-----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, HraMBXzLAO/Tw62y2Aw/h0pwuu0LBWl3lfCGxJuJ/nMpUTMn653uYb2SttcO0Uiz ccg7Sn4nMmNdEBGBsEY8xA== 0000737955-96-000003.txt : 19961204 0000737955-96-000003.hdr.sgml : 19961204 ACCESSION NUMBER: 0000737955-96-000003 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961203 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SGI INTERNATIONAL CENTRAL INDEX KEY: 0000737955 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 330119035 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16675 FILM NUMBER: 96675227 BUSINESS ADDRESS: STREET 1: 1200 PROSPECT ST STE 325 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 6195511090 FORMER COMPANY: FORMER CONFORMED NAME: VISION DEVELOPMENT INC DATE OF NAME CHANGE: 19850807 10-Q/A 1 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [ X ]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1996 or [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 2-93124 SGI International (Exact name of registrant as specified in its charter) Utah (State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.) 33-0119035 1200 Prospect Street, Suite 325, La Jolla, California 92037 (Address of principal executive offices) (619) 551-1090 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No The number of shares of Common Stock, no par value, outstanding as of October 29,1996 was 6,081,827. TABLE OF CONTENTS FORM 10-Q/A PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statement of Stockholders' Equity (Deficit) Condensed Consolidated Statements of Cash Flows Notes to Condensed Consolidated Financial Statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION SIGNATURES SGI INTERNATIONAL CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 (Unaudited) Assets Current assets: Cash $ 1,222,291 $ 74,154 Trade accounts receivable 772,443 341,352 Costs and estimated earnings in excess of billings on uncompleted contracts 62,168 271,448 Inventories 82,007 68,289 Other current assets 65,375 114,143 Total current assets 2,204,284 869,386 LFC Process related assets: Notes receivable 1,429,903 1,123,948 Royalty rights 1,964,063 2,199,750 LFC Cogeneration project 552,742 631,705 Investment in TEK-KOL Partnership 507,656 596,276 Australia LFC project 152,035 173,754 Other technological assets 27,742 26,440 Process demonstration equipment - 153,781 4,634,141 4,905,654 Property and equipment 298,948 249,328 Goodwil 443,369 479,318 Other assets 12,876 $ 7,580,742 $ 6,516,562 See notes to condensed consolidated financial statements.
SGI INTERNATIONAL CONSOLIDATED BALANCE SHEETS
September 30, December 31, , 1996 1995 (Unaudited) Liabilities and stockholders' equity (deficit) Currentliabilities: Accounts payable $ 685,735 $ 683,583 Billings in excess of cost and estimated earnings on uncompleted contracts 315,030 175,745 Current maturities of long-term notes payable 4,442,500 909,016 Notes payable to Director - 304,000 Accrued salaries, benefits and related taxes 236,732 279,103 Royalties payable to related party - 141,790 Contributions payable to TEK-KOL - 336,476 Interest payable 543,933 139,663 Other accrued expenses 269,740 269,089 Total current liabilities 6,493,670 3,238,465 Interest payable - 276,425 Long-term notes payable, less current maturities 126,125 4,631,250 Commitments and contingencies Stockholders' equity (deficit) Covertible preferred stock 862 1,037 Common stock 35,978,748 32,255,357 Paid-in capital 6,464,518 4,582,215 Acccumulated deficit (41,369,275) (38,159,764) Notes receivable from employees (113,906) (308,423) Total stockholders' equity (deficit) 960,947 (1,629,578) $ 7,580,742 $ 6,516,562 See notes to condensed consolidated financial statements.
SGIINTERNATIONAL CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended September 30, Nine months ended September 30, 1996 1995 1996 1995 Revenues: Net sales 659,471 - 2,906,415 - Other 55,714 242 278,234 33,819 715,185 242 3,184,649 33,819 Cost and expenses: Cost of sales 805,086 -- 2,551,285 -- Research and development 273,720 179,439 531,054 1,294,508 Loss on investment in TEK-KOL 272,098 -- 219,120 -- Selling, general and administrative 499,661 637,647 1,497,365 1,224,573 Legal and accounting 147,557 131,600 760,722 483,859 Depreciation and amortization 127,803 1,820,971 436,855 2,323,577 Interest 154,374 293,890 397,759 768,573 2,280,299 3,063,547 6,394,160 6,095,090 Net loss $(1,565,114)$(3,063,305) $(3,209,511) $(6,061,271) Net loss per share $ (0.27) $ (1.03) $ (0.63) $ (2.41) Average common shares 5,829,019 2,969,233 5,115,776 2,510,031 See notes to condensed consolidated financial statements.
