motorola, Inc. For the year ended March 31, 1997, the two
largest customers represented 13% and 10% of revenues. See Note 1 to the
Financial Statements.
PATENTS, TRADEMARKS, LICENSES AND ROYALTIES
Soligen's DSPC process is based on Three Dimensional Printing (3DP-TM-), which
is patented by MIT. Pursuant to the terms of a License Agreement dated October
18, 1991, and amendments thereto (collectively referred to herein as the
"License"), MIT granted to Soligen the exclusive worldwide license to exploit
its proprietary 3DP technology for the metal casting field of use. Soligen
enjoys the exclusive benefits of the License until October 1, 2006. The License
continues on a non-exclusive basis after October 1, 2006, unless extended by
mutual agreement.
Under the terms of the License, MIT has the responsibility to apply for, seek
prompt issuance of, and maintain during the term of the License the patent
rights covered by the License in the United States, Canada, Japan and countries
covered by a patent filing in the European Patent Office. MIT has fulfilled its
responsibilities in this regard. The License provides that all costs associated
with these matters will be borne by licensees. Currently there are four other
licensees which apply MIT's 3DP technology in different fields of use, none of
which is related to metal casting. The License also provides that, with respect
to any improvements to the technology developed by Soligen, such improvements
will be the property of Soligen provided that Soligen will license such
improvements to MIT on a royalty-free non-exclusive basis. This license was
renegotiated and amended on August 8, 1996.
Under the terms of the amended License, Soligen is required to generate
cumulative sales according to the following schedule:
Period Cumulative Sales
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March 1996 - March 1997 $ 3,000,000
March 1997 - March 1998 $ 3,500,000
March 1998 - March 1999 $ 4,000,000
March 1999 - March 2000 $ 4,500,000
March 2000 - March 2001 $ 5,000,000
March 2001 - March 2002 $ 6,000,000
March 2002 - March 2003 $ 8,000,000
March 2003 - March 2004 and each year thereafter $10,000,000
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Soligen has met all the conditions to maintain its license and the exclusivity.
For the rights, privileges and license granted under the License, Soligen shall
pay royalties and fees to MIT until the License is terminated. The fees and
royalties are as follows:
- "License Maintenance fees" of $50,000 per year payable on December 31,
1998, and on December 31 of each year thereafter; provided, however,
"License Maintenance Fees" may be credited to "Running Royalties"
subsequently due on "Net Sales" for each year, if any. "License
Maintenance Fees" paid in excess of "Running Royalties" shall not be
credited to "Running Royalties" for future years.
- "Running Royalties" in an amount equal to 4.5% of "Net Sales" of the
"Licensed Products" and "Licensed Processes" used, leased or sold by
and/or for Soligen; provided, however, that during the period
commencing with the effective date of August 8, 1996, and terminating
on December 15, 1998, MIT shall waive the first $50,000 of "Running
Royalties" due pursuant to this paragraph.
- After the payment of $500,000 in "Running Royalties" for the sale of
metal "End Products" made using "Licensed Products" and/or "License
Processes" pursuant to this paragraph, the royalty rate due for sale
of metal "End Products" shall be reduced from 4.5% to 2.25%.
The term "3DP" is a trademark of MIT. The terms "DSPC" and "Parts Now" are
trademarks of Soligen, registered in the U.S.
RESEARCH AND DEVELOPMENT EXPENDITURES
During fiscal years ended March 31, 1995, 1996 and 1997, the Company expended
$1.3 million, $941 thousand and $1.1 million, respectively on research and
development to enhance the Company's proprietary technology. Through the
license from MIT, Soligen has also obtained the benefit of extensive research
and development expenditures at MIT relating to the technology in Soligen's
fields of use during these three fiscal years.
Soligen continues to devote time and resources to research and development to
enhance the original MIT based technology and the capabilities of, and develop
new applications for, the DSPC system.
COST AND EFFECT OF ENVIRONMENTAL REGULATIONS
The Company is in substantial compliance with all applicable federal, state and
local environmental regulations. The Company generates, as do all casting
manufacturers, certain waste materials it must dispose of, including materials
for which disposal requires compliance with environmental protection laws. The
Company complies with various environmental protection laws regarding disposal
of certain waste materials. The Company's cost of waste disposal is not
significant in comparison with the Company's revenues.
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EMPLOYEES
Soligen currently employs forty-two full time engineers, scientists, managers
and staff. Soligen also employs twelve temporary employees and three
consultants. Soligen has agreements with four independent sales
representatives. Soligen's employees are not covered by any collective
bargaining agreement. The Company believes that relations with Soligen's
employees are good.
Altop currently employs twenty-four full time employees. Altop's employees are
not covered by any collective bargaining agreement. The Company believes that
relations with Altop's employees are good.
ITEM 2. PROPERTIES
All of Soligen's manufacturing and administration activities are based in a
17,000 square foot facility in Northridge, California. Soligen leases this
facility from an unrelated third party.
All of Altop's manufacturing and administration activities are based in a 20,000
square foot facility in Santa Ana, California. Altop leases this facility from
an unrelated third party.
ITEM 3. LEGAL PROCEEDINGS
A-RPM LAWSUIT AND COUNTERCLAIM
On June 30, 1994, Altop, Inc., a wholly-owned subsidiary of the Company,
acquired substantially all of the assets of A-RPM Corporation, an aluminum
foundry and machine shop located in Santa Ana, California. The assets were
acquired pursuant to an Asset Purchase Agreement between Altop, A-RPM, the
Company and Leland K. and Nancy B. Lowry, the sole shareholders of A-RPM. As
payment for the assets, Altop delivered an initial cash payment in the amount of
$100,000 and three promissory notes in the total principal amount of $220,000.
Altop also assumed certain liabilities of A-RPM and agreed to deliver an
additional payment of up to $100,000 contingent upon determination of certain
net asset values according to a formula set forth in the Asset Purchase
Agreement. Altop also entered into an Employment Agreement with Leland K.
Lowry.
On March 22, 1995, the Company and Altop commenced an action against A-RPM and
the Lowrys in the Superior Court of Orange County, California. The complaint in
this action seeks damages for breach of the Asset Purchase Agreement, fraud, and
negligent misrepresentation. In addition, the Company and Altop are requesting
declaratory relief confirming that the Company and Altop have no further
obligation to A-RPM and the Lowrys under the Asset Purchase Agreement, the
promissory notes and related transactions. The complaint also seeks an award of
attorneys fees and costs.
A-RPM and the Lowrys have filed an answer to the complaint generally denying the
allegations of the complaint. In addition, they have filed a cross-complaint
stating actions against the Company and Altop for recovery of the entire
principal amount and accrued interest on the three promissory notes delivered in
connection with the Asset Purchase Agreement. The cross-complaint also seeks
foreclosure on the assets
10
<PAGE>
of Altop securing the promissory notes, recovery of $85,000 alleged to be due
and payable pursuant to the contingent payment provisions of the Asset Purchase
Agreement, and attorneys fees and costs.
The Company and Altop intend to vigorously defend against the allegations of the
cross-complaint and to vigorously pursue recovery against A-RPM and the Lowrys.
Pending resolution of this dispute, the Company has provided for a $305,000
liability in its consolidated financial statements. A trial date has been set
for October 27, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of the Company's security holders during the
quarter ended March 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed for trading on the Vancouver Stock Exchange
under the symbol SGT, where trading resumed on April 19, 1993, after completion
of the acquisition of Soligen. On March 10, 1994, STI also became listed on the
American Stock Exchange's Emerging Company Marketplace under the symbol SGT.
