SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB/A
This is the Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the full year ending December 31, 1998 concerning
TOUPS TECHNOLOGY LICENSING, INC.
A Florida Corporation located at
7887 Bryan Dairy Road, Suite 105, Largo, Florida 33777 o voice
(727)-548-0918 o fax (727)-549-8138
0-23897 59-3462501
Commission File Number IRS Employer Identification No.
Over-The-Counter Bulletin Board ("OTC:BB") Common
Name of each exchange Securities registered under
on which registered Section 12(g) of the Exchange Act:
The Company has filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months and the Company has been
subject to such filing requirements for the past 90 days.
The Company's revenues for the fiscal year ending December 31, 1998 were
$2,221,709.
At July 21, 1999, the closing bid price of the Company's common stock was
$0.96 The Company's common stock is traded under the symbol "TOUP."
At December 31, 1998, the Company had 22,217,299 common shares issued and
outstanding.
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Reference Page
Part I
Item Page Number
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Market for Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis or Plan of Operation
Item 7 Financial Statements
Item 8 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
Part III
Item 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners
and Management
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits and Reports on Form 8-K
Part F/S
Signatures
<PAGE>
Part I
Item 1 Description of Business.
The Company
Toups Technology Licensing, Inc. was incorporated in the state of Florida
on July 28, 1997. The Company was formed to improve, enhance or remediate the
environment through technologies and services. During June, 1999, the Company
grouped its nine divisions into three major divisions titled Environmental
Solutions, Manufactured Products and E-Commerce. Led by its Environmental
Solutions Division, the Company works to achieve its business purpose through
these three major divisions:
Toups Technology Environmental Solutions sells equipment and techniques
principally through its Village Concept of converting solid and liquid wastes
into useable energy and carbon black.
The Company's Manufactured Products division is the manufacturing source
for the Balanced Oil Recovery System, Tunnel Bat Culvert Vehicles and a host of
high tech radio frequency power supplies.
The Company's E-Commerce division features TTLOnline.com, an internet
retail marketing program and InterSource HealthCare, an internet marketer of
medical equipment, supplies and pharmaceuticals.
Results of 1998 (first full year) Operations - The following discussion
should be read in conjunction with the Company's audited financial statements
for the years ended December 31, 1998 and 1997 which are included herein. Sales
for 1998 were $2,221,709, an increase of $1,877,546 or 546% from $344,149 in
1997. Gross profit for 1998 was $825,751 or 37% of revenues, which was down from
$141,460 or 41% of revenues for 1997. The slight decrease in gross profit as a
percentage of revenues in 1998 was the result of a profit margin of the in-house
manufactured BORS Lift during its product introduction.
The Company's selling, general and administrative (SG&A) expenses of
$5,985,169 were comprised of development expenses, salaries, consulting
services, and other operating costs in 1998, up from $126,631 during 1997. As a
percentage of revenues, SG&A increased to 269% in 1998 up from 37% in 1997. SG&A
expenses increased in 1998 to support further technology development, new
product introductions and future business expansion.
The Company attributes 71% or $3,580,123 of its losses during 1998 to a
one-time charge against earnings relating to the issuance of common stock to
attract and retain key pesonnel, to acquire various license agreements, to make
acquisitons and for other develomental needs. The Company attributes the
remaining 29% or $1,459,463 of its losses to earnings at the full-year ending
December 31, 1998 to first year operational losses incurred in the development
and market introduction of its various technologies. (See "Independent Auditor's
Report and accompanying consolidated balance sheets of Toups Technology
Licensing, Incorporated and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended" which begin on Page F-1).
For the year ended December 31, 1998, the Company had total assets of
$5,685,185 as compared with $562,054 for the period ending December 31, 1997 and
stockholders equity grew from $256,484 at December 31, 1997 to $3,733,143 at the
year ending December 31, 1998.
The Company envisions growth during 1999 will be approximately 80% internal
and 20% from the licensing/acquisitions of new technologies. The Company
estimates it will derive revenues during 1999 from all current divisions. The
Company intends to acquire technologies through licensing, joint ventures,
acquisitions, manufacturing rep agreements and other similar means. The Company
intends to commercialize its technologies through joint ventures; strategic
alliances; sub-licenses; providing services; and through the direct manufacture
and sale of products.
Business Method - TTL enters worldwide exclusive license agreements for
developed technologies, which are at or near the market-entry stage. The Company
also makes acquisitions of existing companies, which add to or compliment TTL's
technology mix. TTL commercializes the technologies by folding each into a
seasoned, entrepreneurial-minded corporate infrastructure housed in a
state-of-the-art manufacturing facility. The combination results in a turnkey
process wherein emerging technologies can mature into marketable products or
services and the Company's shareholders can participate in a multi-technology
approach at the development/market introduction stage.
Management - The Company's management team is led by President, Chief
Executive Officer and Chairman of the Board, Leon H. Toups. Mr. Toups' past
associations include ten years serving as President and Chief Executive Officer
of Chromalloy American. Prior to its sale and during the period of Mr. Toups'
association, Chromalloy American was a 600 company international conglomerate
serving six major market segments with revenues of approximately $2 billion.
Co-founders of Toups Technology include Chief Executive Officer and Chairman Mr.
Leon Toups, Executive Vice President and Director Mr. Mark Clancy and Chief
Financial Officer and Director Mr. Michael Toups. (See "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act").
Operating structure - In addition to the above named Officers, at the staff
level to support all technologies, the Company has a Safety Officer, Engineering
Coordinator, Sales Manager, Compliance/Quality Control Director and Purchasing
Coordinator. At the line level, the Company typically engages an
industry-experienced professional as Division Manager. This structure preserves
the single-minded, entrepreneurial spirit of each project while providing
managerial support in matters relating to operations, sales and marketing,
finance and business development.
Operating facilities - The Company's headquarters and manufacturing
facility occupies approximately 50,000 (fifty thousand) square-feet within the
96-acre Pinellas Science Technology and Research Center ("STAR Center") located
at 7887 Bryan Diary Road, Largo, Florida. The Company also has leased a 10,000
(ten thousand) square foot stand-alone building within which is housed TTL's
Environmental Solutions Division. The Company also maintains its Balanced Oil
Recovery System (BORS) Lift Engineering office in Claremore, Oklahoma. (See
"Description of Property").
Employees - The Company provides medical insurance, vacations, stock
incentives and other, similar employee benefit programs. None of the Company's
employees are represented by collective bargaining agreements. At December 31,
1998, the Company had 88 full-time and 0 part-time employees engaged in the
following areas:
Executive 5
Engineering/technical 11
Manufacturing 59
Sales 9
Administrative 4
Total 88
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1999 capital financing programs. During the first quarter, 1999, the
Company completed agreements for the sale of $1,500,000 of its Subordinated
Convertible Notes (the " Notes") and the sale of $750,000 of its Series A 7%
Convertible Preferred Stock (the "Preferred"). Each transaction was done with a
domestic US fund. Both placements were conducted to provide for capital expenses
estimated to occur throughout 1999. (See "Market for Common Equity and Related
Shareholder Matters").
Divisional Summary:
Environmental Solutions Division - represents the focus of the Company's
business purpose and encompasses proprietary waste-to-energy equipment designed
to treat all hydrocarbon-based waste in a closed, non-polluting environment. The
equipment includes:
i. Pyrolytic Carbon Extraction(a),
ii. Pyrolytic Tire Reclamation and the
iii.Hot Plasma Destructive Distillation(a)
In addition, the Environmental Solutions division features three,
clean-burning alternative fuels including:
i. Phoenix 777(a);
ii. AquaFuel(a), and;
iii.Magnegas(a).
Manufactured Products Division - supports the Company's business purpose
through the fabrication and assembly of the environmental equipment cited above
as well as acting as the manufacturer for the Company's Balanced Oil Recovery
System Lift, Tunnel Bat Culvert Reclamation Vehicles and a complete line of
high-tech radio frequency powered generators. The Manufactured Products Division
earns revenues through the sale of proprietary manufactured products for the
Company and as an outsource provider for a host of third-party manufactured
parts and products.
E-Commerce Division - supports the Company's business purpose through
conducting secured transactions through the internet for both the Company's line
of products as well as on a fee basis for third party merchants. At present, the
E-Commerce Division featuring InterSource HealthCare, markets medical equipment
as well as a host of medical products and pharmaceuticals. TTLOnline.com came
on-line during June, 1999 to serve as the marketplace for our E-Commerce
Division allowing the Company to now stock our shelves with a host of products
which will be offered for sale on a shared-revenue basis. The E-Commerce
Division earns revenues through the sale of both proprietary and third-party
products on the internet.
1998 into 1999. During 1998, the Company grew from 5 to 88 employees and
from occupying 5,000 square-feet in a single location to now operating a 50,000
square foot manufacturing, precision micro-welding facility, a 10,000 square
foot off site location, a national engineering office in Claremore, Oklahoma.
Also during 1998, the Company acquired the rights to four technologies,
made three acquisitions and increased assets from approximately $562,054 to
$5,685,185. The Company continues to operate with minimal debt and normal trade
payables and has seen meaningful revenue growth from the last quarter, 1998 to
the first quarter, 1999. With the maturing of the Company's three divisions
coupled with the recently completed private securities sale of $2,250,000, the
Company is confident it can expand operations for the remainder of 1999.
Research and development. As a facilitator of technologies, a portion of
the Company's cash will be used to finance the development of its products,
particularly its Tunnel Bat technologies. The Company also estimates it may
incur additional research and development costs in relation to Alternative
Fuels. As of this writing, the Company estimates such 1999 research and
development costs would be approximately: Tunnel Bat vehicles - $72,000 and;
potentially, Alternative Fuels - $300,000.
The Company earns its revenues primarily through the sale and service of
the following product lines.
Environmental Solutions:
Equipment:
Pyrolytic Carbon Extraction(a)(PCE) Processor
Hot Plasma AquaFueler(a) 1500
Pyrolytic Tire Reclamation Process
Alternative Fuels:
AquaFuel(a)
Phoenix 777(a)
Magnagas(a)
Manufactured Products
Balanced Oil Recovery System Lift
Tunnel Bat Culvert Reclamation Vehicle
Brounley Radio Frequency CO2 Lasers and Power Generators
E-Commerce Division
InterSource HealthCare
TTLOnline.com
<PAGE>
Pyrolytic Carbon Extraction (PCE) Processor
The Company's Pyrolytic Carbon Extraction Process or PCE treats both liquid
and solid hydrocarbon-based waste in a closed system without releasing harmful
emissions, fluids or solids into the environment. The industrial system
transforms about 40% of the waste into carbon black. The remainder becomes a
clean-burning gas named Phoenix 777(a) which demonstrates exhaust and combustion
properties superior to natural gas. The combustion of Phoenix 777(a) emits less
than half of the carbon dioxide of natural gas and virtually no carbon monoxide
or hydrocarbons, is lighter than air and has a distinct odor which is an
important safety feature..
(Picture Omitted)
The PCE refinery or fuel-processing unit provides for both mechanical and
electrical output. The unit operates on wastes ranging from household garbage,
tires, vegetable matter, manure of all types, waste oils (fossil or vegetable),
animal fat and a host of other hydrocarbon-based waste.
The PCE unit is a dual-fuel unit. The PCE unit is designed to be activated
with propane and once in operation, the dual-fuel capability allows the unit to
switch from propane to its own Phoenix 777(a). The unit will consume about 20%
of the Phoenix 777(a) produced in the course of its operation.
System Features:
Fuel: Waste material such as paper, plastic, tires, animal fat,
used motor oil, cloth, bio-mass
Power Plant: 4-cylinder internal combustion engine carbureted for
propane and Phoenix 777@ - (diesel or gasoline
configuration optional)
Automatic operation using embedded controller
System Benefits:
o Produces drinking and potable water with optional evaporator unit o
Waste disposal solution with short-term payback capabilities o
Generation of electricity when put in series with a generator o
Environmentally clean - no emissions, no landfill waste o Carbon black
extraction affords additional revenue stream o Minimal global warming
contribution o No fuel or electric costs for operation
Manufacturing:
The Company fabricates and assembles the PCE equipment at its Largo, Florida
based plant.
<PAGE>
Hot Plasma AquaFueler1500
TTL's Hot Plasma AquaFueler 1500 is designed to recycle a variety of
materials into a clean burning, combustible fuel. Some of the materials for
which this unit was designed to convert to a useful, combustible gas include:
- Chemical/hydrocarbon contaminated soil, PCP contaminated transformer oil,
Water/land-based oil spills, Refinery pit oil, Antifreeze, Solvents,
Processing oils, Hazardous runoff water, Paint sludge, Crankcase sludge,
Bilge water, Processing oils, Tank bottoms, Parts washer solvents,
Chemical wash water
The AquaFueler
The AquaFueler 1500 makes up to 3,000 cubic feet of clean-burning AquaFuel
per hour for about five cents per cubic foot. Three one-by-twelve-inch carbon
rods are automatically fed into the liquid-filled AquaFuel generation chamber.
