FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal quarter ended June 30, 2000 or
[] Transition report pursuant to section 13 or 15(d)of the Securities Exchange
Act of 1934 For the transition period from _____ to _____
Commission file number 000-29669
ONLINE POWER SUPPLY, INC.
--------------------------------------------------------------------------------
(Exact Name of Company as Specified in its Charter)
Nevada 84-1176494
----------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6909 S Holly Circle, #200 Englewood, CO 80112
----------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone Number: (303) 741-5641
--------------
NONE
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Company: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO -------
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2000
--------------------------------------- -----------------------------------
Common stock, $.001 par value 21,198,836 Shares
1
<PAGE>
ONLINE POWER SUPPLY, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Balance Sheet - June 30, 2000 & December 31,1999.........3-4
Condensed Statements of Operations -- Three and Six Months
Ended June 30, 2000 and June 30, 1999................................5
Consolidated Statement of Shareholders' Deficit....................6-7
Condensed Statements of Cash Flows -- Six Months
Ended June 30, 2000 and June 30, 1999................................8
Notes to Condensed Financial Statements...........................9-13
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................14-16
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds...........................16
ITEM 4. Submission of Matter to a Vote of Shareholders......................16
ITEM 6. Exhibits and Reports on Form 8-K....................................16
Signatures..........................................................17
2
<PAGE>
ONLINE POWER SUPPLY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------------
(unaudited)
Assets
Current assets
<S> <C> <C>
Cash $ 1,403,110 $ 1,941,367
Certificates of deposit 3,150,000 3,100,000
Short term investments 5,907,719
Accounts receivable, net of allowance for uncollectible
accounts totaling $187(2000) and $364(1999) 4,985 6,048
Accrued interest receivable 138,165 --
Receivable from officers 90,050 --
Inventory, at cost 137,056 66,713
Prepaid expenses 89,633 2,780
----------- -----------
Total current assets 10,920,718 5,116,908
Property and other assets
Property and equipment, less
accumulated depreciation of $85,315
(2000) and $66,135 (1999) 384,643 251,114
Equipment under capital leases, less
accumulated depreciation of $15,920
(2000) and $3,771 (1999) 86,043 74,190
Goodwill, less accumulated
amortization of $130,897 (2000) and
$104,718 (1999) 130,897 157,076
Acquired technology costs, less
accumulated amortization of $63,700
(2000) and $50,960 (1999) 63,700 76,440
Patents, less accumulated amortization
of $ 3,145 (2000) and $492 (1999) 28,369 25,039
Other assets 450 1,512
----------- -----------
Total property and other assets 694,102 585,371
----------- -----------
Total assets $11,614,820 $ 5,702,279
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ONLINE POWER SUPPLY, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
(unaudited)
Liabilities and shareholders' equity
Current liabilities
<S> <C> <C>
Accounts payable $ 246,522 $ 245,772
Accounts payable, related parties -- 101,081
Line-of-credit -- 731
Notes payable, current maturity 19,115 --
Capital lease obligations, current maturity 21,751 20,017
Accrued interest payable 19,063 26,012
Bonuses payable, related parties -- 72,000
Retirement liability, related parties, current maturity 162,000 --
Other 7,947 100,772
------------ ------------
Total current liabilities 476,398 566,385
------------ ------------
Long-term liabilities
Capital lease obligations, less current maturities 57,316 48,583
Note payable, less current maturity 33,331 --
Officer's retirement liability, less current maturity 27,000 --
------------ ------------
Total long term liabilities 117,647 48,583
------------ ------------
Total liabilities 594,045 614,968
------------ ------------
Liability for common stock subject to rescission,
0 (2000) and 1,243,151 shares (1999) -- 1,281,815
Shareholders' equity
Preferred stock, $.0001 par value; 1,000,000 shares