Market price information for trading of STI's common stock is set forth in the
following table:
<TABLE>
<CAPTION>
Fiscal quarter ended High sales price Low sales price High sales price Low sales price
($ U.S.) (1) ($ U.S.) (1) ($ Canadian) (2) ($ Canadian) (2)
- -------------------- ---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
June 30, 1995 1.50 0.63 1.35 0.77
Sept 30, 1995 1.38 0.63 1.51 0.95
Dec 31, 1995 1.00 0.63 1.29 0.85
Mar 31, 1996 0.88 0.69 1.15 0.95
June 30, 1996 2.25 0.63 2.75 0.85
Sept 30, 1996 1.25 0.63 1.65 1.08
Dec 31, 1996 1.19 0.50 1.25 0.65
Mar 31, 1997 0.94 0.50 1.12 0.76
</TABLE>
Sources for sales prices:
(1) American Stock Exchange.
(2) C. M. Oliver & Co. Ltd., Vancouver, British Columbia, Canada.
At June 3, 1997, the Company had 2,564 holders of record of its common stock and
31,434,283 shares outstanding.
11
<PAGE>
No dividends have been declared or paid for the last two fiscal years. As a
condition of concluding the acquisition of Soligen, STI gave an undertaking to
the Vancouver Stock Exchange not to declare or pay any dividends on its common
stock for the period of time expiring at the earlier of the date upon which the
last of the escrow shares are earned out of escrow or canceled. (see Part III,
Item 11).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING-STATEMENTS AND ASSOCIATED RISKS
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S CURRENT
EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. INCLUDING,
AMONG OTHERS (I) CUSTOMER ACCEPTANCE OF THE COMPANY'S "ONE STOP SHOP" PARTS NOW
PROGRAM; AND (II) THE COMPANY'S ABILITY TO OBTAIN ADDITIONAL FINANCING REQUIRED
TO SUPPORT ITS PROJECTED REVENUE GROWTH. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THESE FORWARD-LOOKING STATEMENTS. IN VIEW OF THESE RISKS AND
UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS ANNUAL REPORT ON FORM 10-KSB WILL IN FACT TRANSPIRE.
The following discussion should be read in conjunction with the accompanying
Financial Statements of Soligen Technologies, Inc. ("STI") and its wholly-owned
subsidiaries Soligen, Inc. ("Soligen") and Altop, Inc. ("Altop") (collectively
referred to herein as the "Company") including the notes thereto, included
elsewhere in this Annual Report.
OVERVIEW
As of March 31, 1997, the Company is rapidly transitioning from a development
stage company towards its goal of being a manufacturing / service company with
continuing revenues from operations. The Company operates four major revenue-
generating profit centers:
1. PARTS NOW CENTER ("PARTS NOW"): Oversees the "one stop shop"
production services from receipt of the customer's CAD file through
production. Parts Now is responsible for any contract which requires
a combination of the DSPC production center and conventional casting
and CNC machining expertise. It consists of program managers who
oversee the transition from CAD to first article, to tooling, to
conventional casting and later to mass production. It acquires
services from the DSPC Production Center and the conventional casting
center at cost.
2. DSPC PRODUCTION CENTER: Revenues result from the production and sale
of first article and short run quantities of cast metal parts made
directly from the customer's CAD file. This center also provides DSPC
parts and tool making services to the Parts Now Center. These
services are charged to Parts Now at cost. Revenues for this product
line were initiated in the quarter ended March 31, 1995.
3. CONVENTIONAL CASTING CENTER ("PRODUCTION PARTS"): Revenues result
from the production, and sale of production quantities of cast and
machined aluminum parts for industrial customers. The Company began
generating revenues in this area through Altop, its aluminum foundry
and machine shop, in July
12
<PAGE>
1994. This center is limited to conventional casting of aluminum
parts that do not utilize DSPC made tooling.
4. DSPC TECHNOLOGY CENTER: Revenues result from the sale, lease, license
or maintenance of DSPC machines and from participation in research and
development projects wherein Soligen provides technological expertise.
RESULTS OF OPERATIONS
The results of operations discussed below are comprised of two sections, the
first section compares fiscal 1997 to fiscal 1996 for all items noted on the
Consolidated Statements of Income contained in a separate section of this Annual
Report on Form 10-KSB commencing on page 19. The second section discusses the
growth in revenues and presents quarterly statements of operations for fiscal
1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues
Revenues for the year ended March 31, 1997, were $4,203,000, an increase of 49%
compared to $2,815,000 in the fiscal year ended March 31, 1996. The increase
was primarily the result of the combined revenues of Parts Now and DSPC
production increasing 218% to $2,534,000 from $797,000 fiscal 1996.
Conventional casting center (Altop) revenues decreased to $1,160,000 in fiscal
1997 from $1,472,000 during fiscal 1996, a decrease of $312,000 or 21%. This
decrease in revenues is the result of the foundry operations transitioning from
conventional castings to support of the Parts Now business. DSPC technology
revenues remained relatively constant decreasing by 7% to $509,000 in fiscal
1997 from $546,000 in fiscal 1996.
The Company's revenues for fiscal 1997 and fiscal 1996, classified by product
lines, are as follows:
Fiscal Fiscal
1997 1996
---- ----
Parts Now-Registered Trademark- $ 1,848,000 --
DSPC-Registered Trademark- production 686,000 $ 797,000
Production parts 1,160,000 1,472,000
DSPC-Registered Trademark- technology 509,000 546,000
------------ ------------
Total revenues $ 4,203,000 $ 2,815,000
------------ ------------
------------ ------------
Cost of Revenues
Cost of revenues as a percentage of total revenues in fiscal 1997 was 57%
compared to 69% in fiscal 1996. This improvement is attributed to an increase
of repeat business and an increase of the Company's ability to produce parts
with greater geometrical complexity that carry higher margins.
13
<PAGE>
Research and Development Expenses
Research and development expenses increased $167,000 or 18% to $1,108,000 in
fiscal 1997 from $941,000 in 1997. The continued high research and development
expenditures are related to the Company's penetration into a broader market base
for its products.
Selling Expenses
Selling expenses increased 47% to $747,000 in fiscal 1997 from $507,000 in
fiscal 1996, primarily due to the Company's efforts to expand its selling and
marketing activities incurred during the penetration of new markets.
General and Administrative Expenses
General and administrative expenses increased 14% to $1,018,000 in fiscal 1997
from $890,000 in fiscal 1996. This increase in general and administrative
expenses is the result of additional administrative personnel to support the
growth in revenues.
Non-Cash Compensation Expense
The Company issued stock options to non-employees in fiscal 1996 and, according
to SFAS 123, non-cash compensation expense is to be recognized over the expected
period of benefit. As a result, the Company expects to incur $617,000 non-cash
compensation expense during a four year period of which $235,000 is recognized
in fiscal 1997. In view of the fact these options are now valued in excess of
the current market value of the common stock, the Company believes the Black-
Scholes pricing model used in SFAS 123 is not a fair measure of the awards. It
was during the 1997 audit process that the Company was advised the non-cash
compensation must be recognized in the statements of operations as a non-cash
operating expense.
Other Operating Expenses
During fiscal 1996, the Company wrote off goodwill of $657,000 applicable to the
A-RPM purchase and $41,000 related to development of a Web site.
