U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
Commission File No. 0-19625
INTERNATIONAL THERMAL PACKAGING, INC.
A California Corporation EIN: 95-4029019
6730 San Fernando Road
Glendale, CA 91201 (818-637-8572)
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-K or
any amendment to this Form 10-K [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 January 31,
2000 was 15,853,549 shares.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(1) International Thermal Packaging, Inc. ("ITP") is
primarily a research and development company that has
concentrated its efforts on the development and exploitation
of self-cooling and self-heating technologies for the food
and beverage industry.
GENERAL DESCRIPTION OF BUSINESS DURING FY 2000 AND
SUBSEQUENT EVENTS.
During the fiscal year ended January 31, 2000
And subsequently we worked to commercialize our self-cooling
technology. Under our agreement with Futech, Futech was
responsible for marketing. In July, 2000, we notified
Futech that our agreement with them was without any
force and effect, because, among other things,
Futech had failed to provide consideration or
otherwise meet its obligations. We also advised
Futech that all rights to technology developed since
1997 fully reverted to us.
We have taken over our own marketing operations and
continuing development work. We anticipate that self-
cooling beverage devices will be in production at some time
during the calendar year 2001. We are working to commercialize
the self-cooling technologies worldwide. Our basic business
plan is to manufacture self-cooling devices to licensees with
territorial sales rights, and to license manufacturing and
sales rights in some territories. We are currently in discussions
about license agreements with several major companies around
the world. This strategy is expected to generate profits from
manufactured devices, royalties from the technologies through
territorial license agreements for sales rights, and additional
royalties from manufacturing licensees. In major markets,
the license agreements are expected to be with container
manufacturers and beverage companies. In smaller markets,
the license agreements may be with companies that are suppliers
to the can industry or food and beverage industry.
The licensing strategy presently being pursued is to license
technology rights on a territorial basis, to substantial
organizations capable of producing significant royalty streams.
Manufacturing rights and sales rights are being licensed
separately, although the same licensee may hold both
manufacturing and sales rights in a given territory. We
plan to retain manufacturing rights for as many territories
as practical. Similarly, self-cooling and self-heating
rights may be licensed either separately or together. For
each license, an initial license fee payment is required,
in addition to royalty payments. The initial license fee is
non-refundable. Due to the size of the United States market,
as compared to foreign countries, there are no present plans to
grant exclusive licenses for any United States rights, but
rather to grant a number of non-exclusive sales licenses,
and possibly some non-exclusive manufacturing licenses.
Typical screening criteria for licensees require that
they be companies in the food processing or packaging
industries with technical and financial resources and market
position. Potential licensees must demonstrate a commitment
to achieving rapid introduction of the licensed products
technology into the marketplace and possess a high degree of
expertise and skill in the business of distributing and
marketing the licensed products. Furthermore, manufacturing
licensees must demonstrate the expertise and capability to
manufacture self-cooling and/or self-heating devices in large
quantities.
The criteria for licensees generally include a verified
net worth of $10 million, ties to the food/beverage packaging
industry, and existing marketing and/or manufacturing
capabilities.
One of the objectives of our marketing program is to
complete license agreements and negotiations with U.S.
and international companies interested in the self-cooling
and self-heating technology, and to initiate and
complete additional agreements. The anticipated
revenue from licensing fees for the current fiscal year is
discussed below under finances.
The Company's long-term goal is to be the industry
leader in the development of self-cooling and self-heating
devices and applications, for the food industry, and later
for other industries. Furthermore, we intend to pursue an
aggressive program of continuing product research and
development to ensure that the Company's technology remains
on the "leading edge."
During the fiscal year ended 1/31/2000, we continued to
work on research and development related to a self-cooling
beverage device. We continued to work with NREL. In mid-1999,
an additional research laboratory was added to the
development team. This organization known as Battelle
Institute, is a large, not-for-profit consulting firm which
is one of the companies that administers NREL for the U.S.
