<PAGE>
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, 1998
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:
---------------------------------------------
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
Common stock without par value American Stock Exchange (Emerging Company Marketplace)
</TABLE>
Securities registered under Section 12(g) of the Exchange Act: None
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 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, 1998 were
$5,465,000.
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 15,1998 was approximately
$16,319,000.
As of June 12, 1998, there were 32,682,338 shares of common stock, no
par value, outstanding.
The index to exhibits appears on page 18 of this document.
---------------------------------------------
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 1998 Annual Meeting of
Shareholders.
<PAGE>
SOLIGEN TECHNOLOGIES, INC.
FORM 10-KSB
For the Year Ended March 31, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
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Part I
<S> <C> <C>
Item 1. Description of Business.................................................................. 1
Item 2. Description of Properties................................................................ 10
Item 3. Legal Proceedings........................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders ..................................... 10
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........................................................... 11
Item 7. Financial Statements..................................................................... 17
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 ........................................................ 18
Signatures................................................................................................. 38
</TABLE>
<PAGE>
PART I
Item 1. Description of 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 that was organized in 1993. The Company's
wholly-owned subsidiary, Soligen, Inc. ("Soligen"), is a Delaware corporation
that 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 has now completed its transition from a development stage to that of
a revenue generating company. Although fiscal 1998 revenues increased
considerably over the prior year, the Company continues to need to raise
additional capital in order to fund future expansion and 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, 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 until October 1, 2006 to
develop, manufacture, market and sell products utilizing certain technology
and processes for the production of ceramic casting molds for casting metal
parts. The license continues 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, with very little
chance for error, on the first attempt. The DSPC System can also be 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 Company's 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 at 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 (www.partsnow.com) 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 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 CAD file of the part.
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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 "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 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
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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.
- 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.
Distribution
Sales and distribution activities for the Company are currently handled by
management and staff at the Company's facilities in California and in regional
sales offices in Tama, Iowa and Detroit, Michigan. The Iowa office directs the
Company's sales and technical support requirements in the Midwest while the
Michigan office concentrates principally in the Detroit area. The Company plans
to open additional regional sales offices, initially in the USA and later,
internationally. In certain 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 now complete. During
this 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
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DSPC machines. In January 1995, the Company established the first DSPC center at
the Company's headquarters in Northridge, California. At present it operates one
DSPC 300 machine and six DSPC 300G machines (a new version of the DSPC 300, on
which development was completed during fiscal 1996). The Company plans to
assemble an additional three DSPC 300G machines during fiscal 1999.
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 to a Parts Now center i.e., a full manufacturing center. The
planned upgrade would include additional DSPC machines as well as other
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. 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 quick and cost effective
tooling is to utilize methods that will make the production tooling once and
correctly on the first attempt. However, since casting requires tooling even for
making a single mold (and therefore casting a single part), several design
cycles, including patterns and core
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box 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, and construction equipment industries 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
(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
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possibility of errors introduced during the course of normal production, thereby
improving process quality.
DSPC is loosely related but significantly different from 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 aluminum or steel) functional parts. In the
case of rapid prototyping, the end 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.
Certain 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
For relatively small quantities (up to few thousand parts per year) the Company
competes with CNC (computer numerical control) 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 in 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
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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. 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 from numerous suppliers in the
quantities needed. Major suppliers for aluminum include Alcoa Aluminum and
Kaiser Aluminum.
Major Customers
During fiscal 1998, 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, Qualcomm,
Inc., JBL Professional, ITT Industries and Motorola, Inc. For the year ended
March 31, 1998, the two largest customers represented 9% and 7% 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.
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Under the terms of the amended License, Soligen is required to generate
cumulative sales according to the following schedule:
<TABLE>
<CAPTION>
Period Cumulative Sales
<S> <C>
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
</TABLE>
Soligen has met all the conditions to maintain its license and the exclusivity.
For the rights, privileges and license granted under the License, Soligen pays
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," the royalty rate due for sale of metal "End
Products" is 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, 1996, 1997 and 1998, the Company expended
$941,000, $1,108,000 and $1,016,000 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.
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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.
Employees
Soligen currently employs forty-four full time engineers, scientists, managers
and staff. Soligen also employs eight temporary employees and three consultants.
Soligen has agreements with three 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 thirty 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. Description of 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
As of the date of this report, the Company and its subsidiaries are not subject
to any material legal proceedings. From time to time the Company becomes
involved in routine legal proceedings incidental to its business.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
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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>
High sales price Low sales price High sales price Low sales price
Fiscal quarter ended ($ U.S.) (1) ($ U.S.) (1) ($ Canadian) (2) ($ Canadian) (2)
- ------------------------ --------------------- ---------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Jun 30, 1996 2.25 0.63 2.75 0.85
Sep 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
Jun 30, 1997 0.69 0.38 0.90 0.50
Sep 30, 1997 0.75 0.31 1.01 0.49
Dec 31, 1997 0.69 0.31 1.00 0.45
Mar 31, 1998 0.69 0.25 0.90 0.48
</TABLE>
Sources for sales prices:
(1) American Stock Exchange.
