Annual Report — Small Business — [x] Reg. S-B Item 405 — Form 10-KSB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10KSB40 Annual Report -- Small Business -- [x] Reg. S-B 34 150K
Item 405
2: EX-4.1 Instrument Defining the Rights of Security Holders 2± 12K
3: EX-11.1 Statement re: Computation of Earnings Per Share 1 5K
4: EX-21.1 Subsidiaries of the Registrant 1 5K
5: EX-24.1 Power of Attorney 1 7K
6: EX-24.2 Power of Attorney 1 7K
7: EX-24.3 Power of Attorney 1 7K
8: EX-27 Financial Data Schedule (Pre-XBRL) 1 8K
10KSB40 — Annual Report — Small Business — [x] Reg. S-B Item 405
Document Table of Contents
_______________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
______________________________________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
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 [ X ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM
405 OF REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [X]
THE ISSUER'S REVENUES FOR THE FISCAL YEAR ENDED MARCH 31, 1996 WERE $2,815,000.
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 MAY 30, 1996 WAS APPROXIMATELY
$29,192,000.
AS OF MAY 30, 1996, THERE WERE 29,738,330 SHARES OF COMMON STOCK,
NO PAR VALUE, OUTSTANDING.
THE INDEX TO EXHIBITS APPEARS ON PAGE 17 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 1996 ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON JULY 29, 1996.
_______________________________________________________________________________
SOLIGEN TECHNOLOGIES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
[Enlarge/Download Table]
Page
PART I
Item 1. Description of Business................................................ 1
Item 2. Description of Property................................................ 10
Item 3. Legal Proceedings...................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders.................... 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................ 12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 12
Item 7. Financial Statements................................................... 15
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................... 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...................... 16
Item 10. Executive Compensation................................................. 16
Item 11. Security Ownership of Certain Beneficial Owners and Management.......... 16
Item 12. Certain Relationships and Related Transactions........................... 16
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8K........ 17
SIGNATURES......................................................................... 33
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The Company is a Wyoming corporation which was organized in 1993. The Company's
wholly-owned subsidiary, Soligen, Inc. ("Soligen"), is a Delaware corporation
which was organized in 1991 and commenced operations in 1992. The Company is
the successor to an inactive British Columbia corporation organized in 1988
under the name Pars Resources, Ltd., which name was subsequently changed to WDF
Capital Corp. In connection with its reincorporation in Wyoming in 1993, the
Company changed its name to Soligen Technologies, Inc. The Company's principal
executive office is located at 19408 Londelius Street, Northridge, California
91324, telephone (818) 718-1221. References to the Company include Soligen
Technologies, Inc., and it's subsidiaries and predecessors unless the context
indicates otherwise.
The Company is transitioning from the development stage to that of a revenue
generating company, but has not yet generated sufficient revenues to cover
expenses, and has no assurance of the timing and amount of future market
opportunities. The Company will need to raise additional capital to fund future
operations. See Part II, Item 6, Management's Discussion and Analysis - Sources
of Liquidity.
BUSINESS OF COMPANY
The Company has developed a proprietary technology known as Direct Shell
Production Casting ("DSPC"). This technology is embodied in the Company's DSPC
300 System (the "DSPC System"), which produces ceramic molds directly from
Computer Aided Design ("CAD") files. These ceramic molds are used to cast metal
parts and tooling which conform to the CAD design. The Company's DSPC System is
based upon proprietary technology developed by the Company and certain patent
and other proprietary rights licensed to Soligen, Inc. ("Soligen"), a wholly
owned subsidiary of the Company, by the Massachusetts Institute of Technology
("MIT") pursuant to a license agreement (the "License") dated October 18, 1991,
as amended. Pursuant to the License, MIT granted Soligen an exclusive, world
wide license to develop, manufacture, market and sell products utilizing certain
technology and processes for the production of metal parts patented by MIT until
October 1, 2000, and on a non-exclusive basis thereafter until the expiration of
the last patent relating to the licensed technology.
The Company believes that it is the only producer of parts and tooling with
access to technology which allows for the rapid creation of ceramic molds
directly from CAD files. These ceramic molds are then used to cast fully
functional parts conforming to the CAD design. This unique capability
distinguishes the DSPC System from rapid prototyping technologies which are
characterized by the ability to produce non-functional, three-dimensional
representations of parts from CAD files.
The Company believes that the rapid mold production capabilities of the DSPC
System provide a substantial competitive advantage over existing producers of
metal parts and tooling. Use of the DSPC System eliminates the need to produce
tooling for limited runs of metal parts, thereby reducing both the time and the
labor otherwise required to produce the parts. For larger production runs, the
DSPC System is used to produce the tooling required to cast the parts. To
capitalize on this advantage, the Company's "Parts Now" strategy is to form a
network of rapid response production facilities owned either by the Company or
by licensed third parties. These facilities include DSPC production facilities
and foundries with in-house machine shops. The Company intends to establish
itself as a leading manufacturer of metal parts by providing a seamless
transition from CAD file to finished part.
To further its Parts Now strategy, in June 1994 the Company acquired an aluminum
foundry and machine shop located in Santa Ana, California. The first DSPC
production center for Parts Now has been in operation at the Company's
headquarters in Northridge, California since January 1995. At the DSPC
production facility, the Company uses CAD files obtained from customers to
produce ceramic molds. The CAD file can be transmitted by modem, Internet or
delivery of a standard disk or tape. Metal is then cast into the ceramic molds
in a foundry to yield metal parts identical to the respective customer CAD
files. The parts are cast either at the Company's aluminum foundry or at other
foundries.
Parts Now, when fully operational, will vertically integrate rapid response
centers (DSPC Centers) which operate the DSPC technology with pilot production
plants which are comprised of conventional foundries with on-site machine shops.
Parts Now will produce the first article parts directly from the customer's CAD
file without patterns or tooling. 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 a web site on the Internet.
Core Technology
DSPC is based on Three Dimensional Printing ("3DP-Trademark-"), a technology
invented at the Massachusetts Institute of Technology in Cambridge,
Massachusetts. 3DP-Trademark-automatically generates solid objects directly
from computer-aided design ("CAD") files by selectively gluing together
particles of powdered material with a liquid binder.
Objects made with 3DP-Trademark- are constructed from hundreds of very thin
layers. The fabrication process involves three steps per layer. First, the CAD
model is processed to yield a cross-section of the object. Second, a layer of
fine powder is spread by a roller mechanism. Third, an ink-jet printhead moves
across the layer, depositing binder in regions corresponding to the cross
section. The binder penetrates the pores between the powder particles and
adheres the particles together into a rigid structure. Once a given layer is
completed, the CAD model is sectioned again at a slightly higher position, and
the process is repeated until all layers are formed.
By using ceramic materials similar to those traditionally used for "investment"
or "lost wax" castings, 3DP-Trademark- technology can be used 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 consists of two pieces of
equipment: a Shell Design Unit (SDU) and a Shell Production Unit (SPU). The SDU
is a computer workstation with graphics capability. Using Soligen's proprietary
software, the SDU enables the operator to generate the mold design from the CAD
file of the desired part. The mold design is then transferred to the SPU. The
SPU is a computer-controlled system that generates the ceramic mold.