Liquids used in the process can range from salt water to raw sewage. The
AquaFueler 1500 is the only safe, reliable and effective way to make AquaFuel.
(Picture Omitted)
Manufacturing:
The Company fabricates and assembles the AquaFuel 1500 equipment at its
Largo, Florida based plant.
<PAGE>
Pyrolytic Tire Reclamation (PTR) Process
The Company's PTR Process was developed to recover the oil, steel and
carbon black used in the manufacture of tires. The process is self-contained,
using scrap tires as the feed-source, fed in through the PTR equipment as a
means to reduce the tires to their basic elements. As a percent of weight, the
by-products of each tire are 10% steel; 25% fuel gas; 25% Petro-chemicals, and;
40% carbon black. The PTR technology reclaims these products which are then
offered for sale.
The PTR technology differentiates from competition because there are no
emissions and, therefore, no residue from combustion. The PTR technology is
further differentiated from competition in its modular design, which allows for
a tire "plant" to be a single unit up through a full-scale, multi-unit plant.
(Picture Omitted)
PTR Research and Development - The final commercial development of the PTR
equipment will take a two-pronged path through (i) the fabrication of the actual
PTR module and; (ii) a detailed analysis of materials resulting from the PTR
equipment including carbon black, oils and Petro-chemicals. The purpose of the
Company's testing program is to determine the quality and character of the
materials produced by the equipment such that a market demand determination can
be made.
Manufacturing
As a part of its development agreement with a national heat rod company,
the Company intends to outsource portions of the fabrication aspect of its PTR
technology
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AquaFuel
AquaFuel is produced as a result of recycling liquid waste. AquaFuel is a
non-fossil, combustible gas that results from the introduction of an electric
arc under water in the presence of carbon. The resulting fuel is so
clean-burning that it gives off as much carbon monoxide in 24 years as the same
engine on gasoline does in 24 minutes.
At present, the only device able to manufacture AquaFuel in commercially
viable quantities is the AquaFueler 1500.
AquaFuel can be used to power everything from cooking stoves to electric
generators to replacing acetylene for metal cutting.
The various studies completed until now have identified the following main
characteristics:
1) AquaFuel is cost competitive even neglecting its free production as a
byproduct of sewage recycling, it has dramatically less pollutants in
the combustion exhaust, and can be more easily and safely produced and
stored than any other combustible gas, ;
2) In view of the above characteristics, AquaFuel is clearly among the
best fuels available at this writing for automotive and other uses on a
world wide basis, with particular reference to consumer, but also for
municipal, industrial and military applications;
3) The AquaFuel process provides a basically novel method for recycling
liquid waste which produces AquaFuel as a usable gas, water usable for
irrigation and solids usable for fertilization;
4) AquaFuel is an excellent gas for the production of electricity,
particularly in the free form obtained from the recycling of liquid waste
from cities and municipalities.
5) Systematic scientific experimentation and theoretical studies of the
chemical and particulate behavior have identified a number of anomalies
in AquaFuel which are applicable to all other gases, thus permitting a
new gas technology with implications and applications to the entire gas
industry and consequentially vast, additional economic horizons.
<PAGE>
Phoenix 777(a)
Phoenix 777(a) is derived through the operation of the Company's Pyrolytic
Carbon Extraction equipment.
Phoenix 777(a) demonstrates unique properties with exhaust and combustion
properties superior to natural gas.
Combustion emits less carbon dioxide emissions than natural gas and
virtually no carbon monoxide (as measured by percentage of emissions) or
unburned hydrocarbons (as measured by parts per million).
It also contains a concentration of oxygen higher than 7% plus water vapor.
And, like natural gas (methane), it is lighter than air and has a distinct odor.
Measurements to date reflect in combustion, Phoenix 777(a) emits:
CO2 7%
O2 9%
CO 0.02%
the balance of the emissions contain water vapor
Phoenix 777(a) has also been found to contain approximately 800 Btu per
cubic foot.
<PAGE>
Manufactured Products Division
The Company's Manufactured Products Division is the manufacturing source of:
Balanced Oil Recovery System Lift
AquaFueler 1500
Pyrolytic Carbon Extractor
Pyrolytic Tire Reclamator
Tunnel Bat Culvert Reclamation Vehicles
Radio Frequency Plasma Generators and associated proprietary products
including:
The Company's manufacturing division incorporates state of the art custom
metal fabrication and machining. The Company's metal fabrication capabilities
allow TTL to build to print products for a wide range of industrial and business
needs. With its in-house equipment, TTL can fabricate a wide range of material
including stainless and carbon steel, aluminum, copper, titanium and incanel.
TTL's machine stop is equipped to do prototype, customer or production work. TTL
has the latest in CNC technology with A Hass Hl-4 30hp Lathe and a Haas VF-4
vertical milling center. The equipment is efficient for production runs and the
Company also has several vertical mills, tooling lathes and drill presses. In
addition, TTL's Manufactured Products Division offers a total range of welding
capabilities including inert gas or CO2, plasma, laser and electron beam
welding.
1. It is an excellent source of revenues;
2. It provides for increased efficiencies resulting from distributing
overhead, operating costs and providing additional buying power;
3. Exposure to potential business and strategic partners;
4. Real-time control over quality, timing and workmanship for all
proprietary products. New inventions often require one-of-a-kind
specialty parts. Given the unique nature of many TTL manufactured
products, exact attention to specifications is assured while retaining
flexibility mindful of changing designs and invention.
The manufacturing facility occupies 50,000 square feet in the Pinellas
Science Technology and Research Center. Formerly occupied by Lockheed Martin
Specialty Components as a high-tech parts provider to the Department of Energy,
the 96-acre center has been converted to a home for private technology firms and
manufacturers.
The following highlights the Company's Manufactured Products Division
market-ready product line.
<PAGE>
The Balanced Oil Recovery System (BORS) Lift
The BORS Lift is a turnkey device that more economically produces oil from
shallow, low-volume "stripper" wells (10 barrels per day or less). By lifting
oil rather than pumping, the BORS Lift also eliminates conventional rods,
tubing, downhole pumps or pumping units, and related maintenance costs. Standing
just 4 ft tall and 8 ft long, it is capable of producing from a gas driven well
with a maximum fluid-balance level of 2,500 feet.
(Picture Omitted)
The operating concept is based on a balanced technology of extracting oil
through a collection tube and dumping it into a collection tank without bringing
up water. Using the BORS lift, wells that were expelling 25 barrels or more of
salt water every day are now pulling up only oil, saving on salt water disposal.
Installations of the BORS lift have demonstrated an average 387 percent increase
in oil production and a decrease in per barrel electric costs from $3.50 to
$0.035.
Manufacturing
The Company manufactures the BORS device in-house except for the
galvanizing process. The Company purchases the computers and motors for the BORS
device from national suppliers. Based on current equipment and facilities, the
Company is able to manufacture 125 BORS units per month on a single-shift basis
and can manufacture up to 500 BORS units per month on a three-shift basis. The
Company currently maintains storage facilities in Claremore, Oklahoma which can
inventory BORS units pending sale and delivery.
<PAGE>
Tunnel Bat Culvert Reclamation Vehicle
The Tunnel Bat technology refers to a vehicle specifically designed to
mobilize the removal of silt, debris, vegetation, soil, rock, and other types of
blockage from inside a box culvert. Box culverts relate to a sewer or drain
running under a road or embankment. Invented by Dave Richardson in 1994, the
Tunnel Bat vehicle represents a solution to the growing problem of removing
blockage from box culverts. The unit is driven by a person, moves both forward
and backward at about 3 to 5 mph with attachments are on both front and rear.
(Picture Omitted)
The Tunnel Bat equipment is able to turn a slow, unpleasant job into a
reliable, thorough professional approach to desilting box culverts. The
equipment is fully mobilized allowing for the maximum removal of blockage while
providing a safe working environment. Toups Technology is unaware of any other
product on the market that is designed to address the thousands of box culverts
throughout the United States.
Before the Tunnel Bat After The Tunnel Bat
(picture omitted) (picture ommitted)
The Company has now completed preliminary production designs and is
ordering parts components necessary to construct the first mass production
Tunnel Bat vehicle. The Tunnel Bat Licensor, Mr. David Richardson, operates a
Tunnel Bat service company within the State of Florida and operates with two
Tunnel Bat vehicles.
Brounley Engineering & Associates. On September 30, 1998, the Company
acquired Brounley Associates, Inc. in an exchange of common shares in which TTL
issued 900,000 unregistered common shares in exchange for 100% of the issued and
outstanding common shares of Brounley. The Company agreed to register 125,000 of
the 900,000 common shares issued in the acquisition of Brounley. Brounley is a
wholly owned subsidiary of Toups Technology.
(PICTURE OMITTED)
Brounley Technology - Brounley is engaged in the design and manufacture of
RF (radio frequency) and related circuits, particularly in the field of solid
state power generation. Brounley's integrated and modular design concepts
competitively differentiate their product line of high-powered RF generators in
small packages. In 1993, Brounley added production facilities to build a new
line of generators for Lasers and for the Plasma Etching & Sputtering industry.
In addition to Integrated RF Generators, Brounley offers clients a full range of
services from original design to a final product.
(PICTURE OMITTED)
Brounley Product Line - Brounley offers a full line of RF Power Generators
for the laser and plasma industries which includes a power range from 50W to
10,000W. In addition, Brounley also offers solid state tuners for the plasma
industry. Other Brounley products include power supplies, RF pre & power
amplifiers and a variety of designs to support Military communications programs.
Viperstrike RF Power Generators. Brounley offers its own brand of RF power
generators dubbed Viperstrike. The Company's Viperstrike RF Generators is
available in size from the PB300 laser mounted model with 300W output power up
through the 8X2 with 10,000W output power. The Viperstrike line of RF power
generators can be controlled by an existing system or with the addition of a
Brounley digital or analog controller. The user can combine or divide the output
power from Viperstrike RF power generators using Brounley's line of RF combiners
and dividers.
International Organization for Standardization (ISO) 9000. Brounley is
currently engaged in a top to bottom quality program designed to lead to an ISO
9000 Certification during the fourth quarter, 1999. ISO is a worldwide
federation of national standards bodies, from some 90 countries. It promotes the
development of standardization and related activities to facilitate the
international exchange of goods and services, and develop intellectual,
scientific, technological and economic cooperation. The ISO consists of some 170
technical committees, 640 subcommittees, 1800 working groups and 10 ad hoc study
groups. These represent the viewpoints of manufacturers, vendors and users,
engineering professions, testing laboratories, public services, governments,
consumer groups and research organizations in each of the 90 member countries.
As an ISO 9000 certified manufacturing facility, Brounley's product line
achieves a heighten level of client receptivity resulting from a verifiable
design, testing and manufacturing techniques. The ISO 9000 is recognized as the
guidelines for selection and use of quality management and assurance standards
for both supplier and customer. ISO 9000 elaborates on the general philosophy of
quality systems standards, their characteristics, the existing types, where and
when they are best used, and describes what elements quality assurance models
should incorporate. It also deals with demonstration and documentation
requirements, pre-contract assessment and contract preparation.
Brounley Research and Development - Brounley's engineering department is
working to further reduce the overall size of the Company's generators while
preserving and increasing the power. Brounley is also engaged in a Plasma
generator design which is slated for market introduction during the fourth
quarter, 1999 through the first quarter, 2000. As a part of its overall
development, Brounley is evaluating all aspects of its operations so as to
become an ISO 9000 certified manufacturing facility by the fourth quarter, 1999.
InterSource Health Care. On December 18, 1998, the Company acquired
two-year old InterSource Healthcare, Inc. in an exchange of common shares
agreement in which the Company issued 1,203,241 unregistered common shares in
exchange for 100% of the issued and outstanding common shares of InterSource.
The Company agreed to register 225,000 of the 1,203,241 common shares issued in
the course of the acquisition. InterSource is a wholly owned subsidiary of Toups
Technology
(PICTURE OMITTED)
InterSource Business - InterSource seeks to match buyers and sellers of new
and used (refurbished) medical equipment and consumables through its internet
site located at www.intersourcenet.com. For the seller of new or refurbished
medical equipment and/or consumables, InterSource offers a secure internet site
coupled with a professionally staffed in-house sales force. For the buyer of
medical equipment and/or consumables, InterSource offers a one-stop means to
comparatively shop through the convenience of the internet.
InterSource Marketing - InterSource offers its equipment and products
through a secure internet home page and through an in-house, direct sales
program. The staff of InterSource's direct sales program includes a licensed
medical doctor, a registered pharmacist, a registered nurse and the former
principal of Alpha Laboratories Corporation.
An InterSource Transaction - Contact is made with a prospective customer
that became aware of available equipment and/or products either through
InterSource's internet home-page or from direct selling efforts. A detailed
investigation is done to assure the supply of the proper product at the proper
cost to meet an individual need of the customer. Once completed, the customer
places an order. InterSource then procures the needed item(s), receives and
inspects the products, and ships direct to the customer. Payment terms vary
dependant of the product(s) ordered, however, 95% of the payments are made
between time of order and time of delivery. The other 5% are net 30-day terms
for smaller orders of consumable products to credit worthy customers.
