U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended July 31, 1999
Commission File No. 0-29625
INTERNATIONAL THERMAL PACKAGING, INC.
A California Corporation EIN: 95-4029019
6730 San Fernando Road
Glendale, CA 91201 (818-637-8572)
Telephone: 818-637-8582
Securities to be registered under Section 12(g) of the Act:
$ 0.001 Par Value Common Shares
Indicate by check mark whether the registrant has (1) 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 such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-Q or
any amendment to this Form 10-Q [X]
State the aggregate market value of the voting stock held by non
affiliates of the Registrant: There is no current market for the
Registrant's common stock.
The number of shares outstanding of the Registrant's $0.001 par value
common stock, its only class of equity securities as of July 31,
1999 was 17,627,807 shares.
PART I
ITEM 1. FINANCIAL INFORMATION
INTERNATIONAL THERMAL PACKAGING, INC.
Financial Statements
For the Quarters Ended
July 31, 1999 and 1998.
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
BALANCE SHEETS
July 31, 1999 and January 31, 1999
(Unaudited)
(UNAUDITED)
ASSETS July 31. January
1999 1999
CURRENT ASSETS:
Cash and cash equivalents $ 258,808 $ 845,668
License fee receivable 1,071,553 1,085,257
Notes receivable 775,000 -
Officers' advances 46,137 -
------- ---------
Total current assets 2,151,498 1,930,925
---------- ---------
PROPERTY AND EQUIPMENT,
at cost net of accumulated
depreciation of $ 4,059 at
July 31, 1999 and $ 2,187
at January 31, 1999 14,663 16,535
OTHER ASSETS:
License fee receivable 3,562,50 3,562,500
Patents, net of accumulated
amortization of $202,988 at
July 31, 1999 and $ 191,718
at January 31, 1999 180,220 191,490
Other assets 6,000 -
Deposit 3,300 3,300
---------- ---------
Total other assets 3,752,020 3,757,290
---------- ---------
TOTAL ASSETS $ 5,918,181 $ 5,704,750
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accrued payroll taxes,
interest and penalties $ 567,790 $ 545,290
Accounts payable and
accrued expenses - 49,555
Accrued franchise tax 1,371 1,371
-------- -------
Total current liabilities 569,161 596,216
-------- -------
DEFERRED LICENSING REVENUE 5,000,000 5,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock -
Authorized shares 50,000,000;
Issued and outstanding
17,627,807 at July 31, 1999
and 15,853,549 at January 31, 1999 8,714,409 7,432,421
Deficit accumulated during the
development stage (8,365,389) (7,323,887)
---------- ---------
Total stockholders'
equity (deficit) 349,020 108,534
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 5,918,181 $ 5,704,750
=========== ==========
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF OPERATIONS
Three Months Ended July 31, 1999 and 1998
July 31, July 31,
1999 1998
REVENUE $ - $ -
OPERATING EXPENSES
Research and development 115,545 31,392
General and administrative 312,131 177,880
Financial consulting 78,925 (5,415)
-------- --------
506,601 203,857
LOSS FROM OPERATIONS (506,601) (203,857)
Other income - 57
Interest income 2,982 300
Interest expense- payroll taxes (11,250) (10,085)
---------- ---------
LOSS BEFORE INCOME TAXES (514,869) (213,585)
Income taxes - -
---------- ----------
NET LOSS $ (514,869) $ (213,585)
========== ===========
LOSS PER COMMON SHARE
Basic $ (0.00) $ (0.02)
========== ===========
Diluted $ (0.00) $ (0.02)
========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 17,482,807 13,709,190
========== ==========
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF OPERATIONS
Six Months Ended July 31, 1999 and 1998
July 31, July 31,
1999 1998
REVENUE $ - $ -
OPERATING EXPENSES
Research and development 116,690 139,992
General and administrative 718,124 213,550
Financial consulting 186,767 (9,046)
-------- --------
1,021,581 344,496
LOSS FROM OPERATIONS (1,021,581) (344,496)
Other income - 237
Interest income 5,679 300
Interest expense- payroll taxes (22,500) (19,919)
------------ ---------
LOSS BEFORE INCOME TAXES (1,038,402) (363,878)
Income taxes 3,100 800
---------- ----------
NET LOSS $ 1,041,502) $ (364,678)
========== ===========
LOSS PER COMMON SHARE
Basic $ (0.00) $ (0.03)
========== ===========
Diluted $ (0.00) $ (0.03)
========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 16,740,678 13,709,190
========== ==========
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENT OF OPERATIONS
From Inception (February 7, 1986) to July 31, 1999
(UNAUDITED)
REVENUE $ -
OPERATING EXPENSES
Research and development 3,001,173
General and administrative 4,476,106
