<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, 1999
/ / 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)
13250 GREGG STREET, 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
----- -----
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
----- -----
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 May 11, 1999, there are 6,489,478 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
ONTRO, INC.
INDEX TO FORM 10-QSB
<TABLE>
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and
Analysis or Plan of 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
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ----------
(unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,220,200 6,279,000
Investments held to maturity 2,881,900 2,009,400
Inventory 83,500 --
Prepaid expenses and other current assets 244,300 222,000
------------ ----------
Total current assets 7,429,900 8,510,400
Investments held to maturity -- 1,026,700
Property and equipment, net 2,191,000 1,246,700
Deposits and other assets 1,349,000 1,194,300
Intangible assets, net 372,900 348,500
------------ ----------
$ 11,342,800 12,326,600
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other liabilities $ 250,300 519,600
Current portion of capital lease obligations 16,300 16,100
------------ ----------
Total current liabilities 266,600 535,700
Capital lease obligations, excluding current
portion 36,200 25,100
------------ ----------
Total liabilities 302,800 560,800
------------ ----------
Shareholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized, no shares issued -- --
Common stock, no par value, 20,000,000
shares authorized 6,489,478 shares issued
and outstanding 17,471,600 17,471,600
Additional paid-in capital 808,300 808,300
Deficit accumulated during the
development stage (7,230,900) (6,503,700)
Deferred compensation (9,000) (10,400)
------------ ----------
Total shareholders' equity 11,040,000 11,765,800
------------ ----------
$ 11,342,800 12,326,600
------------ ----------
------------ ----------
</TABLE>
Note: The consolidated balance sheet at December 31, 1998 has been derived from
the audited consolidated 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 consolidated financial statements
3
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months From inception
ended March 31, (November 8, 1994)
----------------------- to March 31,
1999 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Operating expenses:
Research and development $ 403,900 200,900 2,042,000
Marketing, general and administrative 424,000 156,900 5,201,000
---------- --------- ---------
Total operating expense 827,900 357,800 7,243,000
---------- --------- ---------
Other expense (income):
Interest expense 2,300 68,300 466,000
Interest income (103,000) -- (478,100)
---------- --------- ---------
Total other expense (income) (100,700) 68,300 (12,100)
---------- --------- ---------
Net loss $ (727,200) (426,100) 7,230,900
---------- --------- ---------
Basic and diluted net loss per share $ (0.11) (0.14)
---------- ---------
Weighted average shares outstanding 6,489,478 3,089,478
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the three months From inception
Ended March 31, (November 8, 1994)
------------------------- To March 31,
1999 1998 1999
----------- -------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (727,200) (426,100) (7,230,900)
Adjustments to reconcile net loss to cash used in
operating activities, excluding effect of acquisition:
Depreciation and amortization 105,300 25,800 345,900
Amortization of deferred financing costs -- 12,700 195,800
Issuance of common stock for services -- -- 223,400
Compensation for stock options and certain warrants 1,400 2,500 551,400
Increase in prepaid and other current assets (22,300) (700) (244,300)
Increase in inventory (83,500) -- (83,500)
(Increase) decrease in deposits and other assets (154,700) 41,100 (1,349,000)
Increase (decrease) in accrued expenses and other liabilities (269,300) (201,500) 228,300
----------- ------- ----------
Net cash used in operating activities (1,150,300) (546,200) (7,362,900)
----------- ------- ----------
Cash flows from investing activities:
Acquisition of business -- -- (481,200)
Intangible assets (31,900) (2,800) (298,900)
Purchase of property and equipment and leasehold improvements (1,029,500) -- (2,312,600)
Purchase of investments held to maturity (2,816,500) -- (13,168,400)
Proceeds from sale of investments held to maturity 2,975,000 -- 10,298,600
----------- ------- ----------
Net cash used in investing activities (902,900) (2,800) (5,962,500)
----------- ------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants -- -- 18,047,400
Deferred offering costs -- (11,400) (349,300)
Proceeds from notes payable -- 600,000 2,105,000
Payments on notes payable -- -- (2,105,000)
Payments on capital lease obligations (5,600) (10,300) (152,500)
----------- ------- ----------
Net cash provided by (used in) financing activities (5,600) 578,300 17,545,600
----------- ------- ----------
Net increase (decrease) in cash and cash equivalents (2,058,800) 29,300 4,220,200
Cash and cash equivalents, beginning of period 6,279,000 5,100 --
----------- ------- ----------
Cash and cash equivalents, end of period 4,220,200 34,400 4,220,200
----------- ------- ----------
----------- ------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,300 8,600 227,100
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ 16,900 -- 221,300
Warrants issued in connection with debt $ -- -- 101,500
Detail of acquisition:
Patents acquired $ -- -- 105,300
Liabilities assumed -- -- (22,000)
Return of equity to IHI Shareholders -- -- 397,900
----------- ------- ----------
Cash paid for acquisition $ -- -- 481,200
----------- ------- ----------
----------- ------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes To Consolidated Financial Statements
(Unaudited)
March 31, 1999
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 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 continues 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.
BASIS OF PREPARATION
The accompanying consolidated 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 consolidated financial statements
contain all adjustments necessary (consisting of normal recurring accruals)
for a fair presentation of the financial position as of March 31, 1999, and
the results of operations for the three month periods ended March 31, 1999
and 1998. The results of operations for the period ended March 31, 1999, is
not necessarily indicative of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Ontro's Form 10-KSB for the year ended December
31, 1998.
