<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(FEE REQUIRED)
For the Fiscal Year Ended Commission File
March 31, 1999 Number 0-15654
TRANSPIRATOR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-2789408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850-870 U.S. Highway #1
North Brunswick, New Jersey 18902
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, with area code 732-246-5900
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
<PAGE> 2
On June 25, 1999 the aggregate market value of the voting stock of Transpirator
Technologies, Inc. held by nonaffiliates of the registrant was approximately
$162,295 based upon the average bid and asked prices of such common stock on
said date as reported by NASDAQ. On such date, there were 2,775,950 shares of
common stock of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
2
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TRANSPIRATOR TECHNOLOGIES, INC.
INDEX
TABLE OF CONTENTS
PART I
Item 1. Descriptions of Business
Item 2. Descriptions of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security ownership of Certain Beneficial owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K
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<PAGE> 4
ITEM I. DESCRIPTION OF BUSINESS
FORWARD-LOOKING
Transpirator Technologies, Inc. (the "Company") cautions readers that certain
important factors may affect the Company's actual results and could cause such
results to differ materially from any forward-looking statements which may be
deemed to have been made in this report or which are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in this report
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"May," "Will," "Expect," "Believe," "Anticipate," "Intend," "Could," "Would,"
"Estimate," or "Continue" or the negative other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors which
may affect the Company's results include, but are not limited to, the risks and
uncertainties associated with a medical apparatus company which has only
recently licensed its sole product including a history of net losses, some
unproven technologies, limited manufacturing experience, current and potential
competitors with significant technical and marketing resources, need for future
capital and dependence on collaborative partners and on key personnel.
Additionally, the Company is subject to the risks and uncertainties associated
with all medical apparatus companies, including compliance with government
regulations. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission (the "Commission").
GENERAL
The Company was organized on December 22, 1986 as a Delaware corporation and
filed an S-1 Registration Statement on April 8, 1987. The Company was organized
to design, develop and market respiratory therapy products for veterinary and
human use. The main products developed by the Company were the ET-1000 Equine
Unit and the MT-1000 Human Unit.
In the initial years of operation, the Company had sales of the Equine Unit as
well as rental of the Equine Units. However, sales of the Equine product were
not substantial enough to be profitable and on January 25, 1990, the Company
granted all rights to the future sales of the Equine Unit to another party in
exchange for a note in the amount of $263,000, plus $20,000 in cash and
royalties of $200 for each unit sold. The note was payable monthly and was paid
off by 1993. The Company has received no royalties from the royalty agreement
since its inception.
Subsequent to March 31, 1989, and the sale of the rights to the Equine Unit, the
Company wound down its activities by paying off its creditors. The Company could
not continue the development and marketing plans for the MT-1000 Unit without
additional funding.
The Company has been dormant since March 31, 1990 except for keeping its patents
current. For the year ended March 31, 1991, the Company had no revenues and had
expenditures of approximately $116,009, comprised primarily of salaries, legal
fees, consulting and the remaining product development.
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For the year ended March 31, 1992, the Company had minimal activity, resolving
the remainder of the Company's debts by negotiating with creditors for final
settlements. As a result of these negotiations there was debt forgiveness of
approximately $143,000 in that year. Otherwise, the expenditures for accounting
and office supplies, etc., were less than $30,000. For the years March 31, 1993
through 1997, the Company had kept its charter effective to protect its patents
and product rights for the Human MT-1000 Unit.
In May of 1997, the Company entered into a licensing agreement ("Licensing
Agreement") with Healthcare Quality Solutions, Inc., a Maryland corporation (the
"Licensee"). It is anticipated that the Licensee may facilitate the development,
manufacture and market the Company's products. The Licensee has the option to
purchase the Company's technology for 2 million dollars. The Licensee shall pay
an annual minimum royalty payment of $25,000 for the first year, $50,000 for the
second year and $100,000 for the third year. Additional royalties are to be paid
to the Company for sales of products equal to 5-10% of gross sales, depending
upon the product and the total gross sales amounts of the year. The agreement
can be terminated at the discretion of the licensee and by giving 30 days
notice.