(2) C. M. Oliver & Co. Ltd., Vancouver, British Columbia, Canada.
At June 18, 1998, the Company had 2,376 holders of record of its common stock
and 32,682,338 shares outstanding.
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; (ii) the possible emergence of competing technologies; and (iii) the
Company's ability to obtain additional financing required to support its
projected revenue growth. Actual results could differ materially from these
forward-looking
11
<PAGE>
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, 1998, the Company has completed its transition from a
development stage company to 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
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 1998 to fiscal 1997 for all items noted on the
Consolidated Statements of Operations contained in a separate section of this
Annual Report on Form 10-KSB commencing on page 20. The second section discusses
the growth in revenues and presents quarterly statements of operations for
fiscal 1998.
12
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Revenues
Revenues for the fiscal year ended March 31, 1998, were $5,465,000, an increase
of 30% compared to $4,203,000 in the fiscal year ended March 31, 1997. For
fiscal 1998, the Company's core business, DSPC and Parts Now, increased 59% to
$4,019,000 from $2,534,000 in fiscal 1997. Conventional castings at Altop
decreased by 20% to $925,000 in fiscal 1998 from $1,160,000 in fiscal 1997. The
Company continues to transition at Altop from conventional castings to support
its Parts Now business. DSPC technology revenues remained relatively constant
increasing 2% to $521,000 in fiscal 1998 from $509,000 in fiscal 1997.
The Company's revenues for fiscal 1998 and fiscal 1997, classified by product
lines, are as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
<S> <C> <C>
Parts Now-Registered Trademark- $1,700,000 $1,848,000
DSPC-Registered Trademark- production 2,319,000 686,000
Production parts 925,000 1,160,000
DSPC-Registered Trademark- technology 521,000 509,000
---------- ----------
Total revenues $5,465,000 $4,203,000
---------- ----------
---------- ----------
</TABLE>
Cost of Revenues
Cost of revenues as a percentage of total revenues in fiscal 1998 was 68%
compared to 57% in fiscal 1997. During fiscal 1998, the Company made and
continues to make investments in programs leading to the manufacture of
production tooling which is critical to the Company's growth strategy although
in the short term these programs have a negative effect on margins.
Research and Development Expenses
Research and development expenses decreased $92,000 or 8% to $1,016,000 in
fiscal 1998 from $1,108,000 in fiscal 1997. The Company continued its high
research and development expenditures so as to broaden its market penetration by
enhancing the DSPC technology licensed from MIT.
Selling Expenses
Selling expenses decreased 22% to $586,000 in fiscal 1998 from $747,000 in
fiscal 1997, resulting primarily from the consolidation of Altop's and Soligen's
sales departments. Although direct selling expenses decreased, the Company
continued to expand its marketing efforts through representatives and reselling
organizations.
13
<PAGE>
General and Administrative Expenses
General and administrative expenses increased only $67,000 to $1,085,000 in
fiscal 1998 from $1,018,000 in fiscal 1997. The increase was due to small
increases in several items dispite the 30% increase in revenues.
Non-Cash Compensation Expense
The Company issued stock options to non-employees in fiscal 1996 and, as a
result expects to incur $617,000 non-cash compensation expense during a four
year period of which $235,000 was recognized in fiscal 1997 and $156,000 in
fiscal 1998.
Interest Expense
Interest expense decreased to $78,000 in fiscal 1998 from $325,000 in fiscal
1997. During fiscal 1998, the Company issued common stock purchase warrants in
connection with a private placement loan to the Company and, according to SFAS
123, non-cash interest expense is to be recognized over the expected period of
benefit. As a result of SFAS 1
23, the Company expects to incur $70,000 non cash
interest expense during a six month period of which $35,000 is recognized in
fiscal 1998. An additional $43,000 of interest was for other notes and leases.
During fiscal 1997, $250,000 non-cash interest expense and $11,000 cash interest
expense was associated with the $750,000 convertible debenture financing
completed in 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.
Other Income
During fiscal 1998, the Company recognized other income of $178,000, the major
part of which was settling its lawsuit and counterclaim with A-RPM and reversing
notes payable, net of accrued interest and legal expenses, in the amount of
$152,000. During fiscal 1997, the Company amended its license agreement with MIT
and recognized, in other income, $90,000 over accrual of royalty fees.