SGI INTERNATIONAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
Convertible preferred stock Common stock Shares Amount Shares Amount Balances at December 31, 1995 103,729 $1,037 3,859,671 $32,255,357 Issuance of common stock for cash 1,579,059 2,834,160 Issuance of common stock for notes payable interest and services 566,489 651,166 Conversion of convertible preferred stock into common stock (17,581) (176) 26,120 238,065 Issuance of convertible preferred stock for notes payable, interest and other liabilities 102 1 Redemption of convertible preferred stock (1) -- Warrants granted for accounts payable, notes payable, interest and services Compensation expense related to warrants exercised for notes receivable Collection of notes receivable Net loss Balances at September 30, 1996 $ 86,249 $ 862 6,031,339 $ 35,978,748 Total Paid-in Accumulated Notes stockholders capital deficit receivable equity (deficit) Balances at December 31, 1995 $4,582,215 $(38,159,764) $(308,423) $(1,629,578) Issuance of common stock for cash 2,834,160 Issuance of common stock for notes payable, interest and services 651,166 Conversion of convertible preferred stock into common stock (235,829) 2,060 Issuance of convertible preferred stock for notes payable, interest and other liabilities 1,543,646 1,543,647 Redemption of convertible preferred stock (41,222) (41,222) Warrants granted for accounts payable, notes payable, interest and services 141,603 141,603 Compensation expense related to warrants exercised for notes receivable 474,105 474,105 Collection of notes receivable 194,517 194,517 Net loss (3,209,511) (3,209,511) Balances at September 30, 1996 $6,464,518 $(41,369,275) $(113,906) $960,947 See notes to condensed consolidated financial statements.
SGI INTERNATIONAL CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, 1996 1995 Operating activities Net loss (3,209,511) (6,061,271) Adjustments to reconcile net loss to net cash flows used for operating activities: Depreciation and amortization 511,189 755,556 Write-down of LFC Process related assets - 1,568,021 Amortiztion of note discounts - 119,011 Equity issued for interest, services and notes receivable 710,800 231,000 Changes in assets and liabilities: Receivable from joint venture partner - 45,823 Trade accounts receivable (221,811) - Inventories (13,718) - Receivable from officers and directors - 396,961 Other current assets 48,768 84,451 Accounts payable 2,152 (21,852) Billings in excess of costs and estimated earnings uncompleted contracts 139,285 - Accrued salaries, benefits and related taxes (42,371) (35,634) Royalty payable to related party (141,790) (100,564) Contribution payable to TEK-KOL (236,476) - Interest payable n 127,845 142,856 Other accrued expenses 651 222,395 Net cash flows used for operating activities (2,324,987) (2,653,247) Investing activities LFC process related assets: Collectin of notes receivable and interest 400,000 137,561 Additions to other technological assets (1,302) (33,183) Additions to process demonstration equipment - (31,512) Investment in TEK-KOL 88,620 (122,000) Purchase of property and equipment (134,710) 48,930 Other assets 12,876 - Redemption of preferred stock (41,222) - Net cash flows provided by (used for) investing activities 324,262 (204) Financing activities Proceeds from issuance of note payable 215,000 699,286 Payments of notes payable (96,875) (536,025) Proceeds from issuance of preferred stock - 1,113,942 Proceeds from issuance of common stock 2,836,220 893,990 Collection of notes receivable 194,517 - Net cash flows provided by financing activities 3,148,862 2,171,193 Net increase (decrease) in cash 1,148,137 (482,258) Cash at beginning of period 74,154 551,299 Cash at end of period 1,222,291 69,041 See notes to condensed consolidated financial statements.
