-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ur7i/4/HrECfC4E49bm7uwCs+2k7RHIjk47lD+pT6WN7pX03YuuNC0PLunCqb5sy 3l3OEHnyKJkL7zjjc/fo+g== 0001017062-99-001190.txt : 19990623 0001017062-99-001190.hdr.sgml : 19990623 ACCESSION NUMBER: 0001017062-99-001190 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HELISYS INC CENTRAL INDEX KEY: 0001003641 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 954552813 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27286 FILM NUMBER: 99649606 BUSINESS ADDRESS: STREET 1: 24015 GARNIER ST CITY: TORRANCE STATE: CA ZIP: 90505 BUSINESS PHONE: 3108910600 MAIL ADDRESS: STREET 1: 24015 GARNIER STREET CITY: TORRANCE STATE: CA ZIP: 90505 10QSB 1 HELISYS, INC. - 10-QSB - 4/30/1999 U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999. [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________. Commission file number 0-27286 ------- HELISYS, INC. (exact name of small business issuer as specified in its charter) Delaware 95-4552813 (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 24015 Garnier Street, Torrance, California 90505 (Address of principal executive offices) (310) 891-0600 (Issuer's telephone number) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports 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 _____ ----- State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. Class Outstanding at April 30, 1999 ----- ----------------------------- Common Stock, $.001 par value 4,543,760 --------- Page 1 of __ Pages Exhibit Index on Page __ HELISYS, INC. INDEX TO FORM 10-QSB Part I. Financial Information Item 1. Financial Statements Balance Sheets as of July 31, 1998 (audited) and April 30, 1999 (unaudited)................................................... 3 Statements of Operations (unaudited) for the three months and the nine months ended April 30, 1998 and 1999................................ 5 Statements of Cash Flows (unaudited) for the nine months ended April 30, 1998 and 1999.......................................................... 6 Notes to Financial Statements.................................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 9 Part II. Other Information Item 1. Legal Proceedings.................................................................. 17 Item 2. Changes in Securities.............................................................. 18 Item 3. Defaults Upon Senior Securities.................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders................................ 18 Item 5. Other Information.................................................................. 19 Item 6. Exhibits and Reports on Form 8-K................................................... 19 Signatures...................................................................................... 19 Exhibit Index................................................................................... 20 Exhibits........................................................................................ 21
2 HELISYS, INC. BALANCE SHEETS
July 31, 1998 April 30, 1999 ------------- -------------- (audited) (unaudited) ASSETS Current assets: Cash and cash equivalents................................ $ 45,766 $ 114,003 Accounts receivable, net of allowance for doubtful accounts of $140,840 as of July 31, 1998, and $147,574 as of April 30, 1999.......................................... 1,414,254 286,042 Inventories.............................................. 1,417,379 1,040,396 Prepaid expenses......................................... 62,426 192,854 Other current assets..................................... 17,950 - ---------------------------------- Total current assets.................................... 2,957,775 1,633,295 ---------------------------------- Property, plant and equipment: Office furniture and equipment........................... 583,308 583,308 Machinery and equipment.................................. 669,270 678,525 ---------------------------------- 1,252,578 1,261,833 Less - Accumulated depreciation.......................... 791,412 962,302 ---------------------------------- Property, plant and equipment, net....................... 461,166 299,531 ---------------------------------- Other assets............................................... 27,365 27,365 ---------------------------------- Total $3,446,306 $1,960,191 ==================================
See accompanying notes to financial statements. 3 HELISYS, INC. BALANCE SHEETS
July 31, 1998 April 30, 1999 ------------- -------------- (audited) (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................................. $ 1,136,992 $ 1,291,495 Accrued liabilities........................................... 659,956 596,799 Customer deposits............................................. 43,722 120,467 Deferred maintenance revenues................................. 565,545 500,819 Line of credit................................................ 369,552 308,052 Note payable.................................................. 100,000 - ---------------------------------- Total current liabilities................................... 2,875,767 2,817,632 ---------------------------------- Stockholders' equity: Preferred stock, $.001 par value 5,000,000 shares authorized, 144,000 issued and outstanding............................................. 80 144 Common stock, $.001 par value Authorized 20,000,000 shares.................................. Issued and outstanding 4,042,760 and 4,543,760 shares as of July 31, 1998, and April 30, 1999, respectively............ 4,043 4,543 Additional paid-in capital.................................... 6,646,990 7,085,426 Accumulated deficit........................................... (6,080,574) (7,947,554) ---------------------------------- Total stockholders' equity.................................. 570,539 (857,441) ---------------------------------- Total $ 3,446,306 $ 1,960,191 ==================================
