U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ..............TO........
Commission file number: 0-23897
TOUPS TECHNOLOGY LICENSING, INCORPORATED
(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)
(727)-548-0918
(Issuer's telephone number)
None
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY THE ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of December 6, 1999, the
Company had 27,533,599 shares of Common Stock par value $0.001 outstanding.
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 September 30, 1999
and December 31, 1998
Consolidated Statements of Operations for the three-month
periods ended September 30, 1999 and 1998
Consolidated Statements of Operations for the nine-month
periods ended September 30, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the
nine-month periods ended September 30, 1999
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
None
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1999 (Unaudited) and December 31, 1998
September 30,
1999 December 31,
(Unaudited) 1998
---- ----
ASSETS
Current assets:
Cash $ 121,007 $ 772,080
Accounts receivable, net of
allowance for doubtful accounts
of $0 and $74,237, respectively 1,266,421 1,768,999
Notes receivables 369,721 -
Inventory at cost 749,238 542,655
Current portion of land, net of sale
contingency reserve 1,546,875 -
Prepaid royalty expenses 144,000 89,000
Other current assets - 2,776
------------- -----------
Total current assets 4,197,262 3,175,510
Property and equipment, net of
accumulated depreciation of $382,103
and $152,159, respectively 2,690,978 2,017,913
Goodwill, net of amortization of
$78,739 and $19,597, respectively 313,203 372,345
Land, net of sale contingency
reserve, net of current portion 2,578,125 -
Related party receivables 44,201 87,485
Other assets 6,987 31,932
------------- ---------
Total assets $ 9,830,756 $ 5,685,185
============= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities 1,821,980 1,432,388
Notes payable, related party 487,150 -
Royalties payable - 42,843
Customer deposits 18,224 39,000
Capital lease obligations 99,880 66,125
Line of Credit 49,574 49,574
------------- ----------
Total current liabilities $ 2,476,808 $ 1,629,930
------------- ------------
Long term liabilities
Capital lease obligation,
net of current portion 566,932 322,112
Long-term liabilities,
less current portion 750,000 -
------------- -----------
Total long-term liabilities 1,316,932 322,112
------------- -----------
Total liabilities $ 3,793,740 $ 1,952,042
Stockholders' equity
Common stock 27,535 22,217
Preferred stock 750,000 -
Additional paid-in capital 12,404,080 8,892,522
Retained earnings (7,144,599) (5,181,596)
------------- -----------
Total stockholders' equity $ 6,037,016 $ 3,733,143
------------- -----------
Total liabilities and
stockholders' equity $ 9,830,756 $ 5,685,185
============= ==========
See Notes to Financial Statements
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS for the three-month
periodS ended September 30, 1999 and 1998 (Unaudited)
Three-Month Three-Month
Period ended Period ended
September 30, September 30,
1999 1998
(Unaudited) (Unaudited)
-------- -------
Revenues $ 702,500 $681,549
Cost of goods sold 515,684 398,735
------------- -----------
Gross Profit 186,816 282,814
------------- ----------
General and administrative expenses 1,273,041 701,805
------------- -----------
Total expenses 1,273,041 701,805
------------- -----------
Net operating income (loss) (1,086,225) (418,991)
------------- -----------
Other income (expense):
Interest income 2,072
Interest expense (51,117) -
------------- -----------
Net income (loss) (1,137,342) (416,919)
Preferred stock dividends 100,000
------------- -----------
Net income (loss) applicable to
common stock $ (1,237,342) $ (416,919)
======== ===========
Weighted average number of
shares outstanding 26,395,000 13,633,183
Net income (loss) per share $ (0.0469) $ ( 0.0306)
======== ========
See Notes to Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS for the nine-month
periods ended September 30, 1999 and 1998 (Unaudited)
(Unaudited) (Unaudited)
Nine-Month Nine-Month
Period ended Period ended
September 30, September 30
1999 1998
(Unaudited) (Unaudited)
-------- -------
Revenues $ 6,918,073 $ 790,692
Cost of goods sold 1,116,182 463,753
------------- -----------
Gross profit 5,801,891 326,939
------------- -----------
General and administrative expenses 7,271,985 1,251,385
