<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period ended MARCH 31, 1998
/_/ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 333-39253
ONTRO, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0638356
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12675 DANIELSON COURT, SUITE 401, POWAY, CALIFORNIA 92064
(Address of principal executive offices)
(619) 486-7200
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
equity, as of latest practicable date:
As of June 26, 1998, there are 6,489,478 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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ONTRO, INC.
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and
Analysis or Plan of 6
Operations 7
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 8
Item 2 - Changes in Securities 8
Item 3 - Defaults upon Senior Securities 8
Item 4 - Submission of Matters to a Vote of
Security Holders 8
Item 5 - Other Information 8
Item 6 - Exhibits and Reports on Form 8-K 8
Signatures 9
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ONTRO, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash $ 34,400 5,100
Prepaid expenses and other current assets 10,500 9,800
------------ ------------
Total current assets 44,900 14,900
Property and equipment, net 373,800 398,900
Deferred offering costs 360,700 349,300
Deferred financing costs 48,400 61,100
Other assets 21,400 62,500
Intangible assets, net 10,600 8,500
------------ ------------
$ 859,800 895,200
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Other accrued expenses $ 183,500 436,200
Accrued interest 150,700 103,700
Current portion of capital lease obligations 46,700 44,100
Payroll taxes payable 17,000 12,800
Notes payable 1,995,000 1,395,000
------------ ------------
Total current liabilities 2,392,900 1,991,800
Capital lease obligations, excluding current portion 88,000 100,900
------------ ------------
Total liabilities 2,480,900 2,092,700
------------ ------------
Shareholders' equity (deficit):
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued -- --
Common stock, no par value, 20,000,000 shares
authorized, 3,089,478 shares issued and outstanding 2,047,200 2,047,200
Additional paid-in capital 587,600 965,600
Deficit accumulated during the development stage (4,238,100) (3,812,000)
Deferred compensation (17,800) (398,300)
------------ ------------
Total stockholders' equity (deficit) (1,621,100) (1,197,500)
------------ ------------
$ 859,800 895,200
------------ ------------
------------ ------------
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to financial statements.
3
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ONTRO, INC.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months From inception
ended March 31, (November 8, 1994)
------------------------- to March 31,
1998 1997 1998
---------- --------- ------------------
<S> <C> <C> <C>
Operating expenses:
Marketing, general and administrative $ 154,400 439,300 2,479,800
Research and development 200,900 155,500 1,084,800
Compensation for stock options
and certain warrants 2,500 10,500 405,600
---------- --------- ------------------
Total operating expense 357,800 605,300 3,970,200
Interest expense 68,300 23,800 267,900
---------- --------- ------------------
Net loss $ (426,100) (629,100) (4,238,100)
---------- --------- ------------------
---------- --------- ------------------
Basic and diluted net loss per share $ (0.14) (0.23)
---------- ---------
---------- ---------
Weighed average shares outstanding 3,089,478 2,788,233
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months From inception
ended March 31, (November 8, 1994)
------------------------- to March 31,
1998 1997 1998
---------- --------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(426,100) (629,100) (4,238,100)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 25,800 24,300 168,500
Amortization of deferred financing costs 12,700 3,900 53,100
Issuance of common stock for services -- -- 223,400
Compensation related to grant of stock options and
certain warrants 2,500 10,500 405,600
Increase in deferred offering costs (11,400) - (360,700)
Increase in prepaid and other current assets (700) (5,800) (10,500)
(Increase) decrease in other assets 41,100 4,000 (21,400)
Increase (decrease) in accrued expenses (201,500) (18,500) 351,200
----------- ---------- ------------
Net cash used in operating activities (557,600) (610,700) (3,428,900)
----------- ---------- ------------
Cash flows from investing activities:
Intangible assets (2,800) (4,700) (16,500)
Purchase of property and equipment -- (79,600) (348,300)
----------- ---------- ------------
Net cash used in investing activities (2,800) (84,300) (364,800)
----------- ---------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 12,000 1,886,500
Proceeds from notes payable 600,000 797,500 1,995,000
Payments on capital lease obligations (10,300) 41,300 (53,400)
----------- ---------- ------------
Net cash provided by financing activities 589,700 850,800 3,828,100
----------- ---------- ------------
Net increase in cash 29,300 155,800 34,400
Cash, beginning of period 5,100 12,000 -
----------- ---------- ------------
Cash, end of period $34,400 167,800 34,400
----------- ---------- ------------
----------- ---------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,600 8,500 68,600
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ -- 52,100 188,100
Warrants issued in connection with debt $ -- 63,000 101,500
</TABLE>
See accompanying notes to financial statements.