CHANGE IN CONTROL
The Company received a copy of a Schedule 13D, on January 4, 1989, as amended
April 18, 1989, filed on behalf of J.T. Moran & Co., Inc. ("Moran"). Moran was a
registered broker dealer and was the underwriter of the Company's 1986 initial
public offering. The Schedule 13D reported that Moran had acquired a total of
1,023,650 shares of which 812,500 were acquired in a private transaction with
Oxygen Enrichment Company, Ltd (OECO). The balance of 211,150 shares was
reported to have been acquired by Moran in its capacity as a market maker in the
Company's stock at various prices relative to the market. Management has been
informed that OECO and Moran have been liquidated by the Bankruptcy Courts
approximately four years ago. The Company intends to hire counsel to settle out
the rights of the parties in a declaratory judgement action in the proper
jurisdiction. The Company will assert that these shares have been terminated.
Management has stated that no one from the Bankruptcy Court ever contacted the
Company.
PROPRIETARY RIGHTS
The Company follows a policy of protecting its proprietary rights to its
products to the full extent permissible by law.
The Company's U.S. patent applications regarding the method for the treatment of
the human respiratory and equine tract with vapor phase water were issued in
September, 1988 into U.S. Patent No. 4,773,410.
The Company believes that alternative suppliers exist for all products presently
licensed by the Company.
5
<PAGE> 6
CONTRACTS
The Licensing Agreement is for the licensing of United States Patent No.
4,773,410 issued September 27, 1988 ("Patent"). This Patent is the method and
apparatus for the treatment of the respiratory track with vapor-phase water. The
licensee is responsible for the payment of fees on the Patent. Licensee has
agreed to spend time, money and effort at no set amount to develop and market
new and/or improved respiratory therapy units for the human market which may or
may not incorporate the Patent; ("New Products") and which New Products will be
the sole property of Licensee. For sales of products developed by the Licensor,
Licensee shall pay a royalty as follows:
a) Ten percent (10%) of gross sales up to one million dollars ($1,000,000)
b) Seven percent (7%) of gross sales from one million and one dollar to
two million dollars ($2,000,000)
c) Five percent (5%) of gross sales above two million dollars ($2,000,000)
and
d) 50% of the above commission rate to be paid on membrane cartridges sold
separately.
For sales of New Products the Licensor shall receive royalties as follows:
a) Five percent (5%) of gross sales up to one million dollars ($1,000,000)
b) Three and one half percent (3.5%) of gross sales from one million and
one dollar ($1,000,001) to two million dollars ($2,000,000)
c) Two and one half percent (2.5%) of gross sales above two million
dollars ($2,000,000) and
d) 50% of the above commission rate to be paid on membrane cartridges sold
separately.
The minimum to be paid for all products is $50,000 for the year ended March 31,
1999 and $100,000 for the year ended March 31, 2000. The Licensee has advised
management that it's New Products are currently under development and patents
are in process. Management has been informed that minimum royalty payments
pursuant to the Licensing Agreement can be anticipated through the second
quarter of 1999.
The Licensee is now the owner of the trademarks of the Company Transpirator and
Vapotherm.
COMPETITION
There are a number of companies, including presently manufacturing devices which
serve the function of introducing humidity into an individual's airstream or
oxygen stream for the treatment of illness or maintenance of respiratory health.
The Company believes its proposed less expensive human Transpirator device will
principally differ from existing personal humidifiers known to the Company in
that existing personal humidifiers are primarily intended for hospital use in
conjunction with other breathing support systems, deliver substantially lower
flow rates, do not provide for direct administration to the user, and/or are
designed to be used with medication.
Many, if not all, of the symptoms which the Company's devices are intended to
address can also be treated by various medications.
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<PAGE> 7
Many of the companies competing in the human humidification or human medication
markets have greater resources than the Company and there can be no assurance
that at some point in the future devices or medications will not be developed
which may be less expensive or more effective than the Transpirator devices.
EMPLOYEES
At March 31, 1999, the Company had no full-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
None.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings, the outcome of which would have a
material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET OF COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has been dormant since 1990 and there currently is no active trading
in the Company's common stock on a recognized exchange.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
FISCAL 1999 AS COMPARED TO FISCAL 1998 AND 1997
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto included in Part II, Item 7
of this report.
For fiscal 1999 the Company had net royalty income of $47,916 versus royalty
income of $25,000 less a deferred amount of $2,083 in 1998 and zero in fiscal
1997. The income was attributable to a royalty agreement signed in May, 1997.
The royalty agreement provides for minimum royalties for three years from the
signing of the agreement in the amounts of $25,000, $50,000 and $100,000. The
agreement provides for royalties on a percentage basis from the sale of products
developed from use and further enhancement of the patents. The royalty agreement
also provides an option for the patents to be purchased for $2,000,000.