Interest Expense
Interest expense increased to $325,000 in fiscal 1997 from $49,000 in fiscal
1996. This increase was caused by a $250,000 non-cash interest expense and
$11,000 cash interest expense associated with the $750,000 convertible debenture
financing completed in the second quarter of fiscal 1997. Also, in fiscal 1997,
an additional $25,000 non-cash interest expense resulted from amortizing the
value of warrants that were issued in the convertible debenture financing.
As a result of the above factors, the Company's operating loss was reduced in
fiscal 1997 to $1,492,000 compared to $2,172,000 in fiscal 1996.
14
<PAGE>
FISCAL 1997 QUARTERLY STATEMENTS OF OPERATIONS
In the second half of fiscal 1997, the Company experienced significant growth in
its core business, Parts Now product line, compared to the first half of the
year. The first Parts Now program was booked in the first quarter and completed
in the second quarter. The success of this program enabled the Company to
further offer this unique service to other customers. Management attributes the
growth in revenues to repeat business with major customers which evolved from
utilizing DSPC for prototypes to short production runs and early adoption of the
Company's Parts Now strategy. With many of the major customers this transition
has not yet occurred and management believes that such transition will help the
Company to establish more repeat business with its customers. Management
believes that its Parts Now strategy will position the Company as an out-
sourcing vendor for cast metal parts supplied as cast machined and plated ready
for assembly.
The following table sets forth results of operations by quarter and pro forma
results after elimination of non-cash compensation and non-cash interest expense
adjustments:
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
-- -- -- --
<S> <C> <C> <C> <C>
Parts Now-Registered Trademark- $ 88,000 $ 379,000 $ 690,000 $ 691,000
DSPC-Registered Trademark- production 128,000 62,000 282,000 214,000
Production parts 291,000 309,000 235,000 325,000
DSPC-Registered Trademark- technology 36,000 -- 127,000 346,000
----------- ----------- ----------- -----------
Total revenues 543,000 750,000 1,334,000 1,576,000
----------- ----------- ----------- -----------
Cost of revenues 467,000 496,000 654,000 763,000
----------- ----------- ----------- -----------
Gross profit 76,000 254,000 680,000 813,000
----------- ----------- ----------- -----------
Research & development 284,000 259,000 260,000 305,000
Selling 179,000 171,000 171,000 226,000
General & administrative 261,000 235,000 264,000 258,000
Non-cash compensation -- -- -- 235,000
----------- ----------- ----------- -----------
Total expenses 724,000 665,000 695,000 1,024,000
----------- ----------- ----------- -----------
Loss from operations (648,000) (411,000) (15,000) (211,000)
Interest income 11,000 -- 4,000 3,000
Interest expense - cash (7,000) (10,000) (15,000) (18,000)
Interest expense - non-cash -- (250,000) -- (25,000)
Other income 90,000 13,000 -- --
----------- ----------- ----------- -----------
Total other income (expense) 94,000 (247,000) (11,000) (40,000)
----------- ----------- ----------- -----------
Provision for state taxes -- -- 3,000 --
----------- ----------- ----------- -----------
Net loss $ (554,000) $ (658,000) $ (29,000) $ (251,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Non-cash adjustments included above
Non-cash compensation -- -- -- 235,000
Non-cash interest -- 250,000 -- 25,000
----------- ----------- ----------- -----------
Pro forma income (loss) $ (554,000) $ (408,000) $ (29,000) $ 9,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
15
<PAGE>
SOURCES OF LIQUIDITY
As of March 31, 1997, the Company had $1,229,000 in cash and accounts
receivable, representing a decrease of $407,000 from $1,636,000 at March 31,
1996. Working capital decreased to $445,000 at March 31, 1997 from $660,000 at
the end of fiscal 1996.
During the fiscal year ended March 31, 1997, cash used in operating activities
was $1,022,000 compared to cash used in operating activities of $1,757,000 for
the fiscal year ended March 31, 1996. The improvement in cash used in operating
activities in fiscal 1997 was the result of the reduction in net loss of
$1,492,000 from $2,172,000 the prior fiscal year. The net loss in fiscal 1997
included $275,000 non-cash interest expense and $235,000 non-cash compensation
expense and in fiscal 1996, the net loss included $657,000 write-off of goodwill
applicable to the A-RPM acquisition and $41,000 resulting from write-off of the
Company's Web site.
Cash used in investing activities for capital expenditures was $215,000 in the
fiscal year ended March 31, 1997, compared to cash used in investing activities
of $408,000 in the prior fiscal year. This decrease in expenditures was the
result of completion in fiscal 1996 of a major phase in the Company's capital
acquisition and machine building program required to meet the fiscal 1997 sales
projection. The fiscal 1997 sales projection requirements were directed at the
initial phase of the Company's program of becoming a manufacturing / service
company.
Cash provided by financing activities in fiscal year ended March 31, 1997, was
$554,000 compared to cash provided in the prior fiscal year of $3,023,000.
During fiscal year ended March 31, 1997, the Company raised net proceeds of
$635,000 through the issuance of 6% convertible debentures, all of which were
converted to common stock. During fiscal year ended March 31, 1996, the Company
raised net proceeds of $3,152,000 from private placements of common stock.
At June 30, 1997, the Company completed a tender offer to certain warrant
holders to 1) exercise warrants at a reduced exercise price and/or 2) exchange
warrants for common stock at prescribed ratios. The Company raised
approximately $225,000 through the exercise of warrants for common stock. In
addition, Soligen received a commitment letter from a commercial lender for a
$1,000,000 revolving line of credit, collateralized by receivables, inventory
and fixed assets. The credit facility provides for the advance rate of 75% of
eligible accounts receivable.
The Company believes that the current cash, warrant conversions to purchase
common stock, asset based line of credit and internally generated cash flow will
be sufficient to meet its working capital and capital expenditures requirement
through fiscal year ended March 31, 1998. To the extent that the Company's
existing resources, together with future earnings are insufficient to fund the
Company's future activities, the Company may need to raise additional funds
through public or private financing.
ITEM 7. FINANCIAL STATEMENTS
See "Financial Statements and Notes to Financial Statements" set forth on pages
19 through 35 of this Annual Report on Form 10-KSB.
16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company will file a definitive proxy statement ("Proxy Statement") relating
to its 1997 Annual Meeting of Shareholders pursuant to and in accordance with
section 240.14a-101 within 120 days after the end of the fiscal year covered by
this form. The information required by this item is incorporated by reference
to the Proxy Statement under the headings "Management" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Voting Securities and Principal Holders Thereof."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Related Party Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Share Exchange Agreement and Amendments (1)
17
<PAGE>
2.2 MIT Share Acquisition Agreement (1)
2.3 Escrow Agreement (1)
2.4 Pooling Agreement (1)
3.1 Articles of Incorporation of Soligen Technologies, Inc. (1)
3.2 Bylaws of Soligen Technologies, Inc. (1)
3.3 First Amendment to Bylaws (3)
4.1 Modification Agreement (Pooling) (6)
4.2 Subscription Agreement for Private Placement (5)
4.3 Subscription Agreement for Private Placement (5)
4.4 Subscription Agreement for Private Placement (2)
10.3 License Agreement and Amendments (1)
10.4 Amendment to License Agreement (4)
10.5 Consulting Agreement between the Registrant and Kenneth Friedman
10.7 1993 Stock Option Plan (1)
11.1 Statement of Per Share Earnings
21.1 Subsidiaries of the Registrant (6)
24.1 Power of Attorney of Dr. Mark W. Dowley
24.2 Power of Attorney of Kenneth T. Friedman
24.3 Power of Attorney of Patrick J. Lavelle
24.4 Power of Attorney of Darryl J. Yea
27. Financial Data Schedule
(1) Incorporated by reference to the Registration Statement on Form 10-SB (Reg.