The consolidated financial statements include the accounts of Ontro, Inc. and
its subsidiary. All significant intercompany accounts and transactions have
been eliminated.
NET LOSS PER SHARE
The weighted average number of shares used to calculated basic net loss per
share was 6,489,478 and 3,089,478 for the quarters ended March 31, 1999 and
1998, respectively. The impact of outstanding stock options and warrants
during the periods presented did not create a difference between basic net
loss per share and diluted net loss per share. Stock options and warrants
totaling 5,830,252 and 1,187,428 shares were excluded from the computations
of diluted net loss per share during the quarters ended March 31, 1999 and
1998, respectively, as their effect is anti-dilutive.
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 FORM
10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998, AND THE COMPANY'S OTHER SEC
REPORTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE THESE OR
OTHER FORWARD-LOOKING STATEMENTS.
6
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The Company incurred a net loss of $727,200 or $0.11 per share for the
quarter ended March 31, 1999 (the "1999 first quarter"); a net loss of
$426,100 or $0.14 per share for the quarter ended March 31, 1998 (the "1998
first quarter"); and a net loss of $7,230,900 from inception (November 8,
1994) to March 31, 1999.
The Company incurred operating expenses of $827,900 for the 1999 first
quarter; $357,800 for the 1998 first quarter; and $7,243,000 from inception
(November 8, 1994) to March 31, 1999.
Research and development expenses increased $203,000 to $403,900 in the 1999
first quarter from $200,900 in the 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 8 full-time employees and increases in
wages to existing employees, (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, (4) increase in uses
of supplies and other operational expenses, (5) increases in depreciation
related to manufacturing and research and development equipment, and (6) rent
on the new manufacturing facility.
The Company's marketing, general and administrative expenses increased
$267,100 to $424,000 in the 1999 first quarter from $156,900 in the 1998
first quarter. This increase was due to the following: (1) increase in
salaries due to the hiring of employees, (2) increase in legal fees, and (3)
overall increases in general corporate spending due to increased business
activities.
Interest expense decreased to $2,300 in the 1999 first quarter compared to
$68,300 in the 1998 first quarter due to previous repayment of substantially
all of the Company's debt following its Initial Public Offering. Interest
income of $103,000 in the 1999 first quarter is a result of investing excess
funds in short- and long-term, investment-grade interest-bearing instruments.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
public and private sales of equity securities, as well as through bridge
financing. As of March 31, 1999, the Company's cash and cash equivalents and
investments totaled approximately $7.1 million.
Primary uses of cash and cash equivalents during the 1999 first quarter
included $1,150,300 for the Company's operations and working capital
requirements, patent costs of $31,900, payments on capital lease obligations
of $5,600, and purchase of equipment and leasehold improvements of
$1,029,500. The Company plans to continue its policy of investing excess
funds in short- and long-term investment-grade, interest-bearing instruments.
The Company's future cash 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 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 12 to 15 months at its anticipated
level of operations. However, the Company may seek additional funding during
the next 15 months and could seek additional funding after such time. There
can be no assurance any additional funding 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 in the future,
experience operational difficulties and delays in its production 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 operation.
7
<PAGE>
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" arises because most computer systems and programs were
designed to handle only a two-digit year, not a four digit year. When the
year 2000 begins, these computers may interpret "00" as the year 1900 and
could either stop processing date-related computations or could process them
incorrectly.
The Company is in the process of developing a program to address Year 2000
Issues and anticipates such program to be completed by the end of the second
quarter of 1999. The Company does not believe the costs required to address
Year 2000 Issues will be material, and that the program should be completely
implemented by the end of the third quarter of 1999.
The Company recently purchased and installed hardware and software to manage
its information technology. The Company believes such technology is Year 2000
compliant. In addition the Company has non-information technology in the form
of manufacturing and testing equipment. As the Company placed orders for
equipment in its manufacturing and research and development facility, the
Company required from the manufacturers assurances that such equipment is
Year 2000 compatible.
The Company could be adversely impacted by Year 2000 Issues faced by major
distributors, suppliers, customers, vendors, and financial service
organizations with which the Company interacts. The Company is in the process
of developing a plan to determine the impact that parties who are not Year
2000 compliant may have on the operations of the Company. However, there can
be no guarantee that the systems of these companies will achieve Year 2000
compliance in a timely manner.
Recent SEC guidance for Year 2000 disclosure also calls on companies to
describe their most likely worst case Year 2000 scenario. The Company
believes that the most likely worst case scenario is that the Company could
experience manufacturing delays because of infrastructure failures or delays
from suppliers. The Company anticipates that a contingency plan addressing
the worst case scenario will be completed by the end of the second quarter of
1999.
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, 1999.
<PAGE>
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 May 17, 1999
Registrant
By: /s/ Kevin A. Hainley By: /s/ James A. Scudder
--------------------------- ---------------------------
Kevin A. Hainley James A. Scudder
Chief Financial Officer Chief Executive Officer and President
(Principal Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001037827
<NAME> ONTRO, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,220,200
<SECURITIES> 2,881,900
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 83,500
<CURRENT-ASSETS> 7,429,900
<PP&E> 2,517,000
<DEPRECIATION> (326,000)
<TOTAL-ASSETS> 11,342,800
<CURRENT-LIABILITIES> (266,600)
<BONDS> 0
0
0
<COMMON> 17,471,600
<OTHER-SE> (6,431,600)
<TOTAL-LIABILITY-AND-EQUITY> (11,342,800)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 827,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,300
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (727,200)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