Net Loss
Net loss was reduced to $969,000 in fiscal 1998 as compared to $1,492,000 in
fiscal 1997. Basic and diluted loss per share decreased to $0.03 in fiscal 1998
from a basic and diluted loss per share of $0.05 in fiscal 1997.
Fiscal 1998 Quarterly Statements of Operations
Revenues for the first quarter of fiscal 1998 were $1,233,000, remained
essentially flat during the next two quarters and increased 44% to $1,780,000 by
the fourth quarter of fiscal 1998. During the same period, the Parts Now and
DSPC business segments increased 57% from $918,000 to
14
<PAGE>
$1,442,000. The growth was attributed to revenues resulting from repeat business
with major customers which derived from their utilizing DSPC for prototypes and
subsequent short production runs. The Parts Now strategy continues to position
the Company as an out-sourcing vendor for cast metal parts supplied as cast,
machined and ready for assembly.
The following table sets forth results of operations by quarter and pro forma
results after elimination of non-cash adjustments:
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4 Fiscal 1998
-- -- -- -- -----------
<S> <C> <C> <C> <C> <C>
Parts Now-Registered Trademark- $ 498,000 $ 126,000 $ 457,000 $ 619,000 $ 1,700,000
DSPC-Registered Trademark- production 420,000 604,000 472,000 823,000 2,319,000
Production parts 218,000 229,000 188,000 290,000 925,000
DSPC-Registered Trademark- technology 97,000 305,000 71,000 48,000 521,000
----------- ----------- ----------- ----------- -----------
Total revenues 1,233,000 1,264,000 1,188,000 1,780,000 5,465,000
----------- ----------- ----------- ----------- -----------
Cost of revenues 880,000 890,000 818,000 1,105,000 3,693,000
----------- ----------- ----------- ----------- -----------
Gross profit 353,000 374,000 370,000 675,000 1,772,000
----------- ----------- ----------- ----------- -----------
Research & development 263,000 256,000 261,000 236,000 1,016,000
Selling 136,000 129,000 143,000 178,000 586,000
General and administrative 210,000 302,000 278,000 295,000 1,085,000
Non-cash compensation 39,000 39,000 39,000 39,000 156,000
----------- ----------- ----------- ----------- -----------
Total expenses 648,000 726,000 721,000 748,000 2,843,000
----------- ----------- ----------- ----------- -----------
Loss from operations (295,000) (352,000) (351,000) (73,000) (1,071,000)
Interest income 1,000 1,000 -- 1,000 3,000
Interest expense - cash (4,000) (11,000) (8,000) (20,000) (43,000)
Interest expense - non cash -- -- -- (35,000) (35,000)
Other income -- -- 152,000 26,000 178,000
----------- ----------- ----------- ----------- -----------
Total other income (expense) (3,000) (10,000) 144,000 (28,000) 103,000
----------- ----------- ----------- ----------- -----------
Provision for state taxes 1,000 -- -- -- 1,000
----------- ----------- ----------- ----------- -----------
Net loss $ (299,000) $ (362,000) $ (207,000) $ (101,000) $ (969,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-cash adjustments included above:
Non-cash compensation 39,000 39,000 39,000 39,000 156,000
Non-cash interest -- -- -- 35,000 35,000
----------- ----------- ----------- ----------- -----------
Pro forma loss $ (260,000) $ (323,000) $ (168,000) $ (27,000) $ (778,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Sources of Liquidity
As of March 31, 1998, the Company had $1,473,000 in cash and accounts
receivable, representing a increase of $244,000 as compared to $1,229,000 at
March 31, 1997. Working capital decreased to $177,000 at March 31, 1998 from
$445,000 at the end of March 31, 1997.
During the fiscal year ended March 31, 1998, cash used in operating activities
was $581,000 compared to cash used in operating activities of $1,022,000 for the
fiscal year ended March 31, 1997. The improvement in cash used in operating
activities in fiscal 1998 was the result of the reduction in net loss to
$969,000 as compared to $1,492,000 for the prior fiscal year. The improvement in
fiscal 1998 included $35,000 non-cash interest and $156,000 non-cash
compensation expenses compared to $275,000 non-cash interest and $235,000
non-cash
15
<PAGE>
compensation expenses in fiscal 1997. The decrease in cash used in operations
for fiscal 1998 as compared to fiscal 1997 was also attributed to an increase in
accounts payable and accrued expenses of $353,000 offset by an increase in
accounts receivable of $592,000.
Net cash used in investing activities for capital expenditures was $133,000 in
the fiscal year ended March 31, 1998, as compared to cash used in investing
activities of $215,000 in the prior fiscal year.