See accompanying notes to financial statements. 4 HELISYS, INC. STATEMENTS OF OPERATIONS (unaudited)
For the For the ------- ------- Three Months Ended Nine Months Ended ------------------ ----------------- April 30, April 30, -------- -------- 1998 1999 1998 1999 ---- ---- ---- ---- Net sales.............................................. $2,074,564 $ 898,585 $ 6,618,482 $ 5,056,360 Cost of sales.......................................... 1,531,285 842,831 4,897,670 3,587,497 ----------------------------- ---------------------------- Gross profit......................................... 543,279 55,754 1,720,812 1,468,863 ----------------------------- ---------------------------- Operating expenses: Selling, marketing, general and administrative....... 1,026,778 1,062,707 3,157,464 2,755,213 Research and development............................. 309,354 191,783 1,200,511 529,274 ----------------------------- ---------------------------- 1,336,132 1,254,490 4,357,975 3,284,487 ----------------------------- ---------------------------- Loss from operations.............................. (792,853) (1,198,736) (2,637,163) (1,815,624) ----------------------------- ---------------------------- Other income (expense): Interest and other income............................ 1,565 444 47,015 46,798 Interest and other expense........................... (151,245) (17,289) (330,530) (98,154) ----------------------------- ---------------------------- Net loss.......................................... $ (942,533) $(1,215,581) $(2,920,678) $(1,866,980) ============================= ============================ Net loss per share................................ (0.23) (0.27) (0.72) (0.44) Weighted average number of common outstanding basic and diluted 4,039,762 4,543,760 4,031,629 4,265,315 ============================= ============================
See accompanying notes to financial statements. 5 HELISYS, INC. STATEMENTS OF CASH FLOWS (unaudited)
For the ------- Nine Months Ended ----------------- April 30, -------- 1998 1999 ---- ---- Cash flows from operating activities: Net loss.................................................................. ($2,920,678) $(1,866,980) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation......................................................... 276,052 170,890 Amortization of credit facility commitment fee paid with warrants 99,200 - Amortization of deferred compensation................................ 7,571 - Net book value of equipment sold to customers........................ 72,548 - Changes in operating assets and liabilities: Accounts receivable................................................. 620,921 1,128,212 Inventories......................................................... 540,278 376,983 Income taxes receivable............................................. 578,537 - Prepaid expenses.................................................... 6,770 (130,428) Other current assets................................................ - 17,950 Other assets........................................................ 382 - Accounts payable.................................................... (158,385) 154,503 Accrued liabilities................................................. (83,016) (63,157) Customer deposits................................................... 18,302 76,745 Deferred maintenance revenues....................................... (280,944) (64,726) Deferred gross profits.............................................. (263,860) - --------------------------------- Net cash used in operating activities............................. (1,486,322) (200,008) --------------------------------- Cash flows from investing activities - Purchases of property, plant and equipment (31,232) (9,255) --------------------------------- Cash flows from financing activities: Payments on long term debt and capital lease obligations............ (32,745) - Proceeds from issuance of preferred stock and restricted stock............................................................... 500,000 439,000 Net borrowings on bank credit line................................ 838,448 (61,500) Proceeds from issuance of note payable............................ - (100,000) --------------------------------- Net cash provided by financing activities....................... 1,305,703 277,500 --------------------------------- Net increase (decrease) in cash........................................... (211,851) 68,237 Cash, beginning of period................................................. 626,976 45,766 --------------------------------- Cash and cash equivalents, end of period.................................. $ 415,125 $ 114,003 ================================= Supplemental disclosures of cash flow information: Cash paid during the period for interest.......................... $ 191,111 $ 37,598 ================================= Supplemental disclosure of non-cash financing and investing activities: Issuance of shares under employee purchase plan................... $ 5,396 - ================================= Warrants issued as commitment fee to secure credit facilities. $ 171,000 - ================================= Inventory transfers to property, plant and equipment.............. $ 67,422 - ================================= Sale of 500,000 shares of restricted stock in exchange for a note receivable............................................... - $ 39,000 =================================