No. 1-12694) filed by the Company on December 20, 1993.
(2) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form 10-SB (Reg. No. 1-12694) filed by the Company on February 7, 1994.
(3) Incorporated by reference to Amendment No. 2 to the Registration Statement
on Form 10-SB (Reg. No. 1-12694) filed by the Company on February 22, 1994.
(4) Incorporated by reference to Form 10-KSB filed by the Company on June 16,
1995.
(5) Incorporated by reference to Form 10-QSB filed by the Company on November
14, 1995.
(6) Incorporated by reference to Form 10-KSB filed by the Company on June 17,
1996.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1997.
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Soligen Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Soligen
Technologies, Inc. and subsidiaries (a Wyoming Corporation - collectively, the
Company) as of March 31, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Soligen Technologies, Inc. and
subsidiaries as of March 31, 1997, and the results of their operations and their
cash flows for each of the two years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 9, 1997
19
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - MARCH 31, 1997
ASSETS
CURRENT ASSETS:
Cash $ 506,000
Accounts receivable, net of allowance for
doubtful accounts of $140,000 723,000
Inventories 160,000
Prepaid expenses 49,000
-----------
Total current assets 1,438,000
-----------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization 1,108,000
OTHER ASSETS 34,000
----------
Total Assets $ 2,580,000
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 360,000
Trade accounts payable 251,000
Payroll and related expenses 146,000
Accrued expenses 105,000
Deferred revenue 131,000
-----------
Total current liabilities 993,000
-----------
NOTES PAYABLE, net of current portion 100,000
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value
Authorized--50,000,000 shares
Issued and outstanding--31,434,283 shares 9,776,000
Accumulated Deficit (8,289,000)
-----------
Total stockholders' equity 1,487,000
-----------
Total Liabilities and Stockholders' Equity $ 2,580,000
-----------
-----------
The accompanying notes are an integral part of this balance sheet.
20
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
------------ -----------
REVENUES $ 4,203,000 $ 2,815,000
COST OF REVENUES 2,380,000 1,943,000
------------ ------------
Gross profit 1,823,000 872,000
------------ ------------
EXPENSES:
Research and development 1,108,000 941,000
Selling 747,000 507,000
General and administrative 1,018,000 890,000
Write-off of goodwill and related
acquisition costs -- 657,000
Non-cash compensation (Note 8) 235,000 --
Other -- 41,000
------------ ------------
Total expenses 3,108,000 3,036,000
------------ ------------
Loss from operations (1,285,000) (2,164,000)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 18,000 46,000
Interest expense (325,000) (49,000)
Other 103,000 --
------------ ------------
Loss before provision for
income taxes (1,489,000) (2,167,000)
PROVISION FOR STATE INCOME TAXES 3,000 5,000
------------ ------------
Net loss $(1,492,000) $(2,172,000)
------------ ------------
------------ ------------
Net loss per share $(.05) $(0.08)
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-------------------------------- Accumulated
Shares Amount Deficit Total
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1995 23,273,330 $ 5,450,000 $(4,625,000) $ 825,000
Shares issued pursuant
to DTM settlement
(April 1995) 50,000 29,000 -- 29,000
Shares issued pursuant
to private placement
(June 1995) 1,090,000 536,000 -- 536,000
Shares issued pursuant
to private placement
(September 1995) 4,500,000 2,211,000 -- 2,211,000
Shares issued pursuant
to private placement
(February 1996) 825,000 405,000 -- 405,000
Net loss for the year -- -- (2,172,000) (2,172,000)
------------ ------------ ------------ ------------
BALANCE, March 31, 1996 29,738,330 8,631,000 (6,797,000) 1,834,000
Shares issued pursuant
to convertible debt
(October 1996) 162,549 85,000 -- 85,000
Shares issued pursuant
to convertible debt
(November 1996) 320,001 127,000 -- 127,000
Shares issued pursuant
to convertible debt
(December 1996) 197,530 85,000 -- 85,000
Shares issued pursuant
to convertible debt
(January 1997) 1,015,873 338,000 -- 338,000
Interest expense on
convertible debt -- 275,000 -- 275,000
Non-employee stock options -- 235,000 -- 235,000
Net loss for the year -- -- (1,492,000) (1,492,000)
------------ ------------ ------------ ------------
BALANCE, March 31, 1997 31,434,283 $ 9,776,000 $(8,289,000) $ 1,487,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,492,000) $ (2,172,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-off of goodwill and related
acquisition costs -- 657,000
Depreciation and amortization 379,000 323,000
Provision for doubtful accounts 12,000 50,000
Non-cash interest expense on convertible
debt 275,000 --
Non-cash compensation expense 235,000 --
Changes in assets and liabilities, net
of effects from purchase of A-RPM in 1996:
Decrease (increase) in accounts receivable (348,000) (390,000)
Decrease (increase) in inventories 7,000 65,000
Decrease (increase) in prepaid expenses
and other assets 35,000 (20,000)
Increase (decrease) in accounts payable
and accrued expenses (218,000) (82,000)
Increase (decrease) in deferred revenue 93,000 (188,000)
---------- ----------
Net cash used in operating activities (1,022,000) (1,757,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (215,000) (408,000)
---------- ----------
Net cash used in investing activities (215,000) (408,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (66,000) (97,000)
Payments on notes payable (15,000) (32,000)
Proceeds from private placements, net of
issuance costs -- 3,152,000
Convertible debentures, net of issuance costs 635,000 --
---------- ----------
Net cash provided by financing activities 554,000 3,023,000
---------- ----------
Net increase (decrease) in cash (683,000) 858,000
Cash at beginning of period 1,189,000 331,000
---------- ----------
Cash at end of period $ 506,000 $1,189,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND NATURE OF THE BUSINESS
Soligen Technologies, Inc. (STI) is a Wyoming corporation which operates
through its wholly owned subsidiaries Soligen, Inc. (Soligen) and Altop,
Inc. (Altop) (collectively referred to as the Company).
Soligen is located in Northridge, California. It was founded to develop
and commercialize a new technology for creating metal parts and tooling
from computer designs. This technology, Direct Shell Production Casting
(DSPC-Registered Trademark-), is based on Three Dimensional Printing
(3DP-TM-) a patented process licensed to Soligen by the Massachusetts
Institute of Technology.
Altop is incorporated in California. On June 30, 1994, Altop acquired
substantially all of the assets of A-RPM Corporation, an aluminum foundry
and machine shop. Altop immediately commenced operations as an aluminum
foundry and machine shop in the same location as A-RPM had operated, in
Santa Ana, California.
The Company faces risks normally associated with early stage enterprises
and certain risks, including the need to raise additional capital to fund
future operations and other risks described in Note 7.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of STI, Soligen
and Altop. All intercompany balances and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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<PAGE>
CREDIT RISK
The Company's accounts receivable are unsecured and the Company is at risk
to the extent such amounts become uncollectable. As of March 31, 1997, two
customers represented 13 percent and 11 percent of accounts receivable.