5
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ONTRO, INC.
(A Development Stage Enterprise)
Notes To Financial Statements
(Unaudited)
March 31, 1998
THE COMPANY
Ontro, Inc. (the "Company" or "Ontro") is engaged in the research and
development of integrated thermal containers. The Company has the rights
to exploit a unique proprietary technology which it has incorporated into a
proposed product line of fully contained self-heating beverage containers
designed to heat liquid contents such as coffee, tea, hot chocolate, soups,
and baby formula.
The Company is a development stage enterprise. Accordingly, the Company's
operations have been directed primarily toward raising capital, developing
business strategies, research and development, establishing sources of
supply, acquiring operating assets, initial production, and recruiting
personnel.
Ontro, has been unprofitable and has not generated revenue from the sale of
products or other sources since inception. The Company expects to incur
losses as it expands its development activities and pursues
commercialization of its technologies. The future success of the Company
is dependent upon its ability to develop, manufacture and market its
products and, ultimately, upon its ability to attain future profitable
operations. On May 11, 1998 the Company completed its Initial Public
Offering ("IPO") whereby they sold 3,400,000 units at $5.50 per unit
resulting in gross proceeds of $18,700,000. The aggregate proceeds to
the Company, net of Underwriters' discount and offering costs were
approximately $17.3 million.
BASIS OF PREPARATION
The accompanying financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information. Certain information and disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the
opinion of the Company's management, the unaudited financial statements
contain all adjustments necessary (consisting of normal recurring accruals)
for a fair presentation of the financial position as of March 31, 1998, and
the results of operations for the three month periods ended March 31, 1998
and 1997. The results of operations for the period ended March 31, 1998,
is not necessarily indicative of the results to be expected for the full
year. For further information, refer to the financial statements for the
year ended December 31, 1997 and footnoted thereto included in Ontro's
Form SB-2 dated May 11, 1998 as amended.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common
equivalent shares are not included in the per share calculation where the
effect of their inclusion would be anti-dilutive.
Subsequent Events
Subsequent to March 31, 1998 the Company (1) borrowed additional funds from
investors; (2) entered into an agreement with Insta-Heat, Inc. shareholders
to acquire their stock; (3) amended certain loan agreements; and (4)
completed its IPO. All of the above events are disclosed in the Company's
Form SB-2 dated May 11, 1998 as amended, and are incorporated herein by this
reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains forward-looking statements which
involve risks and uncertainties. Such forward-looking statements include,
but are not limited to, statements regarding future events and the Company's
plans and expectations. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements as
a result of certain factors including, but not limited to, those referenced
in the Company's final prospectus dated May 11, 1998, as amended and the
Company's other SEC reports. The Company disclaims any intent or obligation
to up date these or other forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
From inception, the Company has financed its operations primarily through
private placements of equity securities, which provided aggregate net proceeds
of approximately $2,047,200 and through loans totaling $1,995,000 as of March
31, 1998.
The Company raised $1,245,000 from Bridge Loans from December 1996
through May 1997, $150,000 in December 1997 and $600,000 in the first quarter
of 1998. At March 31, 1998, the Company's current liabilities exceeded its
current assets by approximately $2.4 million and its cash balance was
$34,400. Since that date, the Company completed its IPO in May 1997 which
provided net proceeds to the Company of approximately $17.3 million.
6
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Net cash used in operating activities for the first quarters ended 1998
and 1997 was $557,600 and $610,700 respectively. The Company's net cash flow
used by investing activities was $2,800 in 1998 and $84,300 in 1997. Net
cash flow from financing activities was $589,700 in 1998 and $850,800 in
1997. During the 12-month period following the consummation of the IPO the
Company plans to spend approximately $3.8 million for manufacturing equipment
and approximately $750,000 for improvements to its new facility.
