<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 SEPTEMBER 30, 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)
(858) 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 November 9, 1999, there are 6,537,930 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
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
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 6
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of
Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 9
</TABLE>
2
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
ASSETS (unaudited) Note
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,432,400 6,279,000
Investments held to maturity 2,011,400 2,009,400
Prepaid expenses and other current
assets 330,400 222,000
------------ -----------
Total current assets 4,774,200 8,510,400
Investments held to maturity -- 1,026,700
Property and equipment, net 3,940,200 1,246,700
Deposits and other assets 179,800 1,194,300
Intangible assets, net 381,400 348,500
------------ -----------
$ 9,275,600 12,326,600
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other liabilities $ 246,700 519,600
Capital lease obligations current
portion 13,600 16,100
Notes payable, current portion 105,300
------------ -----------
Total current liabilities 365,600 535,700
Capital lease obligations, excluding
current portion 29,500 25,100
------------ -----------
Total liabilities 395,100 560,800
------------ -----------
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 6,537,930 and 6,489,478 shares issued and
outstanding as of September 30, 1999 and
December 31, 1998 respectively 17,474,400 17,471,600
Additional paid-in capital 1,054,500 808,300
Deficit accumulated during the development
stage (9,589,800) (6,503,700)
Deferred compensation (58,600) (10,400)
------------ -----------
Total shareholders' equity 8,880,500 11,765,800
------------ -----------
$ 9,275,600 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
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ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
From inception
For the three months For nine months ended (Nov 8, 1994)
ended September 30, September 30, through Sept. 30,
----------------------- ----------------------- ----------------
1999 1998 1999 1998 1999
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue $ 42,800 -- 42,800 -- 42,800
Operating expenses:
Research and development 741,000 208,800 1,751,500 439,700 3,389,600
Marketing, general and administrative 664,200 597,600 1,604,900 1,375,600 6,381,900
----------- --------- --------- --------- ---------
Total operating expense 1,362,400 806,400 3,313,600 1,815,300 9,728,700
----------- --------- --------- --------- ---------
Other expense (income):
Interest expense 5,300 1,900 13,800 163,000 477,500
Interest income (62,800) (135,900) (241,300) (227,600) (616,400)
----------- --------- --------- --------- ---------
Total other expense (income) (57,500) (134,000) (227,500) (64,600) (138,900)
----------- --------- --------- --------- ---------
Net loss $ 1,304,900 672,400 3,086,100 1,750,700 9,589,800
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Basic and diluted net loss per share (0.20) (0.10) (0.47) (0.36)
----------- --------- --------- ---------
----------- --------- --------- ---------
Weighted average shares outstanding 6,526,979 6,489,478 6,502,996 4,845,522
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
From inception
For the nine months (November 8, 1994)
Ended September 30, through September 30,
---------------------------- --------------------
1999 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (3,086,100) (1,750,700) (9,589,800)
Adjustments to reconcile net loss
to cash used in operating
activities, excluding effect of
acquisition:
Depreciation and amortization 528,000 65,800 768,600
Amortization of deferred financing costs -- 61,100 195,800
Issuance of common stock for services 2,400 -- 225,800
Compensation for stock options and certain
warrants 198,000 39,500 748,000
Increase in prepaid and other current assets (108,400) (119,600) (330,400)
(Increase) decrease in deposits and other
assets 1,014,500 (627,100) (179,800)
Increase (decrease) in accrued expenses and
other liabilities (272,900) (509,600) 224,700
------------ ---------- ----------
Net cash used in operating activities (1,724,500) (2,840,600) (7,937,100)
------------ ---------- ----------
Cash flows from investing activities:
Acquisition of business -- (481,200) (481,200)
Intangible assets (55,500) (169,200) (322,500)
Purchase of property and equipment and
leasehold improvements (3,183,600) (87,700) (4,466,700)
Purchase of investments held to maturity (3,346,600) (10,384,000) (13,698,500)
Proceeds from sale of investments held to
maturity 4,374,100 -- 11,697,700
------------ ---------- ----------
Net cash used in investing activities (2,211,600) (11,122,100) (7,271,200)
------------ ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock
and warrants 400 16,160,900 18,047,800
Deferred offering costs -- -- (349,300)
Proceeds from notes payable 147,500 700,000 2,252,500
Payments on notes payable (42,200) (2,095,000) (2,147,200)
Payments on capital lease obligations (16,200) (98,700) (163,100)
------------ ---------- ----------
Net cash provided by financing activities 89,500 14,667,200 17,640,700
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents (3,846,600) 704,500 2,432,400
Cash and cash equivalents, beginning of period 6,279,000 5,100 --
------------ ---------- ----------
Cash and cash equivalents, end of period $ 2,432,400 709,600 2,432,400
------------ ---------- ----------
------------ ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,200 190,300 233,000
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ 18,100 -- 223,100
Warrants issued in connection with debt $ -- -- 101,500
Detail of acquisition:
Patents acquired $ -- 105,300 105,300
Liabilities assumed -- (22,000) (22,000)
Return of equity to IHI Shareholders -- 397,900 397,900
------------ ---------- ----------
Cash paid for acquisition $ -- 481,200 481,200
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes To Consolidated Financial Statements
(unaudited)
September 30, 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 generated limited revenues 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 September 30, 1999,
and the results of operations for the nine month periods ended September 30,
1999 and 1998. The results of operations for the period ended September 30,
1999, are 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 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 6,146,967
and 5,576,252 shares were excluded from the computations of diluted net loss
per share for the three and nine months ended September 30, 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
6
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SEC REPORTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE
THESE OR OTHER FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net loss for the quarter ended September 30, 1999 was $1,304,900 or $0.20 per
weighted average share outstanding, compared to a net loss of $672,400, or
$0.10 per weighted average share outstanding for the same period in 1998.