authorized 10,467 (1999) and 2,800 (2000)
shares issued and outstanding -- 1
Common stock; $.0001 par value; 50,000,000 shares
authorized; 21,198,836 (2000) and 16,954,119(1999)
shares issued and outstanding 2,120 1,571
Additional paid-in capital 28,774,698 19,914,828
Retained deficits (17,756,043) (16,110,904)
------------ ------------
Total shareholders' equity 11,020,775 3,805,496
------------ ------------
Total liabilities and shareholders' equity $ 11,614,820 $ 5,702,279
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ONLINE POWER SUPPLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Quarter For the Six For the Quarter For the Six
Ended Months Ended Ended Months Ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 15,677 $ 28,111 $ 117,153 $ 188,589
Cost of sales 6,076 13,528 99,444 149,248
------------ ------------ ------------ ------------
Gross profit 9,600 14,582 17,709 39,341
------------ ------------ ------------ ------------
Operating cost and expenses
Research and development 315,059 576,679 66,568 148,190
Selling, general and administrative
expenses 660,097 1,284,972 209,403 410,833
------------ ------------ ------------ ------------
Total costs and expenses 975,156 1,861,651 275,971 559,023
------------ ------------ ------------ ------------
Loss from operations (965,556) (1,847,069) (258,062) (519,682)
Interest income 129,772 225,547 1,110 1,110
Interest (expense) (10,614) 23,617) (20,004) (29,800)
Net (loss) available to common
shareholders $ (846,399) $ (1,645,139) $ (277,756) $ (548,372)
============ ============ ============ ============
Net loss per common share $ (.05) $ (.09) $ (.02) $ (.05)
============ ============ ============ ============
Weighted average shares outstanding 17,782,490 16,955,337 12,090,890 12,158,540
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1999 THROUGH JUNE 30, 2000 (UNAUDITED)
Series A Cumulative Series B Cumulative
Preferred Stock Preferred Stock Preferred Stock
--------------- --------------- ------------------
Stated Stated
Shares Par Value Shares Value Shares Value
------ --------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 12,467 $ 1 125,000 $ 250,000 -- $ --
Cumulative preferred stock issued in private placement -- -- 25,600 51,200 272,750 545,501
(Note 12)
Common stock issued for services (Note 7) -- -- -- -- -- --
Common stock issued for sales commissions (Note 7) -- -- -- -- -- --
Conversion of non-cumulative preferred stock to common stock (2,000) -- (125,000) (250,000) -- --
(Note 6)
Common stock issued for retirement of debt (Note 6) -- -- -- -- -- --
Common stock issued in private placement (Note 12) -- -- -- -- -- --
Stock offering costs -- -- -- -- -- --
Stock subject to rescission (Note 5) -- -- -- -- -- --
Declaration of 6% preferred stock dividend on cumulative
preferred stock (Note 6) -- -- 7,860 15,720 26,574 53,148
Conversion of cumulative preferred stock to common stock -- -- (33,460) (66,920) (299,324) (598,649)
(Note 6)
Net (loss) for the year ended December 31, 1999 -- -- -- -- -- --
------- --------- --------- --------- --------- ---------
Balance, January 1, 2000 10,467 $ 1 -- $ -- -- $ --
======= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
6a
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1999 THROUGH JUNE 30, 2000 (UNAUDITED)
Common Stock Additional Total
-------------- Paid in Retained Shareholders'
Shares Par Value Capital Deficit Equity
------ --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 11,846,826 $ 1,185 $ 8,879,706 $ (9,573,142) $ (442,250)
Cumulative preferred stock issued in private placement -- -- -- -- 596,701
(Note 12)
Common stock issued for services (Note 7) 25,000 2 62,835 -- 62,837
Common stock issued for sales commissions (Note 7) 336,350 34 252,229 -- 252,263
Conversion of non-cumulative preferred stock to common stock 254,000 25 249,975 -- --
(Note 6)
Common stock issued for retirement of debt (Note 6) 53,571 5 149,995 -- 150,000
Common stock issued in private placement (Note 12) 3,222,104 322 6,443,891 -- 6,444,213
Stock offering costs -- -- (959,699) -- (959,699)
Stock subject to rescission (Note 5) (1,243,151) (124) (1,281,691) -- (1,281,815)
Declaration of 6% preferred stock dividend on cumulative
preferred stock (Note 6) -- -- -- -- 68,868
Conversion of cumulative preferred stock to common stock 1,216,268 122 6,117,587 -- 5,452,140