The Company's largest customer represented approximately 13 percent of
revenues during fiscal 1996. For the year ended March 31, 1997, there were
two customers representing 13 percent and 10 percent, of revenues.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in, first-
out basis. Inventories include raw materials, work in process and finished
goods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
on a straight-line basis over the expected lives of the assets, as follows:
Description Depreciation Life
----------------------------------- -----------------------
Office furniture and fixtures 3 to 5 years
Plant machinery and equipment 5 years
DSPC-Registered Trademark- machines 2 to 3 years
Leasehold improvements Lesser of asset life
or term of lease
Computer equipment 3 to 5 years
Printheads 3 years
Property, plant and equipment consist of the following at March 31, 1997:
Office furniture and fixtures $ 47,000
Plant machinery and equipment 799,000
DSPC-Registered Trademark- machines 944,000
Leasehold improvements 28,000
Construction in progress
- DSPC-Registered Trademark- machines 83,000
Computer equipment 111,000
Printheads 100,000
-----------
Total 2,112,000
Less--Accumulated depreciation and
amortization (1,004,000)
-----------
$ 1,108,000
-----------
-----------
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<PAGE>
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under SFAS No. 109, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-
end, based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances have been established to reduce deferred tax assets to
the amount that could be anticipated to be realized. Income tax expense is
the tax payable for the period and the change during the period in deferred
tax assets and liabilities. The income tax expense for 1996 and 1997 is
limited to minimum payments due for each year due to the Company's large
operating loss carryforward. The Company's deferred tax asset and
valuation reserve are as follows:
MARCH 31, 1997
--------------
Deferred tax assets:
Net operating loss carryforward $ 3,054,000
Amortization of goodwill 213,000
Non-employee stock options 94,000
Vacation accrual 16,000
Unicap 2,000
Allowance for bad debts 56,000
------------
3,435,000
Deferred tax liabilities:
Depreciation (5,000)
------------
Total net deferred tax assets 3,430,000
Valuation allowance (3,430,000)
------------
Total $ --
------------
------------
There is no assurance that the Company will be profitable in future
periods, therefore, a valuation allowance has been recognized for the full
amount of the deferred tax asset for 1997. As of March 31, 1997, the
Company has a federal income tax operating loss carryforward of
approximately $7,900,000, which expires through 2012. Under Section 382 of
the Internal Revenue Code, the availability of net operating loss and
credit carryforwards may be reduced in the event of a greater than 50
percent change in ownership over a three-year period. In the event that
such a change is deemed to have occurred, the Company's use of net
operating losses and credits may be limited.
REVENUE RECOGNITION
Revenue from the sale of products and services is generally recognized upon
shipment. Maintenance and license revenues are recognized on a straight-
line basis over the term of the agreement, generally 12 months.
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<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as
incurred.
LOSS PER SHARE
Loss per share is based on the weighted average number of shares
outstanding during each year. The weighted average number of shares used
in the computation of loss per share for 1997 and 1996 was 30,233,000 and
26,559,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, receivables, trade payables and
accrued liabilities approximate their fair values because of the short
maturities of those instruments. The carrying value of the Company's debt
and capital leases approximate their fair values because of the short
maturities and/or interest rates which are comparable to those available to
the Company on similar terms.
NEW AUTHORITATIVE PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of," which required impairment losses to be recorded on long-lived assets
used in operations when indications of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. The Company adopted SFAS 121 in 1996 and
the impact on the Company's financial position and results of operations
was significant to the fourth quarter and fiscal year ended March 31, 1996.
Unamortized goodwill and related acquisition costs relating to the A-RPM
acquisition were written off pursuant to SFAS 121 guidelines and
management's assessment of the remaining (impaired) value of the assets
(see Note 7).
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS 123 encourages, but does not require, a fair value
based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) but requires pro forma
disclosure of net income and earnings per share as if the fair value based
method had been applied. The Company has determined to elect this
disclosure method and to continue to measure compensation under APB 25. The
Company has applied the fair value based method of accounting for options
granted to non-employees (see Note 8).
Subsequent to year-end, the FASB issued SFAS No. 128, "Earnings Per Share"
and SFAS No. 129, "Disclosure of Information About Capital Structure".
SFAS No. 128 revises and simplifies the computation of earnings per share
and requires certain additional disclosures. SFAS No. 129 requires
additional disclosures regarding the Company's capital structure. Both
standards will be
27
<PAGE>
adopted in the fourth quarter of fiscal 1997. Management does not expect
the adoption of these standards to have a material effect on the Company's
financial position or results of operations.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.
The Company paid $19,000 and $35,000 for interest in fiscal 1997 and 1996,
respectively. The Company paid $3,000 and $5,000 for income taxes in
fiscal 1997 and 1996, respectively. During fiscal 1996, the Company issued
50,000 shares pursuant to the DTM settlement (Note 7). In fiscal 1997, the
Company acquired certain property under a capital lease for $15,000, which
was excluded from the statement of cash flows as a non-cash transaction.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
2. INVENTORIES
Inventories consist of the following as of March 31, 1997:
Raw materials and parts $ 89,000
Work in process 21,000
Finished goods 50,000
-----------
Total inventories $ 160,000
-----------
-----------
3. DEFERRED REVENUE
Deferred revenue relates to both machine and customer parts revenues. The
deferred revenue related to machine revenues result mainly from the
Company's issuance of licenses to use the machines, or to support the
machines in form of maintenance, rather than the outright sales of
machines.
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<PAGE>
4. DEBT
Debt consists of the following at March 31, 1997:
Notes to former owners of A-RPM, collateralized
by equipment and furnishings, bearing
interest at 8 percent, interest payable
quarterly (Note 6) $ 305,000
Capital leases (Note 5) 155,000
------------
460,000
Less--Current portion (360,000)
------------
$ 100,000
------------
------------
The debt matures as follows:
1998 $ 360,000
1999 67,000
2000 33,000
------------
$ 460,000
------------
------------
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under capital and
operating lease agreements. The leases expire at various dates through
2002. Future minimum lease payments under capital lease obligations and
noncancellable operating leases at March 31, 1997 are summarized as
follows:
Capital Operating
Leases Leases
-------- --------
1998 $ 71,000 $ 180,000
1999 74,000 180,000
2000 31,000 129,000
2001 -- 112,000
2002 -- 19,000
------------ ------------
Total minimum lease payments 176,000 $ 620,000
------------
------------
Less--Amount representing interest (21,000)
------------
Present value of future minimum
lease payments 155,000
Less--Current portion (55,000)
------------
$ 100,000
------------
------------
Total rent expense was approximately $116,000 and $117,000 in 1997 and 1996,
respectively.
29
<PAGE>
6. ACQUISITION OF A-RPM
On June 30, 1994, STI's wholly owned subsidiary, Altop, Inc., acquired
substantially all of the assets of A-RPM Corporation, a foundry and machine
shop located in Santa Ana, California. The acquisition price was $420,000,
with $100,000 paid in cash and $320,000 in notes ($100,000 of which was
contingent upon determination of certain net asset values according to a
formula set forth in the Asset Purchase Agreement), plus assumption of
stated liabilities (see Note 7).
7. CONTINGENT LIABILITIES
MIT LICENSE - Soligen and the Massachusetts Institute of Technology (MIT)
entered into an agreement under which MIT granted Soligen an exclusive
license to develop, manufacture, market and sell products utilizing
technology and processes patented by MIT in the metal casting field of use.
Terms of said agreement state that Soligen, with other licensees of the MIT
and 3DP technology, must share the cost of any fees incurred by MIT for the
prosecution, filing and maintenance of all patent rights.
