FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number 0-24368
MICROPOINT, INC.
(Exact name of small business issuer as identified in its charter)
Delaware 87-0620425
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6906 South 300 West, Midvale, Utah 84047
(Address of principal executive offices)
(Zip Code)
(801) 568-5111
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ]No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 7: 17,148,548.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
March 31, December 31,
1999 1998
-------------- ----------------
ASSETS
Current Assets
Cash $ 1,102,325 $ 657,775
Trade accounts receivable, net of
allowance of $89,801 and $90,721 209,541 298,586
Royalties receivable - 152,570
Receivable from shareholder - 1,573,750
Inventory 106,522 42,691
Prepaid expense 32,337 50,915
-------------- ----------------
Total Current Assets 1,450,725 2,776,287
-------------- ----------------
Property and Equipment 2,761,424 1,273,326
Less accumulated depreciation (436,120) (387,858)
-------------- ----------------
Net Property and Equipment 2,325,304 885,468
-------------- ----------------
Goodwill, Net of Accumulated Amortization of
$83,861 and $77,871 35,941 41,931
Deposits 52,049 246,441
Patents, net of accumulated amortization of
$48,618 and $45,018 113,831 101,331
-------------- ----------------
Total Assets $ 3,977,850 $ 4,051,458
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 425,407 $ 348,473
Related party payable - 1,234
Accrued liabilities 450,011 100,290
Accrued income tax 8,314 8,314
-------------- ----------------
Total Current Liabilities 883,732 458,311
-------------- ----------------
Stockholders' Equity
Preferred stock no shares issued - -
Common stock $0.001 par value;
100,000,000 shares authorized;
17,148,548 and 17,215,446 shares issued
and outstanding 17,149 17,215
Additional paid-in capital 9,759,958 10,027,475
Less receivable from shareholder - (900,609)
Deficit accumulated during the development
stage (6,682,988) (5,550,934)
-------------- ----------------
Total Stockholders' Equity 3,094,118 3,593,147
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,977,850 $ 4,051,458
============== ================
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MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Period
For the Three Months January 5, 1995
Ended March 31, (Date ofInception)
--------------------------- Through
1999 1998 March 31, 1999
------------- ------------- ----------------
Sales $ 121,757 $ 60,088 3,412,482
Cost of sales 845 44,726 1,529,1478
------------- ------------- ----------------
Gross profit 120,912 15,362 1,883,334
General and administrative
expense 595,418 317,269 4,538,456
Research and development 670,079 153,757 3,974,028
------------- ------------- ----------------
Loss from operations (1,144,585) (455,664) (6,629,150)
Interest expense - (40) (71,201)
Interest income 11,845 - 47,456
Other income/expense 686 (40) (30,093)
------------- ------------- ----------------
Net Loss Before Income Taxes $ (1,132,054) $ (455,704) $ (6,682,988)
============= ============= ================
Basic and Diluted Loss Per
Common Share $ (0.07) $ (0.05) $ (0.61)
============= ============= ================
Weighted average number of
common shares used in per
share calculation 15,860,279 9,860,279 10,980,011
============= ============= ================
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MICROPOINT, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Period
For the Three Months January 5, 1995
Ended March 31, (Date ofInception)
--------------------------- Through
1999 1998 March 31, 1999
------------- ------------- ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,132,054) $ (455,704) $ (6,682,988)
Adjustments to reconcile net loss to
net cash used by operating activities:
Gain on sale of available-for-sale
securities - - (21,225)
Loss on sale of assets - - 9,227
Depreciation and amortization 57,852 34,657 580,935
Stock issued for services - - 268,102
Allowance for doubtful accounts - - 242,288
Changes in operating assets and
liabilities:
Accounts receivable 89,045 (5,318) (315,788)
Other receivables 152,570 - -
Inventory (63,831) (106,522)
Accounts payable 76,934 (332,775) 246,593
Accrued liabilities 349,721 (264,211) 381,027
Deferred revenue - - (6,163)
Other assets 171,736 45,489 (110,489)
------------- ------------- ---------------
Net Cash Used By Operating
Activities (298,027) (977,862) (5,515,003)
------------- ------------- ---------------
Cash Flows From Investing Activities
Payments to Flexpoint prior to
acquisition - - (268,413)