Financial consulting 452,532
---------
7,929,811
LOSS FROM OPERATIONS (7,929,811)
Loss on investment
in affiliate
under equity method (173,933)
Other income 11,764
Other expense (29,552)
Interest income 11,610
Interest expense (243,267)
-----------
LOSS BEFORE INCOME TAXES $ (8,353,189)
Income taxes 12,200
----------
NET LOSS $ (8,365,389)
==============
LOSS PER COMMON SHARE
Basic $ (0.57)
==============
Diluted $ (0.57)
==============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 14,785,496
=============
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the Six Months July 31, 1999 and 1998
July 31 July 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,041,502) (364,678)
Adjustments to reconcile net
loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 13,142 11,556
(Increase) in officer's advances (46,137) (25,265)
(Increase) in other assets (6,000) -
Increase in accrued payroll taxes,
Interest and penalties 22,500 19,919
(Decrease) in accounts payable
and accrued expenses (49,555) -
Decrease in license
fee receivable 13,704 145,604
Increase in accrued
franchise tax - 571
--------- -------
Net cash used in
operating activities (1,093,848) (212,293)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (5,472)
Notes Receivable funded (775,000) -
--------- -----------
Net cash used in investing activities (775,000) (5,472)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 1,281,988 277,385
--------- -----------
Net cash provided by
financing activities 1,281,988 277,385
--------- -----------
Net change in cash and
cash equivalents (586,860) 59,620
-------- ----------
CASH AND CASH EQUIVALENTS,
beginning of period 845,668 (516)
--------- ----------
CASH AND CASH EQUIVALENTS,
end of period $ 258,808 $ 59,104
========= ==========
SUPPLEMENTAL DISCLOSURE,
Cash paid for income taxes $ 3,100 $ -
========= =========
Cash paid for interest $ - $ -
========= ==========
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENT OF CASH FLOWS
From Inception (February 7, 1986) to July 31, 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,365,389)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock issued for compensation 1,035,432
Depreciation and amortization 357,810
Loss on sale of property and equipment 28,683
(Increase) in other assets (6,000)
(Increase) in deposit (3,300)
(Increase) in patents (383,208)
(Increase) in officer's advances (46,137)
Increase in accrued payroll taxes,
interest and penalties 567,790
Increase in accrued franchise tax 1,371
Increase in deferred licensing revenue 5,000,000
(Increase) in incense fee receivable (4,634,053)
----------
Net cash used in operating activities (6,447,001)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (269,581)
Proceeds from the sale of property and equipment 118,725
Notes receivable funded (775,000)
---------
Net cash used in investing activities (925,856)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 7,692,479
Common stock repurchased (13,501)
Payments on obligations under capital leases (47,313)
----------
Net cash provided by financing activities 7,631,665
----------
Net change in cash and cash equivalents 258,808
CASH AND CASH EQUIVALENTS, beginning of period -
----------
CASH AND CASH EQUIVALENTS, end of period $ 258,808
=========
SUPPLEMENTAL DISCLOSURE, Cash paid for income taxes $ 11,400
=========
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period Ended July 31, 1999 and Year Ended January 31, 1999
Accumulated
Deficit
During
Common Stock Paid-in Development
Shares Amount Capital Stage Total
Balance,
1/31/1998 13,709,190 $13,709 $5,488,790 $(5,926,669) $ (424,170)
---------- ------ --------- ---------- ---------
Common stock
issued 2,144,359 2,144 1,927.778 - 1,919,922
Net loss - - - (1,397,218) (1,397,218)
---------- ------ --------- ---------- --------
Balance,
1/31/1999 15,853,549 15,853 7,416,568 (7,323,887) 108,534
---------- ------ ---------- --------- -------
Common stock
issued 1,484,258 1,484 1,038,764 - 1,040,248
Net loss - - - (526,633) (526,633)
---------- ------ --------- ---------- ---------
Balance,
4/30/1999 17,337,807 17,337 8,455,332 (7,850,520) 622,149
---------- ------ ---------- ---------- --------
Common stock
Issued 290,000 290 241,450 - 241,740
Net loss - - - (514,869) (514,869
--------- ------- ----------- ---------- ---------
Balance,
7/31/1999 17,627,807 17,627 $ 8,696,782 $(8,365,389) $ 349,020
=========== ========= ========== =========== =======
<PAGE>
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
