Form 10-QSB/A
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ..............to........
Commission file number: 0-23897
TOUPS TECHNOLOGY LICENSING, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-3462501
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7887 Bryan Dairy Road, Suite 105, Largo, Florida 33777
(Address of principal executive offices)
(813)-548-0918
(Issuer's telephone number)
None
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and
(a) has been subject to such filing requirements for the past 90 days. Yes X
No_
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable
As of March 31, 1999, the Company had 24,561,724 of its $0.001 par value
Common Shares outstanding and 750,000 of its $1.00 par value Preferred Shares
oustanding.
Transitional Small Business Disclosure Format (check one); Yes___ No X
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Unaudited Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998
Consolidated Statements of Operations for the
three month period ended March 31, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the
three-month period ended March 31 1999
Consolidated Statements of Cash Flows for the
three-month period ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Toups Technology Licensing, Inc.
BALANCE SHEETS
March 31, 1999 (Unaudited) and December 31, 1998
Unaudited
March 31, December 31,
1999 1998
---- ----
Assets:
Cash $ 938,210 $ 772,080
Accounts Receivable, net of
Allowance for doubtful accounts
Of $79,237 1,782,320 1,768,999
Notes Receivables 174,954 0
Inventory at cost 638,835 542,655
Prepaid royalty expenses 144,000 89,000
Property and equipment, net of
Accumulated depreciation of $225,031
and $152,159, respectively 2,592,989 2,017,913
Goodwill, net of amortization of
$39,194 and $19,597, respectively 352,748 372,345
Other assets 56,262 122,193
------------- -------------
Total Assets $ 6,680,318 $ 5,685,185
============= =============
Current Liabilities:
Accounts payable and
accrued liabilities 676,854 1,432,388
Notes payable 0 42,843
Customer deposits 7,500 39,000
Capital lease obligations 87,384 66,125
Line of Credit 49,574 49,574
------------- -------------
Total current liabilities $ 821,312 $ 1,629,930
------------- -------------
Long Term Liabilities
Capital lease obligation,
net current portion 602,599 322,112
Long-Term liabilities,
less current portion 750,000 0
------------- -------------
Total long-term liabilities 1,352,599 322,112
------------- -------------
Total Liabilities $ 2,173,911 $ 1,952,042
Stockholders' equity
Common stock 24,561 22,217
Preferred Stock 750,000 0
Additional paid-in capital 10,746,124 8,892,522
Retained Earnings (7,014,278) (5,181,596)
------------- -------------
Total stockholders' equity $ 4,506,407 $ 3,733,143
------------- -------------
Total liabilities and
stockholders' equity $ 6,680,318 $ 5,685,185
============= ============
See Notes to Financial Statements
<PAGE>
Toups Technology Licensing, Inc.
STATEMENTS OF OPERATIONS
for the three-month period ended March 31, 1999 (Unaudited)
and for the three-month period ended March 31, 1998 (Unaudited)
(Unaudited) (Unaudited)
Three-Month Three-Month
Period ended Period ended
March 31, March 31
1999 1998
---- ----
Sales $ 362,946 $ 109,154
Cost of Goods Sold 358,648 72,844
------------- -------------
Gross Income from Operations 4,298 36,310
------------- -------------
General and administrative 1,744,144 245,577
------------- -------------
Total expenses 1,744,144 245,577
------------- -------------
Net Operating Loss (1,739,846) (209,267)
------------- -------------
Other Income (Expense):
Interest Income 2,257 1,442
Interest expense (87,500)
------------- -------------
Net Income (Loss) $(1,825,089) $ (207,825)
============= =============
Weighted average number of
shares outstanding 23,389,512 9,577,268
Net loss per share $ (0.0780) $ ( 0.0217)
============= =============
See Notes to Financial Statements
<PAGE>
Toups Technology Licensing, Inc.
CONSOLIATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three-month period ended March 31, 1999 (Unaudited)
Common Additional Retained
Number Stock Paid-In Preferred Earnings
Of Shares (At Par) Capital Stock (Deficit)Total
Balance, Decemeber 31,
1998 22,217,299 $22,217 $8,892,522 $0 $(5,181,596)$3,733,143
Stock issued for:
Cash 1,975,425 1,975 1,562,461 - - 1,564,436
Services 369,000 369 291,141 291,510
Sharr 750,000 - 750,000
Distribution to
Shareholder 7,593 7,593
Net Income (loss) for
the three months ended
March 31, 1998 (1,825,089)(1,825,089)
---------- ------ -------- ------ ----------- --------
Balance, March 31,
1999 24,561,724 24,561 10,746,124 750,000 $(7,014,278) 4,506,407
========== ====== ========= ======= =========== =========
See Notes to Financial Statements
<PAGE>
Toups Technology Licensing, Inc.
