<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 JUNE 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)
(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 the latest practicable date:
As of August 6, 1999, there are 6,536,313 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
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 Operation 6
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 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 9
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ONTRO, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,526,500 6,279,000
Investments held to maturity 2,023,600 2,009,400
Inventory 93,900 --
Prepaid expenses and other current assets 242,500 222,000
-------------- --------------
Total current assets 5,886,500 8,510,400
Investments held to maturity -- 1,026,700
Property and equipment, net 3,976,700 1,246,700
Deposits and other assets 220,100 1,194,300
Intangible assets, net 373,600 348,500
-------------- --------------
$ 10,456,900 12,326,600
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other liabilities $ 296,200 519,600
Current portion of capital lease obligations 13,800 16,100
Notes payable 126,600 --
-------------- --------------
Total current liabilities 436,600 535,700
Capital lease obligations, excluding current portion 32,900 25,100
-------------- --------------
Total liabilities 469,500 560,800
-------------- --------------
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
6,494,478 and 6,489,478 shares issued and outstanding as of June 30,
1999 and December 31, 1998 respectively 17,471,600 17,471,600
Additional paid-in capital 808,300 808,300
Deficit accumulated during the development stage (8,284,900) (6,503,700)
Deferred compensation (7,600) (10,400)
-------------- --------------
Total shareholders' equity 9,987,400 11,765,800
-------------- --------------
$ 10,456,900 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 For six months ended From inception
ended June 30, June 30, (November 8, 1994)
----------------------------- ----------------------------- to June 30,
1999 1998 1999 1998 1999
------------- ----------- ------------ ------------- --------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 606,600 64,500 1,010,500 265,400 2,648,600
Marketing, general and
administrative 516,700 586,600 940,700 743,500 5,717,700
------------- ----------- ------------ ------------- --------------------
Total operating expenses 1,123,300 651,100 1,951,200 1,008,900 8,366,300
------------- ----------- ------------ ------------- --------------------
Other expense (income):
Interest expense 6,200 92,800 8,500 161,100 472,200
Interest income (75,500) (91,700) (178,500) (91,700) (553,600)
------------- ----------- ------------ ------------- --------------------
Total other expense (income) (69,300) 1,100 (170,000) 69,400 (81,400)
------------- ----------- ------------ ------------- --------------------
------------- ----------- ------------ ------------- --------------------
Net loss $ (1,054,000) (652,200) (1,781,200) (1,078,300) (8,284,900)
------------- ----------- ------------ ------------- --------------------
Basic and diluted net loss per
share $ (0.16) (0.13) (0.27) (0.27)
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Weighted average shares outstanding 6,492,034 4,920,247 6,490,108 4,009,920
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
</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 six months From inception
Ended June 30, (November 8, 1994)
------------------------------ to June 30,
1999 1998 1999
-------------- ------------ --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,781,200) (1,078,300) (8,284,900)
Adjustments to reconcile net loss to cash used in operating
activities, excluding effect of acquisition:
Depreciation and amortization 303,400 50,700 544,000
Amortization of deferred financing costs -- 61,100 195,800
Issuance of common stock for services -- -- 223,400
Compensation for stock options and certain warrants 2,800 5,000 552,800
Increase in prepaid expenses and other current assets (20,500) (61,500) (242,500)
Increase in inventory (93,900) -- (93,900)
(Increase) decrease in deposits and other assets 974,200 (103,700) (220,100)
Increase (decrease) in accrued expenses and other
liabilities (223,400) (145,300) 274,200
-------------- ------------ --------------------
Net cash used in operating activities (838,600) (1,272,000) (7,051,200)
-------------- ------------ --------------------
Cash flows from investing activities:
Acquisition of business -- (481,200) (481,200)
Intangible assets (40,100) (151,900) (307,100)
Purchase of property and equipment and leasehold improvements (3,004,300) (5,500) (4,287,400)
Purchase of investments held to maturity (3,346,600) -- (13,698,500)
Proceeds from sale of investments held to maturity 4,361,900 -- 11,685,500
-------------- ------------ --------------------
Net cash used in investing activities (2,029,100) (638,600) (7,088,700)
-------------- ------------ --------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants -- 16,160,400 18,047,400
Deferred offering costs -- -- (349,300)
Proceeds from notes payable 150,400 700,000 2,255,400
Payments on notes payable (23,800) (2,095,000) (2,128,800)
Payments on capital lease obligations (11,400) (85,600) (158,300)
-------------- ------------ --------------------
Net cash provided by financing activities 115,200 14,679,800 17,666,400
-------------- ------------ --------------------
Net increase (decrease) in cash and cash equivalents (2,752,500) 12,769,200 3,526,500
Cash and cash equivalents, beginning of period 6,279,000 5,100 --
-------------- ------------ --------------------
Cash and cash equivalents, end of period $ 3,526,500 12,774,300 3,526,500
-------------- ------------ --------------------
-------------- ------------ --------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,300 188,400 227,100
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ 16,900 -- 221,900
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)
June 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 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 unaudited 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
June 30, 1999, and the results of operations for the three and six month
periods ended June 30, 1999 and 1998. The results of operations for the three
and six months ended June 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 5,855,252 and
4,636,252 shares were excluded from the computations of diluted net loss per
share for the three and six month periods ended June 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 SEC
REPORTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE THESE OR
OTHER FORWARD-LOOKING STATEMENTS.