From Inception (February 7, 1986) to July 31, 1999
(UNAUDITED)
<TABLE>
<S> Accumulated
Deficit
During
Common Stock Paid-in Development
Shares Amount Capital Stage Total
<C> <C> <C> <C> <C>
Balance, Inception
(February 7, 1986) - $ - $ - $ - $ -
Common stock
issued 13,709,190 13,709 5,488,790 - 5,502,499
Net loss,
cumulative - - - (5,807,244) (5,807,244)
--------- ------ ---------- ---------- ---------
Balance,
1/31/1997 13,709,190 13,709 5,488,790 (5,807,244) (304,745)
---------- ------ --------- --------- --------
Net Loss - - - (119,425) (119,425)
---------- ------ --------- ---------- --------
Balance,
1/31/1998 13,709,190 13,709 5,488,790 (5,926,669) (424,170)
---------- ------- ---------- ---------- --------
Common stock
issued 2,144,359 2,144 1,927,778 - 1,929,922
Net loss - - - (1,397,218) (1,397,218)
---------- ------- - --------- ---------- ---------
Balance,
1/31/1999 15,853,549 15,853 7,416,568 (7,323,887) 108,534
---------- ------- ---------- --------- -------
Common stock
issued 1,484,258 1,484 1,038,764 - 1,040,248
Net loss - - - (526,633) (526,633)
---------- ------ ---------- ---------- ---------
Balance,
4/30/1999 17,337,807 17,337 8,455,332 (7,850,520) 622,149
---------- ------ ---------- ---------- -------
Common stock
issued 290,000 290 241,450 - 241,740
Net loss - - - (514,869) (514,869)
---------- ------- --------- --------- --------
Balance,
7/31/1999 17,627,807 $ 17,627 $ 8,696,782 $ (8,365,389) $ 349,020
========== ======== =========== =========== =======
<PAGE>
International Thermal Packaging, Inc.
(A Development-Stage Enterprise)
Notes to Financial Statements
July 31, 1999 and January 31, 1999
1. Basis of Presentation
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted in this Form 10-Q in
accordance with the Rules and Regulations of the Securities and
Exchange Commission (the "SEC").
The accompanying unaudited financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
financial position as of July 31, 1999 and the results of operations for the
three and six months ended July 31, 1999 and 1998 and cash flows for each of
the six month periods ended July 31, 1999 and 1998. The results of
operations for the interim periods ended July 31, 1999 are not necessarily
indicative of the results which may be expected for any other interim period
or for the entire fiscal year.
In the opinion of International Thermal Packaging, Inc. (the "Company") the
disclosures contained in this Form 10-Q are adequate to make the information
presented not misleading. See the Company's Annual Report on Form 10-K for
the year ended January 31, 1999 and 2000 for additional information relevant
to significant accounting policies followed by the Company.
2. Organization and Nature of Business
International Thermal Packaging, Inc. (the "Company") was incorporated on
February 7, 1986 ("Inception"), in the State of California. The Company is
in the development stage and operations have consisted primarily of
research and development and administrative activities. The Company uses
employees and employs independent contractors to manage the Company and
sell securities. The Company has developed certain prototypes for
demonstration purposes only, which showcase its unique self-cooling and
self-heating processes and patented technology for potential use in the
food and beverage industries. It is the intent of the Company to assist
it's exclusive Licensee in the completion of the designing, development,
manufacture, and marketing of these prototypes.
In October 1992, the Company discontinued operations, abandoning its lease
premises and terminating all employees and contracts. From October 1992
through March 1997 the Company conducted no business activities, and was
dormant, with the only financial activity being the accruing of interest
and penalties on outstanding payroll and franchise taxes and amortization
of existing patents. In March 1997, the Company, headed by its founder Mr.
Dennis Thomas, once again commenced operations. The Company applied for
reinstatement and was granted authority to conduct business in California
in August 1997.
The Company is in the development stage and has had no significant
operating results to date. Management intends to continue to finance
development and related activities through the private offering of
securities and fees generated from its exclusive worldwide licensing and
option agreement; however there is no assurance that working capital will
be secured or the exclusive licensing agreement will be successfully negotiated.