See accompanying notes to financial statements. 6 HELISYS, INC. NOTES TO FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. The accompanying financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the three and the nine month periods ending April 30, 1999 are not necessarily indicative of the results that may be expected for the year ending July 31, 1999. Certain reclassifications have been made to the 1998 financial statements to conform with the 1999 presentation. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission on November 19, 1998. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. For the years ended July 31, 1996, 1997, 1998 and for the nine months ended April 30, 1999 the Company reported a net loss of $886,695, $3,031,671, $3,635,132 and $1,866,980 and negative cash flow from operations of $2,438,241, $1,826,864, $1,926,875 and $200,008, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plan to overcome these conditions include continuing cost cutting programs implemented in 1997 and 1998, which included the sale and subsequent lease-back of one-half of its corporate facilities (consummated in July 1998) and raising additional debt and equity capital to fund operations. In November 1997, to cure the covenant defaults with its Bank, the Company amended its existing Primary Facility (from $1,500,000 to $500,000) and obtained an additional line of credit facility for $500,000 (the "Secondary Facility") with the Bank. These facilities provided for maximum aggregate borrowings of $1,000,000 and were guaranteed, in part, by an investment banker. The Primary Facility was repaid in July 1998 upon the sale of the Company's building. In connection with the amendment to the credit facilities, the investment banker agreed to guarantee up to $500,000 of the line of credit facility with the bank in exchange for a five year warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $1.75 per share (which exercise price is subject to adjustment), plus $10,000 in cash. Additional consideration of 10,000 five year warrants to purchase the Company's common stock at $1.75 per share will be granted to the investment banker for each $100,000 that the 7 Company borrows under the secondary line of credit facility up to the $500,000 guaranteed. As of April 30, 1999, the Company is obligated to issue 50,000 warrants in conjunction with the borrowing of $500,000 against the line of credit facility. At April 30, 1999 the Company's borrowings under the Secondary Facility with the Bank, bearing interest at prime plus three percent (new rate effective January 19, 1999) amounted to $308,052. The Secondary Facility is collateralized by substantially all assets of the Company. Under the Facility the Company is subject to certain financial covenants. The major financial covenants include requirements for maintaining defined levels of tangible net worth and working capital, as well as various ratios, including the current ratio and the senior liabilities to tangible net worth ratio. The Company did not comply with certain financial covenants at April 30, 1999, and accordingly, is subject to a forbearance agreement with its bank for periods up to and including July 15, 1999. Monthly payments of $6,500 ($7,500 effective February 1, 1999) plus interest, commenced effective August 1, 1998. All amounts outstanding under the credit facility are classified as current at April 30, 1999. There can be no assurance that the Bank will continue to extend accommodations or an extension of such facilities will be granted or that the Company will be successful in returning to profitability, obtaining additional capital or that the capital will be sufficient to fund the Company's operations until such time as the Company is able to operate profitably. If the Company is unsuccessful in extending its agreement with the bank, in returning to profitable operations or in raising additional capital it may be unable to continue as a going concern. (2) EARNINGS (LOSS) PER COMMON SHARE - ------------------------------------ Earnings per share is computed using the weighted average number of shares outstanding and dilutive stock equivalents from the Company's stock option plan, calculated using the treasury stock method. Such common stock equivalents are excluded from the loss per share calculation as their effect is anti-dilutive for the periods ending April 30, 1998 and 1999. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which is required to be adopted for interim and annual financial statements for fiscal years ending after December 31, 1997. SFAS requires the Company to change the method currently used to compute earnings per share and to restate all prior periods. Under the requirements, primary earnings per share was replaced by basic earnings per share from which the dilutive effect of stock options is excluded. There was no impact of 8 adopting Statement No. 128 for the periods ended April 30, 1998 and 1999 due to the anti-dilutive effect of common stock equivalents during these periods. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company designs, develops, manufactures and markets rapid prototyping systems used by manufacturers, design engineering firms, universities and others to make physical models, molds, industrial patterns and prototypes directly from 3-D CAD files. The Company's systems use the Company's LOM technology to produce physical models and other three-dimensional objects used as models, or in the preliminary testing of the form, fit or function of a part, or the conversion of patterns into usable parts through secondary processes, such as sand casting and rubber molding, or in industrial pattern making and similar applications. The Company also sells sheet-form materials and other supplies used with its LOM systems. During its early years, the Company obtained government funding to conduct research and development activities relating to its Laminated Object Manufacturing ("LOM") technology process. Commencing in 1991, commercial operations were funded through the receipt of advance deposits from customers to cover the costs of manufacturing the LOM systems. More recently, the Company has funded its cash requirements primarily from cash flow from operations, bank credit lines and additional equity investments. The future growth of the Company is dependent upon market acceptance of its latest-generation rapid prototyping systems, as well as continued sales of materials and services. During