(Note 6)
Net (loss) for the year ended December 31, 1999 -- -- -- (6,537,762) (6,537,762)
------------ ------------ ------------ ------------ ------------
Balance, January 1, 2000 15,710,968 $ 1,571 $ 19,914,828 $(16,110,904) $ 3,805,496
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
6b
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1999 THROUGH JUNE 30, 2000 (UNAUDITED)
(CONTINUED)
Series A Cumulative Series B Cumulative
Preferred Stock Preferred Stock
Preferred Stock --------------- ------------------
--------------- Stated Stated
Shares Par Value Shares Value Shares Value
------ --------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 10,467 $ 1 -- $ -- -- $ --
Conversion of non-cumulative preferred stock to (7,667) (1) -- -- -- --
common stock
Stock offering costs(36,624 shares issued -- -- -- -- -- --
at $2 per share included)
Common stock issued in private placements -- -- -- -- -- --
Reverse rescission liability -- -- -- -- -- --
Stock exchanged for public relations fees 8,124 1 22,099
Employee exercise of stock options 32,579 3 (3)
Stock issued in cashless exercise of stock options -- -- -- -- -- --
Options granted -- -- -- -- -- --
Net loss for the Six Months Ended June 30, 2000 -- -- -- -- -- --
------- --------- --------- ---------- --------- -------------
Balance, June 30, 2000 2,800 $ 0 -- $ -- -- $ --
======= ========= ========= ========== ========= =============
</TABLE>
See notes to consolidated financial statements.
7a
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1999 THROUGH JUNE 30, 2000 (UNAUDITED)
Common Stock Additional Total
-------------- Paid in Retained Shareholders'
Shares Par Value Capital Deficit Equity
------ --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 15,710,968 $ 1,571 $ 19,914,828 $(16,110,904) $ 3,805,496
Conversion of non-cumulative preferred stock 15,334 1 -- -- --
common stock
Stock offering costs(36,624 shares issued 36,624 4 (960,079) -- (960,079)
at $2 per share included)
Common stock issued in private placements 4,120,790 412 8,323,125 -- 8,323,537
Reverse rescission liability 1,243,151 124 1,281,691 -- 1,281,815
Stock exchanged for public relations fees -- 22,100
Employee exercise of stock options --
Stock issued in cashless exercise of stock options 31,266 4 129,254 -- 129,258
Options granted -- -- 63,783 -- 63,783
Net loss for the Six Months Ended June 30, 2000 -- -- -- (1,645,139) (1,645,139)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 21,198,836 $ 2,120 $ 28,774,698 $(17,756,043) $ 11,020,775
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
7b
<PAGE>
ONLINE POWER SUPPLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------
2000 1999
------ -----
(unaudited) (unaudited)
Cash flows from operating activities
<S> <C> <C>
Net loss $(1,645,139) $ (548,372)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 89,333 55,610
Stock based compensation 129,258 --
Options issued for services 63,783 --
Common stock issued for services 22,100 --
Impairment loss on fixed assets 7,540 --
Changes in certain assets and liabilities
Receivables, inventory
and other current assets (383,286) (476)
Accounts payable and
other current liabilities (83,105) (52,344)
----------- -----------
Net cash (used in) operating activities (1,799,516) (545,582)
----------- -----------
Cash flows from investing activities
Purchases of equipment (176,681) (13,073)
Payments to acquire patent (5,992) (1,080)
Purchases of certificates of deposit (50,000) (86,600)
Purchase of short term investments (5,907,719) --
----------- -----------
Net cash (used in) investing activities (6,140,392) (100,753)
----------- -----------
Cash flows from financing activities
Proceeds from sale of stock 8,323,125 582,339
Payments for offering costs (960,074) (24,850)
Principal payments on capital leases (13,115) (44,000)
Payments on line of credit (731) --
Proceeds from long term debt 52,446 123,000
----------- -----------
Net cash provided by financing activities 7,401,651 636,489
----------- -----------
Net decrease in cash (538,257) (9,846)
Cash - beginning of period 1,941,367 151,341
----------- -----------
Cash - end of period $ 1,403,110 $ 141,495
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid for interest during the six months ended June 30, 2000 and 1999 was
$23,617 and $29,800, respectively.
