-----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, Bu0OQyaSFngAqZxc9VXLL81hDEWONZWamtxJdRk38Z3nPK4QzFqTRn7tZKd6gzqH hG8fmaz+UBAv8AsPMg9P7w== 0000737955-97-000015.txt : 19970514 0000737955-97-000015.hdr.sgml : 19970514 ACCESSION NUMBER: 0000737955-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16675 FILM NUMBER: 97602127 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 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended March 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 2-93124 SGI International (Exact name of registrant as specified in its charter) Utah 33-0119035 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 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 May 1, 1997 was 6,821,303. TABLE OF CONTENTS FORM 10-Q PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statement of Stockholders' Equity (Deficit) 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview 8 Results of Operations 9 Liquidity and Capital Resources 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 10 ITEM 5. OTHER INFORMATION 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 PART III. SIGNATURES 11 SGI INTERNATIONAL CONSOLIDATED BALANCE SHEETS March 31, December 31, 1997 1996 -------------------------------------- (Unaudited) ASSETS Current assets: Cash $ 117,288 $ 740,018 Time deposit 402,500 402,500 Receivable from TEK-KOL Partnership 41,126 24,431 Trade accounts receivable 481,874 888,254 Costs and estimated earnings in excess of billings on contracts 101,558 113,130 Inventories 63,289 68,289 Prepaid expenses and other current assets 64,814 58,545 ------------------------------- Total current assets 1,272,449 2,295,167 LFC Process related assets: Notes receivable 304,903 304,903 Royalty rights, net 1,806,938 1,885,500 LFC Cogeneration project, net 500,100 526,421 Investment in TEK-KOL Parnership 490,089 464,163 Australia LFC project, net 137,556 144,795 Other technological assets 27,742 27,742 ------------------------------- 3,267,328 3,353,524 Property and equipment, net 594,911 548,601 Goodwill, net 419,403 431,386 ------------------------------- $5,554,091 $6,628,678 =============================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 599,964 $ 444,436 Borrowings on line-of-credit 400,000 300,000 Billings in excess of costs and estimated earnings on contracts 66,742 387,892 Current maturities of long-term notes payable 4,212,875 4,216,500 Accrued salaries, benefits and related taxes 133,170 124,942 Payable to TEK-KOL Partnership 133,252 83,252 Interest payable 533,183 529,183 Other accrued expenses 198,128 224,149 ------------------------------- Total current liabilities 6,277,314 6,310,354 Long-term notes payable, less current maturities 119,000 123,750 Commitments Stockholders' equity (deficit) Convertible preferred stock 887 887 Common stock 36,228,176 36,118,231 Paid-in capital 6,491,388 6,494,585 Accumulated deficit (43,562,674) (42,419,129) --------------------------------- Total stockholders' equity (deficit) (842,223) 194,574 --------------------------------- $ 5,554,091 $ 6,628,678 ================================= See notes to condensed consolidated financial statements. SGI INTERNATIONAL CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, -------------------------------- 1997 1996 -------------------------------- Revenues: Net sales $ 1,104,260 $ 1,056,677 Income from investment in TEK-KOL - 76,103 Other 9,655 141,936 -------------------------------- 1,113,915 1,274,716 Cost and expenses: Cost of sales 835,595 794,066 Research and development 301,881 154,774 Loss on investment in TEK-KOL 124,073 - Selling, general and administrative 531,454 590,379 Legal and accounting 152,794 455,214 Depreciation and amortization 176,753 165,734 Interest 134,910 151,778 ------------------------------- 2,257,460 2,311,945 ------------------------------- Net loss $(1,143,545) $(1,037,229) =============================== Net loss per share $ (0.19) $ (0.24) =============================== Weighted average common shares 6,175,482 4,270,607 =============================== 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, 1996 88,732 $887 6,094,605 $36,118,231 Issuance of common stock for cash - - 81,400 64,128 Issuance of common stock for services - - 46,118 42,620 Conversion of preferred stock (7) - 280 3,197 Net loss - - - - ---------------------------------------------- Balances at March 31, 1997 88,725 $887 6,222,403 $36,228,176 ============================================== (Continued) Total Paid-in- Accumulated capital deficit equity (deficit) -------------------------------------------- Balances at December 31, 1996 $ 6,494,585 $(42,419,129) $ 194,574 Issuance of common stock for cash - - 64,128 Issuance of common stock for services - - 42,620 Conversion of preferred stock (3,197) - - Net loss - (1,143,545) (1,143,545) --------------------------------------------- Balances at March 31, 1997 $ 6,491,388 $(43,562,674) $ (842,223) ============================================= See notes to consolidated financial statements. SGI INTERNATIONAL CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, ------------------------------- 1997 1996 ------------------------------- Operating activities Net loss $(1,143,545) $(1,037,229) Adjustments to reconcile net loss to net cash flows used for operating activities: Depreciation and amortization 185,245 184,256 Common stock issued for services 42,620 - Preferred stock issued for interest - 23,170 Changes in assets and liabilities: Receivable from TEK-KOL (16,695) - Trade accounts receivable 417,952 (122,775) Inventories 5,000 (1,003) Other current assets (6,269) (3,797) Accounts Payable 155,528 (117,122) Billings in excess of costs and estimated earnings on contracts (321,150) 8,658 Accrued salaries, benefits and related taxes 8,228 511,872 Royalty payable to related party - (141,790) Payable to TEK-KOL 50,000 - Interest payable 4,000 100,162 Other accrued expenses (26,021) 68,152 ----------------------------- Net cash flows used for operating activities (645,107) (527,446) Investing activities LFC Process related assets: Collection of notes receivable and interest - 56,016 Investment in TEK-KOL (25,927) (76,103) Purchase of property and equipment (107,449) (24,954) Other assets - 12,876 ----------------------------- Net cash flows used for investing activities (133,376) (32,165) Financing activities Borrowings on line-of-credit 100,000 - Proceeds from issuance of notes payable - 50,000 Payments of notes payable (8,375) (18,000) Proceeds from issuance of common stock 64,128 739,046 ------------------------------- Net cash flows provided by financing activities 155,753 771,046 ------------------------------- Net increase (decrease) in cash (622,730) 211,435 Cash at beginning of period 740,018 74,154 ------------------------------- Cash at end of period $ 117,288 $ 285,589 =============================== See notes to condensed consolidated financial statements. SGI INTERNATIONAL NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (Unaudited) (1) Basis of Presentation The accompanying condensed consolidated financial statements of SGI International (the "Company") for the three months ended March 31, 1997 and 1996 are unaudited. These financial statements 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 March 31, 1997, and the consolidated results of operations for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997. 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, 1996 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 recovery of amounts invested in the Company's principal assets, the LFC Process related assets, is dependent upon the Company's ability to adequately fund its capital contributions to the TEK-KOL Partnership and TEK-KOL's ability to successfully attract sufficient additional equity, debt or other third party financing to complete the commercialization of the LFC Process technology. 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. 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 forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Overview The LFC Process is gaining greater market acceptance as development of the first commercial LFC Plant continues in the Powder River Basin of Wyoming. The $460,000,000 Engineering, Procurement, and Construction contract was signed on December 30, 1996, with the first permit, the Industrial Siting Permit, being issued in February. Additional permitting and design work continues to progress satisfactorily. A Memorandum of Understanding ("MOU") between TEK-KOL (a partnership between the Company and a unit of Zeigler Coal Holding Company) and a group of Russian private and public entities is being finalized. The Russian regional government in Kemerovo has issued a protocol that directs the funding of the feasibility study to be performed under the MOU and indicated that if the results are positive the project will be included in the Central Government's Coal Renovation Program for the Kuzbass Region. Finally, an additional MOU has been executed between TEK-KOL and PTBA (the Indonesian state owned coal company) to perform additional tasks necessary to develop and finance an LFC project at PTBA's mine in the Tanjung Enim area of South Sumatra. OCET's ability to remove asphaltenes and substantially reduce catalyst-fouling nickel and vanadium metal content from a variety of oilfield crudes has been successfully demonstrated using bench-scale continuous processing equipment. Samples of several types of heavy crudes and resids have been processed to produce high yields of deasphalted oil and dramatic reductions of catalyst- fouling metals. Based on these results and progress in developing methods to monitor and control process yield and product quality in response to continually changing feedstocks, design of a second generation Process Development Unit has been completed and construction is now underway. A Cooperative Research and Development Agreement has been executed with the U.S. Department of Energy in support of the OCET development program. Additionally, initial contact has been made with several potential strategic partners capable of further accelerating our commercialization efforts. Additional resources are being deployed to increase sales at AMS, SGI's automated assembly subsidiary. Sales for 1997 are expected to substantially exceed 1996 levels. AMS has assisted in the design of the OCET second generation PDU and is initiating its construction, which is expected to be operational by the end of the third quarter of 1997. 