Under the terms of the agreement, as amended, Soligen is required to
generate the following minimum cumulative net sales levels:
March 1996 - March 1997 $ 3,000,000
March 1997 - March 1998 $ 3,500,000
March 1998 - March 1999 $ 4,000,000
March 1999 - March 2000 $ 4,500,000
March 2000 - March 2001 $ 5,000,000
March 2001 - March 2002 $ 6,000,000
March 2002 - March 2003 $ 8,000,000
March 2003 - March 2004 and each year thereafter $10,000,000
In addition, after payment of $500,000 in royalties and 4.5 percent of net
sales, Soligen has an obligation to pay to MIT a royalty in the amount of
2.25 percent of "Net Sales" on a quarterly basis. Because Soligen incurred
significant expense defending itself in a patent infringement suit which
threatened MIT's licensing effort with respect to the patent rights, MIT
agreed that during the period commencing December 15, 1993 and ending
December 15, 1998, it would waive the first $300,000 of royalties.
The license provides that if Soligen fails to reach the sales minimums or
pay the obligations delineated above, such failure will be grounds for MIT
to terminate the license on 90 days' notice to Soligen. As of March 31,
1997, Soligen has met the requirement for minimum net sales.
MIT has notified Soligen that any royalties payable under the license
agreement may be applied by Soligen to the payment of the costs of
defending the DTM lawsuit (see below), through May 31, 1995. Additionally,
MIT agreed to extend the exclusive period until October 1, 2006.
30
<PAGE>
LEGAL ACTIVITY - DTM - DTM Corporation (DTM) of Austin, Texas, has filed a
lawsuit against Soligen in the Western District of Texas, alleging
infringement of a United States patent (Housholder patent) of which DTM is
the assignee. Soligen was served on February 17, 1994 with notice of this
action. Soligen answered with a motion to dismiss for lack of
jurisdiction, and on September 9, 1994 was notified that DTM had
voluntarily dismissed the complaint in Texas, and filed a similar action in
Delaware.
In October 1994, Soligen filed a counterclaim alleging that the DTM patent
is invalid due to "prior art." In December 1994, Soligen filed a motion in
Delaware to transfer the action to California and an additional motion to
recoup court costs and attorney's fees arising from the Texas action. In
January 1995, Soligen filed a petition with the United States Patent Office
for re-examination of the Housholder patent. In March 1995, the United
States Patent Office granted Soligen's petition for re-examination of the
Housholder patent.
In April 1995, Soligen signed a Memorandum of Understanding with DTM and
MIT to settle the patent infringement lawsuit and to resolve, without
further litigation by DTM, related patent disputes between DTM and MIT that
impacted both Soligen and other MIT licensees of Three Dimensional Printing
(3DP-TM-) technology. The settlement provides for the issuance of 50,000
shares of the Company's common stock to DTM, and an additional 50,000
shares contingent upon the final outcome of the pending petition for re-
examination of the Housholder patent. Soligen has issued 50,000 shares
and, subsequent to year end, the Company issued an additional 50,000 shares
for the contingent issuance.
LEGAL ACTIVITY - A-RPM - On March 22, 1995, Altop filed an action against
A-RPM and its shareholders for breach of contract and misrepresentations
related to its June 30, 1994 Asset Purchase Agreement of A-RPM. In May
1995, A-RPM filed a response and counter-complaint and a trial date has
been scheduled for October 27, 1997.
LEGAL ACTIVITY - OTHER - The Company is involved in the normal course of
its business in various other litigation matters. Although the Company's
counsel is unable to determine at the present time whether the Company will
have any liability in any of the pending matters, the Company believes that
none of the pending matters will have an outcome material to the financial
condition or business of the Company.
8. STOCK OPTION PLAN
The Company has a stock option plan that provides for incentive and non-
incentive stock options to employees, officers, directors and consultants
responsible for the success of the Company. The total options available
under the plan for granting are 3,500,000 shares.
Under the Plan, incentive stock options can be granted at prices not less
than 100 percent of the fair market value at the date of grant while
nonqualified options can be granted at not less than 85 percent of the fair
market value at the date of grant. Options are generally exercisable in
fourths, commencing one year after the grant date and on the second, third
and fourth anniversaries of the grant date, respectively.
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<PAGE>
Information regarding the Company's Option Plan as of March 31, 1997, and
changes during the year then ended is summarized as follows:
Weighted Average
Shares Exercise Price
-------- --------------
March 31, 1996 3,362,000 $ 0.79
Granted 200,000 0.75
Canceled (265,000) (0.82)
---------- ------
March 31, 1997 3,297,000 $ 0.78
---------- ------
---------- ------
The weighted average fair value of options granted during fiscal 1997 was
$0.42.
Information about stock options outstanding at March 31, 1997 is summarized
as follows:
Options Outstanding
------------------------------
Weighted Weighted
Average Average
Number Remaining Exercise
Exercise Price Outstanding Contract Life Price
-------------- ----------- ------------- -----
$1.00 (Cdn) 1,105,000 6.0 years $ 1.00 (Cdn)
$2.20 (Cdn) 135,000 5.5 years $ 2.20 (Cdn)
$0.75 (U.S.) 2,057,000 8.9 years $ 0.75 (U.S.)
The Company accounts for stock options granted to non-employees in
accordance with SFAS 123 which requires non-cash compensation expense be
recognized over the expected period of benefit. As a result the company
recorded compensation expense of $235,000 in fiscal 1997 which is included
in the accompanying statement of operations. The Company accounts for its
stock options granted to employees and directors under APB 25, under which
no compensation cost has been recognized. Had compensation cost for the
Company's stock option plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to
the following pro forma amounts:
March 31, March 31,
1997 1996
------ ------
Net Loss As Reported $(1,492,000) $(2,172,000)
Pro Forma $(1,567,000) $(2,199,000)
Net Loss Per Share As Reported $(0.05) $(0.08)
Pro Forma $(0.05) $(0.08)
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants: risk-free interest rate of 5.00
32
<PAGE>
to 6.00 percent; expected lives of six to eight years; expected volatility
of 45 percent and no dividends would be issued during the option terms.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. Option value models also require
the input of highly subjective assumptions, such as expected option life
and expected stock price volatility. Because the Company's stock-based
compensation plans have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, the Company believes that
the existing option valuation models do not necessarily provide a reliable
single measure of the fair value of awards from those plans.
Options granted prior to March 31, 1995 were issued in Canadian dollars at
$1.00 Canadian ($.72 U.S. at March 31, 1997) and $2.20 Canadian ($1.59 U.S.
at March 31, 1997) per share. All options granted subsequent to March 31,
1995 are issued in U.S. dollars. Of the options issued, 1,525,325 were
exercisable at March 31, 1997.
9. PRIVATE PLACEMENTS
In fiscal 1995, STI initiated a private placement of 2,390,000 units at a
price of $.50 per unit. The private placement grossed $1,195,000, net of
$55,000 in issuance costs. Each unit consisted of one common share, one-
half Class "A" and one-half Class "B" warrant.