See notes to consolidated financial statements.
8
<PAGE>
ONLINE POWER SUPPLY, INC.
FOOTNOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------
Basis of Presentation
---------------------
The financial statements include the accounts of OnLine Power Supply, Inc.
(formerly OnLine Entertainment, Inc.). Two wholly owned subsidiaries,
GlitchMaster Marketing, Inc. and OnLine Entertainment, Inc. (separate domestic
Colorado corporations) were liquidated into the parent corporation on December
31, 1999 and the remaining assets and liabilities are now included with the
accounts of OnLine Power Supply, Inc. (a Nevada domiciled corporation, formerly
named OnLine Entertainment, Inc., which changed its name to OnLine Power Supply,
Inc. in December 1999).
Earnings (Loss) Per Common Share
--------------------------------
SFAS 128 "Earnings per Share" requires a dual presentation of earnings per
share-basic and diluted. Basic earnings per common share has been computed based
on the weighted average number of common shares outstanding. Diluted earnings
per share reflects the increase in weighted average common shares outstanding
that would result from the assumed exercise of all outstanding stock options.
All periods presented have been restated to reflect the adoption of this
standard. All potentially dilutive securities have been excluded as they would
be antidilutive.
Nature of Organization
----------------------
The Company has been operating as OnLine Power Supply, Inc. since January 1,
2000. The activities include the ongoing development of the Company's patent
pending new power supplies for sales to a few, but large, corporations. These
original equipment manufacturers will incorporate our products into their own
product lines. Management is estimating that volume sales will occur during the
fourth quarter of the year 2000.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
-------------------------------------
The financial statements included herein are presented in accordance with the
requirements of SEC Form 10- QSB and therefore do not include all of the
disclosures made in the Company's SEC Form 10-KSB annual report filing. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1999 annual report filing on SEC
Form 10-KSB. The quarterly financial statements have not been audited by the
Company's independent accountants, but in the opinion of management reflect all
adjustments necessary for the fair presentation of the operations of the Company
for the periods reported. The results of operations for the six months ended
June 30, 2000 are not necessarily indicative of the results for the entire year.
9
<PAGE>
NOTE 3 - NOTES PAYABLE & LINE-OF-CREDIT
---------------------------------------
Bank Loan
The Company acquired a $60,000 bank loan during the first quarter of 2000 for
equipment and working capital. The note carries an annual interest rate of 7.3%
and matures in January of 2003.
Line-of-Credit
--------------
The Company has a $750,000 revolving bank line-of-credit, of which $750,000 was
unused as of June 30, 2000. Advances on the line carry an interest rate of 8%.
It is collateralized by the pledging of a $1,000,000 certificate of deposit.
NOTE 4 - OTHER LIABILITIES
--------------------------
As part of their executive employment agreements, two executive officers earned
performance bonuses equivalent to 50% of their annual 1999 compensation. The
bonuses totaling $72,000 were accrued at the end of 1999 and paid during the
first quarter, 2000.
NOTE 5 - RESCISSION OFFER
-------------------------
The Company gave certain common shareholders the right to rescind their
purchases due to the possible violation of the registration exemption provisions
of the Securities Act of 1933. A total potential rescission liability of
$1,281,813 was included in the December 31, 1999 financial statements; however,
none of the shareholders have requested a refund of their investments and the
response period has terminated. The liability for the rescission at June 30,
2000 has been reduced to zero and the liability reclassified as common stock
equity on the balance sheet.