The Company recently entered into a lease for approximately 40,000
square feet of space in the Pomerado Business Park located in Poway,
California. The Company anticipates moving into this facility in December
1998. The lease has an initial term of five years with a renewal option to
the Company for an additional three years. Base rent for the initial term is
$0.445 per square foot (approximately $17,800 per month). Base rent for the
extension term is $0.56 per square foot (approximately $22,400 per month).
The Company intends to sub-lease (on a short-term basis) up to 10,000 square
feet to a third-party in order to offset its rent expense until such time, if
ever, it needs to expand its manufacturing line.
The Company's future capital requirements will depend upon numerous
factors, including the amount of revenues generated from operations (if any),
the cost of the Company's sales and marketing activities and the progress of
the Company's research and development activities none of which can be
predicted with certainty. The Company anticipates the proceeds of the IPO,
together with existing capital resources and cash generated from operations,
if any, will be sufficient to meet the Company's cash requirements for at
least the next 18 to 24 months at its anticipated level of operations.
However, the Company may seek additional funding during the next 24 months
and could seek additional funding after such time. There can be no assurance
any additional financing will be available on acceptable terms, or at all,
when required by the Company. Moreover, if additional financing is not
available, the Company could be required to reduce or suspend its operations,
seek an acquisition partner or sell securities on terms that may be highly
dilutive or otherwise disadvantageous to current shareholders. The Company
has experienced in the past, and may continue to experience, operational
difficulties and delays in its product development due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of
operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company incurred a loss of $426,100 for the quarter ended March 31,
1998 (the "1998 first quarter"); $629,100 for the quarter ended March 31,
1997 (the "1997 first quarter"); and $4,238,100 from inception (November 8,
1994) to March 31, 1998.
Research and development expenses increased $45,400 to $200,900 in 1998
first quarter. This increase was due to: (1)additional costs of outside
consultants and companies hired by the Company to aid in its research and
development efforts, (2)increase in salaries from hiring an additional full-time
employee and increases in wages to existing employees, and (3)increases related
to testing prototypes of self-heating containers as well as laboratory testing
of various elements of the container, materials, and the self-heating process.
The Company's marketing, general and administrative expenses decreased
$284,900 to $154,400 in 1998 first quarter from $439,300 in 1997 first
quarter. This decrease was due to the following: (1)decrease in consulting
fees--the Company retained several consultants in the 1997 first quarter that
were not retained in the 1998 first quarter; (2)decrease in legal fees--the
Company incurred higher costs in the 1997 first quarter in the process of
obtaining bridge financing as well as utilizing considerable time with
corporate counsel advising the Company of alternative business strategies and
drafting legal documents; (3)royalty expense paid to Insta-Heat, Inc. ("IHI")
in the 1997 first quarter that was not paid in the 1998 first
7
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quarter because of the pending purchase of IHI stock in the Company's IPO and
IHI's waiving of the royalty fee that otherwise would have been due;
(4)marketing research expenses associated with focus group studies conducted
in the 1997 first quarter but not in the 1998 first quarter; and (5)overall
decreases in general corporate spending due to the Company's limited cash
resources.
Interest expenses increased $44,500 to $68,300 in 1998 first quarter
compared to $23,800 in the 1997 first quarter due to increased short term
borrowings.
Year 2000 Compliance
The Company does not currently have systems that have Year 2000 issues.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1998.
8
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ONTRO, INC
Registrant
By:/s/ KEVIN A. HAINLEY By:/s/ JAMES A. SCUDDER
------------------------------ ---------------------------
Kevin A. Hainley James A. Scudder
Chief Financial Officer CEO and President
(Principal Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0001037827
<NAME> ONTRO INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,400
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,900
<PP&E> 542,300
<DEPRECIATION> 168,500
<TOTAL-ASSETS> 859,800
<CURRENT-LIABILITIES> 2,392,900
<BONDS> 0
0
0
<COMMON> 2,047,200
<OTHER-SE> (3,668,300)
<TOTAL-LIABILITY-AND-EQUITY> (1,621,100)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 357,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,800
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (426,100)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