To create a typical cast part, the part is first designed using commercially
available CAD software. Next, the CAD file is transferred to the SDU of
Soligen's DSPC system. The part design is the basis for designing a casting
mold. As with all metal casting processes, a gating or "plumbing" system must
be created to distribute molten metal from a central pouring cup to the cavities
of the casting mold. 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 the SDU, appearing as a graphical
representation, and 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 in the Shell Production Unit (SPU). The SPU
includes a bin which contains powder. The bin is fitted with a piston which can
be moved vertically in precise increments under computer control. Above the
piston is a hopper containing finely-divided ceramic powder. A roller located
at the upper edge of the bin rotates while moving across the piston. Also above
the piston is an ink-jet printhead. The printhead is supplied with a liquid
binder, and is moved across the piston surface under computer control, ejecting
tiny drops of binder downward in a pattern which corresponds to the layer cross
section.
The binder adheres the powder particles into a rigid structure. Once a given
layer is completed, the computerized model of the mold is sectioned again, and
the cycle is repeated until all layers are formed. The unbound ceramic powder
is removed, and the completed ceramic mold is fired and filled with molten
metal. Once the metal has cooled and solidified, the mold is broken away from
the cast metal part, which can then be finished and inspected.
In summary, the process for creating cast parts or tooling with Soligen's DSPC
system is as follows:
- Designer creates CAD model of desired part on commercially available
software
- Design is transferred as computer file to SDU of DSPC system
- Casting mold or "shell" is designed on SDU using Soligen's proprietary
software
- Mold design is used by SPU to generate ceramic shell under computer
control
- SPU produces ceramic molds from hundreds of very thin ceramic layers
- Mold is cleaned of excessive powder, fired and poured with molten metal
- Mold is broken away from cooled part
- Part is finished (sanded, machined, or sandblasted) as needed
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, cobalt-chrome,
stainless steel, brass, bronze, copper, zinc, magnesium, ductile iron and
inconel (a high-performance nickel alloy).
Markets
The total annual market size for cast parts is approximately $120 billion
worldwide, according to the American Foundrymen's Society. The Company believes
that approximately 10% of the total casting market consists of metal parts in
sizes which can be cast using DSPC machines. The Company plans to initially
focus on producing metal parts that weigh less than 50 pounds, with complex
geometry, thin walls and high dollar value per part. Some of the Company's
primary customers include companies in industries such as automotive,
construction equipment, aerospace, and other Original Equipment Manufacturers
("OEM's"). Customers who could maximize the employment of Soligen's
technological competitive advantage, typically consist of companies which
experience rapid rates of technological innovation, frequent design changes, and
requirements to expedite "time to market". Their products consist of metal
parts which typically contain complex geometric configurations, especially on
the interior of the part.
Another potential market for the DSPC technology is preforms for complex
machined parts. Many metal parts are produced today by cutting away material
from a metal block. Parts with complex geometry often require many hours of
"rough machining," an operation which removes most of the raw material as a
preliminary step before achieving the final dimensions of the part. The Company
believes that supplying manufacturers of machined parts with cast parts ready to
be machined to finished dimensions will allow those customers to save many
machining hours, reduce cost of materials, reduce waste, and cut time to market.
Another potential market is cast tooling, such as molds for producing plastic
parts. Tooling is usually made of metal, has complex geometry (sometimes
including internal cavities for cooling), and is typically produced in small
quantities. The Company believes that utilizing DSPC technology will enable
tooling manufacturers to cut costs and reduce time to market.
Distribution
Sales and distribution activities for the Company are currently handled by
management and staff at the Company's facilities in California and in an
additional sales office which was opened in fiscal 1996 in Tama, Iowa. The Iowa
office directs the Company's sales and technical support requirements to sales
representatives in the Midwest. The Company plans to open additional regional
sales offices, initially in the USA and later, internationally. To exploit the
opportunities in territories which currently are not covered by the Company's
sales staff, the Company is in the process of forming a network of independent
manufacturer's representatives.
In fiscal 1996, the Company launched its Parts Now on-line service. Parts Now
on-line is available through the Company's dedicated bulletin board, as well as
on the Internet. With this service, the Company enters into the electronic
commerce environment and enables customers to receive price quotations, order
parts, and monitor the progress of their orders via modem.
Current Status
In the first three years, the Company has focused its efforts on the
commercialization of the DSPC equipment which is now substantially completed.
During this development program, the Company sold and installed developmental
DSPC machines (Alpha version) at United Technologies Pratt & Whitney Aircraft
Division ("P&W"), Johnson & Johnson ("J&J"), Sandia National Laboratories and
Ashland Chemical of Columbus, Ohio (a division of Ashland Oil). These systems
were sold pursuant to agreements providing for comprehensive co-development and
testing programs which enabled the Company to refine its software and hardware.
As a result of this co-development program, the Company completed the
development of the DSPC 300 machine. All of the Alpha DSPC machines are now
retired from operations. P&W, J&J and Ashland each operate a DSPC 300 machine.
In January 1995, the Company established the first DSPC center at the Company's
headquarters in Northridge, California.
Five DSPC 300 machines and one DSPC 300G (a new version of the DSPC 300, on
which development was completed during fiscal 1996) are operational at the
Company's headquarters for production of ceramic molds for the first Parts Now
center in Northridge, California, as well as for ongoing testing and development
work. This Parts Now service center has been providing a limited number of cast
metal parts to industrial customers since its commercial launch in January 1995.
Additional DSPC 300 machines are being assembled and tested at Soligen.
The Company is participating in a number of government-funded research consortia
and other programs. Soligen is a subcontractor to the Massachusetts Institute
of Technology ("MIT") as part of an Advanced Research Projects Agency ("ARPA")
funded program to produce structural ceramics using molds made by Three
Dimensional Printing. This program is scheduled to last through approximately
mid-1996. Soligen is also participating in an eight-company consortium
organized and funded through the Technology Reinvestment Project ("TRP") and the
National Science Foundation ("NSF"). The focus of this consortium is the
development of rapid, low-cost, high-performance, plastic injection molding
tooling using Three Dimensional Printing. This consortium program is scheduled
to continue through approximately June 1996.
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 are very difficult to machine, or 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." Traditionally,
both methods require intensive manual labor and therefore suffer from high cost
and inconsistent quality.
In the sixties, the Japanese firm Fanuc pioneered computerized numerical control
(CNC) machining by integrating a stand-alone controller with a milling machine.
CNC machining has certain limitations. It is limited to parts whose shapes
allow access to the cutting tool, thus putting constraints on the part design.
Also, machining wastes materials, transforming a large percentage of the initial
metal into useless chips. For parts with complex geometry that require
extensive programming, creating short runs with CNC is very costly and time
consuming.
For most alloys, casting involves creating a pattern which is used to create
sand or ceramic molds. Molten metal is poured into these molds, and the molds
are destroyed after the metal solidifies. Traditional casting, unlike
machining, although labor intensive, provides geometrical flexibility. Casting
allows the production of parts from virtually any metal with relatively little
material waste.
In the process of bringing a product to market, the first step (product design),
and the last step (assembly), have largely been automated. Fabricating parts
remains the slower, more difficult and costly part of the process. For quantity
production of complex metal parts, casting is very effective. As production
quantity increases, machining costs become prohibitive.
Metal part designers are heavily constrained by conventional casting methods,
due to long lead times and high costs. The main constraint is the need to first
produce patterns, or production tooling, prior to creating a first article part.
Any design change is a multi-step process. It requires modifying or often
redoing the tooling, an expensive and time consuming process that increases the
probability of making mistakes. 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. To shorten the time to market, and
remain competitive in an environment of constant change and innovation, end
users of metal parts such as the automotive, marine, construction equipment and
other mass producers, have started to implement concurrent engineering. In
concurrent engineering, the mass producer is selected at the beginning of the
program of designing a new product. Teams are working in conjunction. 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 production tools and are assisting the design
team with advice on how to lower the production cost of the part.