STATEMENTS OF CASH FLOWS
for the three-month period ended March 31, 1999 (Unaudited)
and for the three-month period ended March 30, 1998 (Unaudited)
(Unaudited) (Unaudited)
Three-month Three-month
Period ended Period ended
March 31, March 31
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(1,825,089) $(207,825)
Add (deduct) items not affecting cash:
Depreciation and amortization 92,469 8,032
Capital stock issued for services 291,510 190
Cash provided (used) due to changes in
assets and liabilities
(increase) in inventory (96,180) (56,666)
(Increase) decrease in accounts receivable (13,321) 30,926
(Increase) decrease in notes receivable (174,954) --
(Increase) in prepaid royalty expense (55,000) (45,457)
(Increase) decrease in prepaid expenses 0 5,000
(Increase) decrease in other assets 61,892 5,195
Increase (decrease) accounts payable
and accrued liabilities (751,495) 52,824
Increase (decrease) in deposits (31,500) 0
--------------- ----------
Net cash used by operating activities (2,501,668) (207,781)
--------------- ----------
Cash flows from investing activities:
Acquisition of equipment (647,948) (150,537)
--------------- ---------
Net cash used by investing activities (647,948) (150,537)
--------------- -----------
Cash flows from financing activities:
Proceeds from sale of capital stock 1,564,436 416,165
Proceeds from sale of preferred stock 750,000 0
Proceeds from capital lease obligation 341,200 163,376
Issuance of long-term debt 750,000 (47,062)
Distribution to owners (7,593) (7,593)
Payment of Notes Payable (42,843) 0
Principal payments on
capital lease obligations (39,454) (1,617)
Payment of long-term debt 0 (47,062)
--------------- ---------
Net cash provided by financing activities 3,315,746 523,269
------------- ----------
Net increase in cash 166,130 164,951
-------------- ----------
Cash, beginning of period 772,080 74,636
--------------- ----------
Cash, end of period $938,210 $239,587
=============== ==========
Supplemental Cash Flows Disclosures
Noncash items
Equipment acquired under capital lease $341,200 $163,376
=============== ==========
Common stock issued for consulting
services and rent 291,510 190
============ ==========
See Notes to Financial Statements
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
1. Summary of Significant Accounting Policies
Company - Toups Technology Licensing, Incorporated ("TTL or The Company"), a
Florida Corporation was formed on July 28, 1997, and activated its startup
operations on November 1, 1997. TTL is a diversified technology development and
manufacturing company that seeks, authenticates and secures the rights to
manufacture and market new technological advances that have applications in the
energy, environment, natural resources, and health care industries. At the end
of the first quarter of 1999, the Company was comprised of nine divisions. The
consolidated financial statements include the accounts of the Company and the
following wholly owned subsidiaries. All material intercompany transactions have
been eliminated.
Subsidiaries 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. AMW now
operates as TTL Manufacturing and TTL Precision 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 generally accepted accounting principles.
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
Basis of Presentation - Three Months Ended March 31, 1999 - The unaudited
interim financial statements for the three months ended March 31, 1999 included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and, in the opinion of
the Company, reflect all adjustments (consisting only of normal recurring
adjustments) and disclosures which are necessary for a fair presentation. The
results of operations for the three months, ended March 31, 1999 are not
necessarily indicative of the results of the full year.
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 reported
period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market. Work-in-process and finished goods include
material, labor and overhead.
