|Dear Shareholders, Customers and Employees,
The last two years were difficult for Soligen, as our growth trend suffered severe interruption. Our strategy to penetrate the digital casting market has been to focus on automotive applications (mainly powertrain high value parts such as cylinder heads, engine blocks and manifolds) as well as complex aerospace castings (such as fuel pumps and jet engine gear boxes and body cases).
In early 2001, we started to feel the effects of the recession in the North American automotive sector followed up by the post 9/11 chill in aerospace programs. Many of the development programs that Soligen was involved in were interrupted for re-evaluation and subsequently a substantial percentage were cancelled outright or “rescheduled”. As a supplier of fast turn around cast parts, mostly for new product development programs, a large portion of our backlog has always been for 20-60 days. Thus as our main customers experienced substantial program and personnel changes, our immediate backlog suffered a major blow.
By August 2001, we recognized the extent of the market disruption rather than merely delays of individual programs. With the longer, more serious market disruption, we took strong measures for the survival of the company. We trimmed the company staff, implemented spending freeze on capital equipment and other corporate, technology development and expansion plans. We further implemented a major reduction in the salaries of the remaining staff. With these measures we were able to balance our expense levels to revenues and operate at a cash breakeven.
We had another setback as our auditors, at the end of Fiscal 2002 (
Despite implementing very tight cost controls, our cash position remained critical so, by June 2002, the Company had to take additional extreme measures to survive. We reduced our staff to levels that we previously considered to be below the bare minimum to operate, we eliminated any expense other than those required to serve our customers, and we committed to live within our means.
By July 2002, Soligen’s team started to stage an amazing turnaround performance. While going through these difficult times, the continual communication with our major customers and vendors, we kept the light at the end of the tunnel and enabled our team to focus on our mission: to be the best in the field of digital manufacturing of complex cast parts.
This repeatedly demonstrated competence in extremely difficult and demanding market conditions enabled our team to turn Soligen around. Soligen has won several major contracts for cylinder heads, engine blocks and complex manifolds, which were placed for prototyping for the first time and later became the new foundation of our automotive business.
In order to reduce our dependence on the seasonal automotive R&D market, we have begun to diversify with some aluminum aerospace casting applications. The market for aerospace and military castings is not as time-driven as automotive. However certain cast parts such as gearbox covers and fuel pump housings of jet engines have very complex geometries that lend themselves very well to the unique abilities of our DSPC.
During 2002 and 2003, Soligen focused on establishing repeat business with key customers by building their confidence to plan their product development to take advantage of Soligen’s unique services. We strengthened our reputation in making intake manifolds for OEM
I believe that as we start 2004, Soligen has established itself as a premier solution provider in development of cylinder heads, engine blocks, intake manifolds as well as aerospace quality castings. To further reduce costs and time to market, we have expanded the use of complex hybrid casting tools. Hybrid tools are a combination of conventional tools made by DSPC and DSPC made "drop-in" ceramic sections. For multi cylinder head production, hybrid tools enable the OEM to continue the development of the ports section while production-casting tools are being made. This greatly expedites the transition from prototypes to production.
The success stories of our unique hybrid tooling and digital core manufacturing concepts are gaining recognition resulting in other companies approaching us to partner with us for access to our DSPC technology. Soligen recently utilized DSPC to digitally manufacture water jacket cores for a large cylinder head development program. These were shipped to a customer foundry in
Our engineering team recently developed several process improvements to our original DSPC technology with the promise to reduce the time and cost of digital casting. One improvement relates to reviving our 1993 program to using regular foundry sand in addition to the original DSPC ceramic materials; this promises to substantially speed up printing while only slightly compromising on feature and surface finish definition. It can lead to a significant scaling up of the process to the level that could economically justify digital manufacturing of casting cores and molds for production rather than just for prototypes.
With the encouragement and financial
Paradigm shifts, because of their radical nature, require more time to bring to fruition. We may have underestimated the time required for casting customers to accept digital metal casting as a viable process and plan their products with much shortened lead times and without the traditional concerns of patterns and tooling. However, what were primarily expectations for our DSPC technology in the prototype market have now been supplanted by the growing acceptance of our extended production programs.
The last recession caused our customers to be more cost conscious and demand wider solutions. To meet the challenges, Soligen developed hybrid solutions for both development and bridging production using sand and semi permanent mold castings.
The recent government regulations, especially the Sarbanes Oxley act, have made it prohibitably expensive for Soligen to keep its regulatory compliance. Last August, the company filed Form 15 with the SEC requesting to cancel the registration of our shares and consequently become exempt from filing reports with the SEC. Our Form 15 became effective on
Soligen’s long term growth plan continues to be based on our goal to form joint ventures and long-term strategic partnerships with customers and foundries who mass produce cast parts. We believe that the new generation of DSPC machines will become more attractive for foundries to install DSPC machines on their premises. This will allow these foundries to both supply their customers with rapidly produced cast parts without the need to design or fabricate any temporary or "soft" tools, as well as making their production castings by integrating digitally manufactured complex cores and adding much needed flexibility in their mass manufacturing casting lines.
Soligen has assembled an excellent and dedicated team that is working very hard to make our shareholders, customers and employees proud of our company. I strongly believe we have an excellent game plan and by continuing on this path we will achieve our goals. To our long-term shareholders who remained with us, we appreciate your patience and continued