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, 1996 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 March 31, 1997 compared to Three months ended March 31, 1996. The Company's net loss for the three months ended March 31, 1997 increased 10% ($106,000) from the same prior year period. Components of the increase in net loss are discussed below. Other income for the three months ended March 31, 1997 decreased 93% ($132,000) from the same prior year period. The prior year period included the forgiveness of royalty obligations totaling $142,000 by a related party. The Company's share of the TEK-KOL loss for the three months ended March 31, 1997 was $124,000 compared to income from this investment of $76,000 for the same prior year period. The results of TEK-KOL's operations are influenced by the number and timing of feasibility studies prepared for third parties. Research and development expenses for the three months ended March 31, 1997 increased 95% ($147,000) 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 March 31, 1997 increased 23% ($99,000) from the same prior year period after adjusting for non-recurring charges of $158,000. The increase relates to the timing of certain recurring expenditures. Legal and accounting expense for the three months ended March 31, 1997 increased 10% ($14,000) from the same prior year period after adjusting for non-recurring charges of $316,000. The increase relates to on-going business activities. Liquidity and Capital Resources As of March 31, 1997, the Company had current assets totaling $1.3 million, including cash of $117,000, and a working capital deficit of $5.0 million. The Company anticipates continued operating losses over the next twelve months and has both short-term and long-term liquidity deficiencies as of March 31, 1997. 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. As described in the Company's Form 10-K for the year ended December 31, 1996, the Company executed two funding agreements in April 1997 which could provide proceeds of up to $4 million through the sale of equity securities. The transactions will be completed in tranches, and the closing of future tranches is subject certain minimum levels of price and trading volume of the Company's common stock. The Company's investing activities were minimal during the three months ended March 31, 1997 and 1996. The Company's financing activities raised approximately $164,000 and $789,000 during the three months ended March 31, 1997 and 1996, respectively. These funds were raised primarily through the private placement of equity securities and borrowings on the line-of-credit. 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. 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 March 31, 1997. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of business, various claims are asserted against the Company and its subsidiaries. However, except for a cross complaint asserted in a lawsuit filed by the Company for Declaratory Relief, no claims asserted against the Company have resulted in litigation. Management's opinion is that the ultimate resolution of any and all claims, including the cross complaint against the Company, will not have material effect on the Company's financial position, results of operations or liquidity. ITEM 5. OTHER INFORMATION In February 1997, the Company issued 8,618 common shares to five domestic individuals pursuant to Regulation D of the Securities Act of 1933, as amended ("Reg. D") for services rendered. As provided in related service agreements, the Company granted warrants to purchase 130,000 common shares to six employees in March 1997 pursuant to Reg. D. The exercise prices were not lower than the closing bid price on the grant date. The warrants are exercisable one year from the grant date at $4.25 per share, and expire on December 31, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1. Exhibits - None 2. Reports on Form 8-K - None PART III. 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 /s/ ____________________ May 13, 1997 Joseph A. Savoca, Chief Executive Officer and Chairman of the Board 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. /s/ ___________________ May 13, 1997 Joseph A. Savoca, Chief Executive Officer and Chairman of the Board EX-27 2 EXHIBIT 27 (FDS) FILED WITH FORM 10Q
5 3-MOS DEC-31-1997 MAR-31-1997 117,288 0 624,558 0 63,289 1,272,449 594,911 78,295 5,554,091 6,277,314 0 0 887 36,228,176 (37,071,286) 5,554,091 1,104,260 1,113,915 835,595 835,595 1,286,955 0 134,910 (1,143,545) 0 (1,143,545) 0 0 0 (1,143,545) (.19) 0
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