These financial statements have been prepared assuming the Company will
continue as a going concern. The Company's ability to continue as a going
concern is dependent upon management obtaining the necessary funding to
operate the business, and to successfully complete a working prototype,
gain necessary government approvals for its products, establishment of
successful commercial products, develop marketing channels and ultimate
product acceptance in the marketplace. The Company has an accumulated
deficit and no established product or marketing channels. These factors
raise a substantial doubt about the Company to continue as a going
concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
2. Summary of Significant Accounting policies
a. Income Taxes
For financial reporting purposes, the Company provides for income taxes
under the liability method and recognizes the minimum California franchise
tax of $800 on an annual basis.
b. Research and Development
Costs related to conceptual formulation, design and the development of
prototypes are considered research and development and are expensed as
incurred.
c. Cash and Cash Equivalents
Management defines cash and cash equivalents as cash in banks and highly
liquid instruments with maturities of 90 days or less.
d. Property and Equipment
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets, ranging from 3 to 10 years
e. Patents
Patent costs are amortized using the straight-line method over the life of
the patents, not to exceed 17 years. Due to the current financial position
of the Company there is no assurance as to full recovery of the patent costs.
f. Revenue Recognition
License fees received are deferred and will be amortized over the life of
the respective Agreements not exceed 20 years, when the Licensee is
satisfied that the Company's patents and technology will receive
commercial acceptance in the marketplace. In the quarter ended
January 31, 2000, all amounts provided for under the Agreement
have been fully reserved for. See Note 6(b) for additional
information related to the FUTECH Corp. License Agreement.
g. Per Share Information
The per share information included in the accompanying statements of
operations considers the effects of all shares issued (net of rescissions and
cancellations) since inception on February 7, 1986. The impact of the common
stock equivalents (Note 10) was excluded from the computation of diluted net
loss per share, as the effect would be anti-dilutive.
h. Use of 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 at
the date of the financial statements and the reported amounts of the
revenues and expense during the reported period. Actual results could
differ from those estimates.
i. Long Lived Assets
The Company reviews for impairment of all long-lived assets and
certain identifiable intangibles whenever events or a change in
circumstances indicate that the carrying amount of any asset may
not be fully recoverable. An impairment loss is recognized when estimated
future cash flows expected to result from the use of the asset and its
eventual dispositions are less than its carrying amount.
J. Fair Value of Financial Instruments
Cash and cash equivalents, short term investments, accounts receivable,
and accounts payable are carried at amounts that approximate a
reasonable estimate of their fair value using available market information
and appropriate valuation methodologies.
k. Effects of New Accounting Pronouncements
Statement on Financial Accounting Standards Number 133 "Accounting for
Derivative Investments and Hedging Activities", as amended by Statement on
Financial Accounting Standards Number 137 and 138 will have no financial
impact on the Company's financial statements.
l Other Comprehensive Income
The Company has no Other Comprehensive Income.
4. Income Taxes
There was no statuary Federal tax expense for the interim periods since
the Company had net losses for each of these two interim periods.
5 Capital Transactions
Since inception, the primary source of working capital has been provided
by common stock issuances to the public. Shares have been issued to
management and others as a source of compensation. Commissions paid for
sales of stock have reduced the cash received from such issuances. From
time to time, shares have been issued to individuals and companies for
services rendered.
6. Commitments and Contingencies
a. Sales of Securities
i. From incorporation through January 31, 1993, the Company had a series
of original offerings and sold approximately 6,486,968 shares of its
common stock to unrelated investors in reliance upon certain exemptions
provided by the Securities Act of 1933, as amended, and the securities
laws of the various states wherein the purchasers of such shares reside.
The exemptions relied upon by the Company may not have been available for
these sales. If such exemptions were not available, the purchasers would
have the right under both federal and state securities laws to rescind the
purchase and seek the recovery of the purchase price paid for the stock
together with statutory interest thereon from the date of sale. The
Company had retained securities counsel to evaluate these matters and such
counsel believes compulsory recession to be remote. The Company thus has
taken no action regarding this and no communications were ever received
from the SEC.
ii. During the fiscal year ended January 31, 1999 the Company offered
and sold approximately 2,144,359 shares of common stock at $ 1.00 per
share, to unrelated investors in reliance upon certain exemptions provided
by the Securities Act of 1933, as amended, and the securities laws of the
various states wherein the purchasers of such shares reside, through a
Private Placement Memorandum ("PPM") dated August 1, 1998. The
Company received approximately $ 1,1929,922 from the sale of these
shares, not of issuance costs.