Cash paid to acquire Tamco - - (25,000)
Proceeds from sale of available-for-sale-
securities - - 455,082
Net cash received from Nanotech
acquisition - - 1,492,907
Payments received from related parties - - 34,661
Collection of receivable from escrow
agent - - 64,825
Payments for the purchase of property
and equipment (1,448,098) (153,793) (2,448,895)
Proceeds from sale of equipment - - 22,682
Investment in patents (16,100) (12,147) (126,424)
------------- ------------- ---------------
Net Cash Used By Investing
Activities (1,464,198) (165,940) (798,575)
------------- ------------- ---------------
Cash Flows From Financing Activities
Proceeds from the issuance of common
stock 633,025 8,000 4,723,689
Cash payments to officers to repurchase
stock - - (50,000)
Cash paid for offering costs - - (123,020)
Proceeds from borrowings - 1,565 303,960
Principal payments of long-term debt - (303,336) (398,751)
Proceeds of bridge loan - 1,000,000 1,000,000
Proceeds from stock subscription
receivable 1,573,750 390,000 1,963,750
Proceeds from related party notes - - 60,208
Principal payments of related party
notes - (13,329) (63,933)
------------- ------------- ---------------
Net Cash Provided By Financing
Activities 2,206,775 1,082,900 7,415,903
------------- ------------- ---------------
Net Change In Cash 444,550 (60,902) 1,102,325
Cash at Beginning of Period 657,775 106,494 -
------------- ------------- ---------------
Cash at End of Period $ 1,102,325 $ 45,592 $ 1,102,325
============= ============= ===============
</TABLE>
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NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Sensitron, Inc. (Sensitron) for all periods
presented and the accounts of Micropoint Inc. (formerly Nanotech Corporation),
Flexpoint, Inc. (Flexpoint) and Technology and Machine Company, Inc. (Tamco)
from the dates of their acquisitions in 1995 through March 31, 1999. These
entities are collectively referred to as "Micropoint" or "the Company". All
significant intercompany transactions and account balances have been
eliminated in consolidation.
Nature of Operations - Sensitron Inc. was incorporated under the laws of the
State of Utah on January 5, 1995, which is considered Micropoint's date of
inception. Micropoint is a development stage enterprise engaged principally
in designing, engineering and manufacturing sensors and related equipment
using its flexible potentiometer technology. Micropoint has negotiated a
significant contract to supply flexible sensors to an automobile component
manufacturer. Sales under the contract are scheduled to begin upon
Micropoint's completion of the infrastructure and manufacturing line sometime
during the fourth quarter 1999.
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 in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Interim Financial Statements - The accompanying consolidated condensed balance
sheets, statement of operations, and cash flows for the three months ended
March 31, 1999 and 1998 are unaudited. In the opinion of management, all
necessary adjustments (which include only normal recurring adjustments) have
been made to present fairly the financial position, results of operations and
cash flows for the periods presented. The financial statements have been
condensed and do not contain all of the disclosure required by generally
accepted accounting principals. Accordingly, these condensed financial
statements should be read in conjunction with the annual financial statements
included in the annual report on Form 10-K dated December 31,1998. The
results of operations for the three month period ended March 31, 1999 are not
necessarily indicative of the operating results expected for the entire year.
Business Condition - The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However, the
Company has suffered losses from operations and has had negative cash flows
from operating activities during the years ended December 31, 1998 and 1997
and cumulative from inception through March 31, 1999, which conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continued existence is dependent upon its ability to achieve
profitable operations. The Company has negotiated a significant contract to
supply flexible sensors to an automobile component manufacturer, which, if
successful, would provide significant revenue to the Company. Management
believes this and other similar potential contracts will provide sufficient
cash flows for the Company to continue as a going concern and to ultimately
establish profitable operations. However, there is no assurance that these
objectives will be accomplished.