Department of Energy. Battelle contracted to design
and assist in the design of commercially viable self-cooling
beverage devices.
We have not been involved in any reorganization, merger
or bankruptcy. We do not anticipate any material acquisition
of plant, equipment or capacity thereof in the upcoming
fiscal year.
There are no anticipated material changes in number of
employees in various departments such as research and
development, production sales or administration. The company
anticipates adding one to three employees at the corporate
management level, to deal with corporate matters related to
the planning and implementation of a public offering of the
company's stock and the exploitation of new technology under
development.
Our financial information is presented in the audited
financial statements filed with this report. There has been
no change to the internal structure of the company that has
an impact on financial reporting of the company's business.
We are currently a development stage enterprise with
limited operating results to date. The primary source of
revenue is expected to be from licensing and sublicensing
agreements, pertaining primarily to our self-cooling
technology. Ordinarily, we require an initial payment with
licensing and sublicensing agreements. Subsequent payments from
licensees and sub-licensees are on royalties from product sales.
During the fiscal years ended 1/31/1999 and 1/31/2000,
we had no operating revenues. Operating capital was raised
through sale of stock in a private placement.
THE BEVERAGE INDUSTRY MARKET
Our self-cooling technology represents an extraordinary
technological advancement that creates tremendous
opportunities within the worldwide beverage industry. The
device promises not only added convenience for the consumer
but also provides a basis for developing entirely new market
segments and changing certain distribution channels.
The major segments of the beverage industry are soft
drinks, beer and ale, fruit juice and drinks, bottled water,
wine, and spirits. The profitability for each segment in the
beverage market depends heavily on the packaging. How easily
and profitably the technology can be adapted to the product
packaging will reflect our impact on the market. We are
exploring all segments of the beverage market since each
segment holds unique requirements for implementing the self-
chilling technology in existing packages.
Since soft drinks and beer dominate the packaged
beverage market, these segments currently offer the greatest
opportunity for the application of our cooling technology.
According to the 1996 Beverage Directory, 52.2 billion
dollars retail of beer were consumed in the U. S. in 1996.
This figure translates into 22.1 gallons of beer per person.
Even more staggering is the fact that more than 13 billion
gallons of soft drinks or 53.4 gallons per person were
consumed in the U.S. in 1996.
We anticipate large and rapidly growing markets in the
domestic and international markets for beer and soft drinks
in self-cooling containers. Manufacturers and retailers who
market canned beer and soda with the self-cooling device can
expect growth in their own sales due to the convenience of
having "the drink that chills itself." Retailers will also
appreciate having to make less capital expenditures on
equipment to chill the beverages.
A variety of packaging materials and technologies are
currently used within the beverage industry. These include
cans, returnable and non-returnable glass bottles, plastic
bottles, cardboard containers, and bulk containers. The use
of cans is growing and now accounts for approximately 45% of
soft drink sales and 67% of beer sales in the U.S. market.
There are several value added elements in the beverage
industry including beverage manufacturing, bottling,
distribution, cooling, and service. Currently, the cooling
step is performed in conjunction with the service phase and,
consequently, the cooling profits accrue to retailers. The
consumer will pay the convenience store owner more than a few
more cents just for keeping their beverages chilled. We
intend to capitalize on the consumer's preference for chilled
beverages and position ourself to obtain royalties as canners
and beverage manufacturers obtain cooling profits.
Beverages are presently marketed through many different
distribution channels around the world. These channels
include restaurants and bars selling from bulk packages,
retail food/beverage stores such as supermarkets and liquor
stores, convenience stores, discount merchants, vending
machines, and caterers and street vendors.
