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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 1-12694
SOLIGEN TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
WYOMING 95-4440838
(STATE OF (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION NO.)
19408 LONDELIUS ST., NORTHRIDGE, CALIFORNIA 91324
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER: (818) 718-1221
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK WITHOUT PAR VALUE AMERICAN STOCK EXCHANGE
(EMERGING COMPANY MARKETPLACE)
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, 1999 WERE
$5,721,000.
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 18,1999 WAS APPROXIMATELY
$12,342,000.
AS OF JUNE 18, 1999, THERE WERE 32,911,641 SHARES OF COMMON STOCK, NO
PAR VALUE, OUTSTANDING.
THE INDEX TO EXHIBITS APPEARS ON PAGE 19 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 1999 ANNUAL MEETING OF
SHAREHOLDERS.
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SOLIGEN TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
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PART I
Item 1. Description of Business .................................... 1
Item 2. Description of Properties .................................. 11
Item 3. Legal Proceedings .......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ........ 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ... 11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................... 12
Item 7. Financial Statements ........................................ 18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................ 18
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ... 18
Item 10. Executive Compensation ..................................... 19
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions ............. 19
Item 13. Exhibits and Reports on Form 8-K ........................... 19
Signatures ............................................................... 40
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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'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., its subsidiary and predecessors unless the context
indicates otherwise.
While the Company has completed its transition from a development stage to a
revenue generating company, nevertheless it continues to invest heavily in R&D
and as a result will continue 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 that conform to the CAD
design. This unique capability distinguishes the DSPC System from rapid
prototyping technologies that 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.
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
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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 to evaluate a functional part, in addition to expediting the design
verification and testing, enables manufacturers to save time and money by
successfully 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 these advantages the Company plans to form two networks of DSPC
facilities. To address the needs in the market for short and medium runs 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
production facilities will include DSPC, conventional casting and CNC
machining facilities able to produce small to medium runs. To address the
needs of mass manufacturing of cast metal parts, the Company plans to form a
network of alliances or joint ventures with mass manufacturing foundries,
enabling each of them to operate a captive licensed DSPC center,
independently or as a joint venture with the Company. These captive DSPC
centers will enable mass manufacturers to better participate in concurrent
engineering programs with their customers. It will allow them to postpone the
need to design tooling until after the cast part is fully tested and then
produce the production tooling, and their refurbishing by using DSPC to cast
them in near net shape. With these two networks in place, the Company intends
to establish itself as a leading manufacturer of cast metal parts by
providing a seamless transition from CAD file to finished production 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. The
Company has initiated discussions to form two additional Parts Now centers, one
in France and one in Saginaw, Michigan. At the DSPC California production
facilities, 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.
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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.
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 the
Company, and used to design a casting mold by using proprietary software and
then 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 that 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 that corresponds to the layer cross-section of the
mold.
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 of the mold 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
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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 that
experience rapid rates of technological innovation, frequent design changes, and
requirements to dramatically reduce "time to market." Their products consist of
metal parts that 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 markets with focus on engine
blocks, cylinder heads, transmission cases, axles, manifolds and
other cast metal parts with complex core cavities and or geometry.
The Company has established repeat business with Ford Motor
Company, General Motors Corporation, DaimlerChrysler 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
that 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 managed from the
Company's facilities in California. Direct sales and technical support
service customers locally from offices in Detroit, Michigan, Columbus, Ohio,
Tama, Iowa and Northridge, California. The Company plans to open additional
regional offices, initially in the USA and later, internationally. In certain
territories that are not currently covered by the Company's direct sales
staff, the Company has engaged 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
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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 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 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 2000.
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. The parties planned 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. At the present
time a restructuring of the French operation is being considered so as
commercialize the DSPC program in a more effective manner.
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. 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 are used to create sand or ceramic
molds. The patterns are used to form the cavity for the external shape of the
cast part whereas the core boxes are each used to create a sand object that
reflects a cavity. These cores are then assembled into the sand mold and
together they form the cavity that is to be filled with molten metal. For some
parts with complex geometry and complex core cavity structure, a sand casting
mold, consisting of many sections requires a lengthy assembly process. 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. As volume requirements increase,
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the casting process becomes the fabrication process of choice since machining
methods/costs become prohibitive.
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. For cast parts with complex
core cavity structure, this is an expensive and time consuming process, since
the geometry of the part needs to be analyzed and each separate core needs to be
extracted and a proper core box designed and produced. Any design change in the
part is a multi-step process that requires modifying or often redoing the
tooling. This is 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 enable the cast
parts manufacturer to produce 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), the only method to accomplish this
goal is to eliminate the need for casting tools during the several design
cycles. Utilizing the DSPC technology would eliminate the need for patterns and
core boxes. Functional cast parts could be made for testing without tools, thus
enabling foundries to produce casting tools in a timely and cost effective
manner.
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 casting production line and
the casting tools. Often, in order to verify the production casting method and
processes, prototype production tools (sometimes referred to as "soft tools")
which are less expensive than production tools, will be made. 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 prior to proceeding with high volume
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,
together 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. DSPC as part of the
Company's Parts Now service significantly reduces the time to market. By
employing the Company's Parts Now service program, the customer can realize the
following advantages:
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- 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 PROCESS VERIFICATION: Different gating systems could be explored
without the need to create casting tooling or to commit to a specific
casting technique.
- CASTING TOOL OPTIMIZATION: Design and fabrication of production tools
can be delayed until after the final design is verified.
- TOOLING ITERATIONS: The number of tooling design iterations can be
reduced and even eliminated and the goal of designing production tooling
directly from the CAD file of the approved part can be attained.
Since DSPC creates a usable part directly and automatically from the designer's
CAD file, it is the only existing fabrication method in which "what you see (on
the computer screen) is what you get (as a cast part)." Management believes that
by eliminating tooling, this unique ability reduces the possibility of errors
introduced during the course of normal production, thereby improving process
quality.