Fair Values of Financial Instruments -The amounts reported as cash, accounts
receivable, and accounts payable, are considered reasonable approximations of
their fair values. The fair value estimates were based on market information
available to management at the time of the preparation of the financial
statements.
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Concentration of Risk and Major Customers -At March 31, 1999 the Company had
cash in excess of insured limits. The concentration of business in one-
industry subjects the Company to a concentration of credit risk relating to
trade accounts receivable. Sales for the first quarter were not significant
and the receivables are primarily to one customer who has demonstrated their
ability to pay. The Company relies on large production contracts for its
business and generally does not require collateral from its customers with
respect to the Company's trade receivables.
Inventory - The Company values its inventory at the lower of cost or market.
Cost is determined using the first-in, first-out method.
Property and Equipment - Property and equipment is stated at cost. Additions
and major improvements are capitalized while maintenance and repairs are
charged to operations. Upon retirement, sale or disposition, the cost and
accumulated depreciation of the items sold are eliminated from the accounts,
and any resulting gain or loss is recognized in operation. Depreciation is
computed using the straight-line and the double-declining-balance methods and
is recognized over the estimated useful lives of the property and equipment,
which are five to seven years.
Long-Lived Assets - The realization of non-current assets is evaluated
periodically when events or circumstances indicate a possible inability to
recover the carrying amount. Such evaluation is based upon various analyses
and significant management judgement. No impairment losses were required to
be recognized in the accompanying financial statements.
Revenue Recognition - Revenue from the sale of products is recorded at the
time of shipment to the customers. Revenue from research and development
contracts is recognized as the contracts are completed. Revenue from
contracts to license the Company's technology to others is deferred until all
conditions under the contracts are met by the Company and then recognized as
revenue over the remaining term of the contracts.
Stock-Based Compensation - Stock-based compensation arising from granting
stock options to employees is measured by the intrinsic-value method. This
method recognizes compensation expense based on the difference between the
fair value of the underlying common stock and the exercise price on the date
granted. The Company also presents pro forma results of operations assuming
compensation had been measured by the fair-value method.
Basic and Diluted Loss Per Share - Basic loss per common share is computed by
dividing net loss by the number of common shares outstanding during the
period. Diluted loss per share is calculated to give effect to stock warrants,
options and convertible notes payable except during loss periods when those
potentially issuable commons shares would decrease the loss per share and have
been excluded from the calculation.
NOTE 2 - PROPERTY AND EQUIPMENT
At March 31, 1999, property and equipment consisted of the following:
Furniture and fixtures $ 79,558
Machinery and equipment 1,596,727
Office equipment 186,233
Software 30,919
Leasehold improvements 867,987
-------------
Total $ 2,761,424
=============
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Of the $867,987 of leasehold improvements, $483,833 is for the infrastructure
required by the Company's automotive supply agreement. Depreciation expense
for the three months ended March 31, 1999 and 1998 was $48,262 and $25,068
respectively.
NOTE 3 - OTHER ASSETS
Costs to obtain patents have been capitalized and are being amortized over a
five year period. The Company currently has the rights to several patents. The
Company is in the process of developing new patents and protecting its
existing patents internationally. Cost associated for the development of
these new patents have are capitalized. The Company does not amortize any
patents until they have been perfected. The total patent cost capitalized as
of March 31, 1999 and 1998 was $162,449 and $119,467, respectively.
Amortization expense for the three months ended March 31, 1999 and for the
year ending December 31, 1998 was $3,600 and $14,400, respectively.
Goodwill associated to the acquisition of Tamco is being amortized over five
years using the straight-line method. The carrying value of goodwill was
$35,941 and $59,901 as of March 31, 1999 and 1998, respectively. Amortization
expense for the three months ending March 31, 1999 and 1998 was $5,990.
Deposits of $52,049 and $15,779 are included in other assets at March 31, 1999
and 1998. The increase in deposits is due to a payment of $41,700 for rent on
a new facility needed for the automotive supply agreement and applying $5,430
to the purchase of new equipment that was on deposit last year.