------------- -----------
Total expenses 7,271,985 1,251,385
------------- -----------
Net operating income (loss) (1,470,094) (924,446)
------------- -----------
Other income (expense):
Interest income 3,301 3,567
Interest expense (238,617) -
------------- -----------
Net income (loss) (1,705,410) (920,879)
Preferred stock dividends 250,000 -
------------- -----------
Net income (loss) applicable to
common stock $ (1,955,410) $ (920,879)
======== ========
Weighted average number of
shares outstanding 26,395,000 13,633,183
Net income (loss) per share $ (0.074) $ ( 0.0675)
============= ===========
See Notes to Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine-month period ended September 30, 1999
(Unaudited)
Common Additional Retained
Number Stock Paid-In Preferred Earnings
Of Shares (At Par) Capital Stock (Deficit) Total
Balance,
December 31,
1998 22,217,299 $22,217 $8,892,522 $0 $(5,181,596) $3,733,143
Stock issued for:
Cash 4,412,800 4,414 2,520,272 - - 2,524,686
Services 903,500 904 741,286 - - 742,190
Sharr Fund 750,000 - 750,000
Distribution to
Shareholder (7,593) (7,593)
Dividend recognized
From conversion discounts 250,000 (250,000) -
Net Income (loss) for
the nine months ended
September 30, 1999 (1,705,410) (1,705,410)
---------- ------ -------- ------ --------- --------
Balance,
September 30,
1999 27,533,599 $27,535 $12,404,080 $750,000 $(7,144,599) $6,037,016
========== ====== ========== ======= =========== =========
See Notes to Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine-month
period ended September 30, 1999 and 1998 (Unaudited)
Nine-month Nine-month
Period ended Period ended
September 30, September 30,
1999 1998
(Unaudited) (Unaudited)
---- ----
Cash flows from operating activities:
Net loss $(1,705,410) $(920,829)
Add (deduct) items not affecting cash:
Depreciation and amortization 288,735 40,936
Capital stock issued for services 742,190 -
Accrued licensing fees - land for resale (4,125,000) -
Cash provided (used) due to changes in assets and liabilities:
(increase) in inventory (206,583) (160,479)
(increase) decrease in accounts
receivable 502,578 (338,100)
(increase) decrease in notes receivable (369,721)
(increase) in prepaid royalty expense (55,000) (93,000)
(increase) decrease in prepaid expenses - 5,875
(increase) decrease in other assets 71,005 -
Increase (decrease) in accounts payable
and accrued liabilities 389,592 218,129
Increase (decrease) in deposits (20,776) (61,457)
-------------- ----------
Net cash used by operating activities (4,488,390) (1,308,925)
-------------- ----------
Cash flows from investing activities:
Acquisition of equipment (903,009) (75,847)
--------------- ---------
Net cash used by investing activities (903,009) (75,847)
-------------- ---------
Cash flows from financing activities:
Proceeds from sale of capital stock 2,524,686 1,503,709
Proceeds from sale of preferred stock 750,000 -
Proceeds from capital lease obligation 341,200 -
Issuance of long-term debt 1,246,800 -
Distribution to owners (7,593) -
Payment of notes payable (42,493) -
Principal payments on
capital lease obligations (62,274) (16,348)
Payment of long-term debt - -
-------------- ---------
Net cash provided by financing activities 4,740,326 1,487,361
------------ --------
Net increase (decrease) in cash (651,073) 102,589
-------------- ---------
Cash, beginning of period 772,080 74,636
--------------- ---------
Cash, end of period $121,007 $177,225
========= =========
Supplemental Cash Flows Disclosures
Noncash items:
Equipment acquired under capital lease $341,200 $124,666
========== ==========
Common stock issued for consulting
services and rent $742,190 $286
========== ==========
See Notes to Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 began 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 third 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.
Subsidiary's Name Business Activity
Brounley Associates, Inc. (Brounley) designs, manufactures and sells radio
frequency (RF) generators.
InterSource Healthcare, Inc. (InterSource) Sells and refurbishes medical
equipment, provides services for medical facility development, and sells
pharmaceutical products.
Basis of Accounting - The accompanying consolidated financial statements were
prepared using the accrual basis of accounting pursuant to which revenues are
recognized when earned and expenses are recognized when incurred. This basis of
accounting conforms to generally accepted accounting principles.