Property, Plant and Equipment - All property, plant and equipment are
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 that 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 $79,237 and $74,237 as of
March 31, 1999 and December 31, 1998, 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 the management, it is more likely than not
that some portion of 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.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998 (continued)
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. Inventories
Inventories as of March 31, 1999 and December 31, 1998 consisted of the
following:
March 31, 1999 December 31, 1998
Raw materials $ 114,925 $ 455,357
Work-in-progress -0- 46,004
Finished Goods 523,910 41,294
Total $ 638,835 $ 542,655
3. Property, Plant and Equipment
Property, plant and equipment, at cost, and related accumulated
depreciation and amortization as of March 31, 1999 and December 31, 1998 are
summarized as follows:
March 31, 1999 December 31, 1998
Leasehold improvements $ 137,782 $ 96,999
Office furniture & equip. 203,173 199,467
Machinery & equip. 1,687,776 1,425,517
Equipment under capital leases 789,289 448,089
------- --------
$ 2,818,020 $ 2,170,072
Less:Accumulated depreciation 225,031 152,159
and amortization
Total $ 2,592,989 $ 2,017,913
========= =========
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998 (continued)
4. Related Party Transactions
The Company has the following receivables from officers and/or
stockholders:
March 31, 1999 December 31, 1998
Interest-free demand note-Unsecured:
Shareholders $ 85,263 $ 85,263
Officers 2,222 2,222
--------- ---------
Total $ 87,485 87,485
========= =========
5. Capital Leases
The following is an analysis of the equipment under capital leases by major
classes:
March 31, 1999 December 31, 1998
Machinery and equipment $ 789,289 $ 488,089
Less: Accumulated depreciation 84,772 53,003
Total $ 704,517 $ 435,086
Amortization of leased equipment is included in depreciation
expense and totaled $31,769 and $50,753 for the three months ending
March 31, 1999 and the year ending December 31, 1998, respectively. The
following is a schedule by years of future minimum lease payments as of
March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
1999 156,130 111,359
2000 194,279 118,403
2001 191,693 115,817
2002 177,417 101,541
2003 155,568 61,549
Total minimum lease payments $ 875,087 $508,669
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998 (continued)
Less:Amount representing interest $ 185,104 $120.432
Present value of net minimum
lease payments $ 689,983 $388,237
The present value of net minimum lease payments are reflected in the
balance sheet as:
March 31, 1999 December 31, 1998
Current portion of capital lease obligations $87,384 $66,125
Capital lease obligations,
net of current portion 602,599 322,112
$ 689,983 $ 388,237
6. 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 March 31, 1999 and
December 31, 1998, the amounts due were $49,574 and $49,574 respectively. The
line of credit matures November 30, 1999. Inventory and the personal guarantee
of certain stockholders secure the line.
7. Convertible Notes
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%)
Convertible Notes due January 1, 2002 (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. As a part of the sale of
the Notes, the Company provided 125,000 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 Stock on February 17,
1999 was $2.00.) 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 NASD
OTC Bulletin Board Market.
8. Capital Stock
Common
As of March 31, 1999 and December 31, 1998, there were 24,561,724 and 22,217,299
shares issued and outstanding respectively. Of the 24,561,724 issued and
outstanding at March 31, 1999, 6,034,056 shares are unrestricted and 20,190,668
shares are restricted as to the sale to other parties pursuant to the resale
provisions of Sec. Rule 144. 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.
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998 (continued)
Preferred
The Company is also authorized to issue 10 million shares of preferred stock
having a par value of $1 per share. As of March 31, 1999, there are 750,000
preferred shares issued and outstanding and no shares issued or outstanding at
December 31, 1998.
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 the 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.
9. Operating Leases
The Company has leases for buildings, which are classified as operating
leases. Total rent expense for all operating leases for March 31, 1999 and
December 31, 1998 was $ 89,739 and $ 17,154, respectively.
Future minimum lease payments under the noncancellable operating leases
with initial or remaining terms of one year or more are as follows:
1999 $ 201,671
2000 263,718
2001 276,904
2002 265,414
$ 1,007,707
10. Income Taxes
The Company has cumulative net operating losses of approximately $5,200,000
at December 31, 1998, which are expected to provide future tax benefits of
approximately $1,768,000 and $18,280, respectively, for both Federal and State
purposes. A valuation allowance for the entire benefit has not been recognized
as it is not reasonable to estimate when or if the benefit will be realized.
These tax benefits expire beginning in 2012.
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998 (continued)
11. Restatement of Financial Statements
At the end of March 1999, the Company's wholly owned subsidiary,
InterSource Health Care accounted for a transaction to two buyers as a sale.
InterSource had two bank confirmed letters of credit from the buyers for the
purchase price of the invoiced pharmaceutical products involved in the
transaction. The products were purchased through an established supplier for
whom InterSource had a signed purchase agreement for the supply of product.
InterSource had previously purchased and shipped product through the supplier
and upon placing this large order, was given representation the order would be
fulfilled at the contracted price. At the time of shipment to the buyer, the
national wholesaler delayed and subsequently cancelled the shipment. InterSource
was not immediately notified of the delay and subsequent problem in shipment to
its buyer. The delay and subsequent cancellation was caused by InterSource's
supplier's misrepresentation of the end user's pricing tier structure to the
national wholesaler. The letters of credit remain open should InterSource find
suitable pricing for its buyers.