SGI International Notes to Condensed Consolidated Financial Statements September 30, 1996 (Unaudited) (1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of SGI International (the Company) for the three and nine months ended September 30, 1996 and 1995 are unaudited. These financialstatements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the consolidated financial position as of September 30, 1996, and the consolidated results of operations for the three and nine months ended September 30, 1996 and 1995. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. For more complete financial information, these financial statements, and the notes thereto, should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 1995 included in the Company's Form 10-K filed with the Securities and Exchange Commission. (2) ORGANIZATION AND BUSINESS The principal businesses of the Company are developing, commercializing, and licensing new energy technologies; and manufacturing automated assembly equipment. The Company's principal assets are related to the LFC (Liquid From Coal) Process. The recovery of these assets is dependent upon future events, including the Company's ability to attract sufficient additional financing needed to fund its portion of the TEK-KOL Partnership, which is responsible for completion and commercialization of the LFC Process. The Company is engaged in continuing negotiations to secure additional capital and financing, and while management believes these negotiations will be successful, there is no assurance thereof. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Projections and Estimates The projections, estimates and opinions of management contained herein relative to the LFC and OCET Processes and to the business of the Company are forward looking statements of management's belief; thus, there can be no assurance that these projections, estimates, or opinions of management will ultimately be correct or that actual results or events will not differ materially from those discussed herein. Further, until agreements are actually executed, LFC plants actually begin construction, the OCET Process is actually commercialized and operating revenues are actually earned, there can be no assurance that such events will occur. The Company undertakes no obligation to publicly release the results of any revisions to these forwardlooking statements, which are made herein, to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Overview The Company reported stockholders' deficits at December 31, 1995 and March 31, 1996 of $ 1.6 million and $1.0 million, respectively. The Company reported stockholders' equity of $1.0 million at September 30, 1996. The improvement of stockholders' equity results from equity sales for cash, and conversion of notes payable, accrued expenses and other liabilities into equity. After excluding AMS's operations, the Company's net loss on a comparative basis for the three and nine month periods ended September 30, 1996 has decreased 58% and 49%, respectively, compared to the same prior year periods. Management believes the financial condition of the Company has improved and will continue to improve in the coming months. Many challenges are ahead as TEK-KOL, Mitsubishi Heavy Industries, Mitsui, Ziegler and the Company commercialize the LFC process. Expenditures for OCET process development are continuing and are expected to increase. The OCET process has been demonstrated in laboratory experiments for a variety of California resids, showing how the distillate yield depends on the resid properties. Venezuelan material is also being tested to determine its separation characteristics. Laboratory work is underway to optimize the process steps for resid derived from the larger petroleum fields, as well as to characterize the OCET products as a function of the processing parameters. This information will be necessary to design a refinery-scale system, capable of processing resids from various crude sources while generating the most valuable final products from the resid. To reach the commercialization stage, a series of demonstration unitsof increasing scale are under development. The continuing need to fund Company operations with equity based financing is causing dilution. Management is committed to accelerating commercialization of the LFC and OCET technologies and increasing cash flows from AMS's operations so that equity-based financing can be minimized. The report of the Company's independent auditors for the year ended December 31, 1995 contains an emphasis paragraph as to the Company's ability to continue as a going concern. As discussed in Liquidity and Capital Resources, the Company has short-term and long-term liquidity deficiencies. The Company's ability to continue as a going concern is dependent upon successful financing of its immediate working capital requirements and successful commercialization of the LFC and OCET technologies. The Company is engaged in license marketing activities and negotiations to secure additional financing. If immediate working capital requirements are not successfully financed and/or the LFC and OCET technologies cannot be successfully commercialized, then the adverse impact on the business and operations of the Company could be material. Results of Operations Three months ended September 30, 1996 compared to Three months ended September 30, 1995. The Company acquired AMS effective October 30, 1995. AMS recorded net sales, cost of sales, selling, general and administrative expense and other income of $659,000, $805,000,$160,000 and $34,000, respectively, for the three months ended September 30, 1996. The following discussion does not include AMS's results of operations for that period. The Company's net loss for the three months ended September 30, 1996 decreased 58% ($1.8 million) compared to the same prior year period. Components of the decrease in net loss are discussed below. Research and development expenses for the three months ended September 30, 1996 increased 53% ($94,000) from the same prior year period. The increase relates to efforts expended to develop the OCET process. General and administrative expense for the three months ended September 30, 1996 decreased 47% ($298,000) from the same prior year period. Personnel and overhead reductions, instituted during the last two quarters of 1995, have caused on-going general and administrative expenses to decrease. Depreciation and