InterSource maintains a minimal inventory of items; most items are purchased for
direct resale after an actual order is received from a customer. InterSource,
under the terms of a wholesale broker license can only broker pharmaceuticals
and cannot take possession of same. All pharmaceutical sales are done on a
letter of credit basis payable at time of delivery.
InterSource Marketplace - The Company estimates the marketplace for its
InterSource division is the general medical equipment marketplace of
approximately $100 billion annually. InterSource also operates in a limited way
in the United States pharmaceutical marketplace. Both the new and used medical
equipment and pharmaceutical industries are highly competitive. The Company is
unaware of other entities engaged in a business purpose similar to that of
InterSource. However, given the size and scope of the medical industry, the
Company expects to encounter competition more than likely from companies with
greater financial and marketing resources than TTL.
Municipal Solid Waste
The municipal solid waste (MSW) industry has four components: recycling,
composting, landfilling, and combustion. The U.S. Environmental Protection
Agency defines MSW to include durable goods, containers and packaging, food
wastes, yard wastes, and miscellaneous inorganic wastes from residential,
commercial, institutional, and industrial sources. It excludes industrial waste,
agricultural waste, sewage sludge, and all categories of hazardous wastes,
including batteries and medical wastes. More than 209 million tons of MSW was
generated in 1994. Paper and paperboard accounted for 81.3 million tons (38.9
percent) of the total waste stream, yard wastes 30.6 million tons (14.6
percent), plastics 19.8 million tons (9.5 percent), metals 15.8 million tons
(7.6 percent), food 14.1 million tons (6.7 percent), glass 13.3 million tons
(6.3 percent), and other 34.2 million tons (16.4 percent).
Type of Process and Capacity - Competitive answers to MSW
Generally, WTE facilities can be divided into two process types: mass burn
and refuse-derived fuel (RDF). Mass burn facilities process raw waste; it is not
shredded, sized, or separated before combustion. Very large items such as
refrigerators or stoves and batteries/hazardous waste materials are removed
before combustion. Noncombustible materials such as metals can be removed before
or after combustion, but they are usually separated from the ash with magnetic
separators. The waste is usually deposited in a large pit and moved to furnaces
with overhead cranes.
Combusting waste usually reduces its volume by approximately 90 percent.
The remaining ash is buried in landfills. The ash is divided into two
categories: bottom ash and fly ash. Bottom ash is deposited at the bottom of the
grate or furnace. Fly ash is composed of small particles that rise during
combustion and are removed from the flue gases with fabric filters and
scrubbers. Fly ash is usually considered to be the more significant
environmental problem.
Waste is preprocessed at RDF facilities. Noncombustible materials are
removed, increasing the energy value of the fuel. The extent to which
noncombustible materials are removed varies. Most systems remove metals with
magnetic separators; glass, grit, and sand may be removed through screening.
Some systems utilize air classifiers, trommel screens, or rotary drums to
further refine the waste.
Modular facilities are small mass burn facilities; they are usually
prefabricated and shipped fully assembled or in modules to the construction
site. Mass burn waterwall facilities are usually custom-designed and constructed
at the site. Waterwall furnaces contain closely spaced steel tubes that
circulate water through the sides of the combustion chamber. The energy from the
burning waste heats the water and produces steam. Some waterwall facilities also
use rotary combustors to rotate the waste, resulting in more complete
combustion.
The overall majority of WTE facilities employ mass burn processes. Of the
101 facilities reporting the type of process employed in 1996, 86 were mass burn
facilities and 15 were RDF facilities. Two of the mass burn facilities
codisposed their waste with sludge. Although only 22 percent of the facilities
were of the smaller modular type, 6 of the 13 facilities located in the North
Central region were modular . Over half of the facilities were of the mass burn,
waterwall type. More than 40 percent of the facilities are located in the
Northeast and another one-third in the South. Only 22 percent are located in the
West and North Central regions, where landfill space is relatively less scarce.
The average capacity of U.S. WTE facilities is almost 1,000 tons per day.
RDF facilities, on average, have more than twice the capacity of mass burn
facilities (almost 1,900 tons per day versus 850 tons per day). The facilities
in the Northeast and South regions have an average capacity greater than 1,000
tons per day. The average capacity of the facilities in the North Central and
West regions is between 700 and 800 tons per day (Table 11). Modular facilities
are by far the smallest, ranging from an average of 89 tons per day in the North
Central region to 256 tons per day in the Northeast.
Primary Energy Form
Over 80 percent of the 102 facilities produce electricity. Twenty of the 84
facilities that produce electricity cogenerate steam and electricity. Only 18 of
the facilities produce just steam; 12 of those facilities are modular. None of
the RDF facilities produce steam only, compared with more than half of the
modular facilities, most of which are older facilities.
In recent years most of the installations have generated electric power.
The guaranteed market for electricity under PURPA minimizes the financial risk
for facilities generating electricity. This condition could change if
electricity prices drop as a result of restructuring in the electric utility
market.
Air Pollution Control Equipment
Various types and designs of air pollution control equipment are used by
most WTE facilities. Dry scrubbers and baghouse filters used in combination are
more efficient than most electrostatic precipitators in removing acid gases and
particulates from stack gases. Nitrogen oxide and mercury emissions must also be
controlled in most regions of the United States. Modular facilities that have
exclusively used after-burn or two-chamber combustion systems can no longer rely
on those systems for adequate pollution prevention in many parts of the United
States. As a result, some have been retrofitted. Others have permanently closed
down.
Participants
Waste-to-Energy Facilities
As of the fall of 1996, there were 102 WTE facilities marketing energy in
the United States. The number of facilities has declined by more than 10 percent
during the past few years. Most of the WTE facilities in the United States are
located in the East, where landfill space is the most scarce. WTE capacity has
declined by approximately 2 percent over the last year or so, from almost
101,000 tons per day to approximately 99,000 tons per day.
Almost half (48) of the WTE facilities in the United States are privately
owned; 3 are joint public/private ventures; and the remainder are publicly
owned. Twenty-five of the facilities owned by the public sector are operated by
private sector. Thus, 70 percent of all U.S. WTE facilities are operated by the
private sector.
Trends in Municipal Solid Waste Generation
The generation of MSW has increased from 88 million tons in 1960 to 209.1
million tons in 1994. During that time, per capita generation of MSW increased
from 2.7 pounds per person per day to 4.4 pounds per person per day. Per capital
generation is expected to remain constant through 2000, when total MSW
generation is expected to 223 million tons.
In 1960, approximately 30 percent (27 million tons) of MSW generated was
incinerated, most without energy recovery or air pollution controls. During the
next two decades, combustion declined steadily, to 13.7 million tons by 1980, as
old incinerators were closed. Less than 10 percent of the total MSW generated in
1980 was combusted. With the enactment of the Public Utility Regulatory Policies
Act of 1978, (PURPA) and the emergence of a guaranteed energy market, combustion
of MSW increased to 31.9 million tons or 16 percent of generation by 1990. All
of the major new waste-to-energy facilities are designed with air pollution
controls and have energy recovery. During the 1990s, the absolute amount of MSW
combusted and converted into energy remained fairly constant, although the share
declined slightly. By the year 2000, the amount of MSW combusted is expected to
reach 34 million tons.
PCE differentiates from alternative MSW solutions
At present, approximately 57% of Municipal Solid Waste is placed in
landfills while 16% is used in combustion and 27% is recovered. What is
important to note here is that of the estimated 16% of MSW which burned or used
in combustion, produces two grades of ash which must then be buried at the
landfill.
(GRAPHIC OMITTED)
The reasons for the predominate use of landfills is understandable when
considering the trend in tipping fees. Note the tipping fees for waste-to-energy
facilities have grown to in excess of $62 per ton while the tipping fees for
landfill disposal of MSW have remained constant since 1994 at approximately $31
per ton.
(GRAPHIC OMITTED)
The most practical entry into the MSW marketplace, as it relates to the
Company's Environmental Solution as delivered through TTL's Village Concept is
by focusing on the use of Landfill for municipal solid waste. This becomes clear
when considering the large market share currently held by Landfill and the many
negative factors which accompany this type of MSW disposal.
(GRAPHIC OMITTED)
MSW contains significant portions of organic materials that produce a
variety of gaseous products when dumped, compacted and covered in landfills.
Anaerobic bacteria thrive on the oxygen-free environment resulting in the
degradation of the organic materials and the production of primarily carbon
dioxide and methane. Carbon dioxide is likely to leach out of the landfill
because it is soluble in water. Methane, on the other hand, which is less
soluble in water and lighter than air, its likely to migrate out of the
landfill. Of interesting note is a type of gas called Landfill gas or LFG.
In the United States, there are 133 facilities that convert landfill gas
into energy at landfill sites that are either operational or temporarily shut
down. The LFG-to-energy facilities appear to be evenly distributed throughout
the regions of the country. The West region has the largest number, followed by
the Northeast, North Central and South. Almost on-third of all the facilities
are located in California and New York has the second largest number. The first
LFG-to-energy facilities began operations in 1979 and approximately 70 percent
of the 133 facilities that are in existence today began operation during the 7
year period 1984 to 1990.
To collect LFG, wells are usually drilled 30 to 100 feet into a landfill.
Key characteristics of a landfill that determine the amount of gas available
include the type and compactness of the refuse buried, the length of time is has
been burned and the amount of rainfall in the area.
Historically, LFG has been collected and flared at sites because it was
uneconomical to convert to energy. Energy application include the use of low to
medium Btu gas to generate electricity or as a boiler fuel. The LFG can also be
upgraded for use in natural gas pipelines and small amounts of LFG are used for
soil remediation or synthetic fuels.
Most LFG-to-energy facilities create medium-Btu gas by filtering out
particulate matter and removing water vapor. This gas has an energy value of
approximately 500 Btu per cubic foot. Pipeline-quality gas (100 percent methane)
can be created by further refinement to remove most of the carbon dioxide and
other contaminants. However, in recent years the percentage of facilities
producing pipeline-quality gas has declined as a result of low natural gas
prices.
Approximately 75 percent of the LFG-to-energy facilities in the United
States produce electricity. Prices for the sale of electricity from LFG plants
in 1994 were reported for 82 facilities (existing and planned). The average
prices (in cent per kilowatthour) were 6.81, 5,76, 4.98 and 4.39 in the West,
Northeast, South and North Central regions, respectively. Many of the facilities
receive peak and off-peak rates.
Item 2 Description of Property
The Company's headquarters and manufacturing facility occupies
approximately 50,000 (fifty-thousand) square-feet within the 96-acre Pinellas
Science Technology and Research Center ("STAR Center") located at 7887 Bryan
Diary Road, Largo, Florida.
Formerly used by Lockheed Martin Specialty Components, Inc. as a provider
for the Department of Energy ("DOE"), the STAR Center has been converted into a
technology incubator for engineering firms and specialty manufacturers. The STAR
Center is a 739,873 square-foot complex, comprised of 17 separate buildings; a
150,000 square-foot, 16-foot high bay manufacturing area, and approximately 100
separate areas, including laboratories, production space and offices.
The Company also maintains a 10,000 square-foot facility wherein is housed
its AquaFuel(a) division. The Company also maintains an engineering,
installation and field service office in Claremore, Oklahoma.
The Company does not invest in real estate or real estate mortgages, nor
does the Company invest in the securities of or interests in persons primarily
engaged in real estate activities.
Item 3 Legal Proceedings
The Company is not subject to any legal proceedings. The Company is unaware
of any governmental authority that is contemplating any procedure to which the
Company is a participant.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
Since activation of operations in November, 1997, the Company has provided
for its venture funding requirements through sales of its securities at prices
ranging from $0.62 to $1.25 per share. As a result of these sales, the Company
issued securities to various persons and firms and all such securities were
acquired directly from the Company in transactions not involving any public
offering. All securities were sold in reliance on Section 4(2) of the Securities
Act of 1933. All purchasers executed a Subscription Agreement indicating they
have such knowledge and experience in financial and business matters that either
alone or with a purchasers representative, are capable of evaluating the merits
and risks of the investment.
Since June 16, 1998, the date when the Company's shares began trading, the
Company's per share price has ranged from $0.68 to $3.00 and has predominately
traded at an average of $2.00 per share. Throughout this period from June, 1998
through the date of this filing, the Company's has traded an average of
approximately 60,000 shares daily.
As of December 30, 1998, Company had in excess of 700 Shareholders of
Record.
In order to allow for its current year capital needs, during the first
quarter 1999, the Company completed the sale of $1,500,000 of its Subordinated
Convertible Notes to The Augustine Fund (the "Augustine Notes") and the sale of
$750,000 of its Series A 7% Convertible Preferred Stock to The Shaar Fund (the
"Shaar Preferred"). Both placements were conducted to provide for capital
expenses estimated to occur throughout 1999.