NOTE 4 - LICENSE AGREEMENT
In May 1997, the Company granted an otherwise unrelated third party the
worldwide exclusive license to use and sell flexible potentiometers covered
under the Company's patents for use in toy, traditional games and video game
industries. The license does not include the right to manufacture sensors
which will be purchased from the Company. A licensing fee of $500,000 was
required under the agreement relating to the exclusive use of the technology
through December 1998. After 1998, the exclusive license is to be maintained
under the agreement by the licensee providing revenue from royalties and fees
to the Company of at least $500,000 per year. Royalties to be received are 2%
of sales of the licensee's products in the United States and 3% of related
products to the licensee's international partners.
NOTE 5 - CASH FLOW INFORMATION
Due to the cash proceeds generated from the issuance of stock, the Company has
earned $11,845 in interest for the three months ending March 31, 1999. For
the period ending March 31, 1999, the company recognized $5,559 of other
income due to over accruals made during 1997.
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NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is obligated under three operating lease agreements for its
manufacturing facilities and office space. For the third lease, the Company
was required to begin paying lease payments beginning January 15, 1999, and
began leasehold improvements to increase its manufacturing capacity and
offices. The Company's future minimum lease payments as of March 31, 1999
are scheduled below:
Ending December 31:
$ 233,010
309,480
299,550
249,900
249,900
In conjunction with the new lease, Micropoint has an option to renew the lease
for an additional three year period on the same terms as described in the
lease with the exception of the base rent which will be determined at the time
the option is exercised. Micropoint is also required to maintain a letter of
credit for $50,000 naming the landlord as the payee should Micropoint default
on its lease.
In 1995, a third party entity loaned $35,000 to a former officer of the
Company as a personal loan. This entity has made a claim against the former
officer for repayment of the advance and for other consideration. The Company
may be required to provide compensation to the former officer sufficient to
settle the claim on behalf of the former officer. In August 1998, the Court
granted defendants' Motion for Summary Judgment dismissing all other claims
asserted by plaintiffs with prejudice. In December 1998 a check was issued to
the third party in the amount of $48,618 representing principal and interest
on the loan. Defendants may stand to recover attorney fees from plaintiffs.
After the court rules on the remaining issue Clayton and Taylor have intimated
that they will file an appeal. If an appeal is filed Sensitron intends to
vigorously defend the appeal.
On February 13, 1998, Private Equity Partners LLC ("PEP") filed suit against
Sensitron in the Third Judicial District Court in Salt Lake County, Utah. PEP
alleges, among other things, that Sensitron owes PEP investment banking fees
and warrants with respect to an agreement, and that Sensitron's refusal to pay
such fees constitutes fraud. The suit seeks to obtain investment banking fees
equal to 6.5% of all money raised by Sensitron, warrants to purchase 2% of
Sensitron's equity, punitive damages of $5,000,000 and other relief. Discovery
has been completed and both PEP and Sensitron filed Cross-Motions for Summary
Judgment. The Court took the Cross-Motions for Summary Judgment under
advisement on December 18, 1998 after oral arguments were presented. The Court
denied the motions for summary judgment on grounds that questions of material
facts exist. The Company intends to vigorously defend itself.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
consolidated results of operations and financial condition of Micropoint, Inc.
("Micropoint"). The discussion should be read in conjunction with the
condensed consolidated financial statements, related notes and Management's
Discussion and Analysis or Plan of Operation for the year ended December 31,
1998. Wherever in this discussion the term "Company" is used, it should be
understood to refer to Micropoint and its wholly owned subsidiary, Sensitron,
Inc. ("Sensitron"), a Utah corporation, and Sensitron's wholly owned
subsidiaries, Flexpoint, Inc. ("Flexpoint") and Technology and Machine
Company, Inc. ("Tamco"), on a consolidated basis, except where the context
clearly indicates to the contrary. The business operations of the Company are
conducted through Flexpoint and Tamco. Prior to the April 1998 merger wherein
Micropoint acquired Sensitron (the "Acquisition"), Micropoint had no
operations. The Acquisition was accounted as a reorganization of
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Sensitron. The historical financial statement prior to the Acquisition are
those of Sensitron and have been restated accordingly.