DSPC is loosely related 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 cast metal parts 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,
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short pilot runs and, ultimately, mass production runs. The Company competes
with either captive or independent short run foundries servicing the mass
production foundries who typically employ traditional 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 discontinue this line of
printheads, it could develop a printhead using available components from
alternative sources without having a material effect on the DSPC machine cost or
performance.
Raw materials used in the DSPC process are generally available from several
suppliers in the quantities needed. Multiple vendor sources for critical raw
materials and supplies have been established. 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 Soligen's Santa Ana Division 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 and 1999, 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
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Corporation, Honda, Toyota, Delphi, Purolator Products, Inc., Several
motorcycle companies, Allied Signal, Inc., Caterpillar, Inc., Deere & Company,
Kohler Company, Mercury Marine, Inc., Allison Engine Company, Sulzer Turbo
GmbH., Capstone Turbine Corporation, The Boeing Company and Walt Disney
Imagineering. For the year ended March 31, 1999, one customer represented 17%
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. The license was
renegotiated and amended on August 8, 1996 and December 28, 1998.
Under the terms of the amended License, Soligen is required to generate
cumulative sales according to the following schedule:
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Period Cumulative Sales
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March 1996 - March 1997 $ 3,000,000
March 1997 - March 1998 $ 3,500,000
March 1998 - March 1999 $ 4,000,000
March 1999 - March 2000 $ 4,500,000
March 2000 - March 2001 $ 5,000,000
March 2001 - March 2002 $ 6,000,000
March 2002 - March 2003 $ 8,000,000
March 2003 - March 2004 and each year thereafter $10,000,000
</TABLE>
The Company has met all the conditions to maintain its license and the
exclusivity. For the rights, privileges and license granted under the License,
the Company pays royalties and fees to MIT until the License is terminated. The
License was further renegotiated and amended on December 28, 1998 to provide
for the fees and royalties as follows:
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- "Running Royalties" in an amount equal to 4.5% of Net Sales of the
"Licensed Products," metal "End Products" and "Licensed Processes"
used, leased or sold by and/or for the Company; provided however that
during the period commencing January 1, 1997 and terminating on December
15, 1999, MIT shall waive the first $150,000 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
Process," the royalty rate due for sale of metal "End Products" is
reduced from 4.5% to 2.25%.
- Beginning with calendar year 2000 and in each year thereafter, if the
Company shall not have paid MIT at least $50,000 in royalty payments,
then the Company shall, within 30 days of the end of the calendar year,
pay to MIT the difference between $50,000 and the amount paid to MIT
during preceding year.
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, 1999 and 1998, the Company expended
$1,015,000 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 fiscal
years.
Soligen continues to devote time and resources to research and development to
enhance the original MIT based technology as well as extending its capabilities
in the course of developing new application.
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 Northridge facility currently employs fifty-nine full time engineers,
scientists, managers and staff and its Santa Ana facility currently employs
twenty-nine full time employees. Soligen also has agreements with three
independent sales representatives. None of the Company's employees are covered
by any collective bargaining agreement and the Company believes that relations
with its employees are good.
10
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
Soligen's CAD, printing, post processing, engineering and
administrative activities are based in a 17,000 square foot facility in
Northridge, California. The Company's foundry and machine shop are located
in a 20,000 square foot facility in Santa Ana, California. These facilities
are leased from unrelated third parties.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this report, the Company and its subsidiary is 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.
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. 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, 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
June 30, 1998 0.82 0.38 0.99 0.65
Sep 30, 1998 0.88 0.38 1.10 0.60
Dec 31, 1998 0.56 0.25 0.61 0.50
Mar 31, 1999 0.44 0.19 0.40 0.25
</TABLE>
Sources for sales prices:
(1) American Stock Exchange.
(2) Canaccord Capital Corporation, Vancouver, British Columbia, Canada.
The Company faces risks normally associated with early stage enterprises. These
risks include, among others, uncertainty of markets, ability to develop and sell
its products profitably and the ability to finance its operations. At March 31,
1999, the Company has an accumulated deficit of
11
<PAGE>
$10,976,000 and in fiscal 1999 and 1998 the Company used $618,000 and $581,000
cash from operations. The Company continues to incur net losses.
Management believes it has made progress on its business plan and also believes
the Company will need to restructure certain of its existing debt and obtain
additional capital.
The Nasdaq-Amex staff has notified the Company of its intention to delist the
Company. This determination is based on the Company not meeting the continued
listing guidelines. The Company appealed this determination and a hearing was
held May 24, 1999. The Nasdaq-Amex staff has not advised the Company of its
decision regarding the appeal. In the event the Company's Common Stock is
delisted from the American Stock Exchange's Emerging Company Marketplace,
trading in the Company's Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" published by the National
Quotation Bureau or the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. and on the Vancouver Stock Exchange under the symbol
SGT. As a consequence of such delisting by Nasdaq-Amex, the Company may find it
more difficult to raise additional funds.
Subsequent to March 31, 1999, the Company obtained agreement with several of its
holders of bridge notes and are in discussion with potential equity investors.
Management believes that its current cash, lines of credit and additional funds
to be raised from private sources will be adequate to fund operations through
March 2000. There is no assurance that management will be able to achieve its
business plans.
As of June 18, 1999, the Company had 2,450 holders of record of its common stock
and 32,911,641 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 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.
12
<PAGE>
The following discussion should be read in conjunction with the accompanying
Financial Statements of Soligen Technologies, Inc. ("STI") and its wholly-owned
subsidiary Soligen, Inc. ("Soligen") (collectively referred to herein as the
"Company") including the notes thereto, included elsewhere in this Annual
Report. On December 31, 1998, Altop, Inc., a wholly-owned subsidiary of Soligen
Technologies, Inc., was merged into Soligen, Inc. and operates as Soligen -
Santa Ana Division.
OVERVIEW
The Company operates four major revenue-generating production centers:
1. PARTS NOW CENTER: 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. The
Parts Now Center consists of program managers who oversee the transition
from CAD to first article, to tooling, to conventional casting and later to
mass production. The center acquires services from the DSPC Production
Center and the Production Parts Center.