Discrepancies exist between disclosures contained in the PPM and these
financial statements including but not limited to; use of proceeds,
offering costs and commissions, note receivable - real estate, executive
compensation limits, comprehensive insurance coverage, number of
employees, payroll tax liabilities and the FUTECH Agreement.
The Company previously had retained counsel to evaluate these matters and
such counsel believed compulsory recession to be remote. The financial
statements contain no adjustments that may result from the rescission of
the sale of any of these securities.
The financial statements contain no adjustments that may result from the
recession of the sale of any of these securities.
iii. Effective, February 15, 1999 the Company cancelled 2, 588,883
previously issued shares for lack of consideration, and in some cases, other
irregularities. The Board of Directors met on the above date and ratified
this cancellation.
b. Option and License Agreement
Effective March 1998, the Company entered into a new exclusive option and
license agreement ("Agreement") with FUTECH Corp. ("Licensee",) a
California corporation, for worldwide rights to the Company's patents and
technology for a twenty-year term. According to the Agreement Licensee has
timely exercised the option. The March 1998 agreement supercedes the old
agreement between the Company and FUTECH Corp., which was effective July
1997.
Consideration for this Agreement was five million dollars and was to have
been paid as follows:
* $100,000 (which has been credited against license and technical
assistance fees)
* $150,000 due upon exercise of option (already paid)
* $1,187,500 no later than October 1, 1999
* $1,187,500 no later than October 1, 2000
* $1,187,500 no later than October 1, 2001
* $1,187,500 no later than October 1, 2002
The five million dollars license fee is non-refundable. However, if the
Agreement is deemed to be invalid, unenforceable or otherwise inoperable
by any court or administrative body, in FUTECH's sole discretion the
Agreement may be terminated and the Company is obligated to return that
portion of the License and Technical Assistance Fee which, at the time of
the termination, has been paid to the Company in cash, as opposed to credits
in accordance with the Agreement.
In addition to the license fee above, Licensee was required to pay royalties
of 1 cent ($.01) per unit for cooling beverages containers and 4.75% of the
selling price for heating products. The royalty rate shall be adjusted
annually for inflation according to the US Government Los Angeles Consumer
Price Index (CPI) up to five decimal places for the preceding calendar
year. The CPI increase cannot exceed 150% over the term of the Agreement.
As of January 31, 1999, the Licensee advanced $352,243 to the Company, which
is reflected as a reduction of the Licensee Fee Receivable. A majority of
the advances were payments made on behalf of the Company for research and
development. FUTECH made payments directly to research laboratories for
the Company and the Company would record research and development expense and
reduce the License Fee Receivable.
The Company came to the conclusion in the quarter ended January 31, 2000 that
since FUTECH had not provided the necessary consideration for the license,
nor had Licensee made any scheduled royalty payments, the License Agreement is
null and void. As a result, all License Fee Revenue and Receivable amounts
under the Agreement were reserved for in the financial statements for the
year ended January 31, 2000.
c. Payroll Taxes
The Company failed to make federal and state payroll tax deposits totaling
$212,651 through October 1992. Penalties and interest totaling $ 355,139
and $ 332,639 were accrued through July 31, 1999 and January 31, 1999,
respectively and are reflected in the total outstanding liability of
$ 567,790 and $ 545,290. The current period amounts are reflected
on the accompanying balance sheets.
The Company has had discussions with Internal Revenue Service and State of
California to pay off the outstanding balances, which total $567,790 at
July 31, 1999. The Company has not paid any of these outstanding
amounts as of the date of this report.
7. Related-Party Transaction
Certain management and directors of the Company have assigned all patent
rights to the Company in exchange for three percent of all license and
related royalty fee consideration received by the Company. For the periods
ended July 31, 1999 and January 31, 1999, no royalties were accrued.
Previously accrued royalties were $ 15,575 for the year ended January 31,
1998 and officer advances for the year ended January 31, 1999 in the amount
of $ 15,575 were used to offset a portion of the balance of accrued royalties.
Additionally, the Company advanced certain officers a total of $ 46,137 during
the period ended July 31, 1999. It is uncertain whether the Company intends
to pursue collection of these advances, and the amounts may subsequently be
reclassified as compensation expense. These amounts are included in
Officers' Advances on the accompanying balance sheet, and were fully
reserved in the quarter ended January 31, 2000.