Another major factor that affects production is avoiding inventories of obsolete
parts. Consequently, customers have begun to request Just-in-Time ("JIT")
deliveries, a process where the supplier delivers parts to the assembly line in
quantities sufficient only to meet the assembly requirements. This minimizes
the inventories of parts on-site. In order to avoid delays due to defects, the
companies have requested that parts suppliers improve their quality standards.
Parts suppliers are expected to closely monitor the part's configuration
(minimize variations among parts made from different tooling and closely control
implementation of design changes in the part).
Companies are starting to demand "full service supply" which means that they
expect mass producers as a part of their production contract to deliver short
run production parts at late stages of the production development. This new
concept creates the need for out-sourcing. The customer expects the part maker
to take responsibility for tool making, and also demands short runs. This
forces the mass producer to produce parts on an alternate casting line because
the expenses associated with setting up a volume production line for short runs
are prohibitive.
DSPC, being an automated, patternless casting process that permits the
production of parts without tooling, makes the conventional casting techniques
obsolete for creating a first article part. The combination of DSPC technology
with traditional casting and machining perfectly positions Parts Now to address
competitively the growing need for carrying a new design smoothly from an idea
to production, and thereby significantly reduces time to market. Parts Now
provides the customer with the ability to improve the part design along with the
following advantages:
Designer can rapidly incorporate design changes and concurrently produce
and test several versions of any design.
No need to compromise on rapid prototyping, designer can request the same
part to be made from different alloys.
Designer can now refer to casting even for short runs.
Design and fabrication of production tools can be delayed until after the
design is verified.
Management believes that since DSPC creates a usable part directly and
automatically from the designer's CAD file, it is the only existing fabrication
method in which "what you see (on the computer screen) is what you get (as a
cast part)." Management believes that, by eliminating tooling, this unique
ability reduces the possibility of errors introduced during the course of normal
production, thereby improving process quality.
DSPC is loosely related to another technology called rapid prototyping,
pioneered several years ago by 3D Systems, Inc. of Valencia, California. Rapid
prototyping allows the production of three-dimensional models or prototypes
directly from CAD files. DSPC is similar to rapid prototyping in the sense that
a solid object is produced directly from a computer-generated model. However,
with DSPC, molds of virtually any shape are directly generated from CAD designs
by a fast, automated process. These molds are then used to cast conventional
metals such as steel and aluminum into 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. Therefore, the Company believes that DSPC technology competes
with conventional casting and machining processes, and not directly with rapid
prototyping processes.
Management believes that the Company's competitive environment consists of three
components, differentiated in accordance with the size of the required
production runs. Each production level is comprised of distinct competitors and
unique characteristics. The three components are large scale, or mass
production, medium scale production and small scale production.
Mass production is defined as production series of quantities in excess of a few
thousand identical parts annually. Industries which require mass production
runs include automotive, construction equipment and OEM suppliers. Their needs
are generally met by large foundries which are certified as "approved vendors"
for their customers. Mass production contracts are generally awarded during the
design phase of a part, and include services ranging from first article parts
through toolmaking, short pilot runs and, ultimately, mass production runs.
Industries such as aerospace and capital equipment manufacturing typically
utilize medium scale production vendors. These industries generally require
parts which are more expensive to produce than components which are mass
produced, and are often more complex in design. 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. Traditional foundries which contain in-house machine shops are the
primary competitors for these customers.
CNC job shops, model makers and very small job shop foundries provide custom
made parts and short production runs. These parts tend to be expensive and time
consuming since these industries must still create tools and patterns for small
quantities of parts.
The Company believes it offers distinct advantages over all three market
segments due to its ability to provide customers with a higher quality product
in less time, at a lower cost.
Raw Material Availability and Suppliers
The Company generally attempts to procure materials and components for the DSPC
machine from multiple sources. However, the ink-jet printhead which the Company
uses in the commercial DSPC machine is commercially available from a single U.S.
manufacturer. The Company believes that in case that the supplier discontinues
this line of printheads, it could develop a printhead using commercially
available components from alternative sources without a material effect on the
DSPC machine cost or performance. Management believes that such effort would be
completed within approximately eight to ten months. The Company has started to
acquire printheads for its inventory to enable it to continue its DSPC
operations, in the event that the supplier decides to discontinue its printhead
line used by the Company's DSPC technology. The Company does not expect any
changes in its on-going relationship with this supplier which are in very good
standing. An extended interruption in the supply of printheads could have an
adverse effect on the Company's results of operations.
Raw materials used in the DSPC process are generally available from several
suppliers in the quantities needed. Multiple vendor sources for critical raw
materials and supplies have been established over the past two years. Major
suppliers for ceramic powder include Norton Chemical and Grand Northern. Liquid
binder is currently procured from Eka Noble. Other potential vendor sources are
currently being identified and qualified.
The Parts Now service center generally obtains services and supplies for metal
casting from a foundry and machine shop in Northridge, California. Multiple
alternative vendor sources have been established over the last six months.
Multiple vendor sources have also been established over the last six months for
post-processing of parts and nondestructive testing of parts.
Raw materials for castings used by Altop are generally available from numerous
suppliers in the quantities needed. Major suppliers for aluminum include Alcoa
Aluminum and Kaiser Aluminum. Major suppliers for other sand casting supplies
include Ashland Chemical and IFSCO.
Major Customers
During Fiscal 1996, the Company had one customer which accounted for 13% of
revenues. See Note 1 to the Financial Statements.
Patents, Trademarks, Licenses and Royalties
The Company's DSPC process is based on Three Dimensional Printing (3DP Trademark
), 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 and
sanitary products fields of use. Soligen enjoys the exclusive benefits of the
License until October 1, 2007. The Company has received patents for
technological improvements to the original MIT process, and has filed additional
patent applications to protect its technology.
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. 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.
Under the terms of the License, Soligen is required to generate the following
minimum sales levels:
Period Amount of Net Sales
October 1991 to October 1994 $ 1,000,000
November 1994 to October 1996 $ 2,500,000
November 1996 to October 1997 $ 7,250,000
November to October thereafter $ 15,000,000
In addition, Soligen has an obligation to pay MIT a royalty in the amount of
4.5% of "Net Sales" on a quarterly basis, subject to a minimum annual royalty of
$50,000 due on December 31, 1994 and December 31 in each year thereafter. The
License provides that if Soligen fails to perform the sales minimums or pay the
obligations delineated above, such failure will be grounds for MIT to terminate
the License on 90 days' notice to Soligen. Soligen has met the requirement for
minimum net sales of $1 million for the period between November 1991 to October
1994, and $2.5 million for the period between November 1994 to October 1996.
In addition to the License, Soligen has developed proprietary software which is
integrated into the DSPC system. Soligen has applied for one U.S. patent on a
mechanical innovation for the DSPC machine; this application is pending as of
the date of this form.
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 the fiscal year ended March 31, 1994, the Company expended approximately
$1.3 million on research and development of proprietary technology relating to
3DP-Trademark- and the DSPC machines. During the fiscal year ended March 31,
1995, the Company expended approximately $1.1 million on research and
development. During the fiscal year ended March 31, 1996, the Company expended
approximately $941 thousand on research and development. Through the license
from MIT, Soligen has also obtained the benefit of extensive research and
development expenditures at MIT relating to the technology in Soligen's fields
of use during these three two fiscal years.