fiscal year ended July 31,1997 the Company began to implement cost-cutting programs in an effort to return to profitability. Further staff reductions took place in August 1997 as the number of employees was reduced by approximately 10 percent, in March of 1998 as the number of employees was reduced again by approximately 24%, and again in September/October of 1998 as the number of employees was reduced by approximately 10%. The Company began commercial shipment of its latest-generation rapid prototyping systems, the LOM-2030H, in October of 1996. In addition, the Company commenced shipment of its latest generation LOM-1015 Plus and new plastic material in March of 1997 and new composite material in November of 1997. There can be no assurance that the sales revenue generated by the LOM-2030H or LOM 1015 Plus and existing products and services will be commensurate with current and future levels of the Company's operating expenses. The Company has experienced significant losses from operations in the three most recent fiscal years and anticipates experiencing further losses in fiscal 1999. Although the Company anticipates achieving profitable operations in the future, there can be no assurance that profitable operations will ever be achieved. The Company's ability to achieve profitable operations in the future will depend in large part on achieving significant sales of its latest- generation LOM systems. Moreover, there can be no assurance that even if the Company generates anticipated product and materials/services sales, the Company will not continue to 9 incur losses from operations. The likelihood of the long-term success of the Company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new products and competitive factors in the marketplace. The Company used cash of approximately $200,000 in operations during the nine months ended April 30, 1999, which was a significant improvement over the nine months ended April 30, 1998 when approximately $1,500,000 in cash was used for operations. While the Company expects sales of its existing products and its latest-generation LOM systems to support current and future levels of research and development and other expenses, there can be no assurance that the Company will achieve such sales levels. The Company sold 80,000 shares of the Company's Convertible Series A preferred stock, $.001 par value ("Preferred Stock"), to an investment banker for $500,000 in November 1997 and 64,000 shares of the Company's Preferred Stock to investors for $400,000 in September 1998. Purchasers of the Preferred Stock in the September 1998 transaction also received warrants to purchase 800,000 shares of the Company's Common Stock at a purchase price of $0.35 per share. Pursuant to this transaction, each share of the Preferred Stock issued (including the 80,000 shares of Series A Preferred Stock issued to the investment banker in November 1997) is convertible into 25 shares of the Company's Common Stock. Each holder of Preferred Stock is entitled to a number of votes equal to five times the number of shares of Common Stock into which each share of the Preferred Stock is convertible. The number of votes that the holders of the Preferred Stock are entitled decreases as the share price of the Company's Common Stock increases. The documents evidencing this transaction, including the Certificate which details the voting rights of the holders of the Preferred Stock, are attached to the Schedule 13D filed by Telantis Venture Partners V, Inc. and Robert F. Meyerson on September 24, 1998. This transaction was disclosed on Form 8-K filed October 9, 1998, which is incorporated by reference herein. In addition, 500,000 shares of restricted common stock were sold to the Company's president in December 1998 in exchange for a $39,000 note. If the Company is unable to generate sufficient sales or to reduce expenses to match its sales levels, the Company will require additional debt or equity financing to continue operations. There can be no assurance that the Company will be able to obtain such financing or obtain such financing on terms acceptable to the Company. RESULTS OF OPERATIONS Net Sales. The Company's gross sales include sales of LOM systems, materials used in the LOM process, and services, which consist primarily of contracts for the repair and maintenance of installed LOM systems. Net sales consist of gross sales less the amount of discounts, returns and allowances, plus any income in excess of costs incurred on research and development grants. Net sales for the three months ended April 30, 1999 and 1998 were approximately $899,000 and $2,075,000, respectively, a decrease of approximately $1,176,000 or 57%. The reduction in net sales for the three months ended April 30,1999, compared to the same period in the prior year, resulted from reduced sales volume in all product lines. The primary factor was the decreased unit sales of LOM 10 systems, a total of 2 units in the current period compared to 11 in the same period last year, and the corresponding reduction in initial supply packages and continuous sales of supplies associated with new system sales. Also, contributing to reduced materials revenue was aggressive paper pricing by the materials market competitor. Net sales for the nine months ended April 30, 1999 and 1998 were approximately $5,056,000 and $6,618,000, respectively, which was a decrease of approximately $1,562,000, or 24%. The decrease in net sales for the nine-month period ending April 30, 1999, compared to the same period last year, was due to reduced LOM system sales, 26 units in the current year compared to 39 units in the prior year. The decrease in net sales was also the effect of, although to a lesser extent, reduced service revenue from warranty non-renewals and decreased warranty sales from reduced LOM system sales in prior years. For the nine months ended April 30, 1999, sales of materials and services amounted to approximately $2,069,000 