Basis of Presentation - The unaudited consolidated financial statements for the
nine months ended September 30, 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
nine months ended September 30, 1999 are not necessarily indicative of the
results of the full year.
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
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 $ 0 and $74,237 as of
September 30, 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.
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.
<PAGE>
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999
and December 31, 1998 (continued)
2. Inventories
Inventories as of September 30, 1999 and December 31, 1998 consisted of the
following:
September 30, 1999 December 31, 1998
Raw materials $355,888 $ 455,357
Work-in-progress 194,802 46,004
Finished goods 198,548 41,294
Total $749,238 $ 542,655
3. Property, Plant and Equipment
Property, plant and equipment, at cost, and related accumulated
depreciation and amortization as of September 30, 1999 and December 31, 1998 are
summarized as follows:
September 30, 1999 December 31, 1998
Leasehold improvements $ 158,695 $ 96,999
Office furniture & equipment 228,623 199,467
Machinery & equipment 1,870,907 1,425,517
Equipment under capital leases 814,856 448,089
------- --------
$ 3,073,081 $ 2,170,072
Less:Accumulated depreciation
and amortization 382,103 152,159
------- -------
Total $ 2,690,978 $ 2,017,913
========= =========
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999
and December 31, 1998 (continued)
4. Licensing Fee - Land for Resale
On June 15, 1999, the Company entered into an Exclusive Representative
Agreement (the "Exclusive Agreement") with Rancho La Regina Agropecuaria, S.A.,
Calle Monte Cristi, Dominican Republic (the "Licensee"). Under the terms of the
Exclusive Agreement, TTL shall make available its Pyrolytic Carbon Extraction ,
Balanced Oil Recovery System Lift , Tunnel Bat Reclamation Vehicle and any other
item offered as a result of intellectual rights held by TTL on an exclusive
basis for commercialization and resale throughout South and Central America,
including the Dominican Republic, Puerto Rico, Venezuela, Colombia, Ecuador,
Brazil, Peru, Bolivia, Paraguay, Argentina, Uruguay, Chile, Costa Rica and
Mexico. In exchange for these rights within the specified territory, the
Licensee shall pay the sum of $5,500,000. Payment under the Exclusive Agreement
was securitized through a limited-use title to a Dominican Republic Federal
House Authority insured Planned Urban Development consisting of a planned 2,500
home site, 750,000 square-meter parcel of land located at the Dominican
Republic. Under the terms of the Exclusive License, the Company receives a 10%
interest in the sale price of each lot sold or a net realizable cash flow from
the home site sales of $5,500,000 to be paid out pari passu with the sale of the
2,500 home sites. The licensing fee was a one-time fee for the exclusive rights
to the Company's technologies. The Company realized 100% of the licensing fee in
the second quarter ended June 30, 1999. The Company expects to realize the
payment evenly over a 24-month period. The Company has established a reserve of
25% or $1,375,000 against the license fee for potential undeveloped home sites.
The Dominican Republic Federal Housing Authority has conducted a feasibility
study and approved the 2,500 home site PUD for their FHA financing guarantee
relating to the purchase of each home site. The PUD expects to begin home site
sales in the fourth quarter of 1999.
The following is a schedule of future cash flow from the land held for
resale as payment under the Exclusive Agreement:
Land held for resale: $5,500,000
Less sale contingency reserve 1,375,000
$4,125,000
Current portion: $1,546,875
Long-term portion 2,578,125
$4,125,000
In the course of conducting a registration of TTL's securities on form SB-2
during 1999 the SEC has requested further information relating to the accounting
treatment of the Company's $5,500,000 sub-license agreement with Rancho La
Regina. The Company believes it has properly reflected this transaction
throughout its unaudited financial statements. However, should the Company not
prevail, a restatement of TTL's financial statements is probable which
restatement would have a material effect on the Company's 1999 unaudited
statements of income and balance sheet. In the event of a restatement, the
Company may be required to recognize the revenue and earnings of its Rancho La
Regina license agreement as actual payments are received which may occur over a
24 month period.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999
and December 31, 1998 (continued)
5. Related Party Transactions
Related Party Receivables:
The Company has the following receivables from officers and/or
stockholders:
September 30, 1999 December 31, 1998
Interest-free demand notes-Unsecured:
Shareholders $ 41,979 $ 85,263
Officers 2,222 2,222
--------- ---------
Total $ 44,201 87,485
========= =========
Related Party Debt:
In June 1999, the Company executed a $65,000 promissory note with a company
100% owned by the Company's Chief Executive Officer. The note bears interest at
a rate of 12%, with 24 monthly principal and interest payments of $3,060. The
note is secured by the Company's accounts receivable, inventory and equipment.