Cash provided by the financing activities in fiscal year ended March 31, 1998,
was $423,000 compared to cash provided in the prior fiscal year of $554,000. 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 $227,000 through the
exercise of warrants for common stock in this tender offer. In addition, the
Company received proceeds of $45,000 from the sale of common stock to a director
in August 1997 and issued $20,000 of common stock in June 1997 in settlement of
litigation.
In December 1997, the Company received proceeds of $260,000 from the issuance of
notes payable due and payable the earlier of the completion by the Company of an
equity financing in an amount not less than $1,500,000 or June 12, 1998. On June
12, 1998, the Company extended the $260,000 notes payable under the same terms
and conditions for an additional 45 days. On April 24, 1998, the Company entered
into a Series A Convertible Preferred Stock Purchase Agreement providing for the
private placement of up to 3,000 shares of a newly authorized series of
preferred stock. The Company received gross proceeds thus far of $800,000 from
the sale of 1,600 shares of Preferred Stock to two private investors.
During fiscal year 1997, the Company raised net proceeds of $635,000 through the
issuance of 6% convertible debentures, all of which were converted to common
stock. In August 1997, the Company entered into a revolving line of credit
arrangement with a commercial lender permitting borrowings up $1,000,000,
collateralized by accounts receivable, inventory and fixed assets. The credit
facility provides for the advance rate of 75% of eligible accounts receivable.
As of March 31, 1998, $146,000 was being utilized under the revolving line of
credit.
The Company requires significant working capital to fund its business,
particularly to finance accounts receivable and for capital expenditures. The
Company's future cash requirements will depend on many factors, including the
extent of spending to support product development efforts, expansion of sales
efforts, and market acceptance of the Company's technology. The Company believes
that the current cash, asset based line of credit and internally generated cash
flow will be sufficient to meet its working capital and capital expenditures
requirements through the fiscal year ended March 31, 1999. 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.
16
<PAGE>
Impact of Year 2000 Issue
The software applications currently used by the Company for operations and
financial management are Year 2000 compliant. The incremental costs to become
compliant did not have a material effect on the Company's consolidated financial
statements.
Item 7. Financial Statements
See "Financial Statements and Notes to Financial Statements" set forth on pages
20 through 37 of this Annual Report on Form 10-KSB.
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 1998 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."
17
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2.1 Share Exchange Agreement and Amendments (1)
2.2 MIT Share Acquisition Agreement (1)
2.3 Escrow Agreement (1)
2.4 First Amendment to Escrow Agreement (8)
3.1 Articles of Incorporation of Soligen Technologies, Inc. (1)
3.2 Articles of Amendment, amending Section 9 of Articles of Incorporation (8)
3.3 Statement of Rights and Preferences of Series A Preferred Stock (8)
3.4 Bylaws of Soligen Technologies, Inc. (1)
3.5 First Amendment to Bylaws (3)
3.6 Second Amendment to Bylaws
4.1 Subscription Agreement for Private Placement (5)
4.2 Subscription Agreement for Private Placement (2)
4.3 Series A Preferred Stock Purchase Agreement (8)
4.4 Investor Rights Agreement (8)
4.5 Common Stock Purchase Warrant (9)
10.1 License Agreement and Amendments (1)
10.2 Amendment to License Agreement (4)
10.3 Consulting Agreement between the Registrant and Kenneth T Friedman (7)
10.4 1993 Stock Option Plan (1)
10.5 Amendment to Stock Option Plan, increasing shares to 5,000,000
11.1 Computation of Net Loss Per Share
21.1 Subsidiaries of the Registrant (6)
23 Consent of Independent Public Accountants
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 for the year ended March 31, 1998
</TABLE>
(1) Incorporated by reference to the Registration Statement on Form 10-SB (Reg.
No. 1- 12694) filed by the Company on December 20, 1993.
18
<PAGE>
(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.
(7) Incorporated by reference to Form 10-KSB filed by the Company on July 11,
1997.
(8) Incorporated by reference to Form 8-K, filed by the Company on May 4, 1998.
(9) Incorporated by reference to Form 10-QSB, filed by the Company on February
13, 1998.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1998.
