-----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, L2DwoefT32w4qo6pD+8uOaICJcoWaZwulcJ/Xsz3+EXP3ao4TcdRBmUt4Sv0FQ5v 0m85R4WYs4/CNsGYmks6Sw== 0000936392-96-000555.txt : 19960808 0000936392-96-000555.hdr.sgml : 19960808 ACCESSION NUMBER: 0000936392-96-000555 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NASD 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: 96605006 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 SGI INTERNATIONAL -- FORM 10-Q 1 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 June 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 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 July 29, 1996 was 5,770,372. 2 TABLE OF CONTENTS FORM 10-Q PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 3 - 4 Condensed Consolidated Statements of Operations 5 Condensed Consolidated Statement of Stockholders' Equity (Deficit) 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Condensed Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 - 11 PART II. OTHER INFORMATION 12 SIGNATURES 13
- 2 - 3 SGI International Consolidated Balance Sheets
JUNE 30, December 31, 1996 1995 ----------- ------------ (UNAUDITED) Assets Current assets: Cash $ 782,781 $ 74,154 Trade accounts receivable 566,636 341,352 Costs and estimated earnings in excess of billings on uncompleted contracts 156,767 271,448 Inventories 74,168 68,289 Prepaid expenses and other current assets 128,522 114,143 ---------- ---------- Total current assets 1,708,874 869,386 LFC Process related assets: Notes receivable 979,918 1,123,948 Royalty rights 2,042,625 2,199,750 LFC cogeneration project 579,063 631,705 Investment in TEK-KOL partnership 779,754 596,276 Australia LFC project 159,275 173,754 Other technological assets 26,440 26,440 Process demonstration equipment -- 153,781 ---------- ---------- 4,567,075 4,905,654 Property and equipment 350,972 249,328 Other assets -- 12,876 Goodwill 455,352 479,318 ---------- ---------- $7,082,273 $6,516,562 ========== ==========
See notes to condensed consolidated financial statements. - 3 - 4 SGI International Consolidated Balance Sheets
JUNE 30, December 31, 1996 1995 ------------ ------------ (UNAUDITED) Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable $ 483,712 $ 683,583 Billings in excess of costs and estimated earnings on uncompleted contracts 175,064 175,745 Current maturities of long-term obligations 96,375 909,016 Notes payable to Director -- 304,000 Accrued salaries, benefits and related taxes 274,750 279,103 Royalties payable to related party -- 141,790 Contributions payable to TEK-KOL Partnership 99,109 336,476 Interest payable 18,036 139,663 Other accrued expenses 283,090 269,089 ------------ ------------ Total current liabilities 1,430,136 3,238,465 Interest payable 422,332 276,425 Long-term notes payable, less current maturities 4,328,996 4,631,250 Commitments and contingencies Stockholders' equity (deficit): Convertible preferred stock 862 1,037 Common stock 35,240,097 32,255,357 Paid-in capital 5,725,434 4,582,215 Accumulated deficit (39,804,161) (38,159,764) Notes receivable from employees for common stock (261,423) (308,423) ------------ ------------ Total stockholders' equity (deficit) 900,809 (1,629,578) ------------ ------------ $ 7,082,273 $ 6,516,562 ============ ============
See notes to condensed consolidated financial statements. - 4 - 5 SGI International Consolidated Statements of Operations (Unaudited)
Three months ended June 30, Six months ended June 30, 1996 1995 1996 1995 --------------------------- --------------------------- Revenues: Net sales $ 1,190,267 $ -- $ 2,246,944 $ -- Other 80,584 21,721 222,520 33,577 ----------- ----------- ----------- ----------- 1,270,851 21,721 2,469,464 33,577 Income (loss) from Investment in TEK-KOL (23,125) -- 52,978 -- Expenses: Cost of sales 952,133 -- 1,746,199 -- Engineering, research and consulting 102,560 449,416 257,334 1,115,071 Selling, general and administrative 407,325 310,348 997,704 586,925 Legal and accounting 157,951 145,094 613,165 352,259 Depreciation and amortization 143,318 251,496 309,052 502,606 Interest 91,607 233,167 243,385 474,683 ----------- ----------- ----------- ----------- 1,854,894 1,389,521 4,166,839 3,031,544 ----------- ----------- ----------- ----------- Net loss $ (607,168) $(1,367,800) $(1,644,397) $(2,997,967) =========== =========== =========== =========== Net loss per share $ (.12) $ (.57) $ (.35) $ (1.32) =========== =========== =========== =========== Weighted average shares outstanding 5,239,863 2,413,114 4,755,235 2,276,624 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. - 5 - 6 SGI International Consolidated Statement of Stockholders' Equity (Deficit) (Unaudited)
Convertible preferred stock Common stock ---------------- ----------------------- Accumulated Shares Amount Shares Amount Paid-in capital deficit ------- ------ --------- ----------- --------------- ------------ Balances at December 31, 1995 103,729 $1,037 3,859,671 $32,255,357 $4,582,215 $(38,159,764) Issuance of common stock for cash 1,328,059 2,103,935 Issuance of common stock for notes payable, interest and services 533,839 651,167 Conversion of convertible preferred stock into common stock (17,566) (176) 25,726 229,638 (227,402) Issuance of convertible preferred stock for notes payable and interest 67 1 754,913 Warrants granted for accounts payable, notes payable, interest and services 141,603 Collection of notes receivable Compensation expense related to warrants exercised for notes receivable 474,105 Net loss (1,644,397) ------- ------ --------- ----------- ---------- ------------ Balances at June 30, 1996 86,230 $ 862 5,747,295 $35,240,097 $5,725,434 $(39,804,161) ======= ====== ========= =========== ========== ============