Overview
The Company is a development stage company and, since inception, has
incurred losses from operations. As of March 31, 1999, the Company had
cumulative net losses totaling $6,682,988. The Company is primarily engaged in
the sensor business and is currently marketing proprietary patented sensor
technology know as the Bend Sensor TM technology (the "Technology"). Sensing
devices can be used to measure or sense changes in deflection and are
typically used to trigger an electronic device when the sensor is activated.
The worldwide market for sensing devices has grown significantly as a result
of better technology and new applications for sensing technology. This growth
has resulted in a corresponding increase in demand for high performance
sensing products. Management believes this worldwide market growth will
continue.
Financial Position
The Company had $1,102,325 in cash as of March 31, 1999. This represented
an increase of $444,550 from December 31, 1998. Working capital as of March
31, 1999, decreased to $566,993 as compared to 2,317,976 at December 31,
1998. The decrease is largely due to the acquisition of $1,448,098 in new
equipment and leasehold improvements at the new manufacturing facility.
Results of Operations
During the three months ended March 31, 1999, the Company had sales of
$121,757, comprised almost entirely of engineering fees; compared with sales
of $60,088 for the comparable periods from the prior year, comprised primarily
of product sales and engineering fees.
Substantially all of the Company's development fee revenues during the
three months ended March 31, 1999 were generated under a Purchase and Supply
Agreement (the "Supply Agreement") between the Company and Delphi Automotive
Systems ("Delphi") that was executed in June 1998. Under the Supply Agreement
the Company will supply its proprietary sensor mats to Delphi for integration
into a weight based suppression system as a critical part of a smart air bag
system. The Supply Agreement provides that such sensor mats will be
exclusively supplied to General Motors, through Delphi, by the Company through
2002. The Company is looking to the Supply Agreement to provide the bulk of
its revenues in the immediate future. The Company could have over
$300,000,000 in sales under the Supply Agreement based on estimates that were
produced jointly by Delphi and the Company. Such projected sales is forward
looking information. Such forward looking information is subject to many risks
and uncertainties, including the fact that Delphi is not obligated under the
terms of the Supply Agreement to purchase any minimum number of sensor mats
and there can be no assurance that the Supply Agreement will result in any
material amount of sales. As of the date of this filing, the Company had not
entered into any firm agreement for a continued supply of Bend Sensor(R)
products. Although management is highly confident that significant contracts
can be obtained, there can be no assurance as to future sales levels of Bend
Sensor(R) products. The failure of the Company to generate substantial sales
under the Supply Agreement will materially and adversely effect the Company.
The Company anticipates that its future success will be highly dependent
on Delphi. Although the Supply Agreement has not accounted for substantial
revenue to date, the Company anticipates that the revenue generated from the
Supply Agreement will become a significant portion of the Company's revenues.
The Company's ability to realize future sales to Delphi is subject to a number
of risks. These risks include uncertainties relating to the Company's business
under the Supply Agreement. Although the Supply Agreement is a multi-year
contract, it does not require Delphi to purchase a specific minimum quantity
of products. As a result, the Company's business,
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financial condition or results of operations could be materially adversely
affected if sales do not materialize as projected.
Substantially all of the Company's sales for the three months ended March
31, 1998 were generated under the License Agreement (the "License Agreement")
between the Company and Ohio Art that was executed in May 1997. Under the
License Agreement the Company granted to Ohio Art the exclusive worldwide
right to sell products incorporation the Technology in the toy, traditional
games and video game markets. The License Agreement provided for certain up
front fees and minimum royalties in order for Ohio Art to maintain such
exclusive rights. Certain toy customers of the Company have indicated that
they will be getting out of the plush toy business and/or will not be
manufacturing products using sophisticated sensor systems. As a result, the
Company believes that revenues under the License Agreement and from the toy
industry will be substantially less during 1999 than during 1998. In addition,
it should be noted that the toy industry is cyclical and the Company expects
that royalty revenues under the License Agreement will be greater in the
second and third quarters of any given year. There can be no assurance as to
what level, if any, of sales that the Company will secure under the License
Agreement in future years.