as compared to $2,544,000 for the nine months ended April 30, 1998. Nine months LOM systems revenues for the periods ending April 30, 1999 and April 30, 1998 were approximately $ 2,987,000 and $4,074,000, respectively. Product Mix Percentages: - ------------------------ Nine Months Ended ------------------------------- April 30, 1998 April 30, 1999 -------------- -------------- LOM Systems 61.6% 59.1% Materials and Service 38.4% 40.9% LOM System Units Sold During the - -------------------------------- Periods Indicated: - ------------------ LOM 1015Plus's LOM 2030H's -------------- ----------- Three Months ended April 30, 1998 7 4 Three Months ended April 30, 1999 1 1 Nine Months ended April 30, 1998 18 21 Nine Months ended April 30, 1999 15 11 Gross Profit. Cost of sales consists primarily of the costs of labor, raw materials and overhead used in the production of the Company's rapid prototyping systems. Gross profit for the three months ended April 30, 1999 was approximately $56,000, a decrease of approximately $488,000, or 90%, compared to gross profit of approximately $543,000 for the three months ended April 30, 1998. Gross profit as a percentage of net sales decreased to 6.2% for the three months ended April 30, 1999, compared to 26.2% for the three months ended April 30, 1998. The reduction in gross profit for the three months ended April 30, 1999, compared to the three months ended April 30, 1998, was the result of production inefficiencies caused by reduced LOM system demand, and unfavorable inventory adjustments to on-hand quantities resulting from cycle count procedures. 11 Gross profit for the nine months ended April 30, 1999 was approximately $1,469,000, a decrease of approximately $252,000, or 15%, compared to gross profit of approximately $1,721,000 for the nine months ended April 30, 1998. Gross profit as a percentage of sales increased to 29% for the nine months ended April 30, 1999, compared to 26% for the nine months ended April 30, 1998. The increase in gross profit percent for the nine months ended April 30, 1999, compared to the same period ending April 30, 1998, was the results of increased margins resulting from selling price increases announced in May 1998, somewhat offset by production inefficiencies and unfavorable inventory adjustments realized during the three months ended April 30, 1999. Selling, Marketing, General and Administrative Expense. Selling, marketing, general and administrative expense consists primarily of commissions, sales and administrative salaries, office expenses and general overhead. Selling, marketing, and general and administrative expense for the three months ended April 30, 1999 was approximately $1,063,000, an increase of approximately $36,000, or 3%, compared to approximately $1,027,000 for the three months ended April 30, 1998. The increase in selling, marketing, and general administrative expenses for the three months ended April 30, 1999, compared to the prior year, was primarily due to the investment in new niche marketing initiatives in the domestic and international marketplace, and legal fees for international patent protection and review. Selling, marketing, general and administrative expense for the nine months ended April 30, 1999 was approximately $2,755,000, a decrease of approximately $402,000, or 13%, compared to approximately $3,157,000 for the nine months ended April 30, 1998. The significant decrease in selling, marketing, and general and administrative expenses for the nine months ended April 30, 1999, compared to the same period last year, was due to the elimination of the domestic sales staff in September and October 1998, and the curtailment of certain industry trade shows. The Company expects to continue its investment in marketing over the next six to nine months. Research and Development Expense. Research and development expense consists of engineering costs incurred in the development and enhancement of LOM systems and new materials research. Research and development expense also includes costs expended to secure government grants, which the Company uses to subsidize certain research activities. To the extent that grants are awarded to the Company, the costs incurred in performing the grant are offset by income received from the grant. Research and development expense for the three months ended April 30, 1999 was approximately $192,000, a decrease of approximately $118,000, or 38%, compared to approximately $309,000 for the three months ended April 30, 1998. Research and development expense for the nine months ended April 30, 1999 was approximately $529,000, a decrease of approximately $671,000, or 56%, compared to approximately $1,201,000 for the nine months ended April 30, 1998. The decreases in research and development expenses were primarily attributable to engineering staff and related expense level reductions associated with the overall staff reductions made in August 1997 and March 1998. 12 Loss from Operations. Loss from operations for the three months ended April 30, 1999 was approximately $1,199,000, compared to a loss of approximately $793,000 for the three months ended April 30, 1998. Loss from operations for the nine months ended April 30, 1999 was approximately $1,816,000, as compared to the loss from operations for the nine months ended April 30, 1998 of approximately $2,637,000. Interest and Other Expense. Interest and other expense for the three months ended April 30, 1999 was approximately $17,000, compared to approximately $151,000 for the three months ended April 30, 1998. Interest and other expense for the nine months ended April 30, 1999 was approximately $98,000, compared to approximately $331,000 for the nine months ended April 30, 1998. The decrease in interest and other expense for the three and nine month periods ending April 30, 1999, compared to the same periods in the prior year, was due to reduced interest rates from declining debt and the complete amortization