2. DSPC PRODUCTION CENTER: Revenues result from using the DSPC process in
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
3. PRODUCTION PARTS CENTER: Revenues result from the production, and sale of
production quantities of cast and machined aluminum parts for industrial
customers. The Company generates revenues in this area through its aluminum
foundry and machine shop division in Santa Ana, CA. 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 the Company provides technological expertise.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES
Revenues for the fiscal year ended March 31, 1999, were $5,721,000, an increase
of 5% compared to $5,465,000 in the fiscal year ended March 31, 1998. For fiscal
1999, the Company's core business, DSPC and Parts Now, increased 17% to
$4,706,000 from $4,019,000 in fiscal 1998. Production Parts at Soligen's Santa
Ana Division decreased 6% to $871,000 in
13
<PAGE>
fiscal 1999 from $925,000 in the prior fiscal year. DSPC Technology revenues
decreased 72% to $144,000 in fiscal 1999 from $521,000 in fiscal 1998. Fiscal
1998 revenues included a $250,000 machine sale.
The Company's revenues for fiscal 1999 and fiscal 1998, classified by product
lines, are as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal
1999 1998
------ ------
<S> <C> <C>
Parts Now-Registered Trademark- $ 2,857,000 $ 1,700,000
DSPC-Registered Trademark- production 1,849,000 2,319,000
Production parts 871,000 925,000
DSPC-Registered Trademark- technology 144,000 521,000
----------- -----------
Total revenues $ 5,721,000 $ 5,465,000
----------- -----------
----------- -----------
</TABLE>
COST OF REVENUES
Cost of revenues as a percentage of total revenues in fiscal 1999 was 76%
compared to 68% in fiscal 1998. During fiscal 1999, the Company assembled a
manufacturing capacity to produce at levels in excess of $7 million per annum.
The manufacturing capacity was in place during the second quarter of fiscal 1999
during which time a slowdown for prototype parts occurred. This created idle
capacity with redundant costs in place. The Company reviewed its cost structure
and corrective action was taken to bring costs in line with production. The
Company also continued 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 continued to have a negative
effect on margins.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses remained constant at $1,015,000 in fiscal
1999 and $1,016,000 in fiscal 1998. 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 increased 36% to $797,000 in fiscal 1999 from $586,000 in
fiscal 1998. The increase in selling expenses was the result of costs
associated with the establishment of two mid-west sales offices.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $161,000 to $924,000 in fiscal
1999 from $1,085,000 in fiscal 1998. The decrease was due to small decreases
in several items despite the 5% increase in revenues.
14
<PAGE>
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 $152,000 was recognized in fiscal 1999 and $156,000 in
fiscal 1998.
INTEREST EXPENSE
Interest expense increased to $200,000 in fiscal 1999 from $78,000 in fiscal
1998. During fiscal 1999 and fiscal 1998 the Company issued common stock
purchase warrants in connection with private placement loans 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 123, the Company incurred
$132,000 non-cash interest expense during fiscal 1999 and $35,000 during fiscal
1998. The Company expects to incur approximately $50,000 non-cash interest
expense through October 1999 for loans currently outstanding. An additional
$68,000 of interest was for other notes and leases for fiscal 1999 and $43,000
for fiscal 1998.
OTHER INCOME
During fiscal 1999, the Company recognized other miscellaneous income of
$9,000. 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.
NET LOSS
Net loss increased to $1,718,000 in fiscal 1999 as compared to $969,000 in
fiscal 1998. Basic and diluted loss per share increased to $0.05 in fiscal
1999 from a basic and diluted loss per share of $0.03 in fiscal 1998.
SOURCES OF LIQUIDITY
Since the Company's inception, it has financed its operating activities
primarily from private offerings of equity, convertible preferred and short term
debt securities and accounts receivable financing from a financial institution.
OPERATING ACTIVITIES
As of March 31, 1999, the Company had $1,246,000 in cash and accounts
receivable, representing a decrease of $227,000 as compared to $1,473,000 at
March 31, 1998. Working capital decreased to $(55,000) at March 31, 1999 from
$177,000 at March 31, 1998. The cash used in operating activities in fiscal 1999
was $618,000 compared to $581,000 for the prior fiscal year. Although the net
loss for fiscal 1999 increased to $1,718,000 from $969,000 for the prior fiscal
year, the net cash used was partially offset by a decrease in accounts
receivable of $381,000.
15
<PAGE>
INVESTING ACTIVITIES
Net cash used in investing activities for capital expenditures was $172,000 in
the fiscal year ended March 31, 1999, as compared to cash used in investing
activities for capital expenditures of $133,000 in the prior fiscal year.
FINANCING ACTIVITIES
During fiscal year 1999, the Company financed its business activities primarily
through the issuance of convertible preferred stock, and extension of the
short-term subordinated promissory note and accounts receivable financing.
During the prior fiscal year the Company financed its business activities
primarily through the completion of 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. Also during fiscal year 1998, the Company also entered into a
short-term subordinated promissory note and accounts receivable financing.
SERIES A CONVERTIBLE PREFERRED STOCK ISSUANCE
In April 1998, the Company received net proceeds of $775,000 from the sale of
1,600 shares of Series A Preferred Stock to two private investors. The Series A
Convertible Preferred Stock Purchase Agreement, as amended, between the Company
and these investors, permitted additional sales of Series A Preferred Stock to
be completed prior to September 8, 1998. In July 1998, the Company received
additional net proceeds of $88,000 from the sale of 200 shares of Series A
Preferred Stock to the same two private investors pursuant to the Series A
Convertible Preferred Stock Purchase Agreement. In addition, in September 1998,
the Company received additional net proceeds of $94,000 from the sale of 200
shares of Series A Preferred Stock to a third investor pursuant to the Series A
Convertible Preferred Stock Purchase Agreement.