The cooling profits are obviously greater for caterers,
street vendors, and vending machines where the product is
chilled and ready for direct consumption. In contrast, a
regular grocery store that has hundreds of six-packs sitting
on its shelves at room temperature will not be earning
cooling profits. In addition to expanding the channels which
normally earn cooling profits and obtaining royalties for
doing so, we are seeking to add such profits to distribution
channels like supermarkets and retail stores. While our
self-cooling unit does add a significant cost to a canned
beverage, this incremental increase would be more than offset
by the increase in consumer convenience and the elimination
of downstream refrigeration costs. It currently costs a
$.01/day to keep a can cool in a vending machine.
The market dimensions of the beverage industry are
staggering. The number one product sold in the world is a
Coke! In the U. S., annual per capita consumption of all
types of beverages exceeds 56 gallons and has been projected
to rise to 60 gallons by the end of the 1990s. Packaged soft
drinks and beer account for approximately 70% of all beverage
consumption, including water. In 1996, 61.2 billion beverage
cans and 31.4 billion beer cans were shipped.
In the U. S., sales of packaged beverages continue to
increase both on a per capita basis and in absolute terms
albeit at a somewhat slower pace than in the past. The U. S.
market is generally presumed to have matured far more than
worldwide markets and suggests that the potential for future
worldwide growth is substantial.
While a number of different shapes and sizes of
packages have been introduced, the 12 oz. can and bottle are
the most prevalent. Multipacking and repackaging done in
greater quantities has continued to help the growth of the
can. The Can Manufacturers Institute has concluded that
multipacks can particularly influence sales in convenience
stores which have traditionally been a single can market.
In addition to the continued growth in per capita
consumption rates, the anticipated increase in recycling
pressures suggests that the can segment will experience a
substantially greater rate of growth. Aluminum can recycling
rates in the U.S. have increased to 60%. The Can
Manufacturers Institute is aiming for 75% nationwide
recycling by year end 1998. Legislation against non-
recyclable cans and bottles continues to be an important
issue in beverage packaging. Cans are an attractive form of
packaging for a number of other reasons besides recycling:
1) Cans are easier to carry than bottles and are not
breakable.
2) Cans are perceived by the consumer to be safe and
free from contamination.
3) While bottles and cans earn about the same gross
margins, cans are much easier for retailers and
wholesalers to handle and store. Because of their
stackability and compact shape, cans are more cube efficient.
When compared to 12 oz. non-returnable beer bottles, cans
are 48% more cube efficient and a full l00% more
efficient in comparison to 12 oz. bottles.
4) Cans chill faster, thus smaller inventories can be
kept in coolers.
5) Bottlers can run cans at a faster rate than glass
bottles which also require more packaging.
The introduction of self-cooling containers will have
wide ranging implications for the beverage industry. The
beverage market will expand in areas where cooling facilities
are not currently available. Self-cooling cans will become a
major new market segment expanding cans' share of the market
in comparison to bottles. Manufacturers and bottlers will be
able to contribute a greater percentage of the value added
element thereby increasing profit margins. There will also
be tremendous shifts in distribution patterns.
Fountain distribution, which accounts for more than 30%
of drink sales, is likely to experience some significant
changes. Fountain sales include restaurants, bars,
convenience stores, and entertainment events. Of these
areas, self-cooling cans could potentially affect convenience
store fountain sales the most. With self-cooling available,
travelers and commuters may be inclined to keep self-cooling
beverages in their vehicles, thereby eliminating the need for
a stop at a convenience store. This added convenience could
lead to greater rates of consumption as well.
Vending machine sales could also be affected.
Currently, one out of every eight soft drinks in the U.S. is
sold through a vending machine. Right now, beer does not
share the convenience of vending machines. With our self-
cooling device the consumer would be able to enjoy a cold
beer on the nineteenth hole.
In addition, large stadium events such as concerts,
football, and baseball games could utilize the self-cooling
can. Vendors could carry more products and reduce labor
costs by eliminating the need for people to fill rows and
rows of beverage cups with beer or ice and soda.
THE FOOD INDUSTRY MARKET
Our self-heating technology is not as close to commercial
production as our self-cooling technology, and is not
presently under intensive development. We have chosen
to focus our resources on the self-cooling technology.