of costs incurred with the issuance of warrants in the nine months ended April 30, 1998. Benefit for Income Tax. There was no tax provision or benefit from income taxes recorded for the periods presented. No benefit was provided due to the limited remaining available loss carryback and the uncertainty of realizing loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES The Company used cash of approximately $200,000 in operations during the nine months ended April 30, 1999, and used cash from operating activities of approximately $1,486,000 for the nine months ended April 30, 1998. These operating cash flow changes are consistent with the operating losses incurred by the Company, as well as changes in sales along with changes in accounts receivable, inventories and accounts payable. Cash and cash equivalents increased from approximately $46,000 at July 31, 1998 to approximately $114,000 at April 30, 1999 due, in part, to changes in collection procedures which incorporated letter of credit payments, 20% down payments, and balances due, in some cases, prior to shipment. In addition, inventories have been reduced significantly (balance was approximately $1,417,000 at July 31, 1998, compared to approximately $1,040,000 at April 30, 1999) due to a combination of unit sales and the curtailment of manufacturing in anticipation of projected backlogs. The Company had negative working capital of approximately $1,184,000 at April 30, 1999. The decrease was due to the net loss of approximately $1,867,000 realized during the nine months ended April 30, 1999. The Company used cash of approximately $9,000 and $31,000 in investing activities (which includes purchases of property, plant and equipment) during the nine months ended April 30, 1999 and 1998, respectively. 13 There can be no assurance that the Company will be successful in returning to profitability or obtaining additional capital or that capital raised will be sufficient to fund the Company's operations until such time that the Company is able to operate profitably. If the Company is unsuccessful in returning to profitable operations or in raising additional capital it may be unable to continue as a going concern. The Company believes that the funds from operations and equity investments will be sufficient to meet its capital needs for existing operations and future anticipated growth of the Company for the next 3 to 6 months. To the extent that such amounts are insufficient to finance the Company's working capital requirements, the Company will be required to raise additional funds through public or private equity or debt financing. There can be no assurance that such additional financing will be available, if needed, or, if available, will be on terms satisfactory to the Company. Significant additional dilution may be incurred by investors in this offering as a result of additional financing. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." The statement was effective for interim periods and fiscal years ending after December 15, 1997. The implementation of this statement by the Company did not have a material effect on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting for Comprehensive Income" and No. 131 "Disclosure about Segments of an Enterprise and Related Information," in June 1997. These statements are effective for financial statements issued for periods beginning after December 15, 1997. The Company has not yet analyzed the impact of adopting these statements. FORWARD-LOOKING STATEMENTS This 10-QSB report contains forward-looking statements that involve risk and uncertainties. As discussed below in "Certain Factors That May Affect The Company's Business and Future Results" and in the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission on November 19, 1998, and other periodic filings with the Securities and Exchange Commission, the Company's future operating results are uncertain and may be impacted by the following factors, among others: uncertainty of market acceptance of the Company's products and services, including the LOM 2030H and LOM 1015Plus and uncertainty of the introduction and acceptance of the Company's plastic and composite materials, potential development of similar products by competitors, and potential future capital requirements and uncertainty of additional funding. 14 CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE RESULTS Operating Losses; Future Profitability and Liquidity Uncertain. The Company has experienced significant losses from operations in the most recent fiscal year and during the nine months ended April 30, 1999 and anticipates experiencing further losses in fiscal 1999. Although the Company anticipates achieving profitable operations in the future, there can be no assurance that profitable operations will ever be achieved. The Company's ability to achieve profitable operations in the future will depend in large part on achieving significant sales of its latest-generation LOM systems, materials and service. There can be no assurance that, even if the Company generates anticipated product and service sales, the Company will not continue to incur losses from operations. The likelihood of long-term success of the Company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new products and competitive factors in the marketplace. The Company used cash of approximately $1,927,000 in operations in fiscal 1998 and $200,000 during the nine months ended April 30, 1999. While the Company expects sales of its existing products and latest-generation LOM systems to support current and future levels of research and development and other expenses, there can be no assurance that the Company will achieve such sales levels. In addition, the Company is obligated to pay $308,052 under its existing line of credit with Comerica Bank. If the Company is unable to generate sufficient sales or to reduce expenses to enable it to repay such amount, the Company will require additional