NOTE 6 - SHAREHOLDERS' EQUITY
-----------------------------
Stock Options
-------------
On June 16, 2000 the Board of Directors granted 3,000 options to an employee in
accordance with the terms of his employment agreement. The options are
exercisable at $10.62 per share and were immediately vested; none of these
options have been exercised at June 30, 2000 and will expire December 2, 2009.
The employment agreement was signed June 2000.
On June 28, 2000 the Board of Directors granted 10,000 options to a director for
serving as a Board Member. The options are exercisable at $4.50 a share. The
fair value of these options is $63,783. The options are immediately vested. The
total fair vlaue of these options has been reflected in the June 30, 2000
financial statements. None of the options were exercised at June 30, 2000 and
expire December 2, 2009.
Qualified Stock Options
-----------------------
The Board of Directors adopted a new Qualified Incentive Stock Option Plan on
December 1, 1999. The purpose for the plan is to have the ability to offer stock
incentives to key employees as a reward for past performance and to attract the
best qualified new employees by offering them stock options as a means of
incentive.
10
<PAGE>
NOTE 7 - STOCK BASED COMPENSATION
----------------------------------
During the current quarter, the company issued 36,624 restricted common shares
to a broker for stock sales commissions related to prior private offerings. The
board of directors valued the issuance at the same price as the private offering
price. A total of $73,244 was recorded as offering expense in the financial
statements.
NOTE 8 - RELATED PARTIES
------------------------
During 1999, the company paid stock offering commissions of $299,919 to a
broker. The broker is an affiliated party by virtue of his relationship to a
member of the Company's board of directors. The broker received 10% commission
on equity funds raised pursuant to a selling agreement signed by the company. As
of March 31, 2000, the company owes unpaid commissions of $78,815 to the broker.
Retirement Liability
--------------------
A senior executive, with an employment agreement, retired on March 1, 2000, and
by the terms of the agreement, will continue to receive salary and all other
benefits for a period of 18 months from his separation date. A liability of
$229,500 has been accrued for his future payments as of March 31, 2000. The
separation expense of $243,962 is included in the first quarter of 2000 and will
be a non-recurring expense.
NOTE 9 - INCOME TAXES
----------------------
A reconciliation of the US statutory federal income tax rate to the effective
rate follows:
June 30, June 30,
2000 1999
---- ----
U.S. statutory federal rate 34.00% 34.00%
State income tax rate, net of federal benefit 3.00% 3.00%
Provision for bad debts - -
Net operating loss for which no tax benefit
is currently available (37.00%) (37.00%)
------- --------
- % - %
======= ========
Deferred taxes consisted of the following:
June 30, June 30,
2000 1999
---- ----
Deferred tax asset, net operating
loss carryforward $ 1,990,032 $ 1,082,595
Valuation allowance (1,990,032) (1,082,595)
------------- --------------
Net deferred taxes $ - $ -
============= ==============
11
<PAGE>
The valuation allowance offsets the deferred tax assets for which there is no
assurance of recovery. The change in the valuation allowance for the periods
ended June 30, 2000 and 1999 totaled $0.00 and $0.00, respectively. The net
operating loss carry-forwards expire through the year 2019.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or decreased;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
The Company leases office space under a non-cancelable operating lease that
expires on January 31, 2001. Future minimum annual rental payments under the
office lease are as follows:
Through January 31, 2001
(termination date) $ 60,200
Two executive officers were granted options to purchase 500,000 shares (one
million in total) of the Company's common stock on September 1, 1999. These
options were granted at market price on September 1, 1999 and expire on
September 1, 2004. These options will become vested at 20% per year on the
anniversary date of the grant. The vested options will have a life of five
years. The options are exercisable at $ 3.00 per share.