Nevertheless, the self-heating technology offers various
opportunities within the worldwide food industries.
In addition to added consumer convenience, the heating
technology promises broader markets for convenience foods
and opportunities for food manufacturers to increase their
share of the value added element in the food processing
and distribution chain.
The food industry is composed of many segments, but the
important segments for our technology are those which cater
to the consumers' desire for convenience and require some
level of heating. The prepared convenience food segment
includes shelf-stable, refrigerated, and frozen items.
Because of its portability, safety, and ease of use, self-
heating adds an entirely new dimension to the convenience
food market.
Our self-heating technology enables efficient heating of
a wide variety of convenience foods due to its variable
heating capabilities. By changing the mix of components,
devices using the technology can be engineered to warm
everything from canned soup to pizza. Hence, prepared and
microwaveable foods represent a very large potential market
for this technology.
One of the most important developments in convenience
foods in the last decade was the growth in upscale single-
serving dinner entrees. A packaging magazine survey found
nearly half of those surveyed consumed meals in single
serving containers at least once a week. As an example, the
Japanese single-serving noodle market, just one small market
niche, is $700 million/year and growing.
The newest and probably fastest growing segment of the
convenience food segment is shelf-stable products. These
foods are precooked then vacuum-sealed in a process similar
to canning meat. Shelf-stable foods stay fresh for up to 18
months, freeing up valuable freezer space in grocery and
convenience stores. The demand for shelf-stable food
containers is projected to grow nearly 50% annually, reaching
over 1.2 billion food containers by the mid-1990's and
accounting for almost 30% of the microwaveable container
The major use of microwaveable containers within this
segment will be for specialty entrees, soups, and side
dishes, which offer convenience, easy storage, and
portability.
Another important segment of the convenience food
industry is chilled foods. These products are refrigerated,
partially or completely prepared dishes that have a limited
shelf life. Chilled products are now widely distributed in
Europe and are becoming more prevalent in the U.S. The
domestic chilled goods market, which is currently European-
driven, is also expected to grow as American consumers also
demand fresher convenience foods. While the chilled foods
market is smaller than other segments, this segment does
represent a significant market for our heating device; by
combining the device with fresh, refrigerated, prepared food,
a product could be offered that would compete directly with
carry-out or fast foods.
The major issues of this segment are the consumer safety
risks involved and the accurate temperature controls required
throughout the entire distribution chain before any product
can be placed in large scale distribution. Institutional
end-uses such as in-store delis, which will not require the
long shipping distances or extended shelf-life, might also
capture a major portion of the refrigerated market. We can
capitalize on this market segment by expanding food options
available in vending machines. A college student, for
example, could buy a chilled lasagna instead of a sandwich
from a vending machine.
With self-heating technology in place, the lasagna could
be packaged in a self heating container that would not
require an outside heating source. The student could simply
pull the strip and dine in a matter of minutes!
Currently, the demand for microwaveable containers in
general exceeds $700 million/yr. and is projected to grow
steadily as consumers continue to demand convenience in every
respect of meal preparation. Microwaveable containers are
currently fashioned out of a number of different substances
and vary widely in cost. Carry-out and delivered foods
represent a large market potential for self-heating
technology. The fast-food industry now exceeds $60 billion
in the U. S. and is experiencing rapid growth worldwide. The
fast-food industry spends $1.4 billion/year on polystyrene
packaging alone.
Presently, there is no efficient way to maintain the
temperature of carry-out foods to ensure maximum enjoyment by
the consumer. Traditionally, these fast foods have been sold
in packages that serve very little use in controlling the
temperature of hot food.
Restaurants delivering food have a more critical concern
about temperature maintenance. Pizza delivery, for example,
is near a 2 billion dollar business in the U. S. By
configuring a self-heating package to maintain relatively low
levels of heat over a long period of time, we can offer a
low-cost solution to the problem.