19
<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, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the two years then ended.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Soligen
Technologies, Inc. and subsidiaries as of March 31, 1998, and the results of
their operations and their cash flows for the two years then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 26, 1998
20
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash $ 215,000
Accounts receivable, net of allowance for
doubtful accounts of $65,000 1,258,000
Inventories 118,000
Prepaid expenses 104,000
------------
Total current assets 1,695,000
-------------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 847,000
OTHER ASSETS 37,000
-------------
Total assets $ 2,579,000
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and line of credit $ 566,000
Trade accounts payable 485,000
Payroll and related expenses 186,000
Accrued expenses 184,000
Deferred revenue 97,000
-------------
Total current liabilities 1,518,000
NOTES PAYABLE, net of current portion 25,000
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value
Authorized--90,000,000 shares
Issued and outstanding--32,682,338 10,294,000
Accumulated deficit (9,258,000)
-------------
Total stockholders' equity 1,036,000
Total liabilities and stockholders' equity $ 2,579,000
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
21
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES $ 5,465,000 $ 4,203,000
COST OF REVENUES 3,693,000 2,380,000
----------- -----------
Gross profit 1,772,000 1,823,000
----------- -----------
EXPENSES:
Research and development 1,016,000 1,108,000
Selling 586,000 747,000
General and administrative 1,085,000 1,018,000
Non-cash compensation (Note 8) 156,000 235,000
------------ ------------
Total expenses 2,843,000 3,108,000
----------- -----------
Loss from operations (1,071,000) (1,285,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 3,000 18,000
Interest expense (78,000) (325,000)
Other 178,000 103,000
----------- -----------
Loss before provision for
income taxes (968,000) (1,489,000)
PROVISION FOR STATE INCOME TAXES 1,000 3,000
----------- -----------
Net loss $ (969,000) $(1,492,000)
----------- -----------
----------- -----------
Net loss per share (basic and
diluted) $(0.03) $(0.05)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
------------ Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
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 -- -- (1,492,000) (1,492,000)
------------ --------------- ----------- -----------
BALANCE, March 31, 1997 31,434,283 9,776,000 (8,289,000) 1,487,000
Warrant conversion and
exchange 1,098,055 227,000 -- 227,000
Shares issued pursuant
to DTM settlement 50,000 20,000 -- 20,000
Stock purchase by
related party 100,000 45,000 -- 45,000
Non-employee stock options -- 156,000 -- 156,000
Warrants issued for bridge
note financing -- 70,000 -- 70,000
Net loss -- -- (969,000) (969,000)
------------ --------------- ----------- -----------
BALANCE, March 31, 1998 32,682,338 $10,294,000 $(9,258,000) $ 1,036,000
------------ --------------- ----------- -----------
------------ --------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (969,000) $(1,492,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 394,000 379,000
Provision for doubtful accounts 57,000 12,000
Non-cash interest expense on convertible debt 35,000 275,000
Non-cash compensation expense 156,000 235,000
Changes in assets and liabilities:
Increase in accounts receivable (592,000) (348,000)
Decrease in inventories 42,000 7,000
Decrease (increase) in prepaid expenses
and other assets (23,000) 35,000
Increase (decrease) in accounts payable
and accrued expenses 353,000 (218,000)
Increase (decrease) in deferred revenue (34,000) 93,000
------------ -------------
Net cash used in operating activities (581,000) (1,022,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (133,000) (215,000)
----------- -----------
Net cash used in investing activities (133,000) (215,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (57,000) (66,000)
Payments on notes payable (37,000) (15,000)
Convertible debentures, net of issuance costs -- 635,000
Cancellation of notes payable to former owners
of A-RPM (205,000) --
Exercise of warrants and sale of common stock 291,000 --
Net borrowings under revolving line of credit 146,000 --
Proceeds from the issuance of notes payable 285,000 --
------------ -------------
Net cash provided by financing activities 423,000 554,000
Net decrease in cash (291,000) (683,000)
Cash at beginning of period 506,000 1,189,000
------------ ------------
Cash at end of period $ 215,000 $ 506,000
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 (MIT).
Altop is incorporated in California. Altop's operations consist of an
aluminum foundry and machine shop located 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.
Subsequent to year end, the Company generated additional capital of
$800,000 through a preferred stock sale (See Note 11).
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.
25
<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,
1998, three customers represented 24 percent, 17, percent and 10
percent of accounts receivable. As of March 31, 1997, two customers
represented 13 percent and 11 percent of accounts receivable. There
were no customers representing at least 10 percent of revenues for the
year ended March 31, 1998. 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:
<TABLE>
<CAPTION>
Description Depreciation Life
<S> <C>
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
</TABLE>
Property, plant and equipment consist of the following at March 31,
1998:
<TABLE>
<CAPTION>
<S> <C>
Office furniture and fixtures $ 53,000
Plant machinery and equipment 876,000
DSPC-Registered Trademark- machines 810,000
Leasehold improvements 45,000
Construction in progress - DSPC-Registered Trademark-
machines 114,000
Computer equipment 148,000
Printheads 151,000
------------
Total 2,197,000
Less--Accumulated depreciation and
amortization (1,350,000)
------------
$ 847,000
</TABLE>
26
<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 1998 and 1997 is limited to
minimum payments due for each year due to the Company's pre-tax loss
and large operating loss carryforward. The Company's deferred tax asset
and valuation reserve are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 3,520,000
Vacation accrual 20,000
Unicap 2,000
Allowance for bad debts 26,000
Inventory reserves 2,000
Deferred tax liabilities:
Depreciation (136,000)
-----------
Total net deferred tax assets 3,434,000
Valuation allowance (3,434,000)
-----------
Total $ --
-----------
-----------
</TABLE>
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 1998. As of March 31, 1998,
the Company has a federal and state income tax operating loss
carryforward of approximately $9,200,000 and $4,200,000 respectively,
which expires through 2013. 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.