Total Notes stockholders' receivable equity (deficit) ----------- ---------------- Balances at December 31, 1995 $ (308,423) $(1,629,578) Issuance of common stock for cash 2,103,935 Issuance of common stock for notes payable, interest and services 651,167 Conversion of convertible preferred stock into common stock 2,060 Issuance of convertible preferred stock for notes payable and interest 754,914 Warrants granted for accounts payable, notes payable, interest and services 141,603 Collection of notes receivable 47,000 47,000 Compensation expense related to warrants exercised for notes receivable 474,105 Net loss (1,644,397) ----------- ----------- Balances at June 30, 1996 $ (261,423) $ 900,809 =========== ===========
See accompanying notes to consolidated financial statements. - 6 - 7 SGI International Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1996 1995 ----------- ----------- Operating activities Net loss $(1,644,397) $(2,997,967) Adjustments to reconcile net loss to net cash flows used for operating activities: Depreciation and amortization 349,525 502,606 Amortization of note discounts -- 85,633 Stock and warrants issued for interest, services and notes receivable 633,954 231,000 Changes in assets and liabilities: Receivable from joint venture partner -- 45,823 Trade accounts receivable (110,603) -- Inventories (5,879) -- Receivable from officers and directors -- 151,653 Prepaid expenses and other current assets (14,379) (65,762) Accounts payable (199,871) 218,406 Billings in excess of costs and estimated earnings uncompleted contracts (681) -- Accrued salaries, benefits and related taxes (4,353) 57,623 Royalty payable to related party (141,790) (113,064) Contribution payable to TEK-KOL (137,367) -- Interest payable 24,280 -- Other accrued expenses 14,001 78,342 ----------- ----------- Net cash flows used for operating activities (1,237,560) (1,805,707) Investing activities LFC process related assets: Collection of notes receivable and related interest 144,030 53,271 Additions to other technological assets -- (31,607) Additions to process demonstration equipment -- (31,512) Investment in TEK-KOL (183,478) (122,000) Purchase of property and equipment (149,176) -- Other assets 12,876 (12,391) ----------- ----------- Net cash flows used for investing activities (175,748) (144,239) Financing activities Proceeds from issuance of notes payable 50,000 264,695 Payments of notes payable (79,000) (452,125) Proceeds from issuance of preferred stock -- 1,113,942 Proceeds from issuance of common stock 2,103,935 563,743 Collection of notes receivable 47,000 -- ----------- ----------- Net cash flows provided by financing activities 2,121,935 1,490,255 ----------- ----------- Net increase (decrease) in cash 708,627 (459,691) Cash at beginning of the period 74,154 551,299 ----------- ----------- Cash at end of the period $ 782,781 $ 91,608 =========== =========== Supplemental disclosure of non-cash activities: Series 96 convertible preferred stock issued for notes payable $ 670,000 $ -- =========== =========== Warrants granted for accounts payable, notes payable, interest and services $ 141,603 $ -- =========== ===========
See accompanying notes to consolidated financial statements. - 7 - 8 SGI International Notes to Condensed Consolidated Financial Statements June 30, 1996 (Unaudited) (1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of SGI International (the Company) for the three and six months ended June 30, 1996 and 1995 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 June 30, 1996, and the consolidated results of operations for the three and six months ended June 30, 1996 and 1995. The results of operations for the six months ended June 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 equity and/or 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. (3) EQUITY TRANSACTION Certain employees exercised warrants to purchase common stock in 1995 in exchange for non-recourse notes payable. The Company accrued non-cash compensation expense totaling $474,105 related to these transactions during the three months ended March 31, 1996. The employees exchanged recourse notes for the non-recourse notes during the three months ended June 30, 1996. Accordingly, the accrued compensation was converted to equity during the second quarter. - 8 - 9 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 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 forward-looking 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 $901,000 at June 30, 1996. The improvement of stockholders' equity results from equity sales for cash, and conversion of notes payable and accrued expenses into equity. After excluding AMS's operations, the Company's net loss on a comparative basis for the three and six month periods ended June 30, 1996 has decreased 50% and 40%, 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 is designed to convert refinery Resid into higher value petroleum distillate products and a synthetic coal. OCET Corporation, a