Net loss for the nine months ended September 30, 1999 was $3,086,100, or
$0.47 per weighted average share outstanding compared to $1,750,700 or $0.36
per weighted average share outstanding in 1998. Net loss from inception
(November 8, 1994) to September 30, 1999 was $9,589,800.
Operating expenses were $1,362,400 and $806,400 for the quarters ended
September 30, 1999 and 1998, respectively. Operating expenses were
$3,313,600 and $1,815,300 for the nine months ended September 30, 1999 and
1998, respectively.
During the quarter ended September 30, 1999, the Company earned revenues of
$42,800. These revenues related to payments by a customer for research and
development services and molds.
Research and development expenses increased to $741,000 for the quarter ended
September 30, 1999 from $208,800 for the same period in 1998, and increased
to $1,751,500 for the nine month period ended September 30, 1999 compared to
$439,700 in 1998. These increases are 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 additional
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) higher rent on the larger facility.
Marketing, general and administrative expenses increased to $664,200 for the
quarter ended September 30, 1999 from $597,600 for the same period in 1998,
and increased to $1,604,900 for the nine month period ended September 30,
1999 compared to $1,375,600 in 1998. The increase for the quarter is due to
the recognition of compensation expense from the conversion of a former
employee's incentive stock options into non-qualified stock options but
offset by a reduction in consulting fees as well as marketing research fees
incurred in 1998 but not in 1999. The increase for the nine month period is
due to the following: (1) increase in salaries to existing employees as well
as the hiring of additional employees, (2) the recognition of compensation
expense resulting from the conversion of a former employee's incentive stock
options into non-qualified stock options, (3) increase in legal and
accounting fees, and (4) overall increases in general corporate spending due
to increased business activities.
Interest expense was $5,300 for the quarter ended September 30, 1999 compared
to $1,900 for the same period in 1998 and was $13,800 for the nine months
ended September 30, 1999 compared to $163,000 in 1998. The increase for the
quarter is due to increased short-term financing during 1999 and the decrease
for the nine months ended September 30, 1999 is a result of repayment of
substantially all of the Company's debt following its Initial Public Offering
("IPO").
Interest income was $62,800 for the quarter ended September 30, 1999 compared
to $135,000 for the same period in 1998, and was $241,300 for the nine months
ended September 30, 1999, compared to $227,600 for the same period ending in
1998. The decrease for the quarter reflects the higher cash balance earning
interest at a higher rate in 1998 as compared to 1999. The increase for the
nine month period reflects interest earnings for nine months, whereas in
1998, excess funds were invested for a period of four and a half months,
following the Company's IPO.
7
<PAGE>
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 September 30, 1999, the Company's cash and cash equivalents
and investments totaled approximately $4.4 million.
Primary uses of cash and cash equivalents for the nine months ended September
30, 1999 included $1,724,500 for the Company's operations and working capital
requirements, patent costs of $55,500, payments on capital lease obligations
of $16,200, and purchase of equipment and leasehold improvements of
$3,183,600. 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.
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 developed a program to address Year 2000 Issues and such program
is substantially complete.
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's contingency plan addressing the worst case
scenario is substantially complete.
8
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
The Board of Directors authorized ongoing issuances of restricted common
stock to the Company's outside directors and legal counsel as consideration
for a portion of legal counsel's monthly legal services and any extraordinary
fees paid to outside directors for services rendered other than attending
meetings. During the third quarter the Company issued 1,617 common
shares at a weighted average price of $2.17. The Company relied upon the
exemptions provided by Section 4(2) and Regulation D of the Securities Act.
Legends were placed on all certificates.
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 nine months ended
September 30, 1999.
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
November 15, 1999 By: /s/ James A. Scudder
--------------------------
James A. Scudder
Chief Executive Officer and President
(Principal Executive Officer)
November 15, 1999 By: /s/ Kevin A. Hainley
--------------------------
Kevin A. Hainley
Chief Financial Officer
(Principal Financial and Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001037827
<NAME> ONTRO, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,432,400
<SECURITIES> 2,011,400
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,774,200
<PP&E> 4,672,900
<DEPRECIATION> 732,700
<TOTAL-ASSETS> 9,275,600
<CURRENT-LIABILITIES> 365,600
<BONDS> 0
0
0
<COMMON> 17,474,400
<OTHER-SE> 8,593,900
<TOTAL-LIABILITY-AND-EQUITY> 9,275,600
<SALES> 42,800
<TOTAL-REVENUES> 42,800
<CGS> 3,313,600
<TOTAL-COSTS> 3,313,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,800
<INCOME-PRETAX> (3,086,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,086,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,086,100)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