The Company continues to devote time and resources to research and development
to enhance the capabilities of, and develop new applications for, the DSPC
system and Parts Now network. This development effort has resulted in
significant advances to the original MIT based technology.
Cost and Effect of Environmental Regulations
The Company is in substantial compliance with all applicable Federal, state and
local environmental regulations. The Company generates, as do all casting
manufacturers, certain waste materials it must dispose of, including materials
for which disposal requires compliance with environmental protection laws. The
Company complies with various environmental protection laws regarding disposal
of certain waste materials. The Company's cost of waste disposal is not
significant in comparison with the Company's revenues.
Employees
Soligen currently employs thirty full-time engineers, scientists, managers and
staff. Soligen also employs four temporary employees and two consultants.
Soligen has agreements with seven independent sales representatives. Soligen's
employees are not covered by any collective bargaining agreement. The Company
believes that relations with Soligen's employees are good.
Altop currently employs thirty-one full time employees. Altop's employees are
not covered by any collective bargaining agreement. The Company believes that
relations with Altop's employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
All of Soligen's manufacturing and administration activities are based in a
10,000 square foot facility and a 900 square foot facility in Northridge,
California. Soligen leases these facilities from unrelated third parties. The
Company believes that the facilities may not be adequate for planned operations
within the next twelve months, and expects to seek larger facilities in fiscal
1997.
All of Altop's manufacturing and administration activities are based in a 20,000
square foot facility in Santa Ana, California. Altop leases this facility from
an unrelated third party. The Company believes that this facility will be
adequate for planned operations for the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
A-RPM Lawsuit and Counterclaim
On June 30, 1994, Altop, Inc., a wholly-owned subsidiary of the Company,
acquired substantially all of the assets of A-RPM Corporation, an aluminum
foundry and machine shop located in Santa Ana, California. The assets were
acquired pursuant to an Asset Purchase Agreement between Altop, A-RPM, the
Company and Leland K. and Nancy B. Lowry, the sole shareholders of A-RPM. As
payment for the assets, Altop delivered an initial cash payment in the amount of
$100,000 and three promissory notes in the total principal amount of $220,000.
Altop also assumed certain liabilities of A-RPM and agreed to deliver an
additional payment of up to $100,000 contingent upon determination of certain
net asset values according to a formula set forth in the Asset Purchase
Agreement. Altop also entered into an Employment Agreement with Leland K.
Lowry.
On March 22, 1995, the Company and Altop commenced an action against A-RPM and
the Lowrys in the Superior Court for Orange County, California. The complaint
in this action seeks damages for breach of the Asset Purchase Agreement, fraud,
and negligent misrepresentation. In addition, the Company and Altop are
requesting declaratory relief confirming that the Company and Altop have no
further obligation to A-RPM and the Lowrys under the Asset Purchase Agreement,
the promissory notes and related transactions. The complaint also seeks an
award of attorneys fees and costs.
A-RPM and the Lowrys have filed an answer to the complaint generally denying the
allegations of the complaint. In addition, they have filed a cross complaint
stating actions against the Company and Altop for recovery of the entire
principal amount and accrued interest on the three promissory notes delivered in
connection with the Asset Purchase Agreement. The cross-complaint also seeks
foreclosure on the assets of Altop securing the promissory notes, recovery of
$85,000 alleged to be due and payable pursuant to the contingent payment
provisions of the Asset Purchase Agreement, and attorneys fees and costs.
The Company and Altop intend to vigorously defend against the allegations of the
cross-complaint and to vigorously pursue recovery against A-RPM and the Lowrys.
Pending resolution of this dispute, the Company has provided for a $305,000
liability in its consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
quarter ended March 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of May 30, 1996, there approximately 1939 shareholders of record of STI's
common stock. STI's common stock is listed for trading on the Vancouver Stock
Exchange under the symbol SGT, where trading resumed on April 19, 1993, after
completion of the acquisition of Soligen. On March 10, 1994, STI also became
listed on the American Stock Exchange's Emerging Company Marketplace under the
symbol SGT. Market price information for trading of STI's common stock is set
forth in the following table:
[Enlarge/Download Table]
Fiscal quarter ended High sales price Low sales price High sales price Low sales price
($ U.S.) ($ U.S.) ($Canadian) (2) ($ Canadian) (2)
June 30, 1993 (1) $2.75 (3) $1.77 (3) $3.45 $2.22
Sept. 30, 1993 2.27 (3) 1.78 (3) 3.00 2.35
Dec. 31, 1993 2.19 (3) 1.75 (3) 2.98 2.19
Mar. 31, 1994 2.00 1.24 2.75 1.59
June 30, 1994 1.94 0.69 1.89 0.89
Sept. 30, 1994 1.06 0.56 1.44 0.80
Dec. 31, 1994 0.81 0.50 1.09 0.69
Mar. 31, 1995 0.75 0.50 1.00 0.69
June 30, 1995 1.50 0.63 1.35 0.77
Sept. 30, 1995 1.38 0.63 1.51 0.95
Dec. 31, 1995 1.00 0.63 1.29 0.85
Mar. 31, 1996 0.88 0.69 1.15 0.95
<FN>
(1) Data for quarter ended June 30, 1993 covers trading beginning on April
19, 1993.
(2) Source for sales prices: C. M. Oliver & Co. Ltd., Vancouver, British
Columbia, Canada.
(3) U.S. equivalent. Source for exchange rate information: The Los
Angeles Times.
(4) Includes trading on the American Stock Exchange's Emerging Company
Marketplace after listing on March 10, 1994.
No dividends have been declared or paid for the last three 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 October 31, 1997, being
the date of cancellation of any such escrow shares which have not earned out
(see Part III, Item 11).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Financial Statements of Soligen Technologies, Inc. ("STI") and its wholly-owned
subsidiaries Soligen, Inc. ("Soligen") and Altop, Inc. ("Altop") (collectively
referred to herein as the "Company") including the notes thereto, included
elsewhere in this Annual Report.
OVERVIEW
As of March 31, 1996, the Company is continuing its transition from a
development stage company into a manufacturing/service company with continuing
revenues from operations. The Company operates three major revenue-generating
profit centers:
1. DSPC PRODUCTION PROFIT CENTER: Revenues result from the production and sale
of first article and short run quantities of cast metal parts made directly from
the customer's CAD file. This profit center also provides DSPC part and tool
making services to the Parts Now Profit Center. These services are charged to
Parts Now at cost. Revenues for this product line were initiated in the quarter
ended March 31, 1995.
2. CONVENTIONAL CASTING PROFIT CENTER ("PRODUCTION PARTS"): Revenues result
from the production, and sale of production quantities of cast and machined
metal parts for industrial customers. The Company began generating revenues in
this area, through Altop, its aluminum foundry and machine shop, in July 1994.
This profit center also provides conventional casting of aluminum parts,
utilizing DSPC made tooling, CNC machining, finishing and inspection services to
the Parts Now Profit Center. These services are charged to Parts Now at cost.
3. PARTS NOW PROFIT CENTER ("PARTS NOW"): Oversees the "one stop shop"
production services from receipt of the customer's CAD file through production.
Parts Now is responsible for any contract which requires a combination of the
DSPC production center and the conventional casting and CNC machining expertise.
It consists of program managers who oversee the transition from CAD to first
article, to tooling, to conventional casting and later to mass production. It
acquires services from the DSPC Production Center and the conventional casting
center at cost.