Stadium events could also use warming devices to keep
vendors' food items warm for a longer period of time. An
alternative use by the stadium and arena vendors would be to
sell refrigerated foods with our heating packs that could be
warmed up at any time during the course of the event. This
would eliminate large lines for hot beverages and food items
during half-time and intermissions.
Our heating and cooling devices could be employed in a
number of applications from catering to airline food service
to school cafeterias. The airline food service industry
alone represents a very large profit potential. Less food
preparation and handling by flight attendants would be
required. Furthermore, traditional heating equipment could
be eliminated, thus saving valuable space that could be
converted to extra passenger space or used for increased
passenger comfort. With respect to school cafeterias, most
of the same advantages can be seen. Implementation of the
heating and cooling devices would reduce food preparation and
handling, personnel requirements would be streamlined.
PRIMARY SOURCES OF REVENUE, PAST 3 FISCAL YEARS
During FY 1998, FY 1999 and FY 2000, we had no operating
revenues. Operating capital was raised through a private
placement.
STATUS OF PRODUCTS IN PLANNING AND PROTOTYPE STAGES
The technology which we are working on to make
commercially viable provides for a drop-in unit which is
activated by a decrease in the internal pressure inside a can
when the can is opened. The presently used beverage can,
lid, and filling line do not have to be modified for the
device to be employed. This feature is in stark contrast to
other processes which require extensive can modification.
Another important feature of the ITP device is its
environmentally friendly ingredients. All ingredients
employed in the ITP device can be recycled or discarded
without environmental damage.
When the top of the can pops, a process takes place
inside the self-cooling device to lower the temperature of
the beverage. The process is isolated both from the beverage
and the environment. Effectively, water is rapidly
evaporated, and the vapor is absorbed. The process creates a
cooling effect that causes heat to be transferred from the
beverage into the device, where it is isolated from the
beverage, leaving the beverage at a desirable temperature.
Our self-cooling technology features several critical
design criteria. Understandably, the product has to be easy
to use. For maximum user convenience, the device needs to be
fully incorporated into the can design, not an add-on. The
device has to be space efficient for easy handling and
transport, and the unit cost should be low enough to make the
device attractive to a large segment of the market. All
components need to be strictly nontoxic to preclude any
possible contamination of the beverage even in the event of
catastrophic failure of the can or cooling device.
Furthermore, the device should also be fabricated from
materials which are readily recyclable and completely
environmentally safe. Finally, to be cost effective, the
device has to be designed to be compatible with existing
containers, so that container modification is not necessary.
Our self-cooling can technology is currently in the
early prototype stage. Additional engineering is necessary
to enable the manufacturing of commercially viable products.
Issues regarding the source and availability of raw
materials are inapplicable because the Company does not
manufacture products. Materials needed for production of
devices using our technology are expected to be readily
available.
PATENTS AND PATENT APPLICATIONS
During the fiscal year ended 1/31/2000, we filed patent
applications, which reflect new technical developments made
from 1997-1999. We expect to file additional patent
applications during the coming fiscal year. Our unpatented
technical developments over the past 12 months are currently
protected as trade secrets and will be incorporated into
patent applications as the developments mature into working
models. The existing, prospective patent applications and
trade secrets relate to devices designed for insertion into
unmodified aluminum beverage cans, prior to filling, which
will automatically activate when the can is opened.
Activation of the device will cool the beverage. This
technology is essential to our business.
We are primarily a research and development company. We
carry no inventory and do not expect sales from inventory.
Working capital is used and needed by the Company primarily
for day-to-day administrative and operational expenses,
promotion and participation in marketing. Our profitability
to a large extent, depends on our ability to improve
existing technologies and create new technologies.
Working capital over the past three fiscal years has come
primarily from the sales of stock pursuant to a private
placement.
MATERIAL CONTRACTS
Our primary anticipated source of revenues is through
manufacturing profits and royalties from license agreements.