SHORT-TERM SUBORDINATED PROMISSORY NOTE AND WARRANT FINANCING
In December 1997, the Company's Board of Directors approved a short-term
subordinated promissory note and warrant financing. The offering was completed
in a private placement transaction to accredited investors only pursuant to
Regulation D and Rule 506 thereunder. A total of six investors loaned a total of
$220,000 to the Company in December 1997, and one investor loaned an additional
$40,000 to the Company in January 1998. Each investor received a promissory note
in the principal amount of the amount loaned, bearing interest at the rate of
12% per annum and due six months from the date of the promissory note. In
addition, for each dollar loaned to the Company the investors received a common
stock purchase warrant exercisable for two shares of the Company's common stock
(resulting in the issuance of warrants exercisable for a cumulative total of
520,000 shares of the Company's common stock). The warrants are exercisable for
a period of five years at $0.50 per share. A finder's fee in the amount of
$17,000
16
<PAGE>
was paid to a non-employee member of the Company's Board of Directors in
consideration of services provided in connection with the financing. One of the
investors was a non-employee member of the Company's Board of Directors, one
investor was an employee member of the Company's Board of Directors, and the
remaining five investors were unaffiliated private investors. On June 12, 1998,
the Company extended $220,000 notes payable under the same terms and conditions
for an additional 45 days. In connection with this extension, warrants
exercisable for 110,000 shares of the Company's common stock were issued to the
investors. On July 27, 1998, the Company extended $210,000 notes payable under
the same terms and conditions for an additional 90 days. In connection with this
extension, warrants exercisable for 210,000 shares of the Company's common stock
were issued to the investors. On October 25, 1998, the Company extended $140,000
notes payable for an additional six months under the same terms and conditions
except for a change in the exercise price of the issued warrants. In connection
with this extension, warrants exercisable for 330,000 shares of the Company's
common stock exercisable at $0.375 per share were issued to the investors.
In December 1998, the Company's Board of Directors approved an additional
subordinated promissory note and warrant financing in the principal amount of up
to $500,000. The offering is for accredited investors only pursuant to
Regulation D and Rule 506 thereunder. Such notes are to bear interest at 12% per
annum and to be due April 25, 1999 and each such note purchaser to receive
warrants to purchase four shares of the Company's Common Stock exercisable at
$0.375 per share for each dollar of principal loaned to the Company per year of
the term of the note, pro-rated to the stated term of the note. Pursuant to this
financing, one investor loaned $30,000 to the Company in November 1998,
resulting in the issuance of warrants exercisable for a total of 50,000 shares
of the Company's common stock. The warrants are exercisable for a period of five
years. On April 25, 1999, the Company extended $170,000 notes payable for an
additional six months under the same terms and conditions except for a change in
the exercise price of the issued warrants. In connection with this extension,
warrants exercisable for 340,000 shares of the Company's common stock
exercisable at $0.1875 per share were issued to the investors.
ACCOUNTS RECEIVABLE FINANCING
In August 1997, the Company entered into an agreement with a commercial lender
for an up to $1 million revolving line of credit, collateralized by accounts
receivable, inventory and fixed assets. The credit facility provides for an
advance rate of 75% of eligible accounts receivable. In July 1998, the agreement
was extended for an additional year to provide the $1 million revolving line of
credit at an advance rate of 80% of eligible accounts receivable. On March 31,
1999, the credit facility provided $395,000 cash collateralized with $863,000
accounts receivables, net of Soligen's Santa Ana Division accounts receivable
and $146,000 cash collateralized with $1,034,000 accounts receivables for the
prior fiscal year.
FISCAL YEAR 2000 LIQUIDITY OUTLOOK
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,
17
<PAGE>
expansion of sales efforts, and market acceptance of the Company's
technology. The Company is now in final negotiations with an investment group
to provide additional financing to the Company. The Company believes that the
current cash, asset-based line of credit together with funds to be raised
from private sources will be sufficient to meet its working capital and
capital expenditures requirements through March 2000.
YEAR 2000 DISCLOSURE
The Company reviewed its hardware and related software used for operations and
financial management and made necessary changes to become Year 2000 compliant.
The incremental costs to become compliant did not have a material effect on the
Company's consolidated financial statements. The Company has and continues to
contact major vendors and other third parties that do business with the Company
to check on the status of their efforts to resolve any Year 2000 issues. The
Company prepared a contingency plan, where possible and as necessary, based on
Year 2000 readiness of major vendors and customers. In order to provide for an
uninterrupted production flow at year-end, the Company plans to increase the
inventory of critical production items. The Company is presently unable to
assess the likelihood that it will experience significant operational problems
due to unresolved third party issues; there can be no assurance that these
entities will achieve timely Year 2000 compliance and therefore could have a
material impact on the Company's operations.
ITEM 7. FINANCIAL STATEMENTS
See "Financial Statements and Notes to Financial Statements" set forth on pages
21 through 39 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 1999 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."
18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Voting Securities and Principal Holders Thereof."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Related Party Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS: The following exhibits are filed as part of this report:
<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 (7)
3.1 Articles of Incorporation of Soligen Technologies, Inc. (1)
3.2 Articles of Amendment, amending Section 9 of Articles of
Incorporation (7)
3.3 Statement of Rights and Preferences of Series A Preferred
Stock (7)
3.4 Bylaws of Soligen Technologies, Inc. (1)
3.5 First Amendment to Bylaws (3)
3.6 Second Amendment to Bylaws (9)
4.1 Subscription Agreement for Private Placement (5)
4.2 Subscription Agreement for Private Placement (2)
4.3 Series A Preferred Stock Purchase Agreement (7)
4.4 Investor Rights Agreement (7)
4.5 Common Stock Purchase Warrant (8)
10.1 License Agreement and Amendments (1)
10.2 Amendment to M.I.T. License Agreement (4)
19
<PAGE>
10.3 Amendment to M.I.T. License Agreement
10.4 Consulting Agreement between the Registrant and Kenneth T
Friedman (6)
10.5 1993 Stock Option Plan (1)
10.6 Amendment to Stock Option Plan, increasing shares to
5,000,000 (9)
11.1 Computation of Net Loss Per Share
21.1 Subsidiary of the Registrant
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
27 Financial Data Schedule for the year ended March 31, 1999
</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.
(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
July 11, 1997.
(7) Incorporated by reference to Form 8-K, filed by the Company on May 4,
1998.