As part of the executive employment agreements, two executive officers shall
become fully vested to receive options to purchase 500,000 shares (one million
in total) of the Company's common stock upon achieving the following performance
goals:
1. If the Company's consolidated gross revenues exceed $3,000,000 by December
31, 1999, the executives vest in 35% of the options; this event did not
happen and the options did not vest accordingly.
2. If the Company's consolidated gross revenues exceed $6,000,000 by December
31, 2000 the executives vest in an additional 35% of the options;
3. If the Company's consolidated gross revenues exceed $9,000,000 by December
31, 2001, the executives vest in the remaining 30% of the options.
The Chief Executive Officer retired in March, 2000 and the separation costs
associated with his retirement totaled $244,033 ($162,000 is the current total
of the current portion of the monthly obligations).
The Company has entered into an agreement with Saturn Electronics and
Engineering Inc. for the manufacture of the initial power supplies developed by
the Company. Saturn may, if asked by the Company, internally finance certain
startup costs normally associated with the initial production process and be
reimbursed out of the proceeds of payment for the orders when received by the
Company.
12
<PAGE>
NOTE 11 - LITIGATION AND SETTLEMENTS
------------------------------------
The Company has settled and satisfied various claims that have arisen in the
normal course of a prior business endeavor that has been terminated. One of
those cases (Max Music) was litigated and a magistrate's ruling given in favor
of the Company. The ruling is now being reviewed by the appellate judge and the
final outcome still to be decided. Management expects that any future adverse
impact on the financial position of the Company will be minimal.
NOTE 12 - PRIVATE STOCK OFFERINGS
----------------------------------
The Company circulated three separate private offering memorandums, and a
rescission offering prospectus (see below) relating to other earlier private
offering of shares of common stock, during 1999 and 2000. The three private
offerings from mid-1999 to mid-2000 were not rescinded; these offerings were not
registered pursuant to the Securities Act of 1933, as amended (the "Act"), nor
under the securities act of any state. These securities were offered under an
exemption from registration requirements of the Act and exemptions from
registration provided by applicable state securities laws. The securities
dealers were paid a commission up to ten percent of the subscriptions accepted
by the Company. Offering commissions were paid through a combination of cash and
the issuance of restricted common stock. The Company filed a registration
statement prospectus with the SEC in early 2000 to refund $1,281,815 of the
financing provided by the earlier financings. None of the money was refunded.
Following is a summary of the offerings undertaken in 1999 and of 2000:
<TABLE>
<CAPTION>
Refund Offer Offering #1 New Offering #2 New Offering #3 New
Rescission Offering Funding Funding Funding
------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Date: February, 2000 August, 1999 November, 1999 April, 2000
Offering: Various $ 2.00/share $ 2.00/share $ 2.00/ share
Minimum: $ 500,000
Maximum: $ 1,281,815 $ 5,000,000 $ 2,500,000 $ 8,500,000
<CAPTION>
Sold in 1999
------------
<S> <C> <C>
Shares 2,473,533 748,571
Proceeds $ 4,947,066 $ 1,497,142
<CAPTION>
Sold in 2000
------------
<S> <C> <C>
Shares 1,243,151 4,076,750
Proceeds $ 1,281,815 $ 8,153,500
</TABLE>
NOTE 13 - OPERATIONS
--------------------
The Company continues to develop an organization for the further support of the
research and development efforts and to commercialize the power supply
technology discovered by the Company 1997. The Company has raised equity capital
by selling stock to support the Company's business plan and to fund cash flow.
Financial resources are adequate to allow the Company to complete the products
and release them to the marketplace as projected by management.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
reviewed quarterly financial statements filed with this report. Except for the
historical information contained herein, this report may contain forward looking
statements that involve risks and uncertainties, including manufacturing risks
associated with implementing new process technology, achieving commercial-scale
manufacturing levels, achieving consistent yields and quality, uncertainty of
market acceptance and timing of market acceptance, as well as other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including the Company's registration statement effective
February 24, 2000 (rescission offer).