In July 1999, the Company executed a $75,000 promissory note with its Chief
Executive Officer. The note bears interest at a rate of 12% with 24 monthly
principal and interest payments of $3,530.51. The note is secured by the
Company's accounts receivable, inventory and equipment.
In August 1999, the Company executed a $282,000 promissory note with a
Director. The note bears interest at a rate of 12% and is due and payable in
full, along with $8,000 of interest, on January 15, 2000. Additionally, the note
grants an option to the holder to purchase 25,000 shares of the Company's common
stock within a 3-year period at $.70 per share. The note is secured by real
property in the Dominican Republic
In August 1999, the Company received an unsecured loan in the amount of
$70,000 from a shareholder. The interest rate and payment schedule have not yet
been determined.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999
and December 31, 1998 (continued)
6. Capital Leases
The following is an analysis of the equipment under capital leases by major
classes:
September 30, 1999 December 31, 1998
Machinery and equipment $ 814,856 $ 488,089
Less: Accumulated depreciation 117,324 53,003
Total $ 697,532 $ 435,086
Amortization of leased equipment is included in depreciation
expense and totaled $109,723 and $50,753 for the nine months ending September
30, 1999 and the year ending December 31, 1998, respectively.
The following is a schedule by years of future minimum lease payments as of
September 30, 1999 and December 31, 1998.
September 30, 1999 December 31, 1998
1999 104,844 111,359
2000 203,432 118,403
2001 200,843 115,817
2002 179,875 101,541
2003 155,568 61,549
Total minimum lease payments $ 844,562 $508,669
Less:Amount representing interest $177,750 $120,432
Present value of net minimum
lease payments $ 666,812 $388,237
The present value of net minimum lease payments are reflected in the
balance sheet as:
September 30, 1999 December 31, 1998
Current portion of capital
lease obligations $99,880 $66,125
Capital lease obligations,
net of current portion 566,932 322,112
$ 666,812 $ 388,237
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
(continued)
7. 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 September 30, 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.
8. Convertible Notes
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 the conversion price (the "Conversion Price") for each share
of common stock equal to the lesser of (x) one hundred percent (100%) of the
lowest 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 has been 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 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.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
(continued)
9. Capital Stock
Common
As of September 30, 1999 and December 31, 1998, there were 27,533,599 and
22,217,299 shares issued and outstanding respectively. Of the 27,533,599 issued
and outstanding at September 30, 1999, 6,034,056 shares are unrestricted and
21,499,543 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.
Preferred
The Company is also authorized to issue 10 million shares of preferred stock
having a par value of $1 per share. As of September 30, 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. The Company has
recognized a dividend of $250,000 due to the conversion discounts noted above
for the period June 30, 1999 to August 30, 1999.
10. Operating Leases
The Company has leases for buildings, which are classified as operating
leases. Total rent expense for all operating leases for September 30, 1999 and
December 31, 1998 was $ 258,096 and $ 17,154, respectively.
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
(continued
10. Operating Leases (continued)
Future minimum lease payments under the noncancellable operating leases
with initial or remaining terms of one year or more are as follows:
1999 $ 53,490
2000 313,450
2001 276,000
2002 265,414
$ 908,354
11. 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.
12. Noncash Disclosures
In 1999, the company issued 903,500 shares of restricted common stock for
services. These shares were recorded at a total of $742,190.
13. Contingencies
The company may periodically be 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.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview:
Toups Technology Licensing, Incorporated's ("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 resources and healthcare
market place. At the end of 1998, the Company was comprised of nine divisions.
During the second quarter, 1999, the Company consolidated its nine divisions
into three major segments: Manufactured Products, Environmental Solutions, and
Electronic Commerce.