(8) Incorporated by reference to Form 10-QSB, filed by the Company on
February 13, 1998.
(9) Incorporated by reference to Form 10-KSB filed by the Company on
June 26, 1998.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Soligen Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Soligen
Technologies, Inc. and subsidiary (a Wyoming Corporation - collectively, the
Company) as of March 31, 1999, 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 its subsidiary as of March 31, 1999, 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
June 28, 1999
21
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - MARCH 31, 1999
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 429,000
Accounts receivable, net of allowance for
doubtful accounts of $84,000 817,000
Inventories 121,000
Prepaid expenses 63,000
------------
Total current assets 1,430,000
------------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 552,000
OTHER ASSETS 37,000
------------
Total assets $ 2,019,000
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and line of credit $ 628,000
Trade accounts payable 309,000
Payroll and related expenses 170,000
Accrued expenses 345,000
Deferred revenue 33,000
------------
Total current liabilities 1,485,000
------------
NOTES PAYABLE, net of current portion 10,000
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
STOCKHOLDERS' EQUITY:
Preferred stock, at liquidated value, no par value
Authorized--10,000,000 shares
Issued and outstanding--2,000 shares 1,000,000
Common stock, no par value
Authorized--90,000,000 shares
Issued and outstanding--32,682,338 shares 10,500,000
Accumulated deficit (10,976,000)
------------
Total stockholders' equity 524,000
------------
Total liabilities and stockholders' equity $ 2,019,000
------------
------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
22
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 5,721,000 $ 5,465,000
COST OF REVENUES 4,370,000 3,693,000
------------ ------------
Gross profit 1,351,000 1,772,000
------------ ------------
EXPENSES:
Research and development 1,015,000 1,016,000
Selling 797,000 586,000
General and administrative 924,000 1,085,000
Non-cash compensation (Note 7) 152,000 156,000
------------ ------------
2,888,000 2,843,000
------------ ------------
Loss from operations (1,537,000) (1,071,000)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 14,000 3,000
Interest expense (200,000) (78,000)
Other 9,000 178,000
------------ ------------
Loss before provision for
income taxes (1,714,000) (968,000)
PROVISION FOR INCOME TAXES 4,000 1,000
------------ ------------
Net loss $(1,718,000) $ (969,000)
------------ ------------
------------ ------------
Net loss per share (basic and
diluted) $ (0.05) $ (0.03)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------ Accumulated
Shares Amount Shares Amount Deficit Total
-------- ---------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
-------- ---------- ---------- ----------- -------------- ------------
Preferred stock issued 2,000 1,000,000 -- (43,000) -- 957,000
Non-employee stock options -- -- -- 152,000 -- 152,000
Warrants issued for bridge
note financing -- -- -- 97,000 -- 97,000
Net loss (1,718,000) (1,718,000)
-------- ---------- ---------- ----------- -------------- ------------
-- -- -- --
BALANCE, March 31, 1999 2,000 $1,000,000 32,682,338 $10,500,000 $(10,976,000) $ 524,000
-------- ---------- ---------- ----------- -------------- ------------
-------- ---------- ---------- ----------- -------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,718,000) $ (969,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization 467,000 394,000
Provision for doubtful accounts 60,000 57,000
Non-cash interest expense 97,000 35,000
Non-cash compensation expense 152,000 156,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 381,000 (592,000)
Decrease (increase) in inventories (3,000) 42,000
Decrease (increase) in prepaid expenses and
other assets 41,000 (23,000)
Increase (decrease) in accounts payable
and accrued expenses (31,000) 353,000
Decrease in deferred revenue (64,000) (34,000)
------------- -----------
Net cash used in operating activities (618,000) (581,000)
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (172,000) (133,000)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease
obligations (67,000) (57,000)
Payments on notes payable (205,000) (37,000)
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 249,000 146,000
Proceeds from the issuance of notes payable 70,000 285,000
Preferred stock issuance, net of issuance costs 957,000 --
------------- ----------
Net cash provided by financing activities 1,004,000 423,000
------------- ----------
NET INCREASE (DECREASE) IN CASH 214,000 (291,000)
CASH, at beginning of period 215,000 506,000
------------- ----------
CASH, at end of period $ 429,000 $ 215,000
------------- ----------
------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
SOLIGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND NATURE OF THE BUSINESS
Soligen Technologies, Inc. (STI) is a Wyoming corporation, which
operated through its wholly owned subsidiaries Soligen, Inc.
(Soligen) and Altop, Inc. (Altop). In December 1998, Altop was merged
into Soligen, Inc. and operates as Soligen - Santa Ana Division (SSA).
STI, Soligen and SSA are collectively referred to as the Company).
Soligen is located in Northridge, California. It was founded to develop
and commercialize a 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).
The Company faces risks normally associated with early stage
enterprises. These risks include, among others, uncertainty of markets,
ability to develop and sell its products profitably and the ability to
finance its operations. At March 31, 1999, the Company has an
accumulated deficit of $10,976,000 and in fiscal 1999 and 1998 the
Company used $618,000 and $581,000 cash from operations. The Company
continues to incur net losses.
Management believes it has made progress on its business plan and also
believes the Company will need to restructure certain of its existing
debt and obtain additional capital.
The Nasdaq-Amex staff has notified the Company of its intention to
delist the Company. This determination is based on the Company not
meeting the continued listing guidelines. The Company appealed this
determination and a hearing was held May 24, 1999. The Nasdaq-Amex
staff has not advised the Company of its decision regarding the appeal.
In the event the Company's Common Stock is delisted from the American
Stock Exchange's Emerging Company Marketplace, trading in the Company's
Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" published by the National
Quotation Bureau or the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. and on the Vancouver Stock Exchange under
the symbol SGT. As a consequence of such delisting by Nasdaq-Amex, the
Company may find it more difficult to raise additional funds.
Subsequent to March 31, 1999, the Company obtained agreement with
several of its holders of bridge notes and are in final negotiations
with potential investors.