The Augustine Notes. On February 17, 1999, the Company executed a series of
agreements with Augustine Capital Group ("Augustine") relating to the purchase
by Augustine of $1,500,000 of TTL's Series 1999-A Eight Percent (8%) Covertible
Notes (the "Notes") and the issuance of Warrants and registration rights
relating thereto. On that same date, Augustine delivered $750,000 to TTL and is
obligated to deliver a second $750,000 30 days following the registration of the
shares underlying the Notes. There were no brokers, promoters, underwriters or
similar persons associated with this transaction. Closing fees of $10,000 were
paid (i) to Augustine counsel and (ii) third party counsel whom acted as Escrow
Agent. A more detailed summary of the Series 1999-A Eight Percent (8%)
Convertible Note due January 1, 2002 and the warrants and registrations rights
provided in connection therewith immediately follows
The Shaar Preferred. On March 30, 1999, the Company executed a series of
agreements and amended its articles of incorporation in order to complete the
placement of $750,000 of its Series A 7% Preferred Stock with The Shaar Fund.
Under the terms of the Series A Preferred Stock, the holder may convert at 105%
of the closing price (the "Closing Price" was fixed at $2.10 on March 30, 1999)
anytime up to 90 days after issuance; 85% of the closing price anytime between
91 days and 119 days following closing; 80% of the closing price anytime between
120 and 149 days following closing, or; 75% anytime after 150 days following the
closing date. The Company also issued 93,750 warrants exercisable at $2.40 per
share in connection with the sale of Preferred Stock and granted certain
registration rights. The Company paid a finders fee of 8% or $60,000 plus 50,000
Warrants allowing for the purchase of the Company's securities at 120% of the
closing bid price at time of exercise. A more detailed summary of the Series A -
7% Convertible Preferred Stock and the warrants and registrations rights
provided in connection therewith immediately follows this section.
<PAGE>
Series 1999-A Eight Percent (8%) Convertible Note due January 1, 2002
The Company shall repay to Augustine the principal sum of $750,000 on
January 1, 2002 (Maturity Date) and interest on the principal sum outstanding at
the rate of 8% per annum due quarterly in arrears on March 31, June 30 ,
September 30 and December 31 of each year during the term of the Note. The first
such interest payment is due June 30, 1999. The Notes may be exchangable in
amounts of $50,000 or greater. Conversions of the Note must be effected in
increments of at least $10,000 of principal amount.
Augustine may convert the face amount of the Note at any time commencing
the earlier of (i) the date the Registration Statement relating to the shares
underlying the Note becomes effective, or; (ii) the date which is ninety (90)
days after February 17, 1999 (date of Note). Accordingly, the Conversion date
would be approximately May 17, 1999.
The per share price at which Augustine may convert the Note is the lesser
of: (i) 100% of the lowest closing bid price per share during the five days
preceeding the Closing Date (this price per share has been fixed at $1.78125 (1
& 25/32) per share. Accordingly, should Augustine select method (i) for the
conversion rate of their principal amount, they would be entitled to 421,053
Toups Technology common shares); or (ii) 80% of the lowest closing bid price per
share during the five days preceeding the conversion date.
The Company may, at its option, redeem the Note at any time in an amount
equal to 125% of the face amount of the portion of the Note remaining plus
interest at the time of such redemption.
In keeping with the intent of the parties, the Company shall register
421,053 common shares relating to the first closing and 421,053 common shares in
anticipation of the second closing. At this time, the estimated number of
registered common shares necessary for the full conversion of the principal
amount of the notes is 842,106 common shares.
Warrants in connection with the Augustine Notes
As a part of sale the Augutine Notes, the Company provided 150,000 Warrants
wherein each such Warrant entitles the holder thereof to purchase the Company's
common stock at the rate of 110% of the closing bid price for the Common Stock
on the date of such Closing (the closing bid price for the Company's common
shares on February 17, 1999 was $2.00. Accordingly, the exercise price for the
Warrants relating to the first Closing is $2.20 per share making the full
exercise price of the 125,000 Warrants delivered in connection with the first
Closing $275,000).
Registration Rights in connection with the Augustine Notes
As a part of its Augustine agreements, the Company granted certain
registration rights which, in effect, require TTL to amend its current
pre-effective SB-2 Registration Statement to include the total estimated number
of shares available for conversion of the Notes and exercise of the Warrants.
<PAGE>
Series A 7% Convertible Preferred Stock
On March 30, 1999, the Company executed a series of agreements and amended its
artciles of incorporation in order to complete the placement of $750,000 of its
Series A 7% Preferred Stock with The Shaar Fund. Under the terms of the Series A
Preferred Stock, the holder may convert at 105% of the closing price anytime up
to 90 days after issuance; 85% of the closing price anytime between 91 days and
119 days following closing; 80% of the closing price anytime between 120 and 149
days following closing, or; 75% anytime after 150 days following the closing
date. The Company also issued 93,750 warrants exercisable at $2.40 per share in
connection with the sale of Preferred Stock and granted certain registration
rights. The Company paid a finders fee of 8% or $60,000 plus 50,000 Warrants
allowing for the purchase of the Company's securities at 120% of the closing bid
price at time of exercise.
Warrants issued in connection with the Series A 7% Convertible Preferred Stock
As a part of the sale of its Series A 7% Convertible Preferred Stock, the
Company also issued 93,750 Warrants providing the holder the right to acquire
the Company's common stock at a price equal to 120% of the market price on the
closing date. The Warrants may be exercised anytime up through March 30, 2004.
The exercise price of the warrants issued in connection with the sale of Series
A 7% Convertible Preferred Shares is $2.40 per share. As a further part of the
sale of the Series A 7% Convertible Preferred Shares, the Company 50,000
warrants as a part of a finders fee. The finder's warrants are identical in all
respects to the warrants issued to the holder of the Series A 7% Convertible
Preferred Shares.
Registration rights in connestion with the Series A 7% Convertible Preferred
Stock
As a part of its Shaar Fund agreements, the Company granted certain
registration rights which, in effect, require TTL to amend its current
pre-effective SB-2 Registration Statement to include the total estimated number
of shares available for conversion of the Preferred Stock and exercise of the
Warrants including those Warrants issued to the finder.
Other shareholder matters
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefore. The Company does not anticipate the declaration or payment of any
dividends in the foreseeable future.
The Company intends to retain earnings, if any, to finance the development
and expansion of its business. Future dividend policy will be subject to the
discretion of the Board of Directors and will be contingent upon future
earnings, if any. Other factors regarding the payment of dividends include the
Company's financial condition, capital requirements, general business conditions
and other, similar matters. Therefore, there can be no assurance that any
dividends of any kind will ever be paid.
The Company's registrar and transfer agent is Continental Stock Transfer
&Trust Company.
Item 6 Management's Discussion and Analysis or Plan of Operation.
Results of Operations for the Year Ended December 31, 1998
The following discussion and analysis should be read in conjunction with
the financial statements and related notes, as well as the discussion in the
Form 10-KSB/A, which provide additional information concerning the Company's
financial activities and condition.
Overview:
Toups Technology Licensing, Incorporated ("TTL" or "The Company) business
purpose is commercializing late-stage technologies, which are acquired through
license agreements and acquisitions. The Company's technologies and acquisitions
to date are in the energy, environmental, natural resource and healthcare market
segments. At the end of 1998, the Company was comprised of nine divisions, six
of which earned revenues during 1998. During the second quarter, 1999, the
Company consolidated its nine divisions into three major divisions:
Environmental Solutions, Manufactured Products and E-Commerce.
Results of Operations
Fiscal Year Ended December 31, 1998, Compared to Fiscal Year Ended December 31,
1997
Sales for 1998 were $2,221,709, an increase of $1,877,560 or 546% from
$344,149 in 1997. The increase in revenues was attributable to the market launch
and acceptance of the Company's BORS Lift units during the Fourth Quarter of
1998, as well as sales growth in the TTL Manufacturing division, formerly
Advanced Micro-Welding, Inc. ("AMW"). AMW was accounted for as a pooling of
interest by TTL during April 1998. Since TTL did not commence operations until
November 1997, figures for the year ended December 31, 1997, reflect less than a
full year's transactions (the subsidiary accounted for by the pooling of
interest method reflect the full year's transactions for the year ended December
31, 1997). The Company made two other acquisitions during 1998: Brounley
Engineering & Associates, Inc. ("Brounley") and InterSource Health Care, Inc.
("InterSource"), both of which were accounted for by the purchase method of
accounting for a business combination. Accordingly, the accompanying statements
do not reflect revenues or expenses related to the acquisition prior to the
closing dates of September 30, 1998 and November 30, 1998, respectively.
Gross profit for 1998 was $825,751 or 37% of revenues, which was down from
$141,460 or 41% of revenues for 1997. The slight decrease in gross profit as a
percentage of revenues in 1998 was the result of the profit margin of the
in-house manufactured BORS Lift during its product introduction.
The Company's selling, general and administrative (SG&A) expenses of
$5,985,169 were comprised of development expenses, salaries, consulting
services, and other operating costs in 1998, up from $126,631 during 1997. As a
percentage of revenues, SG&A increased to 269% in 1998 up from 37% in 1997. SG&A
expenses increased in 1998 to support further technology development, new
product introductions and future business expansion. In 1998, $3,580,123 or 60%
of SG&A expenses were non-cash expenses paid for through capital stock issued
for services to further the Company's technologies. The Company used its capital
stock for 60% of total SG&A expenses to further its development and preserve
cash.
<PAGE>
The Company incurred increased personnel expenses and development costs to
build its infrastructure, assembling a team of engineers, scientists and other
professionals, and prepare its technologies for market applications. During
1998, the Company completed its independent testing for AquaFuel market
applications and scalability results including its first production-unit
contract for the Dominican Republic. In addition, the Company completed field
tests of BORS Lifts and began full-scale production placing 100 units in the
field, developed applications for its tire recycling process technology,
completed design for and began production of Tunnel-Bat units, completed the
acquisition of AMW, Brounley and InterSource and furthered discussions with
potential acquisition candidates, as well as candidates for technology licenses
that fit with the Company's business purpose.
As a result of these activities, the Company had a 1998 operating loss of
$5,159,418, a decrease from an operating profit of $14,829 for 1997.
Net interest expense for 1998 was $14,613, up from ($543) in 1997. Interest
expense related to borrowings of wholly-owned subsidiaries.
Liquidity and Capital Resources
Net cash used by operating activities of $2,418,348 related primarily to
the Company's operating loss less the capital stock issued for services and the
increase in accounts receivable and inventories from BORS lifts sales in the
fourth quarter of 1998. The Company, however, had a net working capital surplus
of $1,545,580 at year end, an increase of $1,447,469 from December 31, 1997. The
increase in working capital was principally the result of an increase in
accounts receivable resulting from Fourth Quarter BORS Lift sales and financing
activities through the issuance of $3.8 million in common stock through private
equity offerings. At December 31, 1998 the Company had $5,685,185 in assets and
$3,733,143 in stockholders' equity up from $275,611 and $155,694 respectively at
December 31, 1997.
As of December 31, 1998, the Company had $49,574 drawn on a $50,000 bank
line of credit for InterSource and $388,237 in capital leases for TTL
Manufacturing. The Company had no other bank financing or other debt obligations
outstanding other than trade payables, accrued expenses, and other expenses due
during the normal course of business.
Through the acquisitions of AMW, Brounley and InterSource the Company has
significant production capabilities available without the requirement for large
plant and equipment capital expenditures. The InterSource acquisition added in
excess of $2 million in fair market value of equipment purchased and refurbished
by InterSource under its facility lease. The equipment remained from the
facility's former tenant, a large defense contractor, and included computers,
milling equipment, lathes, shelving and storage units, precision welding
equipment and other production machinery. InterSource held this equipment for
resale but TTL has chosen to maximize the equipment through internal
utilization. This equipment combined with AMW's, Brounley's and InterSource's
technical resources will allow TTL to fully utilize its development and
production capabilities 1999.
<PAGE>
The Company has also completed agreements for two financing offerings
subsequent to year end for a total of $2,250,000. The financings are structured
as $1,500,000 subordinated convertible Note and $750,000 convertible preferred
stock. The proceeds of the sale of these offerings are available for capital
expenditures related to technology development costs, future acquisitions,
working capital, and general corporate purposes.
The Company believes its existing cash, together with projected cash flows
from operations and the availability of future equity and/or offerings, will be
sufficient to meet the Company's cash requirements in 1999.
The Company recognizes revenues under the accrual basis of accounting where
revenues are recognized when earned. Revenues are considered earned when product
has been shipped. The Company accounts for all of its operating subsidiaries in
this manner.