debt or equity financing to continue operations. There can be no assurance that the Company will be able to obtain such financing or obtain financing on terms acceptable to the Company. Quarterly Results of Operations. The Company's quarterly operating results may fluctuate significantly due to a variety of factors, including changes in the Company's sales and customer mix, delays in shipping new systems, the introduction of new products and new product enhancements by the Company or its competitors, pricing pressures, increases in expenditures relating to pursuing the Company's business strategies, general economic conditions and other factors. Due to the sales pricing of the LOM systems and the long sales cycle for the products, quarterly results may be adversely affected if orders are not received and shipped prior to the end of the forecasted quarter. The Company will also continue to incur product development, marketing and promotional expenses based upon management's expectations as to future sales. Since many of these expenses are committed in advance, the Company generally is unable to adjust spending in a timely manner to compensate for any unexpected shortfall in sales. If operating revenues do not meet the Company's expectations in any given quarter, operating results may be adversely affected. There can be no assurance that the Company will be profitable in a given quarter. 15 Emerging Nature of the Rapid Prototyping Industry; Reliance on a Single Product Line. The rapid prototyping industry is an emerging industry, and the Company believes that the development and future growth of the rapid prototyping industry will relate to the general trend of increased automation of product design and manufacturing processes, including the expanded use of 3-D CAD. There can be no assurance that the rapid prototyping industry otherwise will continue to develop and grow. Product Reliability, Ongoing Technical Changes. Although the LOM technology utilized in the Company's systems has been in development since 1985, until recently there has been only limited commercial use of LOM technology in rapid prototyping applications. In this respect, certain of the customers experienced past performance problems with the Company's first generation LOM systems, which from time to time did not perform to the Company's specifications. The Company believes that it has identified all of these problems and that the LOM systems currently being marketed by the Company meet applicable product specifications. However, no assurance can be given that new problems will not be identified by customers or that any such problems could be adequately addressed by the Company in a timely manner. There can be no assurance, therefore, that the Company's customers will not make claims against the Company arising from dissatisfaction with the performance of the Company's LOM systems. In the first quarter of the fiscal year ending July 31, 1997, the Company commenced sales of the latest generation of LOM 2030 systems, which the Company believed adequately addressed certain performance problems associated with the first generation LOM systems and represented significant improvements in overall product performance and reliability. There can be no assurance, however, that the Company's latest generation LOM systems will not experience similar performance or reliability problems. In addition, the Company is unable to predict what effect the problems associated with its first generation LOM systems will have on the Company's efforts to market and sell its latest generation LOM systems. The immediate prospects for future growth are dependent on the market acceptance of its latest-generation rapid prototyping systems. Dependency on Proprietary Technology. The Company's ability to compete in the market for rapid prototyping products is dependent significantly on its ability to protect its proprietary technology. The Company seeks to protect its proprietary technology through a combination of patents, copyrights, trade secrets, proprietary know how, confidentiality agreements and ongoing development of new products, features and designs. Any finding that the patent claims with respect to the Company's LOM process are invalid could have a material adverse effect on the business and the prospects of the Company. An invalidation of the patent claims relating to the Company's LOM process would not, however, affect the other claims in the United States patents relating to the LOM systems. The laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do laws of the United States. The Company could incur substantial costs in 16 seeking enforcement of its proprietary rights against infringement or the unauthorized use of its proprietary technology by others or in defending itself against similar claims of others. Insofar as the Company relies on trade secrets and proprietary know-how to maintain its competitive position, there can be no assurance that others may not independently develop similar or superior technologies or gain access to the Company's trade secrets or know-how. YEAR 2000 ISSUE The Company is currently in the process of addressing a potential problem that is facing all users of automated information systems. This problem is commonly known as the "Year 2000" or "Y2K" problem and results from the use of two digits rather than four digits to identify a year in the date field in many computer software and hardware systems. As a result, certain date-sensitive software does not recognize "00" as 2000, and may produce errors in information or systems failures. The Company relies on its internal computer systems in financial systems (such as general ledger, accounts payable, accounts receivable, inventory and order management), customer services, infrastructure and network and telecommunication equipment. The Company is currently in the process of conducting a comprehensive review of its internal systems and, at the present