Additionally, the Company has another profit center ("DSPC Technology Profit
Center") which combines two peripheral activities that generate revenues:
1. MACHINE REVENUES result from the distribution and maintenance of DSPC
machines. Part of the Company's strategy is to enable companies in certain
applications to operate DSPC machines in-house. Initially this involved the sale
of machines, to be used in a specific application (such as the sale of a DSPC
machine to Johnson & Johnson Orthopedics for the sole purpose of producing
orthopedic implants), subsequently evolving into the generation of revenues
through licensing, maintenance and upgrades.
2. ENGINEERING CONTRACTS revenues involve participation in research projects
wherein Soligen provides technological expertise. Revenues in this product line
were initiated in the quarter ended December 31, 1994 as a part of the Company's
participation in several industrial consortia that included MIT and certain
companies seeking to further develop applications in advanced manufacturing.
This product line may be discontinued after fiscal year 1996.
RESULTS OF OPERATIONS
From fiscal year 1995 to fiscal year 1996, operating revenues increased by
$1,163,000 from $1,652,000 to $2,815,000, gross margins increased from $417,000
to $872,000 and operating expenses decreased from $2,388,000 to $2,338,000. In
fiscal 1996, the Company wrote off goodwill of $657,000 applicable to the A-RPM
purchase. In addition, $41,000 related to the development of its Web site was
also written off. These write-offs increased the Company's net loss for fiscal
1996 to $2,172,000 compared to a net loss of $1,992,000 for fiscal 1995. The
Company's operating revenues for fiscal 1995 and fiscal 1996,increase from the
previous year classified by product lines, are as follows (in $000's):
[Download Table]
FISCAL FISCAL
1995 1996
DSPC Production Center/Parts Now $ 94 $ 797
ProductionCustomer Parts 1,046 1,472
Machine Revenues 383 283
Engineering Contracts 129 263
------- -------
Total Operating Revenues $1,652 $2,815
Research and Development expenses decreased by $172,000, from $1,113,000 in
fiscal 1995 to $941,000 in fiscal 1996. The reduction was due to costs
associated with the DSPC Production Center product line which entered the
operational stage in January 1995. Prior to that time, all costs associated
with the DSPC product line were wholly developmental in nature.
Selling expenses increased by $250,000 in fiscal 1996. This increase resulted
from the formation of a sales staff which was largely responsible for the
increase in revenues in the current year. Initial sales were generated from
customers who learned about Soligen from trade publications as well as through
referrals from satisfied customers. Subsequently, the Company has been training
a direct sales force. In some territories, independent sales representatives
have been engaged to augment the direct sales force. At the end of fiscal 1996,
the Company had three sales representatives (each limited to his own accounts),
and four direct sales engineers, two of whom are still in training. The Company
is actively seeking a Vice-President of Sales to expand its sales force.
General & Administrative expenses decreased by $128,000, from $1,018,000 to
$890,000, from fiscal 1995 to fiscal 1996, largely as a result of the decline in
legal expenses associated with the settlement of the DTM Lawsuit. This
represents a reduction from 62% of revenues in fiscal 1995 to 32% of revenues in
fiscal 1996.
The Company increased capital assets by $408,000 in fiscal 1996, including the
construction of two DSPC machines. To meet quality requirements related to DSPC
technology and to better support the Parts Now product line, Altop sold four CNC
machines and purchased three others.
MIT LICENSE: Soligen and the Massachusetts Institute of Technology ("MIT") are
parties to an agreement whereby MIT granted Soligen an exclusive license to
develop, manufacture, market and sell products utilizing technology and
processes patented by MIT. The Company has met all requirements of the license
agreement and the license is in good standing. The Company incurred $25,000 as
its share of the costs associated with filing and maintenance of all patent
rights in fiscal 1996. There were no royalties paid to MIT in fiscal 1996.
SOURCES OF LIQUIDITY
The Company requires significant funds to continue operations. As of March 31,
1996, the Company had working capital of approximately $660,000. Since March
31, 1995, the Company has funded its operations through the private sale of
common stock. The Company received net proceeds of $536,000 from the private
placement of common stock which was completed in June 1995, net proceeds of
$2,211,000 from the private placement of common stock completed in September
1995 and net proceeds of $405,000 from the private placement of common stock
completed in January 1996. The Company does not expect current sources of
liquidity to be adequate beyond September 30, 1996. Therefore, until the
Company operates profitably, as to which no assurance can be given, it will be
necessary for the Company to obtain outside funding to fund operations. The
Company does not have any bank financing, and it does not believe that financing
from a bank or other commercial lender is presently available to it. The
Company is pursuing other sources of outside funds. However, no assurance can
be given that the Company will be able to obtain the necessary funds when such
funds are required, and the failure to obtain necessary funding may have a
materially adverse effect upon its business and operations. Furthermore, if the
Company is able to raise such funds, the terms on which funds may be made
available to the Company may result in substantial dilution or may be otherwise
on terms not favorable to the Company.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 below and the index therein for a listing of the financial
statements and supplementary data filed as part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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 1996 Annual Meeting of Shareholders pursuant to and in accordance with
section 240.14a-101 within 120 days after the end of the fiscal year covered by
this form. The information required by this item is incorporated by reference
to the Proxy Statement under the headings "Management" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Voting Securities and Principal Holders Thereof."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the Proxy
Statement under the heading "Related Party Transactions."
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
[Enlarge/Download Table]
Page
Report of Independent Public Accountants........................................................... 19
Consolidated Financial Statements.................................................................. 20
Balance Sheet as of March 31, 1996................................................................. 20
Statements of Operations for the years ended March 31, 1995 and 1996............................... 21
Statements of Stockholders' Equity for the years ended March 31, 1995
and 1996..................................................................................... 22
Statements of Cash Flows for the years ended March 31, 1995 and 1996............................... 23
Notes to Financial Statements...................................................................... 24
(b) 2. FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes hereto.
(a) 3. EXHIBITS
[Enlarge/Download Table]
Exhibit 2.1 Share Exchange Agreement and Amendments . . . . . . . . . . .. . . . . *
Exhibit 2.2 MIT Share Acquisition Agreement . . . . . . . . . . . . . ... . . . . *
Exhibit 2.3 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . ... . . . *
Exhibit 2.4 Pooling Agreement . . . . . . . . . . . . . . . . . . . . . .. . . . *
Exhibit 3.1 Articles of Incorporation of Soligen Technologies, Inc. . ... . . . . *
Exhibit 3.2 Bylaws of Soligen Technologies, Inc. . . . . . . . . . . . ... . . . *
Exhibit 3.3 First Amendment to Bylaws . . . . . . . . . . . . . . . . .... . .. ***
Exhibit 4.1 Modification Agreement (Pooling) . . . . . . . . . . . . . . ... . .. 34
Exhibit 4.2 Subscription Agreement for Private Placement . . . . . . . . ... . . . . ##
Exhibit 4.3 Subscription Agreement for Private Placement . . . . . . . . . .. .. . ##
Exhibit 10.1 Finder's Fee Agreement . . . . . . . . . . . . . . . . . . .. . . . *
Exhibit 10.2 Fiscal Agency Agreement . . . . . . . . . . . . . . . . . . .. . . . *
Exhibit 10.3 License Agreement and Amendments . . . . . . . . . . . . . .. . . . *
Exhibit 10.4 Amendment to License Agreement . . . . . . . . . . . . . ... . . .. #
Exhibit 10.5 Alpha Agreements . . . . . . . . . . . . . . . . . . . . .... . . . .. *
Exhibit 10.6 Ashland Chemical Marketing Agreement . . . . . . . . . . .... . . . *
Exhibit 10.7 Stock Option Plans . . . . . . . . . . . . . . . . . . . . ... . . .. *
Exhibit 10.8 Subscription Agreement for Private Placement . . . . . . . ... . . .. **
Exhibit 10.9 Letter of Agreement with Consultant . . . . . . . . . . . ... . . . . **
Exhibit 11.1 Statement of Per Share Earnings . . . . . . . . . . . . . . .. . . . 36
Exhibit 16 Notice and Letters re: Change in Certifying Accountant . . .. . . .. ****
Exhibit 21.1 Subsidiaries of the Registrant . . . . . . . . . . . . . . .. . . .. 37
Exhibit 24.1 Power of Attorney of Dr. Mark W. Dowley . . . . . . . . . .. . . . 38
Exhibit 24.2 Power of Attorney of Patrick J. Lavelle . . . . . . . . . . .. . . .. 39
Exhibit 24.3 Power of Attorney of Darryl J. Yea . . . . . . . . . . . . ... . . .. 40
Exhibit 27.1 Financial Data Schedule (EDGAR Version only)
<F/N>
* Incorporated by reference to the Registration Statement on Form 10-SB (Reg.