At fiscal year-end 12-31-98, the Company had $1,768,999 in accounts
receivable which represents 80% of total sales at that time. The accounts
receivable were derived primarily from sales of our Balanced Oil Recovery System
Lift in the fourth quarter of 1998. For certain BORS customers, the Company
carries 90-day terms. The Company considers all of its accounts receivable to be
collectible. However, the Company has recorded a $79,237 write-off for doubtful
accounts for the year ending December 31, 1998. The Company does not anticipate
this condition to continue in future years for two reasons: (i) the BORS was a
development product for the first three quarters of 1998. For that reason,
meaningful sales did not begin until the fourth quarter and (ii) 1998 was a
development-stage year for the Company and we are already seeing a maturing of
our divisions and expect our accounts receivable to reflect this balance as a
percentage of total sales for this year.
The Company did not consider segment reporting to be either cost effective
or practical at year end 1998. Up to this point, the Company has not used
segment reporting for internal use. At the close of 1998, the Company's
"divisions" were aggregated with revenues primarily derived from manufacturing
operations. Further, those "division" which out of this realm (InterSource) were
not a part of the Company until the end of the year. The Company intends to use
the segment accounting approach for its annual audit for the period ending
December 31, 1999.
As a part of its joint-venture project, the Company is obligated to issue
2,000,000 of its unregistered common stock to the President of
AquaFuel-Dominicana and such shares shall become fully vested upon formalization
and initial payments relating to the Company's joint-venture agreement. The
Company anticipates these shares will all become fully vested during the course
of 1999. When said shares become fully vested, the Company shall account for
such shares strictly according to their fair market value at date of issuance.
"Fair market value" is an amount equal to 100% of the cash-price received by the
Company for any stock sales or 100% of the average closing "bid" price of the
Company's shares for the thirty-days immediately preceding the issuance/vesting
of such shares.
Dominican Republic Joint-Venture Update Report. The Company entered a joint
venture agreement with parties in the Dominican Republic during December, 1998.
The folowing summarizes the various activities surrounding the joint venture
since that date.
December, 1998 TTL enters joint-venture with Compania de Luz y Fuerza de las
Terrenas to construct and operate AquaFuel production plants and AquaFuel
electric power generation facilities in the Dominican Republic. Luz y Fuerza,
headquartered in Santo Domingo, Dominican Republic, is a consortium of entities
organized to privatize the delivery of electric power throughout the country.
January 4, 1999 Announcement of the joint-venture where TTL states the first
Dominican AquaFuel production plant will be built according to a 15-month
feasibility and development schedule. The Company states design and engineering
has begun and the first-ever commercial AquaFuel production unit will be
completed by May, 1999. The unit is to be designed to produce up to 4,000 cubic
feet per hour of AquaFuel gas.
January 20, 1999 Equipment contract awarded. TTL announces the selection of
16-year old, Alabama-based Dixie Arc to design the first AquaFuel commercial
unit able to produce a minimum of 4,000 cubic feet of AquaFuel per hour on a
continual basis. The device, called the Dixie Arc Clean Arc Furnace System, will
combined the proven Dixie Arc furnace technology with a pressurized gas
production apparatus.
February 3, 1999 State-side Technology validation. The following members of the
Dominican Republic government attend a TTL-sponsored three day visit to validate
the technology. In attendance were Ing. Ernesto Reyna, Asesor Ambiential del
Presidente (equivalent to the director of the US Environmental Protection
Agency); Ing. Radhamas Lora, Colonel, General Director of Forestry; Bolivar
Rodriguez, Director of Industry. Also in attendance for the validation were
officers and directors of AquaFuel-Dominicana including John Rivera, President
of AFD and Isaias Arbaje, Vice-President of AFD and former sub-secretary of
agriculture for the Dominican Republic.
At the conclusion of the validation visit, TTL video-taped all three
Dominican Republic officials as they enthusiastically endorsed the AquaFuel
technology.
March 22-26, 1999 Dominican Republic-based technology validation. TTL executives
and technicians present the AquaFuel equipment and technology to a group of over
200 Dominican Republic dignitaries including members of their government,
academia and industry. The Company held the validation presentation at the
Universidad Dominicana O & M, Av. Independencia 200, Centro de los Heroes de
Constanza, Santo Domingo, Republica Dominicana.
The Company's technology was further validated at this meeting for use
within the Dominican Republic.
April 27, 1999 What began as the Dixie Arc Clean Air Furnace System evolved in
our patent-pending AquaFueler Auto 1500 which incorporates significant advances
over demonstration and prototype equipment including the use of AC (alternative
current) and new voltage regulation techniques. The device also introduces a new
automated carbon rod management system where three rods are applied to a common
electrode mantel using precise hydraulic computer control.
May 11 1999 Use of surfactant increases output from 1500 to 3000 cubic feet per
hour. The Company's Hot Plasma Destructive Distillation process (using the
AquaFueler 1500) adds a non-ionic surfactant to the contaminant in a proprietary
mixture, boosts AquaFuel's power as estimated by the Company to 1,000 btu/cubic
foot.
May 18, 1999 TTL is notified and agrees that the "best first use" of the
alternative fuel technology would be in fulfillment of certain utility needs for
a planned 2,500 home Public Urban Development scheduled for construction
starting August, 1999.
June 16, 1999 TTL submits bid proposal to construct a 400-ton per day pyrolytic
carbon extraction plant.
The selection of our PCE technology verse our AquaFuel technology for this
first plant is due in part to the out-dated equipment throughout the Dominican
Republic. AquaFuel would require reconfiguration of existing Dominican Republic
equipment. However, as our Phoenix 777 is more similar to natural gas, it can be
engaged to operate the existing Dominican Republic equipment without significant
alternation thus allowing TTL to meet the immediate requirements of the
Dominican Republic Public Urban Development.
The Company announced its patent-pending PCE equipment on June 21, 1999.
The PCE equipment recycles all forms of liquid and solid hydrocarbon waste into
a high Btu gas dubbed Phoenix 777 and carbon black.
Ground Breaking The PUD is estimating to install the first pre-fabricated
home during August 1999 and thereafter to assemble the pre-fab homes at the rate
of 10 per day through completion of 2,500 homes.
By virtue of our AquaFuel-Dominicana joint-venture agreement, TTL would
thereafter derive revenues:
(i) From the design and construction of the PCE plant;
(ii) 49% of all proceeds derived from the sale of the fuel either as a gas or
through the sale of electricity.
(iii)Although not originally planned, by virtue of the wide array of waste able
to be processed through our PCE equipment, the Company will also earn 49%
of all "tipping" fees associated with waste management.
Summary
On January 4, 1999, the Company estimated it would take approximately 15
months for project development. Based on the immediacy of both our PCE equipment
and the needs of the Dominican Republic based Public Urban Development, we now
revise our estimations and believe we will be deriving revenues starting in the
September - October, 1999 time frame. If successful, this would represent only 9
to 10 months from execution of agreement to revenues versus the previous
estimation of 15 months.
As a part of its joint-venture agreement, the Company will negotiate a
license agreement for the exclusive rights to commercialize AquaFuel in certain
geographic areas. At this time, the Company has not negotiated any of the
specific terms to such an exclusivity and cannot estimate what, if any,
additional obligations would be incurred by either party.
During 1998, the Company issued 5,602,697 unregistered, restricted shares
of its stock to attract and retain key employees, to acquire various license
agreements, to make acquisitions and for other developmental needs. These shares
were valued at $728,351 ($.13 per share) based on restricted liquidity, lack of
profitable operations and unproven marketability of several licensed
technologies. After further review, it has been determined that a more
reasonable value for these shares would be one in closer proximity to sales to
others for similar shares, reduced for a lack of liquidity discount. Based on
this approach the Company has determined that the shares should be recorded at
$.639 per share. This change in value requires an additional, non-cash charge to
1998 general and administrative compensation of $2,851,772. This increases the
Company's 1998 loss from $2,187,994 ($0.1798 per share) to $5,174,031 ($0.45
per share).
Further, the balance sheet impact of the additional non-cash compensation
expenseand the cvhange in accounting fo rthe Brounley acquisition increases
additional paid-in capital from $5,484,590 to $8,892,522 and decreases Retained
Earnings (Deficit) from ($2,146,369) to ($5,181,596). The overall change to the
Stockholders' Equity section of the balance sheet is an increase of $372,345.
Additionally, upon review it has been determined that the issuance of
shares of the Company's common stock to certain officers and directors described
above (since rescinded, see Note 19), fails to meet the standard of being
routine or systematic in nature. Although the Company does not believe that such
issuances were "in contemplation" of any business acquisition, it has been
unable to sustain the burden necessary to support that belief. As such, they
constitute an alteration of equity interest which precludes the use by the
Company of pooling of interest accounting for the acquisition of Brounley. The
Company has therefore restated its financial statements to employ the purchase
method of accounting for the acquisition (see Audited Financial Statements,
Notes 2 and 18).
Of the 5,602,697 unregistered shares, 1,950,000 were issued to Officers and
Directors in lieu of compensation. In light of the higher valuation and inherent
tax consequences, the Company's officers and Directors have opted to convert the
issuance of these shares to treasury shares in exchange for an option for the
purchase of these 1,950,000 unregistered shares. The option rights will provide
for the exercise of these options anytime during a three-year period following
the issuance of the option.
Under the terms of the proposed options, the recipient would be entitled to
acquire unregisterd shares of the Company's common stock at a price equal to the
"fair market" price which, for these purposes, is computed by taking an average
of the closing bid price for the five days preceeding the issuance of the
options. The option exercise price will then be fixed at 100% of the "fair
market" price as described above on date of issuance. As the Company intends to
issue the options at 100% of the fair market value without discount of any type,
in the event any of the options are exercised, there would be no compensation
expense.
Had the Company issued options versus the shares, the Company would have
been required to record the issuance of only 3,652,697 shares at the rate of
$0.639 per share or a total charge to earnings of $2,334,073, an increase of
$1,605,722 above the previously reported $728,351. Therefore, had the Company
been allowed to value the issuance of options versus the issuance of shares,
total losses for the year-ending December 31, 1998 would have been ($3,927,981)
or ($0.34) per share on a weighted average basis or ($0.177) per share based on
the number of shares outstanding at December 31, 1998.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements are
based on management's estimates, assumptions, and projections. Major factors
that could cause results to differ materially from those expected by management
include, but are not limited to: the timing and nature of independent test
results; the nature of changes in laws and regulations that govern various
aspects of the Company's business; retention and productivity of key employees;
the availability of acquisition candidates and proprietary technologies at
purchase prices the Company believes to be a fair market; the direction and
success of competitors; management retention; and unanticipated market changes.