26
<PAGE>
Management believes that its current cash, lines of credit and
additional funds to be raised from private sources will be adequate
to fund operations through March 2000. There is no assurance that
management will be able to achieve its business plans.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of STI,
Soligen and Soligen - Santa Ana Division. 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.
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,
1999, there were no customers representing at least 10 percent of
accounts receivable. There was one customer representing 17 percent of
revenues for the year ended March 31, 1999, and no customer
representing greater than 10 percent of revenues for the year ended
March 31, 1998.
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:
27
<PAGE>
<TABLE>
<CAPTION>
Description Depreciation Life
----------------- ---------------------
<S> <C>
Office furniture and fixtures 3 to 5 years
Plant machinery and equipment 5 years
DSPC(R) 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, 1999:
<TABLE>
<S> <C>
Office furniture and fixtures $ 83,000
Plant machinery and equipment 1,040,000
DSPC(R)machines 897,000
Leasehold improvements 45,000
Computer equipment 153,000
Printheads 151,000
------------
Total 2,369,000
Less--Accumulated depreciation and
amortization (1,817,000)
------------
$ 552,000
------------
------------
</TABLE>
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 1999 and 1998 is limited to
minimum state payments due for
28
<PAGE>
each year due to the Company's operating loss carryforward. The Company's
deferred tax asset and valuation allowance as of March 31, 1999 consist of the
following:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 3,770,000
Vacation accrual 27,000
Unicap 1,000
Allowance for bad debts 26,000
Inventory reserves 5,000
Deferred tax liabilities:
Depreciation (180,000)
----------
Total net deferred tax assets 3,648,000
Valuation allowance (3,648,000)
------------
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 1999. As of March 31, 1999,
the Company has a federal and state income tax operating loss
carryforward of approximately $11,000,000 and $5,000,000, respectively,
which expire 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.
REVENUE RECOGNITION
Revenue from the sale of products and services is generally recognized
upon shipment. Maintenance and license revenues are recognized on a
straight-line basis over the term of the agreement, generally 12
months.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as
incurred.
29
<PAGE>
NET LOSS PER SHARE
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,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net loss $ (1,718) $ (969)
Weighted average number of common
shares used to compute basic
net income per common share 32,682 32,351
Dilutive effect of common share
equivalents -- --
---------- ----------
Weighted average number of common
shares used to compute diluted
net income per common share 32,682 32,351
---------- ----------
---------- ----------
Basic net loss per common share $ (0.05) $ (0.03)
Diluted net loss per common
share $ (0.05) $ (0.03)
</TABLE>
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
SFAS No. 123, "Accounting for Stock-Based Compensation" 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 7 and 9).
30
<PAGE>
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 $68,000 and $43,000 for interest in fiscal 1999 and
1998, respectively. The Company paid $4,000 and $1,000 for income
taxes in fiscal 1999 and 1998, respectively.
During fiscal 1998, the Company issued 50,000 shares pursuant to the
DTM settlement (Note 6). The exchange of warrants for common stock
(see Note 8) was excluded from the statement of cash flows as a
non-cash transaction.
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.
2. INVENTORIES
Inventories consist of the following as of March 31, 1999:
<TABLE>
<S> <C>
Raw materials and parts $ 86,000
Work in process 32,000
Finished goods 3,000
----------
Total inventories $ 121,000
----------
----------
</TABLE>
3. DEFERRED REVENUE
Deferred revenue relates to both machine and customer parts revenues. The
deferred revenue relating to machine revenues is from the Company's issuance
of licenses to use the machines, or to support the machines in form of
maintenance, rather than the outright sale of machines.
31
<PAGE>
4. NOTES PAYABLE AND LINE OF CREDIT
Debt consists of the following at March 31, 1999:
<TABLE>
<S> <C>
Notes to various investors and related parties,
bearing interest at 12 percent, due in October 1999
(Note 8) $ 170,000
Note to insurance company, bearing interest at
9.84 percent, due in October 1999 26,000
Revolving line of credit, secured by certain
assets, bearing interest at the bank's prime
rate (7.75 percent at March 31, 1999) plus
3 percent 395,000
Note to finance company, bearing interest at
.9 percent, due June 2001 18,000
Capital leases (Note 5) 29,000
---------
638,000
Less--Current portion (628,000)
---------
$ 10,000
---------
---------
</TABLE>
The debt matures as follows:
<TABLE>
<S> <C>
2000 $ 628,000
2001 8,000
2002 2,000
------------
$ 638,000
------------
------------
</TABLE>
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 July 31, 1998, the Company
entered into an amendment to the loan agreement whereby the credit facility
provides for the advance rate of 80 percent of eligible accounts receivable. As
of March 31, 1999, the Company had an outstanding balance of approximately
$395,000. At March 31, 1999, the Company was in compliance with certain
covenants and had obtained from the bank waivers for those covenants the Company
was not in compliance.
5. COMMITMENTS
The Company leases certain property and equipment under capital and operating
lease agreements. The leases expire at various dates through 2003. Future
minimum lease payments
32
<PAGE>
under capital lease obligations and noncancellable operating leases at March 31,
1999 are summarized as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------- ------------
<S> <C> <C>
2000 $ 30,000 $ 185,000
2001 -- 134,000
2002 -- 112,000
2003 -- 19,000
------------- -----------
Total minimum lease payments 30,000 $ 450,000
-----------
-----------
Less--Amount representing
interest (1,000)
Present value of future minimum
lease payments 29,000
Less--Current portion (29,000)
$ --
-------------
-------------
</TABLE>
Total rent expense was approximately $179,000 and $200,000 in 1999 and 1998,
respectively.
6. 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 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>
<S> <C>
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>
The Company has met all the conditions to maintain its license and the
exclusivity. For the rights, privileges and license granted under
the license, the Company pays royalties
33
<PAGE>
and fees to MIT until the License is terminated. The license was
further renegotiated and amended on December 28, 1998 to provide for
the fees and royalties as follows:
- "Running Royalties" in an amount equal to 4.5% of Net Sales of the
"Licensed Products," metal "End Products" and "Licensed Processes"
used, leased or sold by and/or for the Company, provided however
that during the period commencing January 1, 1997 and terminating on
December 15, 1999, MIT shall waive the first $150,000 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
Process," the royalty rate due for sale of metal "End Products" is
reduced from 4.5% to 2.25%.