No. 1-12694) filed by the Company on December 20, 1993.
** 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.
*** 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.
**** Incorporated by reference to Form 8-K/A-2 filed by the Company on August
30, 1994.
# Incorporated by reference to Form 10-KSB filed by the Company on June 16,
1995.
## Incorporated by reference to Form 10-QSB filed by the Company on November
14, 1995.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1996.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Soligen Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Soligen
Technologies, Inc. and subsidiaries (a Wyoming Corporation - collectively, the
Company) as of March 31, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended March 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Soligen Technologies, Inc. and
subsidiaries as of March 31, 1996, and the results of their operations and their
cash flows for each of the two years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 28, 1996
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET -
MARCH 31, 1996
ASSETS
[Download Table]
CURRENT ASSETS:
Cash $1,189,000
Accounts receivable, net
of allowance for doubtful accounts of
$87,000 447,000
Inventories 167,000
Prepaid expenses 55,000
----------
Total current assets 1,858,000
----------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization 1,257,000
OTHER ASSETS 63,000
----------
Total Assets $3,178,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 780,000
Deferred revenue 38,000
Notes payable 380,000
----------
Total current liabilities 1,198,000
----------
NOTES PAYABLE, net of current portion 146,000
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value
Authorized--50,000,000 shares
Issued and outstanding-- 29,738,330 shares 8,631,000
Accumulated deficit (6,797,000)
------------
Total stockholders' equity 1,834,000
------------
Total Liabilities and Stockholders' Equity $3,178,000
===========
The accompanying notes are an integral part of this balance sheet.
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Download Table]
1995 1996
REVENUES:
DSPC production center $ 94,000 $ 797,000
Production parts 1,046,000 1,472,000
Machine revenues 383,000 283,000
Engineering contracts 129,000 263,000
-------------- ----------
Total revenues 1,652,000 2,815,000
-------------- ----------
COST OF REVENUES 1,235,000 1,943,000
-------------- ----------
Gross margin 417,000 872,000
-------------- ---------
Research and development 1,113,000 941,000
Selling 257,000 507,000
General and administrative 1,018,000 890,000
-------------- ---------
Total expenses 2,388,000 2,338,000
Loss from operations (1,971,000) (1,466,000)
-------------- ----------
OTHER INCOME (EXPENSE):
Interest income 20,000 46,000
Interest expense (39,000) (49,000)
Other - ` (41,000)
Write-off of goodwill and related
acquisition costs - (657,000)
--------------- ----------
Loss before provision for
income taxes (1,990,000) (2,167,000)
Provision for state income taxes 2,000 5,000
--------------- ----------
Net loss $ (1,992,000) $ (2,172,000)
=============== ===========
Net loss per share $ (0.09) $ 0.08)
The accompanying notes are an integral part of these financial statements.
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Enlarge/Download Table]
Common Stock Accumulated
Shares Amount Deficit Total
BALANCE, March 31, 1994 20,873,330 $4,307,000 $(2,633,000) $1,674,000
Shares issued pursuant
to a private placement
(December 1994) 1,390,000 663,00 - 663,000
Shares issued pursuant
to a private placement
(January 1995) 570,000 272,000 - 272,000
Shares issued pursuant
to a private placement
(March 1995) 430,000 205,000 - 205,000
Shares issued pursuant
to options exercised
(March 1995) 10,000 3,000 - 3,000
Net loss for the year - - (1,992,000) (1,992,000)
___________ ___________ ____________ ____________
BALANCE, March 31, 1995 23,273,330 5,450,000 (4,625,000) 825,000
Shares issued pursuant
to DTM settlement
(April 1995) 50,000 29,000 - 29,000
Shares issued pursuant
to private placement
(June 1995) 1,090,000 536,000 - 536,000
Shares issued pursuant
to private placement
(September 1995) 4,500,000 2,211,000 - 2,211,000
Shares issued pursuant
to private placement
(February 1996) 825,000 405,000 - 405,000
Net loss for the year (2,172,000) (2,172,000)
__________ ___________ ____________ ____________
BALANCE, March 31, 1996 29,738,330 $8,631,000 (6,797,000) $1,834,000
========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
SOLIGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Download Table]
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,992,000) $(2,172,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 274,000 980,000
Changes in assets and liabilities, net
of effects from purchase of A-RPM:
Decrease (increase) in accounts receivable 15,000 (340,000)
Decrease (increase) in inventories (55,000) 65,000
Decrease (increase) in prepaid
expenses and other assets (36,000) (20,000)
Increase (decrease) in accounts payable
and accrued expenses 35,000 (82,000)
Increase (decrease) in deferred revenues 71,000 (188,000)
____________ ____________
Net cash used in operating activities (1,688,000) (1,757,000)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (478,000) (408,000)
Payment for purchase of A-RPM (100,000) -
Sale of investments 1,470,000 -
____________ ____________
Net cash provided by (used in)
investing activities 892,000 (408,000)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (450,000) -
Principal payments under capital lease
obligations (51,000) (97,000)
Repayments of notes from officers and
shareholders (35,000) -
Payments on notes payable (31,000) (32,000)
Proceeds from issuance of debt 15,000 -
Proceeds from private placements, net of
issuance costs 1,140,000 3,152,000
Cash received from options/warrants exercised 3,000 -
____________ ___________
Net cash provided by financing activities 591,000 3,023,000
____________ ___________
Net increase (decrease) in cash (205,000) 858,000
Cash at beginning of period 536,000 331,000
____________ ___________
Cash at end of period $ 331,000 $ 1,189,000
============ ===========
The accompanying notes are an integral part of these financial statements.
SOLIGEN TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. Summary of Significant Accounting Policies
The Company and Nature of the Business
Soligen Technologies, Inc. (STI) is a Wyoming corporation which operates through
its wholly owned subsidiaries Soligen, Inc. (Soligen) and Altop, Inc. (Altop)
(collectively referred to as the Company).
Soligen is located in Northridge, California. It was founded to develop and
commercialize a new technology for creating metal parts and tooling from
computer designs. This technology, Direct Shell Production Casting (DSPC), is
based on Three Dimensional Printing (3DP-Trademark-) a patented process licensed
to Soligen by the Massachusetts Institute of Technology.