8. Concentration of Credit Risk
Previously, approximately 100% of the Company's potential sources of revenue
from license fees and royalties were from its Licensee FUTECH Corp.
Additionally, approximately 100% of the Company's receivables were from its
licensee as well. Management has determined that there is no potential
loss due to the credit risk as of January 31, 1999. In the quarter ended,
and as of January 31, 2000, all license fee receivable and deferred revenue
amounts have been fully reserved for. See note 6(b) for additional
information related to the FUTECH Corp. License Agreement.
Additionally, at various times throughout the year, the Company maintained
cash balances with financial institutions in excess of FDIC limits.
9. Notes Receivable
In February, 1999 the Company loaned $725,000 to CRT Company, a New
Jersey corporation. The note required interest at 10%
per annum and matured on April 30, 1999. The Company received an
assignment of a partnership interest held by CRT as security for the
note. The Partnership, Delran Associates, L.L.C., holds as its primary
asset, undeveloped land appraised at $4,000,000, located in New Jersey.
Delran has a contract to sell part of the land to Trafalgar Associates
for residential development. During fiscal year ended January 31, 2000
the Partnership was expected to either receive sufficient payments from
Trafalgar Associates or obtain refinancing and repay the loan in one
payment to include all principal and accrued interest. Because of the
delinquency of the note, and due to the uncertainty of the timing
of the refinance and/or sale, and the fact that CRT held a minority
interest in the Partnership, the Company has engaged New Jersey
legal counsel which has filed legal action on the Company's behalf.
This note was fully reserved for in the quarter ended January 31,
2000, although the Company intends to vigorously pursue this action.
In April 1999, the Company advanced $ 50,000 to CH Technologies
for its purchase of a Canadian license from FUTECH Corp., The Company's
former worldwide licensee. CH Technologies executed a note for this
amount, and this amount, and the note matures when ITP delivers
a working prototype to FUTECH. Due to the current state of the
FUTECH Agreement, this amount was fully registered for in the
quarter ended January 31, 2000.
10. Stock Options
a. On July 15, 1998 the board of directors approved the Company's
Stock Option Plan with authorization to grant options to purchase up to
2,750,000 shares of the Company's common stock. Of the total options
granted 2,250,000 shares were granted to employees of the Company.
Following is a list of the options granted to the employees:
Employee Number of Shares
Dennis Brown 1,000,000
Dennis Thomas 1,000,000
Hans Schiedner 250,000
-----------
Total 2,250,000
==========
The board also granted stock options to Lance Kerr, the Company's outside
attorney, for 500,000 shares. The options entitle the holder to purchase
one share of common sock at a price of $0.70 per share beginning on July
15, 1999, one year after grant date. The Options are valid for a period
of five years and expire on July 15, 2003.
b. The Company determined in February 2000 that 2,350,000 options
granted to Dennis Thomas, President and Dennis Brown, Chief Financial
Officer had been cancelled by prior management without giving either
Brown or Thomas the opportunity to exercise these options. The options
granted on May 23, 1990 at $0.10 per share were to have expired on
May 23, 1995. The Board of Directors in their meeting on April 19,
2000 reinstated retroactively these options giving Thomas and Brown
until May 1, 2004 to exercise them.
There is no financial effect to the reinstatement of these options since
the Company had a loss in each of the prior two fiscal years and any
earnings per share adjustment would be antidilutive.
11. Subsequent Event
Subsequent to January 31, 2000 and through the six months ended July 31,
2000. the Company offered up to 2,000,000 and sold approximately
1,303,000 shares of its common stock between $ 1.00 and $ 2.50 per share, to
unrelated investors in reliance upon certain exemptions provided by the
Securities Act of 1933, as amended, and the securities laws of the various
states wherein the purchasers of such shares reside, through a Private
Placement Memorandum ("PPM") dated February 15, 2000. The Company received
approximately $ 2,007,000 from the sale of these shares, net of issuance
costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF PLAN
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a development-stage enterprise and has had minimal
revenue to date. The Company remains dependent on
continued sales of common stock to fund its research and
development efforts. In the three months ended July 31, 1999
the Company received proceeds for the sale of common stock of
of $ 241,740 (unaudited)net of issuance costs. In the three
months ended July 31, 1998 the Company received proceeds
for the sale of common stock of $ 235,710 (unaudited)net
of issuance costs.