After further review, it has been determined the requirements for sale were
not completed during the first quarter and the period should be restated. The
$1,525,000 sale was reversed to remove the $1,525,000 accounts receivable and
the corresponding $1,450,000 cost of sale was reversed to remove the $1,450,000
accounts payable. The net impact to the statement of operations is a decrease of
$75,000 to gross profit which increases the loss per share from $(0.0748) to
$(0.0780) per share for the period ended March 31, 1999.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations for the Three Months Ended
March 31, 1999
Overview:
Toups Technology Licensing, Incorporated ("TTL or "The Company") is a
diversified technology development and manufacturing company that seeks,
authenticates and secures the rights to manufacture and market new technological
advances that have applications in the energy, environment, natural resources
and health care industries. At the end of the first quarter 1999, the Company
was comprised of nine divisions, five of which earned revenues during the first
quarter.
Results of Operations
Three Months Ended March 31, 1999, Compared to Three Months Ended March 31, 1998
For the three months ended March 31, 1999, the Company reported revenues
from operations of $362,946, a 233% increase over 1998 first quarter revenues of
$109,154. First quarter revenues for both periods include revenues generated by
the Company's wholly-owned subsidiary Advanced Micro Welding, Inc. ("AMW") was a
Brounley Associates, Inc. ("Brounley") and InterSource Health Care, Inc.
("InterSource") all of which were acquired subsequent to March 31, 1998. The
revenue growth in the first quarter of 1999 came primarily from the increased
order activity in InterSource with the company's entrance into the
pharmaceutical market place.
During the first quarter of 1999, TTL organized its manufacturing divisions,
formerly AMW, to better serve the custom manufacturing market place by
positioning itself as a full service custom metal fabrication and precision
micro welding provider. The Company also furthered the development of the
in-house product line of BORS units with testing and modifications to extend the
life of the units in the field and improve operating performance. The Company
also organized Brounley and expanded its product offering into RF (radio
frequency) communications devices, which complements its RF power generators
sold to the laser industry. Brounley's expansion into this market provided
crossover marketing with the manufacturing division's efforts in similar
industries including defense-related contractors, medical device manufacturers
and aerospace. The Company continued development but earned no revenues in its
AquaFuel, EMT (electromagnetic tire recycling), Tunnel Bat and Power System
divisions during the first quarter of 1999.
Cost of goods sold in the first quarter of 1999 was $358,648 or 98.8% of
revenues, which was up from 67% of revenues for the first quarter of 1998. The
increase in cost of goods sold as a percentage of revenues in 1999 was the
result of InterSource establishing its pharmaceutical business (high volume, low
margin), as well as the costs associated with improvements added BORS units in
the field.
The Company's selling and administrative expenses of $1,744,144 were comprised
of salaries, consulting fees, and other operating costs in the first quarter of
1999, up from $245,577 during the first quarter of 1998. This 610% increase in
operating expenses was primarily the result of increased personnel expenses
incurred by the Company in building its infrastructure, assembling a team of
engineers, scientists and other professionals, and preparing its technologies
for market applications. During the first quarter of 1999, the Company advanced
the development of AquaFuel to the industrial application stage, entered new
markets through InterSource and Brounley, established a distribution network and
field support for BORS, continued design and production of the EMT process and
Tunnel Bat units, and entered discussions with potential acquisition candidates,
as well as candidates for technology licenses that fit with the Company's
business plan.
As a result of these activities, the Company had a 1999 first quarter
operating loss of $1,739,846, an increase from an operating loss of $209,267 for
the same period of 1998.
Interest income during the first quarter period was generated from excess
cash balances resulting from the Company's private equity and debt offerings.
The $87,500 increase in interest expense was related to the beneficial
conversion of the convertible Notes since the investor did not convert the Notes
on the date of closing.
At the end of March 1999, the Company's wholly owned subsidiary,
InterSource Health Care accounted for a transaction to two buyers as a sale.
InterSource had two bank confirmed letters of credit from the buyers for the
purchase price of the invoiced pharmaceutical products involved in the
transaction. The products were purchased through an established supplier for
whom InterSource had a signed purchase agreement for the supply of product.