During the year ended March 31, 1996, STI initiated three private
placements grossing $3,528,000, net of $376,000 in issuance costs. The
June 1995 private placement of 1,090,000 units was at a price of $0.55 per
unit. Each unit issued in connection with the June 1995 private placement
consisted of one common share, one Class "C" warrant and one-fifth Class
"D" warrant. The September 1995 and February 1996 private placements of
53.25 units was at a price of $55,000 per unit. Each unit consisted of
100,000 common shares and 100,000 Class "E" warrants. Any investor who
purchased in aggregate at least 20 units, the holder received Class "G"
warrants. The Class "G" warrants shall be redeemable if the closing price
of the common stock is at least $1.75 for ten consecutive trading days. In
the event of such redemption, the exercise price for the Class "G" warrant
shall be reduced to $0.95 per share. In connection with the September 1995
and February 1996 private placements, the Company issued 533,000 Class "F"
warrants to the placement agent.
During fiscal 1997, the Company entered into an agreement with a member of
the board of directors whereby Soligen issued 500,000 warrants at an
exercise price of $0.75 per warrant. The warrants expire on December 31,
2006 and vest over four years. This agreement is subject to approval of
the board of directors.
33
<PAGE>
A summary of the common stock purchase warrants as of March 31, 1997 is as
follows:
Exercise Exercise Number
Class Price Term of Warrants
----- -------- -------- -----------
A $1.25 12 months 1,195,000
B $2.50 12 months 1,195,000
C $1.50 12 months 1,090,000
D $0.75 12 months 218,000
E $1.50 36 months 3,325,000
F $0.55 60 months 533,000
G $1.00 36 months 2,000,000
N/A $1.16 36 Months 215,085
N/A $1.29 36 Months 386,384
N/A $0.78 36 Months 43,010
N/A $0.86 36 Months 77,276
N/A $0.75 120 Months 500,000
The exercise term commences the date of issuance; however, in February 1996
the board of directors extended the exercise term for the Class "A" and "B"
warrants to be 12 months from the date of an S-3 filing, which occurred in
April 1997.
10. CONVERTIBLE DEBENTURES
On September 13, 1996, the Company completed a $750,000 convertible
debenture financing in accordance with SEC Regulation S. The debentures
bear interest at the rate of 6 percent per annum. If not earlier
converted, principal and interest is payable in cash or common stock on
August 31, 1999.
The debentures are convertible by the holder into shares of the Company's
common stock at a conversion price equal to 75 percent of the average price
of the Company's common stock on the American Stock Exchange (Emerging
Company Market) for the five trading days preceding the date of conversion.
The Company had the right to force the conversion of debentures on these
terms at the rate of $50,000 per week beginning October 15, 1996.
The Company recorded $250,000 in common stock related to the debentures for
the conversion feature and $250,000 as non-cash interest expense in
September 1996. During fiscal 1997 all the debt holders converted the
debentures for approximately 1,696,000 shares.
In connection with the above transaction, investors received warrants
exercisable for a total of 601,469 shares of the Company's common stock at
exercise prices of $1.16 (as to 215,085 shares) and $1.29 (as to 386,384
shares). The warrants are exercisable for three years.
The placement agent for the financing received a commission equal to 10
percent of the gross proceeds and warrants exercisable for 120,286 shares
at exercise prices of $0.775 (as to 43,010 shares) and $0.86 (as to 77,276
shares). The warrants are exercisable for three years.
34
<PAGE>
The Company determined the value of the warrants using the Black-Scholes
pricing model to be approximately $296,000. Accordingly the Company
recorded $296,000 as prepaid interest to be amortized over the term of the
debt. However, upon conversion, the unamortized portion of the prepaid is
transferred to common stock. During fiscal 1997 all the debt was
converted. Prior to conversion, the Company amortized $25,000 of interest
which is included in the accompanying statement of operations.
11. SUBSEQUENT EVENT
At June 30, 1997, the Company completed a tender offer to certain warrant
holders to (1) exercise warrants at a reduced exercise price and/or (2)
exchange warrants for common stock at prescribed ratios. The Company
raised approximately $225,000 through the exercise of warrants for common
stock. Subsequent to year end, Soligen received a commitment letter from a
commercial lender for a $1,000,000 line of credit. The credit facility
provides for the advance rate of 75 percent of eligible accounts
receivable.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 11th day of July 1997.
SOLIGEN TECHNOLOGIES, INC.
(Registrant)
By: /s/Yehoram Uziel
------------------------------
Yehoram Uziel, President, CEO,
Director and Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/Yehoram Uziel President, CEO, Director and July 11, 1997
- --------------------------- Chairman of the Board
Yehoram Uziel (principal executive officer)
/s/Robert Kassel Chief Financial Officer July 11, 1997
- --------------------------- (principal financial officer and
Robert Kassel principal accounting officer)
* /s/Dr. Mark W. Dowley Director July 11, 1997
- ---------------------------
Dr. Mark W. Dowley
* /s/Kenneth T. Friedman Director July 11, 1997
- ---------------------------
Kenneth T. Friedman
* /s/Patrick J. Lavelle Director July 11, 1997
- ---------------------------
Patrick J. Lavelle
* /s/Darryl J. Yea Director July 11, 1997
- ---------------------------
Darryl J. Yea
*By: /s/Yehoram Uziel July 11, 1997
- ---------------------------
Yehoram Uziel, Attorney-in-Fact
36
<PAGE>
EXHIBIT 10.5
FRIEDMAN ENTERPRISES
- --------------------------------------------------------------------------------
INVESTMENT BANKERS
23512 MALIBU COLONY DRIVE
MALIBU, CA 90265
(310) 456-0756
FAX (310) 456-0764
CONSULTING AGREEMENT BETWEEN KENNETH FRIEDMAN AND
SOLIGEN TECHNOLOGIES, INC.
On September 9, 1996, Kenneth Friedman ("Friedman") joined the board of
directors of Soligen Technologies, Inc. ("Soligen" or the "Company"). In
addition to, and separate from, those duties that Ken Friedman is to perform in
the normal course of his duties as a director of Soligen, Soligen hereby retains
Friedman (through Friedman Enterprises "FE") to provide general consulting
services ("Consulting") to Soligen, on a reasonably requested basis. The
rationale for this agreement is the understanding that Soligen expects Friedman
to be directly involved with certain activities as outline below, assist the
Company's CEO in certain duties, and be prepared to assume a more active
management role, on an interim basis, in the event that Yehoram Uziel is
temporarily or permanently not able to fulfill his responsibilities as Chairman
and CEO of Soligen.
Such Consulting shall include an be reasonably consistent with the following:
1) attendance at Company strategic meetings such as the Ichak Adizes'
meetings.
2) assistance in formulating and editing the Company's business plans,
budgets, strategic plans and their respective interim amendments,
3) frequent one-on-one strategy discussions with Yehoram Uziel,
4) introduction of possible sales accounts, assisting in high level
discussions with potential strategic partners, customers, joint venture
foundries, joint development partners, and potential licensees of
Soligen's technology or services,
5) introduction of prospective investment bankers to effect a secondary
offering of securities for Soligen,
6) interaction with Soligen's investor relations' firm to address general
strategy, assisting in establishing investor relations plans, and
implementing, as appropriate, such plans,
7) assisting Soligen in management and key personnel staffing decisions
including interviewing of key management personnel, and candidates for
key positions,
8) advise to Soligen with respect to general financial strategy.