In the six months ended July 31, 1999
the Company received proceeds for the sale of common stock of
of $ 1,281,988 (unaudited)net of issuance costs. In the six
months ended July 31, 1998 the Company received proceeds
for the sale of common stock of $ 277,385 (unaudited)net
of issuance costs.
Additional sources of liquidity in the next fiscal year are
expected to be additional proceeds from the Company's
exclusive option and license agreement and the proceeds from
repayment of a real estate loan the Company made in February
1999. Proceeds from the license agreement are expected to be
$1,085,257 during the fiscal year ended January 31, 2001 and
$625,000 from the real estate loan during this same period.
Although there is no assurance that funds will be available
from any of the above sources, the Company expects that
sufficient resources will be obtained to fund ongoing
research and development expenses.
The Company expects to expend at least $1,000,000 in the
fiscal year ended January 31, 2001 for ongoing research and
development efforts. These expenditures are required to
complete the prototype of the self-cooling beverage can.
RESULTS OF OPERATIONS
For the three months ended July 31, 1999 and 1998 the
Company had operating losses of $ 506,601 (unaudited)
and $ 203,857 (unaudited) respectively. There was no
revenue recorded during these periods as the Company
has deferred the income from its licensing agreement
until the successful completion of a prototype self-cooling
beverage can. We expended $ 115,545 (unaudited) for research
and development for the three months ended 4/30/1999 and
$ 31,392 for the three months ended 4/30/1998.
For the six months ended July 31, 1999 and 1998 the
Company had operating losses of $ 1,021,581 (unaudited)
and $ 344,496 (unaudited) respectively. There was no revenue
recorded during these periods as the Company has deferred
the income from its licensing agreement until the successful
completion of a prototype self-cooling beverage can. We expended
$ 116,690 (unaudited) for research and development for
the year ended 7/31/1999 and $ 139,992 for the three
months ended 7/31/1998.
We had legal and other professional fees of $ 90,047
(unaudited) for the three months ended July 31, 1999
compared to $ 15,045 during the three months ended July 31,
1998. The majority of the legal and professional fees
resulted from litigation with Tempra Technology, a former
licensee, and the
former President of the
Company, ongoing patent protection and audit and accounting
fees for the audit for the last three fiscal years. The
litigation with Tempra and with the former President has
been resolved with no material financial consequences to us. Other
costs, which contributed to the increased loss were increased travel
costs.
Travel costs increased from $ 8,313 (unaudited) for the three
months ended July 31, 1998 to $ 89,464 (unaudited) for the three
months ended July 31, 1999. The increased travel costs related to
sending company personnel to various labs throughout the country
where the research and development is being carried out by
independent research and engineering labs. The Company
issued additional common stock for cash net of issuance
costs in the amount of $ 241,470 (unaudited) and $ 235,710
during quarters ended April 30, 1999 and 1998, respectively.
We had legal and other professional fees of $ 175,368
(unaudited) for the six months ended July 31, 1999
compared to $ 17,470 during the six months ended July 31,
1998. The majority of the legal and professional fees
resulted from litigation with Tempra Technology, a former
licensee, and the former President of the
Company, ongoing patent protection and audit and accounting
fees for the audit for the last three fiscal years. The
litigation with Tempra and the former President has been
resolved with
no material financial consequences to us. Other costs,
which contributed to the increased loss were increased travel
costs and marketing costs.
Travel costs increased from $ 9,671 (unaudited) for the six
months ended July 31, 1998 to $ 161,855 (unaudited) for the six
months ended July 31, 1999. Marketing costs increased from
$ 37,966 to $ 145,821 (unaudited)for the six months ended July 31,
1998 to July 31, 1999 respectively. The increased travel costs
related to sending company personnel to various labs
throughout the country where the research and development
is being carried out by independent research and engineering
labs. The increased marketing costs relate to the efforts of
the Company to sell additional stock during the past year to
fund ongoing activities. The Company issued additional common
stock for cash net of issuance costs in the amount of $ 1,281,988
(unaudited) and $ 277,385 during quarters ended July 31, 1999
and 1998, respectively.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
We filed litigation in the State of New
Jersey to protect our rights to payment on a loan secured by
an interest in a limited liability corporation which owns
substantial real estate in that state. There
is no other material pending litigation
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K.
There have been no 8-K filings during the quarter ended
July 31, 1999.
<PAGE>
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