GENERAL DISCUSSION OF THE BUSINESS STRATEGY
The GlitchMaster line of power surge products and circuitry accounted
for almost all of the historic revenues of the Company since 1997; however,
future revenues will consist mostly of sales of new power supply products now
being finalized for the marketplace. The original patent for the new technology
was filed in October, 1999 and is still pending issuance; additional claims are
being incorporated into the patent document as a result of the improvements made
to the product since the filing of the patent. Independent testing of the
prototype power supply product verify that the unit should be more desirable to
the design engineers in the telecommunications, industrial, military and
computer server markets. The Company's power factor corrected front-end module
(PFCFEM) is lighter, smaller, more efficient, more reliable and price
competitive to existing units applied in a comparable situation.
The objective for the year 2000 is to release the final model to the
marketplace in the third quarter and to begin full-scale production of the units
for our customers in the fourth quarter. The focus for the year to date has been
the improvement of the initial product to include a) operating at a higher
baseplate temperature level, b) operating at lower incoming AC currents, c)
protecting from transient power surges, and d) reducing the size of the form
factor. Our engineers have incorporated all of the above changes into the unit
and prototypes are now in the hands of potential customers for final evaluation
and acceptance.
Additional products are now being developed that will contain the new
technology from the PFCFEM to also allow them to outperform the existing,
competing products. The Company is scheduled to introduce the 48 volt-500 watt
power supply shortly followed by other power supplies with multiple output
capabilities. It is expected that the first wide scale use of the products will
be in the wireless telecommunications industry. Known applications exist in the
computer industry and the military. The Company's objective is to become the
leader in innovation for the power supply industry and to revolutionize the way
power supplies are designed; the goal is to have the power supply viewed as a
strategic component of the next generation of power driven products that can
give our customers a competitive edge when producing their final products.
Significant revenues are not expected until later in 2000 when the
company anticipates the release of the Power Factor Correction Module into the
market. The Company has raised equity working capital, hired personnel,
furnished a research laboratory, completed a turnkey manufacturing agreement
with a major company and formulated a marketing plan to insure the successful
rollout of these initial units to customers who are presently evaluating the
product.
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RESULTS OF OPERATIONS--PERIOD ENDED JUNE 30, 2000 COMPARED TO PERIOD
ENDED JUNE 30, 1999.
Sales decreased to $ 28,111 for the six months ended June 30, 2000 from
$ 188,589 for the six months ended June 30, 1999. The declining sales is from
the gradual phasing out of the previous business of manufacturing the
GlitchMaster products; the remaining sales represent the sell down of inventory
to a few customers that will continue to purchase the products until they are
used up from our inventory. Sales of new products will remain nominal and will
consist mainly of evaluation units until the fourth quarter when the Company
expects to release the products to the market.
Cost of revenues decreased from $ 149,248 in 1999 to $13,528 in 2000;
related gross profits from these sales increased from approximately 20 % in 1999
to 50% in 2000 due to the cost reductions associated with phasing out the
production and sales of the units throughout 1999 and 2000.
The primary focus of the Company in 1999 and continuing for 2000 is a
directed effort in the research and development laboratory to complete the
design of the Power Factor Corrected Front End Module (PFCFEM) for a very
specific and custom application in the wireless telecommunication industry at
the request of a large prospective customer. The PFCFEM is a proprietary product
that is protected by a patent filing in October, 1999 and will become a core
piece of technology that will be incorporated into all of the derivative
products that are being developed, such as the 48 volt-500 watt, 1,000 watt and
1,500 watt power supplies. The Company has added technical and management staff
in the laboratory and has expanded the floor space considerably over last year.
New equipment has been acquired to bring our bench testing capability up to the
standards of the independent laboratories and to allow us to design the products
with all of the safety and UL characteristics required by our customers.