Year 2000 Compliance
The Company has completed a prelimanary assessment concerning Year 2000
issues and has determined that its technologies, manufacturing factilites and
internal operatins will not be impacted or affected. The Company made no
material expenditures in 1998 with regard to Year 2000 issues and anticipates
that expenditures in 1999 will have no material effect to its results of
operations and capital resources. In addition, the Company's stock transfer
agent, Continental Stock Transfer % Trust Company, has been certified as Y2K
compliant
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Item 7 Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1997
1998 (Note 2)
ASSETS
Current assets:
Cash $772,080 $74,636
Accounts receivable - trade (net of allowance
of $74,237 and $5,000, respectively) 1,768,999 82,940
Inventories 542,655 -
Prepaid royalties 89,000 11,000
Other current assets 2,776 -
Total current assets 3,175,510 168,576
Property, plant and equipment:
Property, plant and equipment 2,170,072 136,460
Less: Accumulated depreciation
and amortization 152,159 39,620
Net property, plant and equipment 2,017,913 96,840
Other assets:
Goodwill, net of amortization of $19,597 372,345 -
Security deposits 31,932 5,000
Related party receivables 87,485 -
Other assets - 5,195
Total other assets 491,762 10,195
Total assets $5,685,185 $275,611
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1997
1998 (Note 2)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,391,826 $ 46,141
Royalties payable 42,843 -
Income taxes payable 40,562 -
Deposits 39,000 -
Current portion of capital lease 66,125 24,324
obligations
Line of credit 49,574 -
Total current liabilities 1,629,930 70,465
Long-term debt:
Capital lease obligation,
net of current portion 322,112 49,452
Total liabilities 1,952,042 119,917
Stockholders' equity:
Capital stock 22,217 9,130
Additional paid-in capital 8,892,522 146,537
Retained earnings (deficit) (5,181,596) 27
Total stockholders' equity 3,733,143 155,694
Total liabilities and
stockholders' equity $5,685,185 $ 275,611
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1998 and 1997
1997
1998 (Note 2)
Revenue $ 2,221,709 $ 344,149
Cost of goods sold 1,395,958 202,689
--------- --------
Gross profit 825,751 141,460
General and administrative expenses 5,985,169 126,631
--------- --------
Total operating earnings (deficit) (5,159,418) 14,829
Other income (expense):
Interest income 6,621 543
Interest expense (21,234) -
Total other income (expense) (14,613) 543
----------- --------
Net income (loss) $(5,174,031) $ 15,372
=========== ========
Weighted average number of
shares outstanding (Note 1) 11,492,162 8,881,751
Net income (loss) per share $(.45) $.0017
===== ======
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997
1997
1998 (Note 2)
Cash flows from operating activities:
Net income (loss) $(5,174,031) $15,372
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
(Gain) loss on sale of assets - -
Depreciation and amortization expense 96,219 10,709
Bad debt expense 76,312 5,000
Capital stock issued for services 3,580,123 8,470
(Increase) decrease in accounts receivable (1,492,893) (64,537)
(Increase) decrease in inventories (365,147) -
(Increase) decrease in other current assets (2,076) -
(Increase) decrease in security deposits (26,932) (5,000)
(Increase) decrease in prepaid royalties (78,000) (11,000)
(Increase) decrease in other assets 5,195 (5,195)
Increase (decrease) in accounts payable 570,102 45,952
Increase (decrease) in royalties payable 42,843 -
Increase (decrease) in accrued expenses 350,218 74
Increase (decrease) in income taxes payable (3,198) -
Increase (decrease) in other current liabilities 2,917 -
Net cash provided (used) by operating activities(2,418,348) (155)
Cash flows from investing activities:
Acquisition of cash from investing 14,610 -
Acquisition of property, plant and equipment (498,794) (10,159)
Proceeds from sale of equipment - -
Loans to related parties (18,428) -
Loans to subsidiary prior to acquisition (164,297) -
Net cash used by investing activities (666,909) (10,159)
Cash flows from financing activities:
Distributions to stockholders (7,592) (41,527)
Proceeds from the sale of capital stock 3,850,278 100,000
Repayments on line of credit (4,600) -
Principal repayments on capital lease obligations (55,385) (4,197)
Purchase of treasury stock - -
Net cash provided by financing activities 3,782,701 54,276
Net increase in cash 697,444 43,962
Cash, beginning of year 74,636 30,674
Cash, end of year $ 772,080 $ 74,636
Supplemental Cash Flow Disclosures:
Cash paid for interest $ 21,234 $ 1,903
Cash paid for income taxes $ 3,198 $ -
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997
Common Additional Retained
Number Stock Paid-In Earnings
Of Shares (At Par) Capital (Deficit) Total
Balance,
December 31, 1996
(Note 2) 500,000 $ 500 $26,182 $46,697 73,379
Issuance of common stock
upon inception 8,250,000 8,250 - - 8,250
Stock issued for:
Services 100,000 100 - - 100
Cash 160,000 160 99,840 - 100,000
Rent 120,000 120 - - 120
Net income for the year
ended December 31, 1997 - - - 15,372 15,372
Distributions to shareholders - - - (41,527) (41,527)
Balance,
December 31, 1997
(Note 2) 9,130,000 9,130 146,537 27 155,694
Stock issued for:
Services 5,602,697 5,603 3,574,520 - 3,580,123
Cash 5,381,361 5,381 3,844,897 - 3,850,278
Acquisitions 2,103,241 2,103 1,326,568 - 1,328,671
Net loss for the year
ended December 31, 1998 - - - (5,174,031)(5,174,031)
Distributions to shareholders - - - (7,592) (7,592)
Balance,
December 31, 1998 22,217,299 $22,217 8,892,522 (5,181,596) 3,733,143
Item 8 Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
The Company has never had any disagreement with its independent auditors or
its accountants.
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The following Directors and Executive Officers have served in their
respective capacities since July 28, 1997 (date of inception). The Directors
were re-elected for the current term at a Meeting of Shareholders conducted
January 5, 1998. All three individuals have been nominated and have accepted to
serve as Directors for the coming fiscal year. None of the Directors hold
similar positions in any other reporting company. The Company intends to conduct
its next election of Directors at its Annual Meeting of Shareholders.
Chairman of the Board of Directors, President and Chief Executive Officer:
Leon H. Toups (60). Mr. Toups' past professional experiences include, from 1980
to present, that of President and Chairman of the Board of Directors of DMV,
Inc., Clearwater, Florida. Prior thereto, from 1973 to 1980, Mr. Toups served as
President and Chief Operating Officer, as a Member, of the Board of Directors
and as a Member of the Executive Committee of Chromalloy American Corporation,
St. Louis, Missouri, and as President of Chromalloy Natural Resources Company,
Houma, Louisiana. Chromalloy American was an international conglomerate with
sales of approximately $2.0 billion, which employed 45,000 people worldwide and
traded its capital stock on the New York Stock Exchange. Mr. Toups holds the
following degrees: MS Aerospace Engineering, University of Florida; M.S.
Mechanical Engineering, Georgia Tech; BS Mechanical Engineering, Georgia Tech.
From 1968 to 1969, Mr. Toups attended MIT on a NASA Hugh Dryden Fellowship.
Director, Corporate Secretary and Executive Vice President: Mark Clancy
(43). Mr. Clancy's past business experiences include: from 1993 to present:
Compliance Officer, DMV, Inc., Largo, Florida; 1996 to present: President, Total
Kids, Incorporated, Tampa, Florida. Prior thereto, Mr. Clancy served as General
Sales Manager of WRCC FM Radio, Cape Coral, Florida, and as Sales Consultant to
WIZD FM Radio, West Palm Beach, Florida. Mr. Clancy holds an AA from
Hillsborough Community College, Tampa, Florida and currently attends the
University of South Florida.
Director, Vice-President, Finance, Chief Financial Officer: Michael P.
Toups (33). Mr. Toups' past professional experiences include, from 1996 to
present: a Director and Vice-President, Finance for InterSource Health Care,
Inc., Clearwater, Florida; 1992 through the present: Vice-President, Finance and
Operations, DMV, Inc., Clearwater, Florida. Mr. Toups holds an MBA, University
of Notre Dame with concentrations in finance and marketing and a BA degree in
Business Administration from Texas Christian University.
The Company's Chief Financial Officer, Vice President, Finance and
Director, Michael Toups, is the son of the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, Leon H. Toups.
Item 10 Executive Compensation
The following table sets forth information respecting the compensation paid
during the Company's last fiscal year to the President and Chief Executive
Officer (CEO) and to the other executive officers of the Company. The Company
does not compensate its Directors for their services.
Compensation Table
Annual Long Term
Compensation Compensation
(a) (b) (c) (d) (e)
Restricted
Stock Total
Name and Principal Salary Bonus award(s) Compensation
Position Year ($) ($) ($) ($)
Leon H. Toups 1998 $63,666 $0 $0 $63,666
President
Chief Executive Officer
Mark Clancy 1998 $62,997 $0 $0 $62,997
Executive Vice President
Corporate Secretary
Michael P. Toups 1998 $61,958 $0 $0 $61,958
Vice President, Finance
Chief Financial Officer
Jerry Kammerer 1998(f) $48,000 $0 $0 $48,000
(a) All named executive Officers have served in their respective capacities
since formation of the Company during July 1997 except Mr. Kammerer who
served through August, 1998.
(b) The Company was incorporated during July 1997. The Company activated
operations on November 1, 1997 and all three current officers were
compensated at the rate of $3,000 per month for the months of November and
December, 1997.
(c) Any increase in Officer compensation would be predicated on prevailing
industry standards and the existing financial situation of the Company. The
Board of Directors may authorize an increase in the compensation of the
Company's executive officers without a vote of Shareholders.
(d) The Company did not make any bonus cash payments to its executive officers
since inception except a Christmas bonus equal to one weeks salary which
was also given to all of the Company's employees. However, the Company may,
in the future, develop programs which may include bonus payments.
(e) During 1998, 1,950,000 unregistered common shares were issued to Officers
and Directors in lieu of compensation. The shares were originally valued at
$0.13 and subsequently valued at $0.639 as more fully described in the
section herein marked Management's Discussion and Analysis. In light of the
higher valuation and inherent tax consequences, the Company's officers and
Directors have opted to convert the issuance of these shares to treasury
shares in exchange for an option for the purchase of these 1,950,000
unregistered shares. The option rights will provide for the exercise of
these options anytime during a three-year period following the issuance of
the option. Under the terms of the proposed options, the recipient would be
entitled to acquire unregisterd shares of the Company's common stock at a
price equal to the "fair market" price which, for these purposes, is
computed by taking an average of the closing bid price for the five days
preceeding the issuance of the options. The option exercise price will then
be fixed at 100% of the "fair market" price as described above on the date
of issuance. As the Company intends to issue the options at 100% of the
fair market value without discount of any type, in the event any of the
options are exercised, there would be no compensation expense.
(f) Mr. Kammerer served as a Director and as the Company's Vice President,
Business Development from January through August, 1998.
Item 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common stock by each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, by each director, by each of the executive officers named in the
Summary Compensation Table, and by all directors as a group. 5% of the Company's
outstanding shares would be 1,110,865
(1) (2)
Name and Amount and
Address of Nature of
Beneficial Beneficial (3)
Title of Class Owner Owner Percent of Class
Common Leon H. Toups 3,356,680(5) 15%
418 Harbor View Lane
Largo, Florida 33770
Common Mark Clancy 1,733,340(5) 7.8%
417 Barrett Court
Tampa, Florida 33617
Common Michael Toups 1,733,340(5) 7.8%
400 Palm Drive
Largo, Florida 33770
Common Errol J. Lasseigne 188,263(6) 0.8%
2364 Violet Place
Palm Harbor, Florida 34685
Common Leslie D. Reagin, III 469,873(6) 2.1%
720 Bluffview Drive
Belleair, Florida 34640
Common Officers and Directors 7,481,496 33.6%
(three persons)
Common Jerry Kammerer 1,660,000(4) 7.4%
1421 Water View Drive
Largo, Florida 33771
(1) Mr. L. Toups serves as the Company's President, Chief Executive Officer and
Chairman of the Board of Directors. Mr. Clancy serves as a Director and as
the Corporate Secretary and Executive Vice President. Mr. M. Toups serves
as a Director and as the Company's Chief Financial Officer and Vice
President, Finance.
(2) None of the named persons or Officer and Directors are holders of any
options, warrants, right conversion privileges or similar items.
(3) There are no provisions which allow for a change in control of the issuer
beyond the annual election of Directors. The Company is unaware of any
voting trusts or similar agreements among its Shareholders.
(4) Mr. Jerry Kammerer is a former Director of the Company. Mr. Kammerer was
terminated as an Officer and Director of the Company on August 20, 1998. As
of January 19, 1999, of the 1,750,000 shares originally owned by Mr.
Kammerer, 180,000 were eligible for resale pursuant Rule 144.
(5) As more fully described in the section marked Management's Discussion and
Analysis and the Financial Statements which are a part hereof, during 1998,
the Company compensated its officers and directors in part through the
issuance of unregistered shares. At the year ending December, 1998, these
shares were valued at $0.13. Subsequently, the Company's financial
statements were restated to value these shares at $0.639 per share. One
result of this restatement would value the compensation received by each of
the three officers and directors at an additional taxable income of
$415,350. All three officers and directors opted to rescind their shares in
exchange for an option to acquire such shares at a later time. In the
interim, the 1,950,000 shares are to be held in the Company's treasury
account pending exercise of the options. In essence, the terms of the
options allow each of the three officers and directors to acquire their
shares at 100% of the market value on the date of grant and shall be
valued and be considered issued on that date. Accordingly, "fair market
value" shall be deteremined as the closing bid price of the Company's
securities based on an average closing "bid" price recorded for the five
days preceeding the issuance of the options.
(6) Messrs. Reagin and Lasseigne both became Directors of the Company at the
annual meeting of shareholders held during May, 1999. Mr.Lasseigne acquired
his shares during the Company's initial placement in November - December,
1997. Mr. Reagin acquired his shares through participation in the Company's
initial offering in 1997 and two subsequent offerings. Messrs. Reagin and
Lasseigne paid the same cash price as all other investors and were not
afforded any special treatment.
Item 12 Certain Relationships and Related Transactions
Mr. Michael Toups, who serves as the Company's Chief Financial Officer and
as a Director, is the son of the Company's President and Chairman of the Board,
Leon H. Toups.
Item 13 Exhibits and Reports on Form 8-K
During 1998 the Company filed three reports of Form 8-K:
Date of Filing Event
Acquisition of Brounley Engineering & Associates
Acquisition of InterSource HealthCare
Execution of AquaFuel(a) Joint-Venture Agreement
Part F/S
Harper, Van Scoik & Company, L. L. P.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Toups Technology Licensing, Incorporated
and Subsidiaries
Largo, Florida
We have audited the accompanying consolidated balance sheets of Toups
Technology Licensing, Incorporated and subsidiaries (the Company) as of
December-31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Toups Technology Licensing, Incorporated and subsidiaries as of December-31,
1998 and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
February 2, 1999 (except for paragraphs 3, 4 and 7
of Note 2 and Notes 17-20 as to which the date is June 21, 1999)
Harper, Van Scoik & Company, L. L. P.