6
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net loss for the quarter ended June 30, 1999 was $1,054,000 or $0.16 per
weighted average share outstanding, compared to a net loss of $652,200, or
$0.13 per weighted average share outstanding for the same period in 1998. Net
loss for the six months ended June 30, 1999 was $1,781,200, or $0.27 per
weighted average share outstanding compared to $1,078,300 or $0.27 per
weighted average share outstanding in 1998. Net loss from inception (November
8, 1994) to June 30, 1999 was $8,284,900.
Operating expenses were $1,123,300 and $651,100 for the quarters ended June
30, 1999 and 1998, respectively. Operating expenses were $1,951,200 and
$1,008,900 for the six months ended June 30, 1999 and 1998, respectively.
Research and development expenses increased to $606,600 for the quarter ended
June 30, 1999 from $64,500 for the same period in 1998, and increased to
$1,010,500 for the six month period ended June 30, 1999 compared to $265,400
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) rent on the new manufacturing facility.
Marketing, general and administrative expenses decreased to $516,700 for the
quarter ended June 30, 1999 from $586,600 for the same period in 1998, but
increased to $940,700 for the six-month period ended June 30, 1999 compared
to $743,500 in 1998. The decrease for the quarter is due to a reduction in
consulting fees as well as marketing research fees incurred in 1998 but not
in 1999. The increase for the six month period is due to the following: (1)
increase in salaries to existing employees as well as the hiring of
additional employees, (2) increase in legal and accounting fees, and (3)
overall increases in general corporate spending due to increased business
activities.
Interest expense was $6,200 for the quarter ended June 30, 1999 compared to
$92,800 for the same period in 1998 and was $8,500 for the six months ended
June 30, 1999 compared to $161,100 in 1998. The decreases are a result of
repayment of substantially all of the Company's debt following its Initial
Public Offering ("IPO").
Interest income was $75,500 for the quarter ended June 30, 1999 compared to
$91,700 for the same period in 1998, and was $178,500 for the six months
ended June 30, 1999, compared to $91,700 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
six month period reflects interest earnings for six months, whereas in 1998,
excess funds were invested for a period of one and a half months, following
the Company's IPO.
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 June 30, 1999, the Company's cash and cash equivalents and
investments totaled approximately $5.6 million.
Primary uses of cash and cash equivalents for the six months ended June 30,
1999 included $838,600 for the Company's operations and working capital
requirements, patent costs of $40,100, payments on capital lease obligations
of $11,400, and purchase of equipment and leasehold improvements of
$3,004,300. 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
7
<PAGE>
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 18 months at its anticipated
level of operations. However, the Company may seek additional funding during
the next 18 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 has developed a program to address Year 2000 Issues and such
program is substantially completed. 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 plans to increase its inventory of raw materials
prior to year end in anticipation of potential delays in deliveries.
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
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of Ontro, Inc. was held on
June 11, 1999.
(b) At the 1999 Annual Meeting of Shareholders, votes were cast on
matters submitted to the shareholders, as follows:
The election of five directors:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
James L. Berntsen 5,736,856 13,300
Robert F. Coston 5,411,956 338,200
Douglas W. Moul 5,736,856 13,300
James A. Scudder 5,736,856 13,300
Carroll E. Taylor 5,736,856 13,300
</TABLE>
Approval of an amendment to the 1996 stock option plan increasing the number
of shares by 500,000.
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
3,727,498 38,407 227,372 1,756,879
</TABLE>
Approval of the selection of KPMG, LLP as the Company's independent public
accountants for the year ending December 31, 1999.
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
5,745,256 4,600 300 0
</TABLE>
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 June 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
August 16, 1999 By:
----------------------------------
James A. Scudder
Chief Executive Officer and President
(Principal Executive Officer)
August 16, 1999 By:
----------------------------------
Kevin A. Hainley
Chief Financial Officer
(Principal Financial and Accounting
Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,526,500
<SECURITIES> 2,023,600
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 93,900
<CURRENT-ASSETS> 5,886,500
<PP&E> 4,492,500
<DEPRECIATION> (515,800)
<TOTAL-ASSETS> 10,456,900
<CURRENT-LIABILITIES> 436,600
<BONDS> 0
0
0
<COMMON> 17,471,600
<OTHER-SE> (7,484,200)
<TOTAL-LIABILITY-AND-EQUITY> 10,456,900
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,951,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,500
<INCOME-PRETAX> (1,781,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,781,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,781,200)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