- Beginning with calendar year 2000 and in each year thereafter, if
the Company shall not have paid MIT at least $50,000 in royalty
payments, then the Company shall, within 30 days of the end of the
calendar year, pay to MIT the difference between $50,000 and the
amount paid to MIT during the preceding year.
LEGAL ACTIVITY In connection with a previous acquisition, the Company
on December 15, 1997 executed a settlement agreement in which the
Company paid the former A-RPM owners the sum of $100,000, without
interest, in monthly installments beginning January 1998 and continued
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.
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.
7. 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.
34
<PAGE>
Information regarding the Company's Option Plan for the years ended March 31,
1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Shares Weighted Average
Under Options Exercise Price
------------- ---------------
<S> <C> <C>
March 31, 1997 3,297,000 $ 0.78
Granted -- --
Canceled (130,000) (1.03)
----------- -------
March 31, 1998 3,167,000 0.89
Granted - revalued 2,140,000 0.64
Canceled - revalued (2,140,000) (0.31)
Granted 1,467,000 0.39
Canceled (259,000) (0.67)
----------- ---------
March 31, 1999 4,375,000 $ 0.48
----------- ------
----------- ------
</TABLE>
The weighted average fair value of options granted during fiscal 1999 was $0.27.
Information about stock options outstanding at March 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number Remaining Exercise
Exercise Price Outstanding Contractual Life Price
-------------- ----------- ---------------- ---------
<S> <C> <C> <C>
$ 0.66 445,000 4.0 years $ 0.66
$ 1.46 60,000 4.6 years $ 1.46
$ 0.75 1,080,000 6.9 years $ 0.75
$ 0.31 2,790,000 9.8 years $ 0.31
</TABLE>
The Company accounts for stock options granted to non-employees in accordance
with SFAS No. 123 which requires non-cash compensation expense be recognized
over the expected period of benefit. As a result the Company recorded
compensation expense of $152,000 and $156,000 in fiscal years 1999 and 1998,
respectively, which is included in the accompanying statement of operations.
The Company accounts for its stock options granted to employees and directors
under APB No. 25, under which no compensation cost has been recognized.
Had compensation cost for the
35
<PAGE>
Company's stock option plans been determined consistent with SFAS No. 123, the
Company's net income and net loss per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C> <C>
Net Loss As Reported $ (1,718) $ (969,000)
Pro Forma $ (1,807) $ (1,055,000)
Net Loss Per Share
(basic and diluted) As Reported $ (0.05) $ (0.03)
Pro Forma $ (0.06) $ (0.03)
</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 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
$1.00 Canadian ($.66 U.S. at March 31, 1999) and $2.20 Canadian ($1.46 U.S. at
March 31, 1999) per share. All options granted subsequent to March 31, 1995
are issued in U.S. dollars. Of the options issued, 2,823,000 were exercisable
at March 31, 1999.
8. SHORT-TERM SUBORDINATED PROMISSORY NOTE AND WARRANT FINANCING
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.
36
<PAGE>
Information regarding the Company's warrants outstanding for the years ended
March 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Shares Weighted Average
Under Warrant Exercise 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
Granted 650,000 .44
Expired (1,382,777) (1.88)
------------ -------
March 31, 1999 5,488,255 $ 1.07
---------- ------
---------- ------
</TABLE>
A summary of the common stock purchase warrants as of March 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
Exercise Number
Class Price Expiration Date of Warrants
----- -------- ------------------ -----------
<S> <C> <C> <C>
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 $ 0.31 December 12, 2006 500,000
Bridge $ 0.50 December 11, 2002 520,000
Bridge $ 0.50 June 11, 2003 110,000
Bridge $ 0.50 July 26, 2003 210,000
Bridge $ 0.38 October 24, 2003 280,000
Bridge $ 0.38 April 24, 2003 50,000
-------
5,488,255
---------
---------
</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 Company
determined the value of the warrants to equal approximately $70,000 and was
amortized through June 1998.
37
<PAGE>
In June 1998, the Company extended its terms with the bridge noteholders 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 110,000 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 $13,000, which was
expensed as non-cash interest expense included in interest expense on the
Consolidated Statements of Operations and the Consolidated Statements of
Stockholders Equity.
In July 1998, the Company extended its terms with the bridge noteholders for a
period of 90 days to October 25, 1998. In connection with the extension, the
Company issued warrants to purchase an additional 210,000 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 $35,000, which was expensed as non-cash interest
expense, included in interest expense on the Consolidated Statements of
Operations and the Consolidated Statement of Stockholders Equity.
In October 1998, the Company further extended its terms with the bridge
noteholder for a period of 180 days to April 25, 1999. In connection with the
extension, the Company issued warrants to purchase an additional 330,000 shares
of common stock. The warrants vested upon grant and have terms of five years at
an exercise price of $0.375 per share. The Company determined the fair value of
the warrants to be approximately $60,000, which was expensed as non-cash
interest expense, included in Interest expense on the Consolidated Statements of
Operations and the Consolidated Statements of Stockholders' Equity.
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, based on the rate at the grant date on a zero-coupon U.S.
government issue with a term equal to the term of the note; expected volatility
between 30 percent and 50 percent.
As of March 31, 1998, the unamortized portion of non-cash interest expense of
$35,000 was included in prepaid expenses in the accompanying consolidated
balance sheet.
9. 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 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.
38
<PAGE>
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.
10. PREFERRED AND COMMON STOCK
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. In April 1998, the
Company received net proceeds of $775,000 form the sale of 1,600 shares of
Series A Preferred Stock to two private investors. The Series A Convertible
Preferred Stock Purchase Agreement, as amended between the Company and these
investors, permitted additional sales of Series A Preferred Stock to be
completed prior to September 8, 1998. In July 1998, the Company received
additional net proceeds of $88,000 from the sale of 200 shares of Series A
Preferred Stock to the same two private investors pursuant to the Series A
Convertible Preferred Agreement. In addition, in September 1998, the Company
received additional net proceeds of $94,000 from the sale of 200 shares of
Series A Preferred Stock to a third investor pursuant to the Series A
Convertible Preferred Stock Purchase Agreement.