amortization expense for the three months ended September 30, 1996 decreased 93% ($1.7 million) from the same prior year period. Certain LFC process related assets were written down in 1995 based on management's net realizable value estimates. The 1995 write-downs cause depreciation and amortization expense to be lower in future periods. Interest expense for the three months ended September 30, 1996 decreased 47% ($138,000) from the same prior year period. The conversion of debt into equity during 1995 and 1996, and prior recognition of note discount amortization, have caused interest expense to decrease. Nine months ended September 30, 1996 compared to Nine months ended September 30, 1995. The Company acquired AMS effective October 30, 1995. AMS recorded net sales, cost of sales, selling, general and administrative expense and other income of $2.9 million, $2.6 million, $564,000 and $110,000, respectively, for the nine months ended September 30, 1996. The following discussion does not include AMS's results of operations for that period. The Company's net loss for the nine months ended September 30, 1996 decreased 49% ($2.9 million) compared to the same prior year period. Components of the decrease in net loss are discussed below. Research and development expenses for the nine months ended September 30, 1996 decreased 59% ($763,000) from the same prior year period. SGI previously incurred LFC process marketing and candidate coal testing expenditures which are now TEK-KOL's responsibility. On-going research and development expenses relate to OCET process development. General and administrative expense for the nine months ended September 30, 1996 decreased 24% ($291,000) from the same prior year period. After adjusting for a 1996 non-cash stock compensation charge of $158,000, on-going general and administrative expense decreased 37% ($449,000). Personnel and overhead reductions, instituted during the last two quarters of 1995, have caused on-going general and administrative expenses to decrease. Legal and accounting expense for the nine months ended September 30, 1996 increased 57% ($277,000) over the same prior year period. After adjusting for a 1996 non-cash stock compensation charge of $316,000, on-going legal and accounting expense for the nine months ended September 30, 1996 decreased 8% ($39,000). Depreciation and amortization expense for the nine months ended September 30, 1996 decreased 81% ($1.9 million) from the same prior year period. Certain LFC process related assets were written down in 1995 based on management's net realizable value estimates. The 1995 write-downs cause depreciation and amortization expense to be lower in future periods. Interest expense for the nine months ended September 30, 1996 decreased 48% ($370,000) from the same prior year period. The conversion of debt into equity during 1995 and 1996, and prior recognition of note discount amortization, have caused interest expense to decrease. Liquidity and Capital Resources The Company acquired AMS effective October 30, 1995. The discussion on Liquidity and Capital Resources includes the effect of this transaction unless otherwise indicated. As of September 30, 1996, the Company had current assets totaling $2.2 million, including cash of $1.2 million, and a working capital deficit of $4.3 million. The Company anticipates continued operating losses over at least the next twelve months and has both short-term and long-term liquidity deficiencies as of September 30, 1996. Short-term liquidity requirements are expected to be satisfied from existing cash balances, proceeds from the sale of equity securities and proceeds from joint venture agreements. In the event that the Company is unable to finance operations at the current level, various administrative activities would be curtailed and certain research efforts would be reduced. The Company will not be able to sustain operations if it is unsuccessful in securing sufficient financing and/or generating revenues from operations. The Company's financing activities raised approximately $3.2 million and $2.7 million during the nine months ended September 30, 1996 and 1995, respectively. These funds were raised primarily through the private placement of debt and equity securities. The amount of money raised during a given period is dependent upon financial market conditions, technological progress, and the Company's projected funding requirements. The Company anticipates that future financing activities will be influenced by the aforementioned factors. Significant future financing activities will be required to fund future operating and investing activities and to maintain debt service. The Company is engaged in continuing negotiations to secure additional capital and financing, and while management believes these negotiations will be successful, there is no assurance thereof. During the nine months ended September 30, 1996, the Company collected $400,000 of the notes receivable obtained in 1988 from the sale of the Colstrip Project to the Rosebud Energy shareholders. The Company's investing activities were minimal during the nine months ended September 30, 1995. Additional capital contributions to the TEK-KOL Partnership are expected to be required from time to time prior to profitable operations. The Company is required to contribute one-half of any such required capital contributions. The Company does not have material commitments for capital expenditures as of September 30, 1996. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 8, 1996, SGI and OCET filed a Complaint For Declaratory Relief To Determine Rights And Obligations Under A Written Contract, in the Superior Court of The State of California, County of San Diego, seeking to obtain a judicial determination that Asian Investment Advisors, a Caymans Corporation, breached a certain joint venture agreement between the parties, resulting in a discharge of SGI/OCET's obligations under the agreement. As of the date hereof, no answer to the Complaint has been filed. ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K 1. Exhibits 27 Financial Data Schedule 2. Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SGI INTERNATIONAL By: /s/ JOSEPH A. SAVOCA November 13, 1996 Joseph A. Savoca, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ JOSEPH A. SAVOCA November 13, 1996 Joseph A. Savoca Chief Executive Officer and Chairman of the Board -----END PRIVACY-ENHANCED MESSAGE-----