Selling, general and administrative expenses increased $27,313 compared to
fiscal 1998 and $22,640 to $25,628 from $2,988 in 1997. The increases in 1999
and 1998 were due primarily from legal, printing, accounting costs and stock
transfer costs to bring and keep the Company's records current.
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<PAGE> 8
Extraordinary income for fiscal 1998 increased by $59,250 due to forgiveness of
accrued interest and accrued salaries. There was no extraordinary income for
1999.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
Net cash used in operations was $31,795 for fiscal 1999 as compared to cash
provided by operations in fiscal 1998 of $15,784. The decrease in cash from
operations was the result of a decrease in royalty income received in the amount
of $12,500 and a increase in selling, general and administrative expenses paid
of $35,079.
LIQUIDITY
The Company's annual and quarterly operating results will be affected by a
number of factors. The company expects to receive at least the minimum royalty
payments as outlined above. The Company expects to incur legal, accounting and
stock transfer costs for the foreseeable future. At the same time, the Company
has employment agreements with two officers for salaries of $1,000 per month for
36 months starting in August, 1998. Therefore, it is expected that the Company
will have increased liquidity from royalty payments in excess of the operating
expenses.
NET OPERATING LOSS CARRY FORWARDS
As of March 31, 1999, the Company had a net operating loss ("NOL") for Federal
Income Tax purposes of approximately $3,549,000 which begins to expire in 2003.
The ability of the Company to utilize the NOL is not probable at March 31, 1999
and therefore, no benefit has been recorded.
ITEM 7. FINANCIAL STATEMENTS
The response to this item is incorporated by reference to pages F1 - F10 herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company's former accountants, Hacker, Johnson, Cohen & Grieb PA, declined to
be reinstated as the Company's auditors on October 7, 1998. The Company engaged
Brimmer, Burek, Keelan & McNally LLP on March 17, 1999 to be the Company's
independent certified public accountants.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
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The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Raymond Romano 48 Chairman of the Board, Chief Executive Officer and
Director
John Porcella 49 President and Director
John Signorelli 57 Director
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers, directors and holders of more
than 10% of the Company's Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Such persons are
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it or oral
written representations from certain reporting persons no Forms 5 were required
for those persons and the Company believes that, with respect to fiscal 1998,
its executive officers, directors who are greater than 10% beneficial owners
complied with all such filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
The Company paid compensation of $ 8,500 to Raymond Romano, Chief Executive
Officer, $4,500 to John Porcella, President and $2,500 to John Signorelli, a
director, for the fiscal year ended March 31, 1999.
The Company paid compensation of $4,000 each to Raymond Romano, Chief Executive
Officer and John Porcella, President and $2,500 to John Signorelli, a director,
for the fiscal year ended March 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are no members of Management that own 5% or more beneficial ownership of
Company's stock. Previously a Company (OECO) owned 32% of the Company's common
stock. OECO transferred ownership of that stock to another company in 1989.
However, both companies are bankrupt and out of business. The Company's position
is that those shares have been terminated and cancelled.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company conducts its operations at the office facilities of an officer of
the Company at no cost. During the year ended March 31, 1998 interest previously
accrued on notes payable to related parties was forgiven by the parties through
March 31, 1998. The interest forgiven, which included certain accrued and unpaid
interest on debt principal which was repaid in prior years, was $59,593. This
item is included in Extraordinary item-forgiveness of debt in the accompanying
statements of operations for the year ended March 31, 1998. During fiscal 1998,
the Company entered into employment agreements with two officers of the company.
The employment agreements commenced August 1, 1998 and provided for the
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payment of an aggregate salary of $1,000 per month for 36 months.
On February 9, 1999, the Board of Directors approved the payment of 150,000
shares of common stock to the three directors of the Company for services valued
at $7,500.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Royalty agreement - Healthcare Products Inc.
(b) Consent of Accountants
(c) Form 8-K June 23, 1998
(d) Form 8-K October 7, 1998
(e) Form 8-K July 15, 1999
Ex-27 Financial Data Schedule (for SEC use only)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANSPIRATOR TECHNOLOGIES INC.
Date: July 15, 1999 By /s/ Raymond J. Romano
--------------------------------------
Raymond J. Romano
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Raymond J. Romano
- ------------------------------------
Raymond J. Romano
Chairman and Chief Executive Officer
July 15, 1999
/s/ John E. Porcella
- --------------------
John E. Porcella
President
July 15, 1999
Directors:
/s/ Raymond Romano
- ------------------
Raymond Romano
July 15, 1999
/s/ John E. Porcella
- --------------------
John E. Porcella
July 15, 1999
/s/ John Signorelli
- -------------------
John Signorelli
July 15, 1999
<PAGE> 12
INDEX TO FINANCIAL STATEMENTS
TRANSPIRATOR TECHNOLOGIES, INC.