27
<PAGE>
Revenue Recognition
Revenue from the sale of products 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.
Research and Development
Research and development expenditures are charged to operations as
incurred.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share". The statement replaces primary earnings per share
with basic earnings per share, which is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding. The provision also requires the calculation of diluted
earnings per share, which increases the weighted average shares
outstanding for the dilutive effect of stock options and warrants. The
Company adopted this statement in fiscal year 1998, and 1997 earnings
per share amounts have been recalculated based on the provisions of
SFAS No. 128.
The following schedule summarizes the information used to compute
earnings per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net loss $ (969) $(1,492)
Weighted average number of
common shares used to compute
basic net income per common
share 32,351 30,233
Dilutive effect of common share
equivalents -- --
----------- ------------
Weighted average number of common
shares used to compute diluted
net income per common share 32,351 30,233
----------- ------------
----------- ------------
Basic net loss per common share $ (0.03) $ (0.05)
Diluted net loss per common
share $ (0.03) $ (0.05)
</TABLE>
28
<PAGE>
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.
Accounting for Stock Options and Warrants
In October 1995, 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 and warrants granted to non-employees (see Notes
8 and 10).
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 $34,000 and $35,000 for interest in fiscal 1998 and
1997, respectively. The Company paid $1,000 and $3,000 for income taxes
in fiscal 1998 and 1997, respectively. During fiscal 1998 and 1997, the
Company issued 50,000 shares pursuant to the DTM settlement (Note 7).
The exchange of warrants for common stock during fiscal 1998 (see Note
9) was excluded from the statement of cash flows as a non-cash
transaction.
In addition, during fiscal 1998, the Company recorded a prepaid
interest expense in connection with the bridge note financing. As of
March 31, 1998, $35,000 was excluded from the statement of cash flows
as a non-cash transaction. 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.
29
<PAGE>
2. Inventories
Inventories consist of the following as of March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and parts $ 69,000
Work in process 38,000
Finished goods 11,000
----------
Total inventories $ 118,000
----------
----------
</TABLE>
3. Deferred Revenue
Deferred revenue relates to both machine and customer parts revenues. The
deferred revenue related to machine revenues resulting mainly from the Company's
issuance of licenses to use the machines.
4. Debt
Debt consists of the following at March 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Notes to former owners of A-RPM, bearing no
interest, due in November 1998 (Notes 6 and 7) $ 63,000
Notes to various investors and related parties,
bearing interest at 12 percent, due in June 1998
(Note 9) 260,000
Note to insurance company, bearing interest at
5.4 percent, due in November 1998 25,000
Revolving line of credit, secured by certain
assets, bearing interest at the bank's prime
rate (8.5 percent at March 31, 1998) plus
3 percent 146,000
Capital leases (Note 5) 97,000
-----------
591,000
Less--Current portion (566,000)
-----------
$ 25,000
</TABLE>
The debt matures as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 566,000
2000 25,000
-----------
$ 591,000
</TABLE>
30
<PAGE>
On July 8, 1997, the Company obtained a $1,000,000 Revolving line of credit from
a commercial lender. The credit facility provides for the advance rate of 75
percent of eligible accounts receivable. The Company incurred approximately
$65,000 in financing costs, of which $25,000 was paid to a member of the board
of directors for a financing finder's fee. As of March 31, 1998, the Company had
an outstanding balance of approximately $146,000.
5. Commitments
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 noncancelable
operating leases at March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1999 $ 74,000 $ 185,000
2000 31,000 185,000
2001 -- 117,000
2002 -- 112,000
----------- ----------
Total minimum lease payments 105,000 $ 599,000
----------- ----------
----------- ----------
Less--Amount representing
interest (8,000)
-----------
Present value of future minimum
lease payments 97,000
Less--Current portion (72,000)
-----------
$ 25,000
</TABLE>
Total rent expense was approximately $200,000 and $116,000 in 1998 and 1997,
respectively.
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 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
31
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
In addition, after payment of $500,000 in royalties at 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. MIT has also agreed to extend the
exclusive period until October 1, 2006.
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, 1998, the Company has met the requirement for minimum net
sales.
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 originally served on February
17, 1994 with notice of this action.
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 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. In fiscal year 1997, the
Company issued 50,000 shares and provided $39,000 for the contingent
issuance, which was included in accounts payable and accrued
liabilities. In June 1997, the Company issued the final 50,000 shares
of common stock pursuant to the settlement. The Company believes that
there is no additional liability that exists as of March 31, 1998.