InterSource had previously purchased and shipped product through the supplier
and upon placing this large order, was given representation the order would be
fulfilled at the contracted price. At the time of shipment to the buyer, the
national wholesaler delayed and subsequently cancelled the shipment. InterSource
was not immediately notified of the delay and subsequent problem in shipment to
its buyer. The delay and subsequent cancellation was caused by InterSource's
supplier's misrepresentation of the end user's pricing tier structure to the
national wholesaler. The letters of credit remain open should InterSource find
suitable pricing for its buyers.
After further review, it has been determined the requirements for sale were
not completed during the first quarter and the period should be restated. The
$1,525,000 sale was reversed to remove the $1,525,000 accounts receivable and
the corresponding $1,450,000 cost of sale was reversed to remove the $1,450,000
accounts payable. The net impact to the statement of operations is a decrease of
$75,000 to gross profit which increases the loss per share from $(0.0748) to
$(0.0780) per share for the period ended March 31, 1999.
InterSource has subsequently upgraded its licensing status from a
pharmaceutical broker to a pharmaceutical wholesaler and has applied for its own
DEA (Drug Enforcement Agency) number to inventory pharmaceutical products. The
higher level of licensure will allow InterSource to deal directly with the
national wholesalers and manufacturers under a more favorable pricing tier
structure.
Liquidity and Capital Resources
Net cash used by operating activities of ($2,501,668) related primarily to
the Company's $1,825,089 net loss and $751,495 decrease in accounts payable.
The Company, however, had a net working capital surplus of $2,857,007, an
increase of $1,314,203 from December 31, 1998. The increase in working capital
was principally the result of an increase in financing activities through the
issuance of $2,314,436 in equity securities and $750,000 in convertible debt
securities through private offerings.
At fiscal year-end 12-31-98, the Company had $1,768,999 in accounts
receivable, which represented 80% of the total sales at that time. The accounts
receivable were derived primarily from sale of the Balanced Oil Recovery System
("BORS") units in the fourth quarter of 1998. Below is a BORS accounts
receivable collection schedule through June 30, 1999:
12-31-98 Collections 3-31-99 Collections 6-30-99
1,494,000 ($60,000) 1,434,000 (103,350) *955,650
* After reduction for $375,000 allowance for field modifications
For units sold in 1998, the Company did not establish a reserve for product
defects or returns because the Company did not anticipate such problems would
arise. However, based on the harsh environment the units must withstand in the
field, modifications became necessary after a 30-day period of break-in time
during February 1999. The modifications were primarily for "wear and tear"
related items, which were not discovered until late February and early March.
The Company developed the list of field modifications to be added as
improvements during the second quarter and subsequent modification began during
this time frame. After the problems surfaced, the Company established a reserve
for product defects and returns of $375,000 or $3,750 per unit for the units
sold. The Company has spent approximately $2,000 per unit for current
modification and has established an additional reserve of $1,750 per unit for
unforeseen repairs to those units in the future. While the Company had no
written warranty and return policy at the time the units were sold, the Company
stood behind its products to satisfy its customers and develop its reputation
for quality and service in the field. For the above reasons, the Company
extended its customer's payment terms to enable the modifications to be
completed and to ensure customer satisfaction.
As of March 31,1998 the Company had $49,574 drawn on a $50,000 bank line of
credit for InterSource. The Company has no other bank financing or other
traditional debt obligations outstanding other than trade payables, accrued
expenses, and capitalized lease obligations due from the normal course of
business.
The Company believes its existing cash, together with projected cash flows
from operations and the availability of future equity and debt offerings, will
be sufficient to meet the Company's cash requirements in 1999.
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.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is
a party or of which the Company's property is subject.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Toups Technology Licensing, Inc.
(Registrant)
August __, 1999
By Leon H. Toups, Chief Executive Officer
S/S LEON H. TOUPS
(Signature)
(Signature)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
This schedule contains summary financial information extracted from the
unaudited financial statements of Toups Technology Licensing, Incorporated dated
March 31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-98
<PERIOD-START> JAN-01-99
<PERIOD-END> MAR-31-98
<EXCHANGE-RATE> 1
<CASH> 938,210
<SECURITIES> 0
<RECEIVABLES> 2,036,511
<ALLOWANCES> 79,237
<INVENTORY> 638,835
<CURRENT-ASSETS> 3,678,319
<PP&E> 2,745,148
<DEPRECIATION> 152,159
<TOTAL-ASSETS> 6,680,318
<CURRENT-LIABILITIES> 821,312
<BONDS> 1,352,599
0
750,000
<COMMON> 24,562
<OTHER-SE> 3,731,846
<TOTAL-LIABILITY-AND-EQUITY> 6,680,318
<SALES> 362,946
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