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................F-2
Balance Sheets, March 31, 1999 and 1998.....................F-3
Statements of Operations for the Years Ended
March 31, 1999 and 1998...................................F-4
Statements of Stockholders' Equity (Deficit)
for the Years Ended March 31, 1999 and 1998...............F-5
Statements of Cash Flows for the Years Ended
March 31, 1999 and 1998...................................F-6
Notes to Financial Statements for the Years
Ended March 31, 1999 and 1998........................F-7 - F-11
F-1
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INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors of
Transpirator Technologies, Inc
New Brunswick, New Jersey:
We have audited the accompanying balance sheets of Transpirator Technologies,
Inc., (the "Company") at March 31, 1999 and 1998 and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at March 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
years then ended in conformity with generally accepted accounting principles.
BRIMMER, BUREK, KEELAN & McNALLY LLP
Certified Public Accountants
July 14, 1999
F-2
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TRANSPIRATOR TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 14,820 $ 46,615
Royalties receivable 33,333 --
----------- -----------
Total current assets 48,153 46,615
----------- -----------
Patents, net 11,811 17,143
----------- -----------
Total $ 59,964 $ 63,758
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 9,736 $ 5,122
Deferred royalty income -- 2,083
Notes payable - related parties 29,750 29,750
----------- -----------
Total current liabilities 39,486 36,955
----------- -----------
Related party transactions (Note 2 and 3)
Stockholders' equity (deficit):
Preferred stock, $.10 par value - 1,000,000
shares authorized none outstanding -- --
Common stock, $0.01 par value, 3,500,000
shares authorized; 2,775,950 and
2,625,950 shares issued and outstanding
in 1999 and 1998 27,760 26,260
Additional paid-in capital 3,575,097 3,569,097
Accumulated deficit (3,582,379) (3,568,554)
----------- -----------
Total stockholders' equity (deficit) 20,478 26,803
----------- -----------
Total $ 59,964 $ 63,758
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
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TRANSPIRATOR TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1999 1998
<S> <C> <C>
Revenue $ 47,916 $ 22,917
General and administrative expenses 60,142 25,628
---------- ----------
Loss from operations (12,226) (2,711)
Interest income (expense) (1,599) 851
---------- ----------
Loss before extraordinary item (13,825) (1,860)
Extraordinary item-
Forgiveness of debt -- 59,593
---------- ----------
Net earnings (loss) $ (13,825) $ 57,733
========== ==========
Basic and diluted earnings (loss) per share (.006) .023
========== ==========
Weighted-average number of shares outstanding
for basic and diluted earnings (loss) per share 2,625,950 2,525,950
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
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TRANSPIRATOR TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
.01 PAR VALUE ADDITIONAL STOCKHOLDERS'
PREFERRED ----------------- PAID-IN ACCUMULATED EQUITY
STOCK SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- --------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 -- 2,525,950 25,260 3,515,808 (3,626,287) (85,219)
Common stock issued for
services -- 100,000 1,000 10,250 -- 11,250
Accounts payable and accrued
expenses contributed to
capital -- -- -- 43,039 -- 43,039
Net earnings -- -- -- -- 57,733 57,733
--------- --------- ------- ---------- ----------- ------------
Balance at March 31, 1998 -- 2,625,950 26,260 3,569,097 (3,568,554) 26,803
Net loss -- -- -- -- (13,825) (13,825)
Common stock issued for
services -- 150,000 1,500 6,000 -- 7,500
--------- --------- ------- ---------- ----------- ------------
Balance at March 31, 1999 -- 2,775,950 $27,760 $3,575,097 $(3,582,379) $ 20,478
========= ========= ======= ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
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TRANSPIRATOR TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss).............................................................. $(13,825) $57,733
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Common stock issued for services.............................................. 7,500 11,250
Amortization.................................................................. 5,332 2,857
Extraordinary item - debt forgiveness......................................... -- (59,593)
Increase in accounts receivable............................................... (33,333) --
Increase in accounts payable and accrued expenses............................. 4,614 1,454
Increase (Decrease) in deferred royalty income................................ (2,083) 2,083
-------- -------
Net cash provided by (used in) operating activities....................... (31,795) 15,784
-------- -------
Net increase (decrease) in cash.................................................... (31,795) 15,784
Cash at beginning of year.......................................................... 46,615 30,831
-------- -------
Cash at end of year................................................................ $ 14,820 $46,615
========= =======
Supplemental disclosures of cash flow information:
Interest paid.................................................................. $ 1,736 --
Noncash financing activity-
Accounts payable and accrued expenses contributed
to additional paid-in capital.................................................. $ -- $43,039
========= =======
Common stock issued for services................................................. $ 7,500 $11,250
========= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 18
TRANSPIRATOR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
AT MARCH 31, 1999 AND 1998
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES
DESCRIPTION OF BUSINESS. Transpirator Technologies, Inc. was organized on
December 22, 1986 as a Delaware corporation and filed an S-1 Registration
Statement on April 8, 1987. The Company was organized to design, develop
and market respiratory therapy products for veterinary and human use. The
main products developed by the Company were the ET-1000 Equine Transpirator
Respiratory Unit ("Equine Unit") and the MT-1000 Human Transpirator
Respiratory Unit ("Human Unit").