In June 1994, Altop was incorporated in Delaware. On June 30, 1994, Altop
acquired substantially all of the assets of A-RPM Corporation, an aluminum
foundry and machine shop. Altop immediately commenced operations as an aluminum
foundry and machine shop in the same location as A-RPM had operated, in Santa
Ana, California.
The Company will need to raise additional capital to fund future operations. In
addition, the Company faces certain other risks, including those described in
Note 7.
DSPC is used to fabricate complex ceramic molds (shells) of virtually any shape
directly from a computer-aided design (CAD) data file, for casting functional
metal parts. The Company has four product lines:
A.DSPC Production Center - The production and distribution of "first article"
metal parts and tooling for quantity production.
B.Production Parts - The quantity production of metal parts for commercial
users.
C.Machine Revenues - The production and distribution of DSPC machines to select
customers.
D.Engineering Contracts - Studies exploring new uses of related technology.
Principles of Consolidation
The consolidated financial statements include the accounts of STI, Soligen and
Altop. All material 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, 1996, no single
customer represented more than 10 percent of accounts receivable. The Company`s
largest customer represented approximately 13 percent of Revenues during
fiscal1996. For the year ended March 31, 1995, no single customer represented
more than 10 percent of Revenues.
Inventories
Inventories are stated at the lower of cost or market on a first-in, first-out
basis. Inventories include raw materials, work in process and finished goods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed on a straight-line
basis over the expected lives of the assets, as follows:
Description Depreciation Life
Office furniture and fixtures 3 years
Plant machinery and equipment 5 years
DSPC machines 2 to 3 years
Leasehold improvements Lesser of asset life or term of lease
Property, plant and equipment consist of the following at March 31, 1996:
Office furniture and fixtures $ 54,000
Plant machinery and equipment 997,000
DSPC machines 556,000
Leasehold improvements 12,000
Construction in progress - DSPC machines 263,000
_________
1,882,000
Less-Accumulated depreciation and amortization (625,000)
---------
$1,257,000
==========
Goodwill
Goodwill represents the unamortized difference between the acquisition cost of
A-RPM and the fair value of net assets acquired. The goodwill is amortized on a
straight-line basis over eight years. See also discussion below of "New
Authoritative Pronouncements."
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 1995 and 1996 is limited to minimum payments due for
each year due to the Company's large operating loss carryforward. The Company's
deferred tax asset and valuation reserve are as follows:
March 31, 1996
Deferred tax assets:
Net operating loss carryforward $2,354,000
Amortization of goodwill 230,000
Vacation accrual 15,000
Unicap 3,000
Allowance for bad debts 35,000
Other 7,000
----------
2,644,000
Deferred tax liabilities:
Depreciation (5,000)
__________
Total net deferred tax assets 2,639,000
Valuation allowance (2,639,000)
____________
Total -
============
There is no assurance that the Company will be profitable in future periods,
therefore, a valuation allowance has been recognized for the full amount of the
deferred tax asset for 1996. As of March 31, 1996, the Company has a federal
income tax operating loss carryforward of approximately $6,100,000 which expires
through 2011. 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.
Research and Development
Research and development expenditures are charged to operations as incurred.
Loss Per Share Loss per share is based on the weighted average number of shares
outstanding during each year. The weighted average number of shares used in the
computation of loss per share for 1995 and 1996 was 21,352,000 and 26,559,000,
respectively.
New Authoritative Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of," which required
impairment losses to be recorded on long-lived assets used in operations when
indications of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
Company adopted SFAS 121 in 1996 and the impact on the Company's financial
position and results of operations was significant to the fourth quarter and
fiscal year ended March 31, 1996. Unamortized goodwill and related acquisition
costs relating to the A-RPM acquisition were written off pursuant to SFAS 121
guidelines and management's assessment of the remaining (impaired) value of the
assets. (See also Note 7).
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," (APB 25) but requires pro forma disclosure of
net income and earnings per share as if the fair value based method had been
applied. The Company will be required to adopt this standard effective in 1996.
While the Company is still evaluating SFAS 123, it currently, expects to elect
to measure compensation cost under APB 25 and comply with the pro forma
disclosure requirements. Therefore, SFAS 123 will have no impact on the
Company's financial position or results of operations.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
The Company paid $39,000 and $35,000 for interest in fiscal 1995 and 1996,
respectively. The Company paid $2,000 and $5,000 for income taxes in fiscal
1995 and 1996, respectively. During fiscal 1996, the Company issued 50,000
shares pursuant to the DTM settlement (Note 7).
Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
2. Inventories
Inventories consist of the following as of March 31, 1996:
Raw materials and parts $ 82,000
Work in process 50,000
Finished goods 35,000
________
Total inventories $167,000
========
3. Deferred Revenue
Deferred revenue relates to both the machine and customer parts revenues. The
deferred revenue related to machine revenues results mainly from the Company's
issuance of licenses to use the machines, or to support the machines in form of
maintenance, rather than the outright sales of machines.
4. Debt
Debt consists of the following at March 31, 1996:
Notes to former owners of A-RPM, collateralized
by equipment and furnishings, bearing
interest at 8 percent, interest payable
quarterly, due fiscal 1997 (Note 7) $305,000
Capital leases (Note 5) 206,000
Other notes to non-related parties, bearing
interest from 8.125 percent to 9.7 percent,
due at various dates through 1997 15,000
________
526,000
Less--Current portion 380,000
________
$146,000
========
The debt matures as follows:
1997 $380,000
1998 56,000
1999 60,000
2000 30,000
________
$526,000
========
5. Commitments and Contingencies
The Company leases certain property and equipment under capital and operating
lease agreements. The leases expire at various dates through 2000. A capital
lease obligation of $137,000 was incurred when the Company entered into a lease
for new equipment during 1995. Future minimum lease payments under capital
lease obligations and noncancelable operating leases at March 31, 1996 are
summarized as follows:
Capital Operating
Leases Leases
1997 $ 82,000 $100,000
1998 65,000 13,000
1999 69,000 -
2000 29,000 -
-------- ---------
Total minimum lease payments 245,000 $113,000
=========
Less--Amount representing interest (39,000)
---------
Present value of future minimum
lease payments 206,000
Less--Current portion (64,000)
---------
$142,000
=========
Total rent expense was approximately $102,000 and $117,000 in 1995 and 1996,
respectively.
6. Acquisition of A-RPM
On June 30, 1994, STI's wholly-owned subsidiary, Altop, Inc., acquired
substantially all of the assets of A-RPM Corporation, a foundry and machine shop
located in Santa Ana, California. The acquisition price was $420,000, with
$100,000 paid in cash and $320,000 in notes ($100,000 of which is contingent
upon determination of certain net asset values according to a formula set forth
in the Asset Purchase Agreement), plus assumption of stated liabilities (see
Note 7).
The following unaudited pro forma results of operations were prepared under the
assumption that the acquisition had occurred at the beginning of fiscal 1995.
The historical results of operations for the companies were combined and pro
forma adjustments made to present the effects of goodwill amortization and
interest expense on debt related to the acquisition:
Soligen Technologies, Inc.