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. Each holder of the Series A Preferred Stock does not have
dividend preference.
11. SUBSEQUENT EVENTS
On April 25, 1999, the Company extended $170,000 notes payable for an additional
six months under the same terms and conditions except for change in the exercise
price of the issued warrants. In connection with this extension, warrants
exercisable for 340,000 shares of the Company's common stock exercisable at
$0.1875 per shares were issued to the investors. The Company determined the fair
value of the warrants to be approximately $40,000 which will be expensed as
non-cash interest expense during fiscal 2000.
On May 31, 1999, the Company issued 250,000 warrants to purchase the Company's
common stock in connection with investing services rendered in behalf of the
Company. The warrants vest upon grant and have terms of five years at a range of
exercise prices between $0.31 - $0.50. The Company determined the fair value of
the warrants to be approximately $23,000, which will be expensed as non-cash
interest expense during fiscal 2000.
In June 1999, two private investors converted 200 shares of Series A Preferred
Stock into 229,303 shares of the Company's common stock.
39
<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 28, 1999
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 28, 1999
----------------------- Chairman of the Board
Yehoram Uziel (principal executive officer)
By: /s/ Robert Kassel Chief Financial Officer June 28, 1999
------------------------ (principal financial officer and
Robert Kassel principal accounting officer)
By: */s/ Dr. Mark W. Dowley Director June 28, 1999
------------------------
Dr. Mark W. Dowley
By: */s/ Kenneth T. Friedman Director June 28, 1999
------------------------
Kenneth T. Friedman
By: */s/ Patrick J. Lavelle Director June 28, 1999
-------------------------
Patrick J. Lavelle
By: */s/ Yehoram Uziel Attorney-In-Fact June 28, 1999
-------------------------
Yehoram Uziel
</TABLE>
40
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT
This First Amendment is made and entered into this 28th day of
December 1998 by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. ("M.I.T.") and SOLIGEN TECHNOLOGIES, INC.
a corporation duly organized under the laws of the State of Wyoming and having
its principal office at 19408 Londelius Street, Northridge, California 91324
U.S.A. ("LICENSEE").
WHEREAS, M.I.T. and LICENSEE entered into a License Agreement on
October 18, 1991 (the "Prior Agreement");
WHEREAS, M.I.T. and LICENSEE Amended the Restated the Prior Agreement
as amended on August 8, 1996 ("8/3/96 License Agreement");
WHEREAS, M.I.T. and LICENSEE wish to correct for an accounting error
related to waiver of royalties due under the 8/3/96 License Agreement and the
Prior Agreement.
NOW, THEREFORE in consideration of the premises and the mutual covenants
containing herein, the parties hereto agree as follows:
1. Section 4.1(a) and (b) are deleted and replaced with the following:
4.1(a). Running Royalties in an amount equal to Four and One Half
Percent (4.5%) of Net Sales of the LICENSED PRODUCTS, metal
END-PRODUCTS, and LICENSES PROCESSES used, leased or sold by and/or for
LICENSEE; provided however that during the period commencing January 1,
1997 and terminating on December 15, 1999, M.I.T. shall waive the first
One Hundred Fifty Thousand Dollars ($150,000) of Running Royalties due
pursuant to this Paragraph.
2. Section 4.1(c) is re-designated 4.1(b).
Page 1 of 2
<PAGE>
3. A new Section 4.1(c) shall be added as follows:
4.1(c). Beginning with calendar 2000 and in each year thereafter, if
LICENSEE shall not have paid M.I.T. at least Fifty Thousand Dollars
($50,000) in royalty payments pursuant to Section 4.1(a) and/or 4.1(b),
then LICENSEE shall, within 30 days of the end of the calendar year,
pay to M.I.T. the difference between Fifty Thousand Dollars ($50,000)
and the amount paid to M.I.T. pursuant to Section 4.1(a) and/or 4.1(b)
during the preceding year.
IN WITNESS WHEREOF, the parties have duly executed the Agreement the day and
year set forth below
MASSACHUSETTS INSTITUTE OF SOLIGEN TECHNOLOGIES, INC.
TECHNOLOGY
By: /s/ John H. Turner Jr. By: /s/ Yehoram Uziel
Name: John H. Turner Jr. Name: Yehoram Uziel
Title: Assistant Director Title: CEO
Technology Licensing Office
Date: December 22, 1998 Date: December 28, 1998
Page 2 of 2
<PAGE>
EXHIBIT 11.1
Soligen Technologies, Inc.
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-------------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Weighted average number
of common shares 32,682,000 32,351,000
Net loss $ (1,718,000) $ (969,000)
Net loss per share (basic and diluted) $ (0.05) $ (0.03)
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF THE REGISTRANT
Soligen, Inc., a Delaware Corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 333-62255.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 28, 1999
<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,
1999, 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 22th day of June 1999
--------------
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,
1999, 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 21st day of June 1999
--------------
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,
1999, 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 21st day of June 1999
--------------
Signature
/s/ Patrick J. Lavelle
- ----------------------------------
Patrick J. Lavelle, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 22 & 23 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> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 429
<SECURITIES> 0
<RECEIVABLES> 901
<ALLOWANCES> 84
<INVENTORY> 121
<CURRENT-ASSETS> 1,430
<PP&E> 2,369
<DEPRECIATION> 1,817
<TOTAL-ASSETS> 2,019
<CURRENT-LIABILITIES> 1,485
<BONDS> 0
0
1,000
<COMMON> 10,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,019
<SALES> 5,721
<TOTAL-REVENUES> 5,721
<CGS> 4,370
<TOTAL-COSTS> 4,370
<OTHER-EXPENSES> 2,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200
<INCOME-PRETAX> (1,714)
<INCOME-TAX> 4
<INCOME-CONTINUING> (1,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,718)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