Research and development costs increased $ 428,489 from $ 148,190 in 1999 to $
576,679 in 2000 due to the expansion of the efforts to complete the new
technology (especially the PFCFEM).
Selling, general and administrative expenses have increased from
$410,833 in 1999 to $1,284,972 in 2000. In large part, the increase is due to
the addition of administrative staff and management (from nine to nineteen) as
the Company prepares to go into full production operations later this year.
Additional costs totaling approximately $60,000 for legal and accounting
associated with audits and SEC registration was incurred in 2000. Shareholder
relations costs (for costs paid by us, none to any public relations firm) of
$62,272 this year added to the increase in total expenses for 2000. The Chief
Executive Officer retired in March, 2000 and the separation costs associated
with his retirement totaled $244,033 ($162,000 is the total of the current
portion of the monthly obligations). An expanded effort to market the technology
represents an increase of trade shows, travel and marketing expenses of
approximately $ $ 50,000 over the same period last year. Compensation costs
related to granting and exercising employee stock options accounted for $193,041
of increased expenses in the quarter ended June 30, 2000.
Interest income increased $224,437 from $1,110 in 1999 to $225,547 in
2000 as a result of earnings from invested funds raised in private offerings.
Short-term investments of $ 3,150,000 in certificates of deposits and $
5,907,719 in commercial paper at June 30, 2000 is yielding an average annual
return of 6.75%.
LIQUIDITY AND CAPITAL RESOURCES. The Company from its inception has
financed its operations through a series of public and private offerings of
securities (the public offering was the registered rescission offer). Beginning
in August, 1999 and ending in January, 2000, a total of $14,699,000 (net
$13,000,000 after offering costs) was raised in three separate private
placements to accredited investors. The working capital at June 30, 2000 was
$10,444,323 consisting mainly of cash and near cash items. The operations are
presently consuming $225,000 to $250,000 of cash resources monthly, offset by
approximately $60,000 in interest earnings. At the present operating level,
management does not foresee the need for any additional equity or debt
financings in 2000 unless start up orders and product rollout require added
up-front funding to secure raw materials, fund work in process and provide
capital for operating cycles in excess of our present
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expectations. Also, by contracting with Saturn Electronics and Engineering, Inc.
to manufacture our products on a "turn-key" basis, there should not be a greater
than anticipated need for additional start up funding.
As of June 30, 2000 we had paid a former officer (Larry Arnold)
$101,191 to retire his personal loans to us in prior years. We recorded a
receivable of $73,750 as a bridge loan to an officer (Chris Riggio) in
connection with his employment agreement and to accomplish his relocation from
Longmont, Colorado to the Denver area to better serve the Company. He has paid
off this obligation as of the date of this report.
INCOME TAXES. The Company has $7,998,600 of operating loss carry
forwards that expire partially each year through 2019; these losses will be
available in the future to offset the current payment of the taxes normally due
on the profits of the Company. The Company has not paid income taxes since its
inception. The Tax Reform Act of 1986 and other income tax regulations contain
provisions which may limit the NOL carry forwards available to be used in any
given year, if certain events occur, including significant changes in ownership
interests.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
See Financial Statement Notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
There was no annual meeting held and no matters submitted to
shareholders for vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description Page No.
----------- ----------- --------
27.0 Financial Data Schedule ........................18
(b) Reports on Form 8-K. The Company filed two Reports on Form 8-K during
the quarter ended June 30, 2000. The first filed on May 22, 2000
announced the opening of the Company's internet web site and the second
filed on May 24, 2000, announced the completion of an SEC rule (506)
accredited investor stock offering. The offering was for $8,153,500 and
4,076,750 shares of common stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
ONLINE POWER SUPPLY INC.
(Company)
Date: August 14, 2000 By: /s/ Kris Budinger
-------------------------------
KRIS BUDINGER,
CEO and President
Date: August 14, 2000 By: /s/ Richard L. Millspaugh
-------------------------------
RICHARD L. MILLSPAUGH,
Chief Financial Officer
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