The consolidation was part of the Company's overall strategic plan, which allows
management the flexibility to take advantage of immediate opportunities while
continuing technological developments that build the foundation for tomorrow's
revenues. This plan has been established to transition the Company from a
technology developer to a technology manufacturer.
Management engineered three main events in the third quarter to further its
goals and believes that these events will have an increased impact on its
performance beginning in the fourth quarter of 1999:
1. Concentration on the Company's outsourcing production capabilities through
its consolidated Manufactured Products Division resulted in increased
revenues from outside customers contracting the Company to meet their
production needs. Revenues from outside customers increased from $20,000
per week at the beginning of the quarter to over $50,000 per week by the
end of the quarter.
2. Manufactured Products concentrated heavily on the BORS Lift, an oil
extraction device, increasing contractually committed orders from
distributors through calendar year 2000 from just over 700 at the beginning
of the quarter to 1,900 units by the end of the quarter. The Company has
also contracted with a national service company to perform unit
installations giving the Company the ability to perform multiple
installations at multiple locations simultaneously. The Company currently
has contracted for over 100 installations before year end.
3. The Company's Environmental Solutions Division concentrated heavily on its
MagneGas, a process for liquid waste treatment and alternative gaseous fuel
production, and its Waste-to-Energy treatment process, a process that
treats solid hydrocarbon-based waste and reduces its volume as well as
produces a refuse derived fuel. To further its development, the Company
contracted with a national environmental products engineering firm. The
result of this effort will deliver commercial applications of the MagneGas
process beginning the fourth quarter 1999. The first commercial
applications will serve the cutting gas industry with an on-site, on-demand
source of MagneGas as a replacement for acetylene and the second, a liquid
waste treatment process for sewage, animal effluent and certain industrial
liquid wastes. The relationship has also delivered a set of prints that
allow the Company to quote on a 400-ton per day solid waste-to-energy
processing plant.
About Toups Technology
The Manufactured Products Division is located in the company's 50,000 sf state
of the art manufacturing facility and includes:
o BORS Lift(a), a device that increases production and decreases the cost of
producing oil in stripper wells, or relatively low volume oil wells;
o TTL Manufacturing, which provides production, metal fabrication, machining
and a wide variety of precision welding services for internally
manufactured products, other TTL Divisions and outside customers;
o Brounley RF Technologies, TTL's electronics manufacturing subsidiary that
makes radio frequency power generators for aerospace, military, industrial
and advanced communications applications; and,
o Tunnel Bat(a), a mechanized vehicle used to clean out water drainage
culverts.
The Environmental Solutions Division includes:
o Waste Processing Technologies:
ss. Magnegas(a), a process that uses carbon suspended in
hydrocarbon-based industrial waste or sewage to produce a
multi-use combustible gas while neutralizing the waste.
ss. Waste-to-Energy treatment, a process that handles solid
hydrocarbon-based waste and produces a multi-use refuse derived
fuel in the form of a combustible gas while treating the waste and
reducing its volume.
o Alternative Fuel Products features three unique clean-burning, high
performance fuel gasses derived from its waste processing technologies:
ss. MageneGas(a) produced from the MagneGas process.
ss. Phoenix777(TM) produced from the waste-to-energy process, and
ss. AquaFuel(TM)
The E-Commerce Division is the company's on-line distribution system that
includes:
InterSource Health Care, which sells medical supplies, equipment and
pharmaceuticals through organizational joint-marketing programs such as
group purchasing, professional and corporate health care organizations and
over the internet; and,
iSOURCEnet.com, in conjunction with TTLOnline.com, which serves as TTL's
internet distribution network and international outreach, is planned to be
a medical surplus equipment and supply on-line auction and retail outlet.
Both are projected to go online in the fourth quarter, 1999.
Results of Operations
Three Months Ended September 30, 1999, Compared to Three Months Ended
September 30, 1998
For the three months ended September 30, 1999, the Company reported revenues
from operations of $702,500, a 3% increase over 1998 third quarter revenues of
$681,549. Third quarter revenues were primarily derived from the Manufactured
Products division's sales from outside contract manufacturing.