time, does not believe that the Year 2000 problem will pose significant operational problems for the Company. The Company currently estimates that its costs associated with Year 2000 compliance, including any costs associated with the consequences of incomplete or untimely resolution of Year 2000 compliance issues, are not material to the Company's business, its financial condition or results of operations. However, the Company cannot be sure that it has fully identified the impact of the Year 2000 problem on the Company's internal systems and has not concluded that it can resolve all of the issues that may arise in connection with the Year 2000 problem without disruption of its business or without incurring significant expense. At a minimum, the Company estimates that the software necessary to resolve certain Year 2000 problems associated with the Company's internal systems will cost at least between $60,000 and $75,000. Even if the Company's internal systems are not materially affected by the Year 2000 problem, the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. The Company is therefore in the process of assessing possible effects on the Company's operations with respect to the Year 2000 readiness of customers, suppliers, creditors, financial organizations and domestic and international governments on which the Company directly and indirectly relies. The Company's reliance on the enterprises, and therefore, on the proper functioning of their information and computer systems, means that failure by these enterprises to address their potential Year 2000 problems could have a material adverse impact on the Company's operations. The potential impact and related costs of such failures are not known at this time. PART II. OTHER INFORMATION Item 1. Legal Proceedings. 17 The Company is, from time to time, involved in routine litigation. In the opinion of management, no such routine litigation in which the Company is presently involved is material to its financial position, results of operations, or liquidity. Item 2. Changes in Securities. On September 14, 1998, the Company sold 64,000 shares of the Company's Preferred Stock to investors for $400,000. The investors in the transaction were Telantis Venture Partners V, Inc. and Visalia Trust (collectively, the "Purchasers"). In addition to receiving the shares of Preferred Stock in the transaction, the Purchasers received warrants to purchase an aggregate of 800,000 shares of the Company's Common Stock at a purchase price of $0.35 per share (the "Warrants"). The sale of the Preferred Stock and the Warranty was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended ("Securities Act") on the basis that such transaction met the requirements of Rule 506 of Regulation D of the Securities Act. Each share of the Preferred Stock (including the 80,000 shares of Preferred Stock issued to the investment banker in November 1997) is convertible into 25 shares of the Company's Common Stock, and each holder of Preferred Stock is entitled to a number of votes equal to five times the number of shares of Common Stock into which each share of the Preferred Stock is convertible. The number of votes that the holders of the Preferred Stock are entitled decreases as the share price of the Company's Common Stock increases. The documents evidencing this transaction, including the Certificate which details the voting rights of the holders of the Preferred Stock, are attached to the Schedule 13D filed by Telantis and Robert F. Meyerson on September 24,1998. The transaction was also disclosed on the Company's Current Report on Form 8-K filed October 9, 1998, which is incorporated by reference herein. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. On January 29, 1999, the Company held its Annual Meeting of Stockholders. At the Annual Meeting, the following matters were considered and voted upon: (1) The election of four (4) directors to serve until the next Annual Meeting or until their successors are elected and duly qualified (Proposal 1); and 18 (2) The approval of an amendment to the Company's 1999 Stock Incentive Plan to increase the authorized number of shares of Common Stock issuable thereunder from 900,000 to 1,500,000 (Proposal 2). The directors elected at the meeting, who compose all of the directors of the Company, were Michael Feygin, Gary Moskovitz, Robert D. Crangle and Gregory J. Chambers. The votes cast for the election of Michael Feygin, Robert Crangle and Gregory J. Chambers were 1,347,697, with 55,850 votes abstaining and -0- votes against. The votes cast for the election of Gary Moskovitz as a director of the Company were 1,344,597, with 58,950 votes abstaining and -0- votes against. The votes cast for the approval of Proposal 2 (amendment to the Company's 1995 Stock Incentive Plan) were 250,505, with 67,600 votes against the approval, 2,000 votes abstaining and 1,083,442 broker non-votes. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits See Exhibit Index on Page 20. (b) Reports on Form 8-K The Company filed no reports on Form 8-K for the quarter ended April 30, 1999. 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. HELISYS, INC. Date: June 18, 1999 By: /s/ E. Gilbert Leon, Jr. ------------------------- E. Gilbert Leon, Jr. Vice President, Finance and Administration 19 Exhibit Index Exhibit Page Number Description Number - ------ ----------- ------ 27.1 Financial Data Schedule 21 20 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS 9-MOS JUL-31-1999 JUL-31-1999 FEB-01-1999 AUG-01-1999 APR-30-1999 APR-30-1999 0 114,003 0 0 0 433,616 0 147,574 0 1,040,396 0 1,633,295 0 1,261,833 0 962,302 0 1,960,191 0 2,817,632 0 0 0 0 0 144 0 4,543 0 (862,128) 0 1,960,191 898,585 5,056,360 898,585 5,056,360 842,831 3,587,497 842,831 3,587,497 1,254,490 3,284,487 0 0 9,132 37,598 (1,215,581) (1,866,980) 0 0 (1,215,581) (1,866,980) 0 0 0 0 0 0 (1,215,581) (1,866,980) 0 0 0 0
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