<PAGE>
As compensation for the Consulting services, Soligen hereby agrees to
immediately sell to Friedman, for an aggregate price of ten dollars, warrants to
acquire 500,000 shares of Soligen, with an exercise price of seventy-five cents
per share, subject of the following vesting schedule, and an expiration date for
such warrants of December 31, 2006:
December 31, 1997 200,000
December 31, 1998 150,000
December 31, 1999 100,000
December 31, 2000 50,000
Soligen and FE hereby agree that in the event FE provides investment banking
services to Soligen, such as acting as a finder to seek private debt and equity
capital for Soligen, as well as representing Soligen with respect to prospective
mergers and acquisitions, such services will not be included in the Consulting
role or compensation as delineated above. A decision to engage FE to provide
investment banking services, as well as any decision to accept a financing,
merger or acquisition proposal submitted by FE will be subject to Soligen's
Board of Director approval (on which Kenneth Friedman will abstain from voting).
The Consulting services are to be performed over a five-year period of time,
commencing January 1,1997, with the understanding that there is no specific hour
requirement or expectation attached to such services. However, it is clearly
understood by Soligen and FE, that these services are not to be performed on a
full-time basis, and furthermore, that FE has other significant time demands for
other activities.
The Company agrees to indemnify and hold FE harmless against any losses, claims,
damages or liabilities, joint or several, to which FE directly or indirectly may
become subject in connection with or arising out of the services of this
agreement, and Soligen agrees to defend FE, with attorneys who are acceptable to
FE, which acceptance shall not be unreasonably withheld, against any loss,
claim, damage or liability or any action in respect thereof; provided, however,
that the Company shall not be liable under the foregoing indemnity agreement if
any loss, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment on the merits that such
loss, claim, damage or liability resulted from the bad faith or gross negligence
of FE. The indemnity agreement in this paragraph shall, upon the same terms and
conditions, extend to and inure to the befit of each person, if any, who may be
deemed to control FE and to its officers, directors and employees, and shall
survive the termination of FE's engagement hereunder.
The term of this agreement shall be for a period commencing form January 1, 1997
and continuing through December 31, 2001 provided, that this agreement may be
terminated, if the board so votes, immediately upon the resignation of Ken
Friedman from the Board of Directors for reasons other than individual board
member wrongdoing, a decision by the Company (except if Ken Friedman agree with
such decision) to eliminate Directors and Officers insurance or to carry less
than one million dollars of such coverage, a board decision, that Ken Friedman
disagrees with, regarding how to address a threatened or actual litigation
against the Company and/or its board members. In addition, the Company's Board
of Directors may terminate Ken Friedman's status as a consultant hereunder for
"Cause". For purposes of this Agreement, Cause shall be defined as (I) an act
or acts of judicially determined dishonesty, relating to the activities of
Soligen, by Ken Friedman that actually results in his personal enrichment, or
(ii) the conviction of Ken Friedman of a felony. Upon any such termination, as
described in this paragraph, additional vesting of the warrants purchased by FE
hereunder shall be vested pro rata through such termination date.
Any Controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in Los Angles, California, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
<PAGE>
If any party to this agreement brings an action directly or indirectly based on
this Agreement, the prevailing party shall be entitled to reasonable expenses
therefor, including, but not limited to, attorney's fees and court costs.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to me the duplicate of this letter attached hereto.
Sincerely,
FRIEDMAN ENTERPRISES
/s/ Kenneth T. Friedman June 5, 1997
- ------------------------------- --------------------
Kenneth T. Friedman Date
The foregoing has been read, understood and approved.
SOLIGEN TECHNOLOGIES, INC.
/s/ Yehoram Uziel June 6, 1997
- ------------------------------- --------------------
Yehoram Uziel CEO Date
<PAGE>
EXHIBIT 11.1
SOLIGEN TECHNOLOGIES, INC.
COMPUTATION OF NET LOSS PER SHARE
Fiscal year ended March 31,
---------------------------
1997 1996
---- ----
Weighted average common shares outstanding 30,233,000 26,559,000
Net loss $(1,492,000) $(2,172,000)
Net loss per share $(0.05) $(0.08)
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that the undersigned, Dr. Mark W. Dowley, hereby
constitutes and appoints Yehoram Uziel and Robert E. Kassel, or either of them,
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Form 10-KSB, Annual Report of Soligen
Technologies, Inc., a Wyoming Corporation, for the fiscal year ended March 31,
1997, and any amendments or supplements thereto, and to file this Power of
Attorney and the Form 10-KSB, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, the
Superintendent of the British Columbia Securities Commission, the American Stock
Exchange and the Vancouver Stock Exchange, granting unto each of said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-fact and
agents, or his substitutes, may do or cause to be done by virtue hereof.
Dated this 17th day of June 1997
---------
Signature
/s/ MARK W. DOWLEY
- -------------------------------------
Mark W. Dowley, Director
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that the undersigned, Kenneth T. Friedman,
constitutes and appoints Yehoram Uziel and Robert E. Kassel, or either of them,
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Form 10-KSB, Annual Report of Soligen
Technologies, Inc., a Wyoming Corporation, for the fiscal year ended March 31,
1997, and any amendments or supplements thereto, and to file this Power of
Attorney and the Form 10-KSB with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, the
Superintendent of the British Columbia Securities Commission, the American Stock
Exchange and the Vancouver Stock Exchange, granting unto each of said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-fact and
agents, or his substitutes, may do or cause to be done by virtue hereof.
Dated this 17th day of June 1997
---------
Signature
/s/ KENNETH T. FRIEDMAN
- ----------------------------------------
Kenneth T. Friedman, Director
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that the undersigned, Patrick J. Lavelle,
constitutes and appoints Yehoram Uziel and Robert E. Kassel, or either of them,
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Form 10-KSB, Annual Report of Soligen
Technologies, Inc., a Wyoming Corporation, for the fiscal year ended March 31,
1997, and any amendments or supplements thereto, and to file this Power of
Attorney and the Form 10-KSB, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, the
Superintendent of the British Columbia Securities Commission, the American Stock
Exchange and the Vancouver Stock Exchange, granting unto each of said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-fact and
agents, or his substitutes, may do or cause to be done by virtue hereof.
Dated this 19th day of June 1997
---------
Signature
/s/ PATRICK J. LAVELLE
- ----------------------------------------
Patrick J. Lavelle, Director
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that the undersigned, Darryl J. Yea, constitutes
and appoints Yehoram Uziel and Robert E. Kassel, or either of them, his true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Form 10-KSB, Annual Report of Soligen Technologies,
Inc., a Wyoming Corporation, for the fiscal year ended March 31, 1997, and any
amendments or supplements thereto, and to file this Power of Attorney and the
Form 10-KSB, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, the Superintendent of the
British Columbia Securities Commission, the American Stock Exchange and the
Vancouver Stock Exchange, granting unto each of said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-fact and agents, or his substitutes,
may do or cause to be done by virtue hereof.
Dated this 25th day of June 1997
----------
Signature
/s/ DARRYL J. YEA
- ----------------------------------------
Darryl J. Yea, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES OF THE COMPANY'S FORM 10KSB FOR THE YEAR TO DATE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 506
<SECURITIES> 0
<RECEIVABLES> 863
<ALLOWANCES> 140
<INVENTORY> 160
<CURRENT-ASSETS> 1,438
<PP&E> 2,112
<DEPRECIATION> 1,004
<TOTAL-ASSETS> 2,580
<CURRENT-LIABILITIES> 993
<BONDS> 0
0
0
<COMMON> 9,776
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,580
<SALES> 4,203
<TOTAL-REVENUES> 4,203
<CGS> 2,380
<TOTAL-COSTS> 2,380
<OTHER-EXPENSES> 3,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> (1,489)
<INCOME-TAX> 3
<INCOME-CONTINUING> (1,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,492)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