License and supply arrangements, such as those discussed above,
create certain risks for the Company, including (i) reliance for sales of
products on other parties; (ii) if the Company's products are marketed under
other parties' labels, goodwill associated with use of the products may inure
to the benefit of the other parties rather than the Company; and (iii) the
Company may have only limited protection from changes in manufacturing costs
and raw materials costs.
General and administrative expenses were $595,418 for the three months
ended March 31, 1999, compared with $317,269 for the comparable period from
the prior year. The increase in expenditures between the periods resulted
primarily from increases in salary and wage expenses as a result of hiring
additional accounting, management and clerical employees and increases in
advertising and consulting expenses. General and administrative expenses
during the first quarter of 1998 were also limited by a lack of available
funds.
Research and development expenses were $670,079 for the three months
ended March 31, 1999, compared with $153,757 for the comparable period from
the prior year. The increase in expenditures between the periods resulted
primarily from increases in salary and wage expenses as a result of hiring
additional engineering personnel and increases in consulting, equipment and
software costs. Research and development expenses were also limited in the
first quarter of 1998 by a lack of available funds.
Net interest and other income was $11,845 and $686 for the three months
ended March 31, 1999, respectively,. The net interest and other income
relates mainly to interest earned on funds on deposit.
Liquidity and Capital Resources
To date, the Company has financed its operations principally through
private placements of equity securities and product sales. The Company
generated $7,415,903 in net proceeds through financing activities from
inception through March 31, 1999. The Company used net cash in operating
activities of $298,027 during the three months ended March 31, 1999. As of
March 31, 1999, the Company's liabilities totaled $883,732. The Company had
working capital as of March 31, 1999 of $566,993.
The Company's working capital and other capital requirements for the
foreseeable future will vary based upon a number of factors, including the
costs to expand facilities, complete development and bring the certain product
utilizing the Technology to commercial viability and the level of sales of and
marketing for the Company's products. The Company has committed to spend
$233,010 in lease payment for its physical facilities during 1999, and
$309,480, $299,550, $249,900 and $249,900 in physical facilities lease
payments for the years 2000 through 2003, respectively. The Company believes
that existing funds and funds generated from sales will not be sufficient
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to support the Company's operations through 1999. With the award of the Supply
Agreement, the Company will need to materially increase spending for
additional facilities, equipment and personnel. At a minimum, during the
remainder of 1999 the Company will need to raise approximately $8,000,000 in
additional funding to support its operations during 1999. The Company
estimates that it will need to raise an additional $2,000,000 in 2000 to fully
execute its business plan which includes completing two additional production
lines to fulfill its anticipated manufacturing obligations under the Supply
Agreement. The Company is presently seeking funding to satisfy its financing
requirements. There can be no assurance that the Company will be successful in
raising the necessary funding or that additional financing will be available
on satisfactory terms when needed. The Company has no current arrangements
with respect to, or sources of, additional financing and there can be no
assurance that additional financing will be available on commercially
reasonable terms or at all. Any inability to obtain additional financing, when
needed, will have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease its operations.
The Company is working to obtain this additional funding from several
sources, but it has no firm commitments with respect thereto and there can be
no assurance that additional funding will be available to the Company on
commercially reasonable terms or in the necessary amounts. Any inability to
obtain additional financing in the amounts described above will have a
material adverse effect on the Company, including possibly requiring the
Company to significantly curtail or cease its operations.
Year 2000
The Company uses computers systems and microprocessors that are embedded
in systems the Company uses. Computers and embedded microprocessors have the
potential for operational problems if they lack the ability to handle the
transition to the Year 2000. Because this issue has the potential to cause
disruption of the Company's business operations, the Company has and is
seeking to identify and remediate potential Year 2000 problems in its business
information systems and other systems embedded in its engineering and
manufacturing operations. In addition, the Company is initiating
communications with its suppliers, dealers, distributors and other third
parties in order to assess and reduce the risk that the Company's operations
could be adversely affected by the failure of these third parties to
adequately address the Year 2000 issue.