In the initial years of operation, the Company had sales of the Equine Unit
as well as rental of the Equine Unit. However, sales of the Equine product
were not substantial enough to be profitable and on January 25, 1990, the
Company granted all rights to the future sales of the Equine Unit to
another party in exchange for a note in the amount of $263,000, plus
$20,000 in cash and royalties of $200 for each unit sold. The note was
payable monthly and was paid off by 1993. The Company has received no
royalties from the sale of Equine Units under the royalty agreement.
Subsequent to March 31, 1989, and the sale of the rights to the Equine
Unit, the Company wound down its activities by paying off its creditors.
The Company could not continue the development and marketing plans for the
Human Unit without additional funding. The Company has been dormant since
March 31, 1990 except for keeping its patents current.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. A summary of the significant
accounting policies followed in preparing the accompanying financial
statements is as follows:
REVENUE RECOGNITION. Revenue consists of royalties and is recognized when the
royalty is earned under the terms of the associated licensing agreement.
Royalty payments received prior to the consummation of the earnings process
are included in deferred royalty income and are recognized in accordance
with the terms of the licensing agreement.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying
amounts of existing assets and liabilities measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(continued)
F-7
<PAGE> 19
TRANSPIRATOR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED
PATENTS. Amortization of patent costs is based upon the royalty income as a
percentage of projected minimum royalties under the terms of the Human
Unit royalty agreement commencing in the fiscal year ended March 31,
1998.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE. Basic and diluted earnings
(loss) per share were computed based on the weighted average number of
common shares outstanding during the period. There were no Diluted
Potential Common Shares outstanding during the years ended March 31,
1999 and 1998.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
ACCOUNTING REQUIREMENTS. Financial Accounting Standards 130 -- Reporting
Comprehensive Income establishes standards for reporting comprehensive
income. The Standard defines comprehensive income as the change in
equity of an enterprise except those resulting from stockholder
transactions. All components of comprehensive income are required to be
reported in a new financial statement that is displayed with equal
prominence as existing financial statements. The company had no
comprehensive income in the year ended March 31, 1999.
(2) NOTES PAYABLE -- RELATED PARTIES
Notes payable -- related parties consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1999 1998
------- -------
<S> <C> <C>
7% notes payable to related parties
payable on demand, interest accrued
beginning May 3, 1998.................. $29,750 $29,750
======= =======
</TABLE>
(continued)
F-8
<PAGE> 20
TRANSPIRATOR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(3) RELATED PARTY TRANSACTIONS
The Company conducts its operations at the office facilities of an officer
of the Company at no cost. During the year ended March 31, 1998 interest
previously accrued on notes payable to related parties was forgiven by the
parties through March 31, 1998. The interest forgiven, which included
certain accrued and unpaid interest on debt principal which was repaid in
prior years, was $59,593. This item is included in Extraordinary
item-forgiveness of debt in the accompanying statements of operations for
the year ended March 31, 1998. During fiscal 1998, the Company entered
into employment agreements with two officers of the company. The
employment agreements commenced August 1, 1998 and provide for the payment
of an aggregate salary of $1,000 per month for 36 months. Included in
accrued expenses is an amount of $8,000 which is officers' salary accrual
for the year ended March 31, 1999.