The Company positioned itself in the third quarter to realize strong sales
in the fourth quarter for BORS Lift units with the introduction of an enhanced
design to the field in September. The units are currently undergoing testing by
the Department of Energy (DOE) under a grant funded by the DOE to compare the
BORS Lift to conventional oil extraction units. The Company is currently
contracted to install a minimum of 100 units prior to year-end and has orders
for an additional 1,800 through calendar 2000.
To complement its BORS Lift, the Company has further developed its niche
contract manufacturing business for customers with long production run-cycles.
The long run-cycles allow the Company to take advantage of the automation and
efficiency of its manufacturing setup and to absorb overhead through broader
utilization of its assets. The Company's Manufactured Products division's
efforts for the third quarter were focused on production control, sales
organization and building its quality standards in preparation for increasing
its throughput to include both BORS Lift units and outside work while
maintaining its margins.
Cost of goods sold in the third quarter of 1999 was $515,684 or 73% of revenues,
which was up from 59% of revenues for the third quarter of 1998. The increase in
cost of goods sold as a percentage of revenues in 1999 was the result of the
divisional re-organization and BORS Lift setup within the Manufactured Products
division.
The Company's selling and administrative expenses of $1,273,041 were comprised
of operating costs, development expenses, salaries and consulting fees in third
quarter of 1999, up from $701,805 during the third quarter of 1998. The 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 sale. As a percentage of sales, selling and administrative expenses
increased to 181% of sales during the third quarter of 1999, up from 103% of
sales during the third quarter of 1998. During the third quarter of 1999, the
Company completed its BORS Lift enhanced unit design and increased its
production capabilities. The Company also concentrated heavily on the final
development and market applications for MagnaGas and its waste-to-energy
treatment processes.
As a result of these activities, the Company had a third quarter 1999 operating
loss of $1,086,225, an increase from an operating loss of $418,991 for the same
period of 1998.
Interest expense of $51,117 during the third quarter period was related to the
accrued interest from shareholder notes.
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998
For the nine months ended September 30, 1999, the Company reported revenues from
operations of $6,918,073, a 775% increase over 1998 nine month revenues of
$790,692. Revenues were primarily derived from the $5.5 million Exclusive
Agreement involving the licensing of the Company's technologies to certain South
and Central American countries as well as several Caribbean islands.
Cost of goods sold in the first nine-month period of 1999 was $1,116,182 or 16%
of revenues, which was down from 59% of revenues for the first nine-month period
of 1998. The decrease in cost of goods sold as a percentage of revenues in 1999
was the result of the limited associated costs with the licensing fee.
The Company's selling and administrative expenses of $7,271,985 were comprised
of operating costs, development expenses and salaries and consulting fees in the
first nine-month period of 1999, up from $1,251,385 during the nine-month period
of 1998. The 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 developing technologies for sale. As a
percentage of sales, selling and administrative expenses dropped to 105% of
sales during the first nine-month period, down from 158% of sales during the
first nine-month period of 1998. During the first nine-month period, the Company
completed its reorganization by installing strong, experienced divisional
management while focusing its operational structure on salable commercial
applications to maximize sales and earnings.
As a result of these activities, the Company had an operating loss of $1,470,094
for the first nine-month period of 1999, an increase from an operating loss of
$924,446 for the same period of 1998.
Interest expense of $187,500 was related to the beneficial conversion terms of
the convertible notes since the investor did not convert the notes on the day of
closing. The balance of interest expense was related the accrued interest from
shareholder notes.
Liquidity and Capital Resources
Net cash used by operating activities of ($4,488,390) related primarily to the
Company's $1,705,410 net loss for the first nine-month period and the $4,125,000
increase in the licensing fee receivable of land held for resale associated with
the licensing agreement in the Dominican Republic. The Company, however, had a
net working capital surplus of $1,720,454, an increase of $174,874 from December
31, 1998. The increase in working capital was principally the result of an
increase in financing activities through the issuance of $4,521,486 in common
stock, preferred stock and other debt instruments.
As of September 30,1999 the Company had $49,574 drawn on a $50,000 bank line of
credit for InterSource and $487,150 in loans due to shareholders of the Company.
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 contain 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
None.
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, Incorporated
(Registrant)
December 8, 1999
By Leon H. Toups, Chief Executive Officer
S/S LEON H. TOUPS
(Signature)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from the
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March 31, 1999 and is qualified in its entirety by reference to such financial
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