The Company uses computers systems principally for product design, product
prototyping and administrative functions such as communications, word
processing, accounting and management and financial reporting. The Company
uses embedded microprocessors principally in its manufacturing and engineering
operations. The Company's principal computer systems (including the embedded
microprocessors systems) have been purchased since December 31, 1997 and the
vendors supplying such systems have generally represented that such systems
are year 2000 compliant. The software utilized by the Company is generally
standard "off the shelf" software, typically available from a number of
vendors. The Company is verifying with its software vendors that the services
and products provided are, or will be, year 2000 compliant. Based on such
verification, the Company believes that its computer systems and software is
year 2000 compliant in all material respects. The Company estimates that the
cost to redevelop, replace or repair its technology will not be material. The
Company is not using any independent verification or validation procedures.
There can be no assurance, however, that such systems and/or programs are or
will be year 2000 compliant and that the failure of such would not have a
material adverse impact on the Company's business and operations.
In addition to its own computer systems, in connection with its business
activities, the Company interacts with suppliers, customers, and financial
service organizations who use computer systems. The Company is verifying with
such parties their state of year 2000 readiness. Based on its assessment
activity to date, the Company believes that a majority of the suppliers,
customers and financial service organizations with whom it interacts are
making acceptable progress toward Year 2000 readiness. The Company currently
believes that the most reasonable likely worst case scenario is that there
will be some localized disruptions of supplier, customer and/or financial
services that will affect the Company and its suppliers, and distribution
channels for a short time rather than systemic or
11
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long-term problems affecting its business operations as a whole. In view of
the foregoing, the Company does not currently anticipate that it will
experience a significant disruption of its business as a result of the Year
2000 issue. However, there is still uncertainty about the broader scope of the
Year 2000 issue as it may affect the Company and third parties that are
critical to the Company's operations. For example, lack of readiness by
electrical and water utilities, financial institutions, government agencies or
other providers of general infrastructure could pose significant impediments
to the Company's ability to carry on its normal operations in the area or
areas so affected. The Company is currently evaluating what contingency plans,
if any, to make in the event the Company or parties with whom the Company does
business experience year 2000 problems.
The statements made herein about the costs expected to be associated with
the year 2000 compliance and the results that the Company expects to achieve,
constitute forward looking information. As noted above, there are many
uncertainties involved in the year 2000 issue, including the extent to which
the Company will be able to successfully and adequately provide for
contingencies that may arise, as well as the broader scope of the year 2000
issues as it may affect third parties that are not controlled by the Company.
Accordingly, the costs and results of the Company's year 2000 program and the
extent of any impact on the Company's operations could vary materially from
those stated herein.
Forward-Looking Statements
When used in this Form 10-Q in other filings by the Company with the SEC,
in the Company's press releases or other public or stockholder communications,
or in oral statements made with the approval of an authorized executive
officer of the Company, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made, are based on certain
assumptions and expectations which may or may not be valid or actually occur,
and which involve various risks and uncertainties, including but not limited
to risk of product demand, market acceptance, economic conditions, competitive
products and pricing, difficulties in product development, commercialization,
and technology, and other risks. In addition, sales and other revenues may not
commence and/or continue as anticipated due to delays or otherwise. As a
result, the Company's actual results for future periods could differ
materially from those anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any forward-
looking statements to reflect occurrences, developments, unanticipated events
or circumstances after the date of such statement.
12
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
No change from descriptions contained in the Company's annual report on
Form 10-KSB for the period ended December 31, 1998.
Item 2. Changes in Securities.
On March 31, 1999, the Company closed a private placement whereby the
Company had raised gross proceeds of $3,362,137 through an offering of Common
Stock to accredited investors for $4 per share. The Common Stock was issued
under Rule 506 of Regulation D, Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and Section 4(6) of the Securities Act. The
Company did not use an underwriter in connection with the private placement.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Securityholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
2.1 Agreement and Plan of Reorganization (Schedules are omitted)
(Incorporated by referenced to Exhibit 2.1 of the Company's
Current Report on Form 8-K, dated April 9, 1998).