The Board of Directors approved the payment of 150,000 and 100,000 shares
of common stock to the three directors of the Company for services valued
at $7,500 and $11,250 for the years ended March 31, 1999 and 1998
respectively. This item has been included in general and administrative
expenses in the accompanying statements of operations for the years ended
March 31, 1999 and 1998 respectively.
(4) STOCK OPTION PLAN
The Company has a stock option plan whereby key full or part-time
employees are eligible to receive Incentive Stock Options (ISO) and
Nonqualified Stock Options and certain directors are eligible to receive
nonqualified stock options. The plan provides for awarding options for a
minimum of 450,000 shares of the Company's common stock at an exercise
price not less than fair market value at the date of the grant. Options
are nontransferable and expire within ten years from the date of grant.
The period for which options are exercisable is determined by the Board of
Directors, however, in no event can options designated as an ISO vest more
than $100,000 in any one year, determined at the time of grant. At March
31, 1999 and 1998, no options are issued or outstanding. The plan has been
extended through May 17, 2008.
(5) ROYALTY LICENSING AGREEMENT
The Company entered into a royalty license agreement with a unrelated
party on May 17, 1997. The agreement provides for the payment of royalties
based on sales of the Human Unit products. The agreement provides for the
payment of minimum royalty payments of $25,000, $50,000 and $100,000 for
the fiscal years ended March 31, 1998, 1999 and 2000, respectively. In
addition, the agreement provides for the payment of royalties based on the
percentage of sales of products ranging from 5% to 10% on existing Human
Unit products and 2.5% to 5% for sales of newly developed Human Unit
products. The agreement provides the licensee with the option to purchase
the patents subject to the licensing agreement for $2,000,000. The
agreement can be cancelled by the licensee at any time by giving the
Company thirty days written notice of termination. The Company received
$12,500 during the year ended March 31, 1999. A royalty receivable of
$33,333 is included in the year ended March 31, 1999.
(continued)
F-9
<PAGE> 21
TRANSPIRATOR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(5) ROYALTY LICENSING AGREEMENT, CONTINUED
The Company has also entered into a technology licensing agreement with
respect to the Equine Unit. The agreement expires January 25, 2010. The
agreement provides for the payment of $200 for each Equine Unit produced
by the licensee. During the two-year period ended March 31, 1999, the
Company has not received any payments with respect to this agreement
because no Equine Units have been produced by the licensee.
(6) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are presented below:
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,398,117 $ 1,333,184
Accrued expenses -- --
General business credit carryforwards 58,225 58,225
Amortization 1,505 573
----------- -----------
Total gross deferred tax assets 1,457,847 1,391,982
Less valuation allowance (1,457,847) (1,391,982)
---------- -----------
Net deferred tax assets $ -- $ --
========== ===========
</TABLE>
A valuation allowance has been established to reduce the deferred tax assets to
an amount that management believes will ultimately be realized. Realization of
deferred tax assets is dependent upon sufficient future taxable income during
the period that temporary differences and carryforwards are expected to be
available to reduce taxable income. With respect to the resulting deferred tax
assets at March 31, 1999 and 1998, based on the Company's history of operating
earnings and expectations for the future, management believes sufficient
uncertainty exists regarding the realizability of these items that a valuation
allowance is required.
(continued)
F-10
<PAGE> 22
TRANSPIRATOR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6) INCOME TAXES, CONTINUED
At March 31, 1999, the Company has net operating loss carryforwards for
tax reporting purposes totaling approximately $3,549,000. These carryforwards
will expire in the following fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
2000......................................................... $ 346,000
2001......................................................... 219,000
2002......................................................... 352,000
2003......................................................... 926,000
2004......................................................... 1,468,000
2005......................................................... 204,000
2007......................................................... 7,000
2008......................................................... 4,000
2009......................................................... 13,000
2010......................................................... 2,000
2011......................................................... 2,000
2012......................................................... 6,000
----------
$3,549,000
==========
</TABLE>
At March 31, 1999, the Company has general business credit carryforwards
of $55,486 and $2,739, which will expire in fiscal years 2000 and 2002,
respectively.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 14,820
<SECURITIES> 0
<RECEIVABLES> 33,333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,153
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,964
<CURRENT-LIABILITIES> 39,486
<BONDS> 0
0
0
<COMMON> 27,760
<OTHER-SE> (7,282)
<TOTAL-LIABILITY-AND-EQUITY> 59,964
<SALES> 47,916
<TOTAL-REVENUES> 47,916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 60,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (.006)
<EPS-DILUTED> (.006)
</TABLE>