32
<PAGE>
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, however, effective December 15, 1997, the Company
and A-RPM and its shareholders executed a settlement agreement in which
Soligen will pay the former A-RPM owners the sum of $100,000, without
interest, in monthly installments beginning January 1998 and continuing
until November 1998. Therefore, the original note payable was adjusted
by $205,000 and is included in Other Income (Expense) in the
accompanying consolidated statements of operations.
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 5,000,000 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.
Information regarding the Company's Option Plan for the years ended March 31,
1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
---------- -----------------
<S> <C> <C>
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
Granted -- --
Canceled (130,000) (1.03)
---------- -------
March 31, 1998 3,167,000 $ 0.76
---------- ------
---------- ------
</TABLE>
The weighted average fair value of options granted during fiscal 1997 was $0.42.
33
<PAGE>
Information about stock options outstanding at March 31, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
Weighted Weighted
Average Average
Number Remaining Exercise
Exercise Price Outstanding Contractual Life Price
-------------- ----------- ---------------- ----------
<S> <C> <C> <C>
$0.71 1,105,000 5.0 years $ 0.71
$1.55 110,000 4.5 years $ 1.55
$0.75 1,952,000 7.9 years $ 0.75
</TABLE>
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 $156,000 and $235,000 in fiscal years 1998 and 1997, respectively,
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:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C> <C>
Net Loss As Reported $ (969,000) $ (1,492,000)
Pro Forma $ (1,055,000) $ (1,567,000)
Net Loss Per Share
(basic and diluted) As Reported $ (0.03) $ (0.05)
Pro Forma $ (0.03) $ (0.05)
</TABLE>
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 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 $1.00
Canadian ($.71 U.S. at March 31, 1998) and $2.20 Canadian ($1.55 U.S. at March
31, 1998) per share. All
34
<PAGE>
options granted subsequent to March 31, 1995 are issued in U.S. dollars. Of the
options issued, 2,292,685 were exercisable at March 31, 1998.
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.
At June 30, 1997, the Company completed a tender offer to certain warrant
holders to (1) exercise warrants at a reduced exercise price of $0.45 and/or
(2) exchange warrants for common stock at prescribed ratios. The Company
raised approximately $227,000 through the exercise of warrants for common
stock and an additional $45,000 through the private placement sale of common
stock to a member of the board of directors.
Information regarding the Company's warrants outstanding for the years ended
March 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
------ -------------
<S> <C> <C>
March 31, 1997 10,777,755 $ 1.37
Granted 520,000 .50
Exercised (503,223) (.45)
Expired (582,500) (1.38)
Exchanged (3,991,000) --
----------- ---------
March 31, 1998 6,221,032 $ 1.32
----------- ---------
----------- ---------
</TABLE>
35
<PAGE>
A summary of the common stock purchase warrants as of March 31,
1998 is summarized as follows:
<TABLE>
<CAPTION>
Exercise Number
Class Price Expiration Date of Warrants
----- -------- --------------- -------------
<S> <C> <C> <C>
A $1.25 April 14, 1998 690,277
B $2.50 April 14, 1998 692,500
E $1.50 January 14, 2000 2,575,000
F $0.55 January 26, 2001 521,500
Convertible $1.16 September 13, 1999 215,085
Convertible $1.29 September 13, 1999 386,384
Convertible $0.78 September 13, 1999 43,010
Convertible $0.86 September 13, 1999 77,276
Convertible $0.75 December 12, 2006 500,000
Bridge $0.50 December 11, 2002 520,000
</TABLE>
In December 1997, the Company entered into a bridge note financing with two
members of the board of directors and other investors whereby the Company
borrowed approximately $260,000 due in June 1998, bearing interest of 12
percent. In connection with the financing, the Company issued warrants to
purchase 520,000 shares of common stock. The warrants vested upon grant and have
a term of five years at an exercise price of $0.50 per share.
The fair value of each warrant granted in connection with the financing
arrangement is estimated on the date of the grant using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate of 6
percent, expected life of 3 years; expected volatility between 30 percent and 50
percent and no dividends would be issued during the warrant term.
The Company determined the value of the warrants to equal approximately $70,000
as prepaid interest to be amortized over the term of the debt. As of March 31,
1997, the unamortized portion of non-cash interest expense of $35,000 is
included in prepaid expenses in the accompanying consolidated balance sheet.
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.
36
<PAGE>
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.
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 was included in the accompanying
statement of operations.