A WORLDWlDE ORGANIZATION OF ACCOUNTlNG FlRMS AND BUSlNESS ADVlSORS
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1997
1998 (Note 2)
ASSETS
Current assets:
Cash $772,080 $74,636
Accounts receivable - trade (net of allowance
of $74,237 and $5,000, respectively) 1,768,999 82,940
Inventories 542,655 -
Prepaid royalties 89,000 11,000
Other current assets 2,776 -
Total current assets 3,175,510 168,576
Property, plant and equipment:
Property, plant and equipment 2,170,072 136,460
Less: Accumulated depreciation
and amortization 152,159 39,620
Net property, plant and equipment 2,017,913 96,840
Other assets:
Goodwill, net of amortization of $19,597 372,345 -
Security deposits 31,932 5,000
Related party receivables 87,485 -
Other assets - 5,195
Total other assets 491,762 10,195
Total assets $5,685,185 $275,611
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1997
1998 (Note 2)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,391,826 $ 46,141
Royalties payable 42,843 -
Income taxes payable 40,562 -
Deposits 39,000 -
Current portion of capital lease 66,125 24,324
obligations
Line of credit 49,574 -
Total current liabilities 1,629,930 70,465
Long-term debt:
Capital lease obligation,
net of current portion 322,112 49,452
Total liabilities 1,952,042 119,917
Stockholders' equity:
Capital stock 22,217 9,130
Additional paid-in capital 8,892,522 146,537
Retained earnings (deficit) (5,181,596) 27
Total stockholders' equity 3,733,143 155,694
Total liabilities and
stockholders' equity $5,685,185 $ 275,611
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1998 and 1997
1997
1998 (Note 2)
Revenue $ 2,221,709 $ 344,149
Cost of goods sold 1,395,958 202,689
--------- --------
Gross profit 825,751 141,460
General and administrative expenses 5,985,169 126,631
--------- --------
Total operating earnings (deficit) (5,159,418) 14,829
Other income (expense):
Interest income 6,621 543
Interest expense (21,234) -
Total other income (expense) (14,613) 543
----------- --------
Net income (loss) $(5,174,031) $ 15,372
=========== ========
Weighted average number of
shares outstanding (Note 1) 11,492,162 8,881,751
Net income (loss) per share $(.45) $.0017
===== ======
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997
Common Additional Retained
Number Stock Paid-In Earnings
Of Shares (At Par) Capital (Deficit) Total
Balance,
December 31, 1996
(Note 2) 500,000 $ 500 $26,182 $46,697 73,379
Issuance of common stock
upon inception 8,250,000 8,250 - - 8,250
Stock issued for:
Services 100,000 100 - - 100
Cash 160,000 160 99,840 - 100,000
Rent 120,000 120 - - 120
Net income for the year
ended December 31, 1997 - - - 15,372 15,372
Distributions to shareholders - - - (41,527) (41,527)
Balance,
December 31, 1997
(Note 2) 9,130,000 9,130 146,537 27 155,694
Stock issued for:
Services 5,602,697 5,603 3,574,520 - 3,580,123
Cash 5,381,361 5,381 3,844,897 - 3,850,278
Acquisitions 2,103,241 2,103 1,326,568 - 1,328,671
Net loss for the year
ended December 31, 1998 - - - (5,174,031)(5,174,031)
Distributions to shareholders - - - (7,592) (7,592)
Balance,
December 31, 1998 22,217,299 $22,217 8,892,522 (5,181,596) 3,733,143
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997
1997
1998 (Note 2)
Cash flows from operating activities:
Net income (loss) $(5,174,031) $15,372
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
(Gain) loss on sale of assets - -
Depreciation and amortization expense 96,219 10,709
Bad debt expense 76,312 5,000
Capital stock issued for services 3,580,123 8,470
(Increase) decrease in accounts receivable (1,492,893) (64,537)
(Increase) decrease in inventories (365,147) -
(Increase) decrease in other current assets (2,076) -
(Increase) decrease in security deposits (26,932) (5,000)
(Increase) decrease in prepaid royalties (78,000) (11,000)
(Increase) decrease in other assets 5,195 (5,195)
Increase (decrease) in accounts payable 570,102 45,952
Increase (decrease) in royalties payable 42,843 -
Increase (decrease) in accrued expenses 350,218 74
Increase (decrease) in income taxes payable (3,198) -
Increase (decrease) in other current liabilities 2,917 -
Net cash provided (used) by operating activities(2,418,348) (155)
Cash flows from investing activities:
Acquisition of cash from investing 14,610 -
Acquisition of property, plant and equipment (498,794) (10,159)
Proceeds from sale of equipment - -
Loans to related parties (18,428) -
Loans to subsidiary prior to acquisition (164,297) -
Net cash used by investing activities (666,909) (10,159)
Cash flows from financing activities:
Distributions to stockholders (7,592) (41,527)
Proceeds from the sale of capital stock 3,850,278 100,000
Repayments on line of credit (4,600) -
Principal repayments on capital lease obligations (55,385) (4,197)
Purchase of treasury stock - -
Net cash provided by financing activities 3,782,701 54,276
Net increase in cash 697,444 43,962
Cash, beginning of year 74,636 30,674
Cash, end of year $ 772,080 $ 74,636
Supplemental Cash Flow Disclosures:
Cash paid for interest $ 21,234 $ 1,903
Cash paid for income taxes $ 3,198 $ -
See Notes to Consolidated Financial Statements.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Company - Toups Technology Licensing, Incorporated (Company), a Florida
Corporation, was formed on July 28, 1997, and activated its startup operations
on November 1, 1997 to facilitate market applications through the licensing of
late-stage technologies primarily in the energy, environmental, natural
resources and healthcare market segments. The Company selects proprietary
products or devices within market segments which management perceives are not
subject to rapid change and can be delivered to the marketplace within a three
to six month period. The consolidated financial statements include the accounts
of the Company and the following wholly owned subsidiaries. All material
intercompany transactions have been eliminated.
Subsidiary's Name Business Activity
Advanced Micro Welding,
Inc(AMW) Advanced Micro Welding, Inc., a Florida
Corporation, was formed on February 3, 1992. The
Company's primary operations consist of custom
metal fabrication and micro welding.
Brounley Associates, Inc.
(Brounley) Brounley Associates, Inc., a Florida Corporation,
was formed on February 23, 1994. The Company is
engaged in the design, manufacture and sale of
radio frequency (RF) generators.
InterSource Healthcare, Inc.
(InterSource) InterSource Healthcare, Inc., a Florida
Corporation, was formed on November 9, 1996. The
Company sells and refurbishes medical equipment,
provides services for medical facility
development, and sells pharmaceutical products.
Basis of Accounting - The accompanying consolidated financial statements
are prepared using the accrual basis of accounting where revenues are recognized
when earned and expenses are recognized when incurred. This basis of accounting
conforms to general accepted accounting principles.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (determined on a
first-in, first-our basis) or market. Work-in-process and finished goods include
material, labor and overhead.
Comparability of Statements - Since Toups Technology Licensing,
Incorporated did not commence operations until November 1997, amounts for the
year ended December 31, 1997, reflect less than a full year's transactions
(subsidiaries accounted for using the pooling-of-interest method reflect the
full year ending December 31, 1997) and are not directly comparable with 1998
figures.
Advertising - Advertising costs are charged to operations in the year
incurred and totaled $66,756 and $1,522 for 1998 and 1997, respectively.
Property, Plant and Equipment - All property, plant and equipment is
recorded at cost. Depreciation, which includes the amortization of assets
recorded under capital leases, is computed on the straight-line method over the
estimated useful lives of the assets. Repair and maintenance costs which do not
increase the useful life of the assets are charged to operations as incurred.
Allowance for Doubtful Accounts - The Company establishes an allowance for
uncollectible trade accounts receivable based on historical collection
experience and management's evaluation of collectibility of outstanding accounts
receivable. The allowance for doubtful accounts was $74,237 and $5,000 as of
December 31, 1998 and 1997, respectively.
Income Taxes - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Earnings (Loss) per Share - Earnings per share are computed by dividing net
income (loss) by the weighted-average number of shares issued and outstanding
during the reporting period. Shares issued or purchased during the period affect
the amount of shares outstanding and are weighted by the fraction of the period
they are outstanding.
2. Acquisition of Businesses
Advanced Micro Welding, Inc.
On April 1, 1998, the Company acquired all the common stock of Advanced
Micro Welding, Inc. (AMW) in exchange for 500,000 shares of the Company's
restricted common stock. AMW is engaged in micro welding and custom metal
fabricating. The transaction has been accounted for as a pooling of interest
and, accordingly, the consolidated financial statements for 1998 and 1997 have
been restated to include all accounts and operations of AMW as if the
acquisition had occurred at the beginning of the year presented.
Unaudited net sales and net income of the separate companies for the period
prior to the acquisition were:
March-31,
1998 1997
Net sales:
Toups Technology Licensing, Incorporated(1)$ - $ -
AMW 109,154 344,149
Total $109,154 $
Net income (loss):
Toups Technology Licensing, Incorporated $(215,096) $(40,413
AMW 7,246 55,785
Total $ (207,850) $15,372
(1)Toups Technology Licensing, Incorporated was a development stage company
during all of 1997.
Brounley Associates, Inc.
On October 1, 1998, the Company acquired all the common stock of Brounley
Associates, Inc. (Brounley) in exchange for 900,000 shares of the Company's
restricted common stock. Brounley is engaged in the design manufacture and sale
of radio frequency generators throughout the United States and abroad. The
transaction has been accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values.
The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was $391,942 and is being amortized on a straight-line basis
over 5 years.
InterSource Healthcare, Inc.
On November 30, 1998, the Company purchased 100% of the stock of
InterSource Healthcare, Inc. (InterSource) by issuing 1,203,241 shares of
restricted and unrestricted common stock . InterSource acquires and refurbishes
used medical equipment for resale, sells pharmaceutical products and provides
services for medical facility development. The Company's 1998 consolidated
results include the operations of InterSource from the date of acquisition.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values.
The following unaudited pro forma summary combines the consolidated results
of the Company, InterSource and Brounley as if the acquisitions had occurred at
the beginning of 1998 and 1997 after giving effect to certain pro forma
adjustments, including, among other things, additional depreciation based on the
fair value of equipment acquired and the estimated related income tax effect.
1998 1997
In thousands, (unaudited)
Net sales $4,134,161 $1,046,932
Net income (loss) $(5,408,294) (182,325)
This pro forma financial information is presented for informational
purposes only and may not be indicative of the results of operations as they
would have been if the Company, InterSource and Brounley had been a single
entity during 1998 and 1997, nor is it necessarily indicative of the results of
operations which may occur in the future.
Joint Venture
Effective December 15, 1998, the Company entered into an agreement with
Compania DeLuz Y Fuerza De Las Terrenas, C. por A. (Utility), a Dominican
Republic utility company, to form the joint venture "Aqua Fuel(a)-Dominicana,
SA". The ownership of Aqua Fuel-Dominicana will be 49% to Toups Technology
Licensing, Inc. (TTL) and 51% to the utility.
The purpose of Aqua Fuel-Dominicana is the construction and operation of an
Aqua Fuel production facility which, at a minimum, is able to generate 1.653
gigawatts of electric power during a twenty year period.
The agreement outlines a three-step approach to accomplish Aqua
Fuel-Dominica's purpose, 1) a feasibility study of an Aqua Fuel generator with
a capability of at least 4,000 CF/hr to run a 1,000 KW generator successfully
and continuously for a period of two weeks and is scheduled to conclude no later
than sixty days after the Aqua Fuel generator is installed in the Dominican
Republic; 2) immediately after the completion of the Feasibility Study, the
development of the blueprints and design for construction of the Aqua Fuel
production facility shall commence and will be completed no later than 60 days
thereafter; and 3) the construction of the plant shall commence immediately upon
receipt of the drawings and materials being available in the Dominican Republic
and is scheduled for completion within six months.
TTL's capital contribution to Aqua Fuel-Dominicana will be the delivery of
the Aqua Fuel technology and the equipment as required by the agreement, the
Utility is required to fund all other capital needs of the joint venture.
Additionally, the Utility is to find investors who will invest at least $500,000
in TTL, TTL is to issue 500,000 of its shares to the Utility and 2,000,000
shares to the president of Aqua Fuel-Dominicana for services during 1999.
4. Concentration of Credit Risk
The Company maintains cash deposits with a bank that include funds greater
than the federally insured limit of $100,000. The cash balances in excess of the
insured amounts were $650,765 at December 31, 1998 and $-0- at December 31,
1997. Management believes the Company is not exposed to any significant credit
risk related to cash.
The Company grants credit to its customers during the normal course of
business and performs ongoing credit evaluations of its customers' financial
condition. The Company maintains allowances for potential credit losses. The
Company had sales to five customers that totaled approximately 83% of total
sales for the year ended December 31, 1998. Additionally, three customers
comprise approximately 96% of the December 31, 1998 accounts receivable - trade.
The owners of the entities that comprise the three customers are minority
shareholders of the Company.
5. Inventories
Inventories as of December 31, 1998 consisted of the following:
1998
Raw materials $ 455,357
Work-in-process 46,004
Finished goods 41,294
Total $ 542,655
6. Licensing Agreement Commitments
The Company has entered into licensing agreements with three licensors.