3(i).1 Restated Certificate of Incorporation of Micropoint
(Incorporated by reference to Exhibit 3(i).1 of the Company's
Quarterly Report on Form 10-QSB, dated September 30, 1998).
3(i).2 Articles of Incorporation of Sensitron, Inc. (Incorporated by
referenced to Exhibit 3(i).3 of the Company's Annual Report on
Form 10-KSB, dated March 31, 1998).
3(i).3 Articles of Incorporation of Flexpoint, Inc. (Incorporated by
referenced to Exhibit 3(i).4 of the Company's Annual Report on
Form 10-KSB, dated March 31, 1998).
3(i).4 Articles of Incorporation of Technology and Machine Company,
Inc. (Incorporated by referenced to Exhibit 3(i).5 of the
Company's Annual Report on Form 10-KSB, dated March 31, 1998).
3(ii).1 Restated and Amended Bylaws of Micropoint (Incorporated by
reference to Exhibit 3(ii).1 of the Company's Quarterly Report
on Form 10-QSB, dated September 30, 1998).
13
<PAGE>
3(ii).2 Bylaws of Sensitron, Inc. (Incorporated by referenced to Exhibit
3(ii).2 of the Company's Annual Report on Form 10-KSB, dated
March 31, 1998).
3(ii).3 Bylaws of Flexpoint, Inc. (Incorporated by referenced to Exhibit
3(ii).3 of the Company's Annual Report on Form 10-KSB, dated
March 31, 1998).
3(ii).4 Bylaws of Technology and Machine Company, Inc. (Incorporated by
referenced to Exhibit 3(ii).4 of the Company's Annual Report on
Form 10-KSB, dated March 31, 1998).
10.1 Employment Agreement with Douglas M. Odom (Incorporated by
reference to Exhibit 10.1 of the Company's current report on
Form 8-K, dated April 9, 1998).
10.2 Lease Agreement between 72nd South Associates and the Company
(Incorporated by reference to Exhibit 10.2 of the Company's
current report on Form 8-K, dated April 9, 1998).
10.3 Agreement between Ohio Art and the Company (certain portions of
the agreement were omitted from the exhibit pursuant to a grant
of confidential treatment) (Incorporated by reference to Exhibit
10.3 of the Company's current report on Form 8-K, dated April 9,
1998).
10.4 Purchase and Supply Agreement by and among Flexpoint, Inc. and
Delphi Automotive Systems (certain portions of the agreement
were omitted from the exhibit pursuant to a grant of
confidential treatment) (Incorporated by reference to Exhibit
10.4 to the Company's annual report on Form 10-KSB, dated
December 31, 1998).
10.5 Industrial Space Lease between Prudential Insurance Company of
America and Micropoint (Incorporated by reference to Exhibit
10.5 to the Company's annual report on Form 10-KSB, dated
December 31, 1998).
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MICROPOINT, INC.
Date: May 12, 1999 By /s/ Douglas M. Odom
------------------------------
Douglas M. Odom
President, Chief Executive
Officer, Director
Date: May 12, 1999 By /s/ Thomas N. Strong
--------------------------------
Thomas N. Strong
Chief Accounting Officer
14
<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,102,325
<SECURITIES> 0
<RECEIVABLES> 299,342
<ALLOWANCES> 89,801
<INVENTORY> 106,522
<CURRENT-ASSETS> 1,450,725
<PP&E> 2,761,424
<DEPRECIATION> 436,120
<TOTAL-ASSETS> 3,977,850
<CURRENT-LIABILITIES> 883,732
<BONDS> 0
0
0
<COMMON> 17,149
<OTHER-SE> 3,076,969
<TOTAL-LIABILITY-AND-EQUITY> 3,977,850
<SALES> 1,061
<TOTAL-REVENUES> 121,757
<CGS> 845
<TOTAL-COSTS> 1,266,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,132,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,132,054)
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<NET-INCOME> (1,132,054)
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