11. Subsequent Events
On April 20, 1998, the Company approved a change in the aggregate number of
common and preferred shares the Company has the authority to issue. The Company
increased the number of authorized common shares and preferred stock to
90,000,000 and 10,000,000, respectively, 5,000 of the preferred shares of which
have been designated as Series A Preferred Stock.
On April 24, 1998, the Company sold 1,600 shares of Series A Preferred Stock at
a price of $500 per share for gross proceeds of $800,000. Holders of the Series
A Preferred Stock have the following rights and preferences: Liquidation
preference of $500 per share, conversion rights, and each holder shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such outstanding Series A Preferred Stock is then convertible. In
addition, each holder of the Series A Preferred Stock does not have dividend
preferences.
Effective June 12, 1998, the Company extended its terms with the bridge
noteholders (see Note 9) for a period of 45 days to July 27, 1998, bearing
interest of 12 percent. In connection with the extension, the Company issued
warrants to purchase an additional 130,000 shares of common stock. The warrants
vested upon grant and have a term of five years at an exercise price of $0.50
per share. The Company determined the fair value of the warrants to be
approximately $22,000. The Company will record this as prepaid interest and will
be amortized over the term of the debt.
37
<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.
SOLIGEN TECHNOLOGIES, INC.
(Registrant)
By: /s/ Yehoram Uziel
----------------------------------------
Yehoram Uziel, President, CEO,
Director and Chairman of the Board
Date: June 19, 1998
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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
By: /s/ Yehoram Uziel President, CEO, Director and June 19, 1998
----------------------------------------
Yehoram Uziel Chairman of the Board
(principal executive officer)
By: /s/ Robert Kassel Chief Financial Officer June 19, 1998
------------------------------------------
Robert Kassel
By: */s/ Dr. Mark W. Dowley Director June 19, 1998
-----------------------------------
Dr. Mark W. Dowley
By: */s/ Kenneth T. Friedman Director June 19, 1998
----------------------------------------
Kenneth T. Friedman
By: */s/ Patrick J. Lavelle Director June 19, 1998
------------------------------------------
Patrick J. Lavelle
By: */s/ Darryl J. Yea Director June 19, 1998
-------------------------------------------
Darryl J. Yea
By: */s/ Yehoram Uziel Attorney-In-Fact June 19, 1998
----------------------------------------
Yehoram Uziel
</TABLE>
38
<PAGE>
EXHIBIT 3.6
AMENDMENT TO BYLAWS AS ADOPTED BY
THE BOARD OF DIRECTORS OF
SOLIGEN TECHNOLOGIES, INC.
ON APRIL 20, 1998
RESOLVED, that Section 2.9 of the Company's Bylaws is hereby
amended to provide in its entirety as follows:
"2.9 MANNER OF ACTING. At any shareholder meeting at which a quorum is
present, action on a matter (other than the election of directors) by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless the affirmative vote of a
greater number is required by these Bylaws, the Articles of Incorporation or the
Wyoming Business Corporation Act."
<PAGE>
EXHIBIT 10.5
AMENDMENT TO 1993 STOCK OPTION PLAN,
AS APPROVED BY SHAREHOLDERS
ON SEPTEMBER 17, 1997
The first sentence of Section 4.1 of the Company's 1993 Stock Option
Plan is hereby amended to read as follows: "The Committee, from time to time,
may provide for the option and sale in the aggregate of up to five million
shares of Common Stock, to be made available from authorized, but unissued, or
reacquired shares of Common Stock."
<PAGE>
Exhibit 11.1
Soligen Technologies, Inc.
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Weighted average number
of common shares 32,351,000 30,233,000
Net loss $ (969,000) $ (1,492,000)
Net loss per share (basic and diluted) $ (0.03) $ (0.05)
</TABLE>
<PAGE>
EXHIBIT 23
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 333-03692 and 33-97992.
/s/ ARTHUR ANDERSEN LLP
----------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
June 25, 1998
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that the undersigned, Mark W. Dowley,
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,
1998, 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 1998
-----------
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,
1998, 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 1998
---------------
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,
1998, 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 1998
---------------
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, 1998, 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 1998
---------------
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 SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 21 AND 22 OF THE COMPANY'S FORM 10-KSB 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> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 215
<SECURITIES> 0
<RECEIVABLES> 1,323
<ALLOWANCES> 65
<INVENTORY> 118
<CURRENT-ASSETS> 104
<PP&E> 2,197
<DEPRECIATION> 1,350
<TOTAL-ASSETS> 2,579
<CURRENT-LIABILITIES> 1,518
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0
0
<COMMON> 10,294
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,579
<SALES> 5,465
<TOTAL-REVENUES> 5,465
<CGS> 3,693
<TOTAL-COSTS> 3,693
<OTHER-EXPENSES> 2,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> (968)
<INCOME-TAX> 1
<INCOME-CONTINUING> (969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (969)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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