Amounts relating to these agreements recorded in the accompanying consolidated
statements are as follows:
Year ending December 31,
1998 1997
Prepaid royalties $ 89,000 $ 11,000
Royalties payable $ 42,843 $ -
Royalty expense for the year ended December 31, 1998 and 1997 was $94,843
and $-0-, respectively. In exchange for the rights under these agreements, the
Company has committed to pay the following:
Year ending
1999 $96,000
2000 96,000
Total $192,000
6. Licensing Agreement Commitments (Continued)
In addition to the above, if the Company exercised its option to renew the
licenses it will have future minimum royalties as follows:
Year ending
2001 $ 200,000
2002 $ 250,000
2003 $ 300,000
2004, and every year thereafter $ 400,000
7. Property, Plant and Equipment
Property, plant and equipment, at cost, and related accumulated
depreciation and amortization as of December 31, 1998 and 1997 are summarized as
follows:
1998 1997
Leasehold improvements $ 96,999 $ -
Office furniture and equipment 119,467 -
Machinery and equipment 1,505,517 58,487
Equipment under capital leases 448,089 77,973
2,170,072 136,460
Less: Accumulated depreciation
and amortization 152,159 39,620
Total $ 2,017,913 $96,840
8. Related Party Transactions
The Company has the following receivables from officers and/or
stockholders: 1998 Interest-free demand note - unsecured: Shareholders $ 85,263
Officers 2,222
Total $87,485
For the year ending December 31, 1998, the Company had sales of
approximately $1.7 million to entities owned by certain minority shareholders of
the Company.
The Company paid approximately $22,632 for employee leasing, $102,308 for
rent, and $21,000 for consulting fees to Intersource prior to acquisition.
9. Capital Leases
The following is an analysis of the equipment under capital leases by major
classes:
1998 1997
Machinery and equipment $448,089 $77,973
Less: Accumulated depreciation 53,003 2,250
Total $395,086 $75,723
Amortization of leased equipment is included in depreciation expense and
totaled $50,753 and $2,250 for the year ending December 31, 1998 and 1997,
respectively.
The following is a schedule by years of future minimum lease payments as of
December 31, 1998 and 1997.
1998 1997
1998 $20,503 $ -
1999 111,359 20,503
2000 118,403 20,503
2001 115,817 20,503
2002 101,541 10,773
2003 61,549 -
Total minimum lease payments 508,669 92,785
Less: Amount representing
interest 120,432 19,009
Present value of net
minimum lease payments $ 388,237 $73,776
The present value of net minimum lease payments are reflected in the
balance sheet as:
1997 1998
Current portion of capital
lease obligations materials $66,125 $24,324
Capital lease obligations,
net of current portion 322,112 49,452
$ 388,237 $73,776
10. Line of Credit
InterSource maintains a $50,000 bank line of credit with interest payable
monthly at bank prime (current 8.75%) plus 2%. At December 31, 1998 and 1997,
the amounts due were $49,574 and $-0-, respectively. The line of credit matures
November 30, 1999. The line is secured by inventory and the personal guarantee
of certain stockholders.
11. Capital Stock
Common
In 1998, the Company amended its Articles of Incorporation to authorize 50
million shares of common stock with a par value of $0.001 (one, one-thousandth
dollar) per share. As of December 31, 1998 and 1997, there were 22,217,299 and
9,130,000 shares issued and outstanding, respectively. Of the 22,217,299 shares
issued and outstanding at December 31, 1998, 6,034,056 shares are unrestricted
and 16,183,243 shares are restricted as to the sale to other parties pursuant to
the resale provisions of Sec. Rule 144. Of the 9,130,000 shares issued and
outstanding at December 31, 1997, 170,000 shares are unrestricted and 8,960,000
shares are restricted as to the sale to other parties pursuant to the resale
provisions of SEC Rule 144.
Preferred
The Company is also authorized to issue 10 million shares of preferred
stock having a par value of $1 per share. There were no preferred shares issued
or outstanding at either December 31, 1998 or 1997.
12. Operating Leases
The Company has leases for buildings which are classified as operating
leases. Total rent expense for all operating leases for 1998 and 1997 was
$117,154 and $-0-, respectively.
Future minimum lease payments under the noncancellable operating leases
with initial or remaining terms of one year or more are as follows:
1999 $ 291,410
2000 63,718
2001 276,904
2002 265,414
$ 1,097,446
13. Income Taxes
The Company has cumulative net operating losses of approximately $2,300,000
and $40,413 at December 31, 1998 and 1997, respectively, which are expected to
provide future tax benefits of approximately $782,000 and $8,085, respectively,
for both Federal and State purposes. A valuation allowance for the entire
benefit has been recognized as it is not reasonable to estimate when or if the
benefit will be realized. These tax benefits expire beginning in 2012.
14. Noncash Disclosures
The following transactions were excluded from the statement of cash flows
because they were not cash transactions.
. At inception the Company issued 8,250,000 shares to its organizers. These
shares of stock were recorded at a total of $8,250.
. In addition to the commitments described in the "licensing agreement
commitment" note. In 1997, the Company issued 165,000 shares of restricted
stock to the licensors of the Company's three technologies. These shares
were recorded at a total of $165.
. In 1997, the Company issued 125,000 shares of restricted stock to
consultants and employees. These shares were recorded at $125.
. In 1997, the Company issued 120,000 shares of restricted stock for the use
of operating facilities for one year. These shares of stock were recorded
at $120.
. In 1998, the Company acquired assets of $369,846 under capital lease
agreements.
. In 1998, the Company issued 1,203,241 shares of restricted stock for the
acquisition of InterSouce Healthcare, Inc.
Assets acquired $1,301,521
Liabilities acquired $611,850
. In 1998, the Company issued 5,602,697 shares of restricted common stock for
services. These shares were recorded at a total of $3,580,123.
. In 1998, the Company issued 900,000 shares of restricted stock for the
acquisition of Brounley Associates, Inc.
Assets acquired $750,830
Liabilities acquired $111,830
. In 1998, the Company issued 500,000 shares of restricted stock for the
acquisition of Advanced Micro Welding, Inc.
Assets acquired $301,834
Liabilities acquired $214,544
15. Contingencies
The Company is periodically involved in legal actions and claims that arise
in the normal course of operations. Management believes that the ultimate
resolution of any such actions will not have a material adverse effect on the
Company's financial position.
The year 2000 is expected to create computer problems for many
organizations because some computers and their programs only recognize the last
two digits in the year. For example, the year 1998 is recognized as 98. When the
year 2000 arrives some computers may not process information accurately or may
shut down. Management is in the process of evaluating their systems to correct
any problems which may be created by the year 2000. The Company plans to have
all their vital internal systems compliant before the year 2000 arrives.
However, it is not possible to insure that outside entities will be 2000
compliant.
16. Commitments
The Company has entered into an agreement to have equipment manufactured
for a cost of $500,000. At December 31, 1998, the first phase of the equipment
is complete and $72,100 has been recorded in property, plant and equipment.
17. Subsequent Events
In January 1999, the Company entered into a lease agreement that will be
accounted for as a capital lease. The equipment has a cost of $341,200. The
lease calls for an initial payment of $34,120 followed by sixty monthly payments
of $6,323.
In January 1999, the Company issued 25,000 shares of restricted common
stock at a price of $1.00 per share.
On February 17, 1999, the Company sold $750,000 of Series 1999-A Eight
Percent (8%) convertible notes due January 1, 2002. Under the securities
purchase agreement, the investor will purchase another $750,000 in convertible
notes within 30 days after the Company files a Registration Statement or at such
time as the parties mutually agree.
The notes can be converted to common stock of the company at a conversion
price (the "Conversion Price") for each share of common stock equal to the
lesser of (x) one hundred percent (100%) of the lowest of the closing bid prices
for the Common Stock for the five (5) trading days immediately preceding the
Closing Date (defined as the date of this Note); or (y) eighty percent (80%) of
the lowest of the closing bid prices for the Common Stock for the five (5)
trading days immediately preceding the Conversion Date as reported on the
National Association of Securities Dealers OTC Bulletin Board Market.
Additionally, the investor was issued a warrant to purchase 75,000 shares
of the Company's stock at $2.3375 per share through February 17, 2002.
Since the investor did not convert the notes on the day of closing, the
Company is required to recognize as interest expense the beneficial conversion
terms of the notes. This additional interest of $187,500 will be amortized over
the period between the closing date (February 17, 1999) and the first date (May
17, 1999) on which the notes can be converted.
At such time as the investor completes the agreement and pays the Company
the balance of $750,000, the investor will receive a three year warrant to
purchase 75,000 shares at 110% of the market price on the date of closing.
If the investor does not convert the second series of notes at the second
closing date, the Company will again be required to recognize additional
interest expense due to the beneficial conversion terms of the notes. Assuming
the market price is unchanged as of the second closing, the Company would
amortize $187,500 over the three months beginning with the date of the second
closing.
18. Restatement of Financial Statements
During 1998, the Company issued 5,602,697 unregistered, restricted shares
of its stock to attract and retain key employees, to acquire various license
agreements, to make acquisitions and for other developmental needs. These shares
were valued at $728,351 ($.13 per share) based on restricted liquidity, lack of
profitable operations and unproven marketability of several licensed
technologies. After further review, it has been determined that a more
reasonable value for these shares would be one in closer proximity to sales to
others for similar shares, reduced for a lack of liquidity discount. Based on
this approach the Company has determined that the shares should be recorded at
$.639 per share. This change in value requires an additional, non-cash charge to
1998 general and administrative compensation of $2,851,772. This increases the
Company's 1998 loss from $2,187,994 ($0.1798 per share) to $5,174,031 ($0.45
per share).
Further, the balance sheet impact of the additional non-cash compensation
expense and the change in accounting for the Brounley acquisition, increases
additional paid-in capital from $5,484,590 to $8,892,522 and decreases Retained
Earnings (Deficit) from ($2,146,369) to ($5,181,596). The overall change to the
Stockholders' Equity section of the balance sheet is an increase of $372,345.
Additionally, upon review it has been determined that the issuance of
shares of the Company's common stock to certain officers and directors described
above (since rescinded, see Note 19), fails to meet the standard of being
routine or systematic in nature. Although the Company does not believe that such
issuances were "in contemplation" of any business acquisition, it has been
unable to sustain the burden necessary to support that belief. As such, they
constitute an alteration of equity interest which precludes the use by the
Company of pooling of interest accounting for the acquisition of Brounley. The
Company has therefore restated its financial statements to employ the purchase
method of accounting for the acquisition (see Note 2).
19. Recission of Stock
Subsequent to year-end, the Company decided to rescind 1,950,000 shares of
stock previously issued to certain officers/directors. The Company will issue
stock options to the same officers/directors to purchase 1,950,000 shares of the
Company's stock. The stock may be purchased at the 5-day trailing average of the
market price at the date of grant and extend for a three year period.
20. Issuance of Preferred Stock
On March 30, 1999, the Company executed a series of agreements and amended
its articles of incorporation in order to complete the placement of $750,000 of
its Series A 7% Preferred Stock with an investor. Under the terms of the Series
A Preferred Stock, the holder may convert at 105% of the closing price anytime
up to 90 days after issuance; 85% of the closing price anytime between 91 days
and 119 days following closing; 80% of the closing price anytime between 120 and
149 days following closing, or; 75% of the closing price anytime after 150 days
following the closing date through March 30, 2004. The Company also issued
93,750 warrants exercisable at $2.40 per share to the investor in connection
with the sale of the Preferred Stock. As a part of a finders fee the Company
issued 50,000 warrants allowing for the purchase of a like number of shares of
the Company's stock at $2.40 per share through March-30, 2004.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOUPS TECHNOLOGY LICENSING, INC.
By: S/S LEON H. TOUPS
Leon H. Toups, Chief Executive Officer
Date: July 21, 1999
By: S/S MICHAEL P. TOUPS
Michael P. Toups, Chief Financial Officer
Date: July 21, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
s/s LEON H. TOUPS Chairman of the Board of Directors, July 21, 1999
- ----------------- President and Chief Executive Officer,
co-founder
s/s MARK C. CLANCY Director, July 21, 1999
- ------------------ Executive Vice President,
Corporate Secretary
co-founder
s/s MICHAEL P. TOUPS Director, July 21, 1999
- -------------------- Vice President Finance,
Chief Financial Officer,
co-founder
The above represents the Board of Directors of Toups Technology Licensing,
Inc. at December 31, 1998.
Harper, Van Scoik & Company, LLP
We consent to the use of our audit for Toups Technology Licensing,
Incorporated dated February 2, 1999 in the form 10KSB to be filed on or about
March 31, 1999.
S/S HARPER, VAN SCOIK & COMPANY, LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<LEGEND>I
This schedule contains summary financial information extracted from the
audited financial statements of Toups Technology Licensing, Incorporated dated
December 31, 1998 and is qualified in its entirety by reference to such
financial statements.
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> JAN-31
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<CASH> 772,080
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<RECEIVABLES> 1,848,236
<ALLOWANCES> (79,237)
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