wholly-owned SGI subsidiary, entered into an agreement in 1995 to test a series of crude oil and Resid oil samples provided by Maraven, a Venezuelan state-owned oil company. Laboratory data is currently being extrapolated to a larger bench scale continuous process design in order to complete this testing. Favorable results could lead to licensing and royalty agreements with Maraven and its affiliates. The Company also continued discussions in the second quarter of 1996 with the Department of Energy regarding a cooperative agreement and funding for OCET's research and development efforts. The Company is drafting a program plan to submit to the DOE, which management expects will form the basis for a cooperative research and development agreement. The continuing need to fund Company operations with equity-based financing is causing significant 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. - 9 - 10 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 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 $1.2 million, $952,000, $195,000 and $76,000, respectively, for the three months ended June 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 June 30, 1996 decreased 47% ($642,000) compared to the same prior year period. Components of the change in net loss are discussed below. Engineering, research and development expenses for the three months ended June 30, 1996 decreased 77% ($347,000) 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 three months ended June 30, 1996 decreased 32% ($98,000) 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 June 30, 1996 decreased 43% ($108,000) 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 decreased 61% ($142,000) 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. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 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 $2.2 million, $1.7 million, $443,000 and $76,000, respectively, for the six months ended June 30, 1996. The following discussion does not include AMS's results of operations for that period. The Company's net loss for the six months ended June 30, 1996 decreased 39% ($1.2 million) compared to the same prior year period. Components of the change in net loss are discussed below. Engineering, research and development expenses for the six months ended June 30, 1996 decreased 77% ($858,000) 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 six months ended June 30, 1996 increased 1% ($7,000) 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 20% ($151,000). Personnel and overhead reductions, instituted during the last two quarters of 1995, have caused on-going general and administrative expenses to decrease. - 10 - 11 Legal and accounting expense for the six months ended June 30, 1996 increased 74% ($260,000) 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 six months ended June 30, 1996 decreased 16% ($55,000). Depreciation and amortization expense for the six months ended June 30, 1996 decreased 39% ($194,000) 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 decreased 49% ($232,000) 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. The Company had positive working capital of $279,000 at June 30, 1996 and negative working capital of $3.9 million at June 30, 1995. The improvement was achieved primarily through equity sales and conversion of notes payable and accrued expenses into equity. The funds raised through equity sales have been used to finance current obligations and to satisfy current operating requirements. The Company plans to finance future activities through the sale of equity securities and the collection of receivables. The Company has notes payable ($4.3 million) and interest payable ($0.4 million) which are due September 30, 1997. The Company expects these liabilities to be satisfied by equity sales and increased positive cash flows from AMS's operations. The Company's financing activities raised approximately $1.2 million and $1.9 million during the six months ended June 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. The Company's investing activities were minimal during the six months ended June 30, 1996 and 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 has recorded contributions payable to TEK-KOL of $99,000 at June 30, 1996. Management believes substantially all of the 1996 funding requirements for TEK-KOL will be paid by third parties with whom TEK-KOL has, or expects to have, agreements. The Company will be required to contribute approximately $750,000 towards the 1996 TEK-KOL operating budget if none of these agreements are consummated. The Company does not have material commitments for capital expenditures as of June 30, 1996. - 11 - 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K 1. EXHIBITS None 2. REPORTS ON FORM 8-K None - 12 - 13 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 August 5, 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 ---- ----- ---- Chief Executive Officer August 5, 1996 /s/ JOSEPH A. SAVOCA and Chairman of the Board - -------------------- Joseph A. Savoca - 13 - EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 782,781 0 723,403 0 74,168 1,708,874 350,972 300,064 7,082,273 1,430,136 0 0 832 35,240,097 (39,804,161) 7,082,273 1,190,267 1,270,851 952,133 0 902,761 0 91,607 (607,168) 0 (607,168) 0 0 0 (607,168) (.12) 0
-----END PRIVACY-ENHANCED MESSAGE-----