Unaudited Pro Forma Condensed Summary Consolidated
Statement of Operations
1995
Revenues $ 2,328,000
Net loss $(2,015,000)
Net loss per share $ (0.09)
7. Contingent Liabilities
MIT License - Soligen and the Massachusetts Institute of Technology (MIT)
entered into an agreement under which MIT granted Soligen an exclusive license
to develop, manufacture, market and sell products utilizing technology and
processes patented by MIT in the metal casting and sanitary products fields of
use. Terms of said agreement state that Soligen must reimburse MIT for any fees
incurred by MIT for the prosecution, filing and maintenance of all patent
rights. Under the terms of the license, Soligen is required to generate the
following minimum net sales levels:
Amount of Period
Net Sales
October 1991 to October 1994 $ 1,000,000
November 1994 to October 1996 $ 2,500,000
November 1996 to October 1997 $ 7,250,000
November to October thereafter $ 15,000,000
In addition, Soligen has an obligation to pay to MIT a royalty in the amount of
4.5 percent of "Net Sales" on a quarterly basis, subject to a minimum annual
royalty of $50,000 due on December 31, 1994 and December 31 in each year
thereafter. The license provides that if Soligen fails to reach the sales
minimums or pay the obligations delineated above, such failure will be grounds
for MIT to terminate the license on 90 days' notice to Soligen.
The Company has met the requirement for minimum net sales of $1 million for the
period between November 1991 to October 1994. MIT has notified the Company that
any royalties payable under the license agreement may be applied by the Company
to the payment of the costs of defending the DTM lawsuit (see below), through
May 31, 1995.
Legal Activity - DTM - DTM Corporation (DTM) of Austin, Texas, has filed a
lawsuit against Soligen in the Western District of Texas, alleging infringement
of a United States patent (Housholder patent) of which DTM is the assignee.
Soligen was served on February 17, 1994 with notice of this action. Soligen
answered with a motion to dismiss for lack of jurisdiction, and on September 9,
1994 was notified that DTM had voluntarily dismissed the complaint in Texas, and
filed a similar action in Delaware.
In October 1994, Soligen filed a counterclaim alleging that the DTM patent is
invalid due to "prior art." In December 1994, Soligen filed a motion in
Delaware to transfer the action to California and an additional motion to recoup
court costs and attorney's fees arising from the Texas action. In January 1995,
Soligen filed a petition with the United States Patent Office for re-examination
of the Housholder patent. In March 1995, the United States Patent Office
granted Soligen's petition for re-examination of the Housholder patent.
In April 1995, Soligen signed a Memorandum of Understanding with DTM and MIT to
settle the patent infringement lawsuit and to resolve, without further
litigation by DTM, related patent disputes between DTM and MIT that impacted
both Soligen and other MIT licensees of Three Dimensional Printing (3DP-
Trademark-) technology. The settlement provides for the issuance of 50,000
shares of the Company's common stock to DTM, and an additional 50,000 shares
contingent upon the final outcome of the pending petition for re-examination of
the Housholder patent. Soligen has issued 50,000 shares and has provided
$39,000 for the contingent issuance, which is included in accounts payable and
accrued liabilities. The Company believes the accrued amount will be sufficient
to cover the costs related to this matter.
Legal Activity - A-RPM - On March 22, 1995, Altop filed an action against A-RPM
and its shareholders for breach of contract and misrepresentations related to
its June 30, 1994 Asset Purchase Agreement of A-RPM. In May 1995, A-RPM filed a
response and counter-complaint and no trial date has been scheduled.
Legal Activity - Other - The Company is involved in the normal course of its
business in various other litigation matters. Although the Company's counsel is
unable to determine at the present time whether the Company will have any
liability in any of the pending matters, the Company believes that none of the
pending matters will have an outcome material to the financial condition or
business of the Company.
8. Stock Option Plan
The Company has a stock option plan that provides for incentive and non-
incentive stock options to employees, officers, directors and consultants
responsible for the success of the Company. During fiscal 1995, the Board of
Directors increased the options available under the plan to 3,500,000 shares.
Under the Plan, incentive stock options can be granted at prices not less than
100 percent of the fair market value at the date of grant while nonqualified
options can be granted at not less than 85 percent of the fair market value at
the date of grant. Options are generally exercisable in fourths, commencing one
year after the grant date and on the second, third and fourth anniversary of the
grant date, respectively.
Stock option information with respect to the Company's stock option plan is as
follows:
[Download Table]
Common Option Aggregate
Shares Available Options Price Option
Reserved for Grant Outstanding Per share Price
March 31, 1995 3,500,000 2,253,000 1,247,000 $0.74-1.62 $1,081,000
Granted - (2,130,000) 2,130,000 0.75 1,598,000
Canceled - 15,000 (15,000) 1.62 (24,000)
--------- ---------- ---------- -------- ------------
March 31, 1996 3,500,000 138,000 3,362,000 $0.74-1.62 $2,655,000
Option granted prior to March 31, 1995 were issued in Canadian dollars at $1.00
Canadian ($0.74 U.S. at March 31, 1996) and $2.20 Canadian ($1.62 U.S. at March
31, 1996) per share. All options granted subsequent to March 31, 1995 are issued
in U.S. dollars. Of the options issued, 676,000 were exercisable at March 31,
1996.
9. Private Placements
In fiscal 1995, STI initiated a private placement of 2,390,000 units at a price
of $.50 per unit. The private placement grossed $1,195,000, net of $55,000 in
issuance costs. Each unit consisted of one common share, one-half Class "A" and
one-half Class "B" warrant.
During the year ended March 31 ,1996, STI initiated three private placements
grossing $3,528,000, net of $376,000 in issuance costs. The June 1995 private
placement of 1,090,000 units was at a price of $0.55 per unit. Each unit issued
in connection with the June 1995 private placement consisted of one common
share, one Class "C" warrant and one-fifth Class "D" warrant. The September
1995 and January 1996 private placements of 53.25 units was at a price of
$55,000 per unit. Each unit consisted of 100,000 common shares and 100,000
Class "E" warrants. Any investor who purchased in aggregate at least 20 units,
the holder received Class "G" warrants. The Class "G" warrants shall be
redeemable if the closing price of the common stock is at least $1.75 for ten
consecutive trading days. In the event of such redemption, the exercise price
for the Class "G" warrant shall be reduced to $0.95 per share. In connection
with the September 1995 and February 1996 private placements, the Company issued
533,000 Class "F" warrants to the placement agent. A summary of the common
stock purchase warrants as of March 31, 1996 is as follows:
Exercise Exercise Number
Class Price Term of Warrants
A $1.25 12 months 1,195,000
B $2.50 12 months 1,195,000
C $1.50 12 months 1,090,000
D $0.75 12 months 218,000
E $1.50 36 months 3,325,000
F $0.55 60 months 533,000
G $1.00 36 months 2,000,000
The exercise term commences the date of issuance; however, in February 1996 the
board of directors extended the exercise term for the Class "A", "B", "C" and
"D" warrants to be 12 months from the date of a S-3 filing, which is expected to
occur in July 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 17th day of June, 1996.
SOLIGEN TECHNOLOGIES, INC.
(Registrant)
By: /s/Yehoram Uziel
Yehoram Uziel, President, CEO, CFO,
Director, and Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Signature Title Date
/s/Yehoram Uziel
President, CEO, CFO, Director, June 17, 1996
Yehoram Uziel and Chairman of the Board
(principal executive officer
and principal financial officer)
/s/Walter Schulte Chief Accounting Officer June 17, 1996
Walter Schulte (principal accounting officer)
* /Dr. Mark W. Dowley Director June 17, 1996
Dr. Mark W. Dowley
* /Patrick J. Lavelle Director June 17, 1996
Patrick J. Lavelle
* /Darryl J. Yea Director June 17, 1996
Darryl J. Yea
*By: /s/Yehoram Uziel June 17, 1996
Yehoram Uziel, Attorney-in-Fact
Dates Referenced Herein and Documents Incorporated by Reference
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