We continue to be entitled to our share of revenues from
existing sublicenses of Futech (although this is disputed
by Futech) and from Tempra Technologies, but we do not
presently have any basis for projecting any such revenues.
Due to the nature of our business, the term "backlog
orders" is inapplicable.
No material contracts are subject to cancellation or
renegotiation of profits.
COMPETITIVE CONDITIONS OF OUR BUSINESS
There are technological changes taking place in the
development of our products. We are faced with both indirect
and direct competition, in the form of other companies that
are developing and/or marketing like products.
Current competitors in the business of self-cooling
technology include, but are not limited to, The Joseph
Company (Chilltech), Tempra Technology, possibly three
other companies located in Japan, Korea, and England,
and a product being evaluated by Coca-Cola, Incorporated.
Futech, our former licensee, has also announced plans
to develop its own self-cooling technology. There
may be additional competitors who are presently
unknown to us. We expect that the technologies offered
or under development by these competing lack various
advantages of our technology.
There are several competitors presently shipping self-
heating food packages. None has large distribution at this
time. The largest known is Heater Meals. Competitive
products generally suffer from cumbersome preparation
procedures, lengthy heating time and high cost. Some
products have other significant drawbacks, such as the
generation of white-hot heat or the release of gas.
Previous efforts by the competitors identified above to
produce self-cooling devices resulted in processes which were
unusable for various reasons, or products that were rejected
by the beverage industry.
Little is known about current competitive product
development, because of every company's desire to keep its
technical progress highly confidential. Tempra has publicized
a two-part, specially built can which is built with self-
cooling components. At the present time, there may be
competitors who are better financed and operate with
greater capital than us, and/or who have technology with
technological advantages. There can be no assurance that our
current and future competitors will not succeed in developing
products and pricing that are more widely accepted in the
marketplace or that will render our products noncompetitive.
However, we believe that we have the most advanced
technology at this time, and that products based on our
technology will be the industry leaders and the first to be
in mass production. There is no information known to us
which suggests otherwise.
AMOUNT SPENT DURING EACH OF THE LAST THREE FISCAL YEARS
ON RESEARCH AND DEVELOPMENT.
Period Amount
FY 2000 $ 365,035
FY 1999 205,131
FY 1998 8,964
FUNDS FOR COMPLIANCE WITH ENVIRONMENTAL LAWS
We have not spent funds for compliance with federal and
state environmental laws, as these laws do not apply to
research and development.
We employed 9 persons during the fiscal year ended
1/31/2000. All our revenue for the last three fiscal years is
attributable to U.S. sources.
ITEM 2. PROPERTIES.
We own our technology. In addition we own certain office
furniture and equipment utilized in our laboratory and our
executive offices having an estimated replacement value of
approximately $14,700. We believe that our laboratory and
office equipment is adequate for our needs at the present and
the foreseeable future.
We lease our executive office space at 6730 San Fernando
Road, Glendale, California 91201 at a monthly cost of $1,750
on a lease, which is renewable annually. We believe that the
executive offices and the laboratory facilities now leased by
us will be adequate for our business for the near future.
ITEM 3. 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 as of the end of FY 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to the shareholders during the
fiscal year ending January 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
(a) There is no established public trading market for
our common shares We are developing a strategic plan to
apply for trading on NASDAQ in the near future.
(b) The approximate number of holders of common stock
at 1/31/2000 is 1,400.
(c) The Company has paid no cash dividends on its
common stock in the past two fiscal years.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial information is provided for the past
4 fiscal years. The Company was dormant during the 5th.
fiscal year, FY 1996. All data is rounded to the nearest
$1,000.
FY 1997 FY 1998 FY 1999 FY 2000
Net Sales 0 0 0 0
Income (Loss) (29,000) (88,000) (1,367,000) (2,503,000)
From Continuing
Operations
Income (Loss)/Share (.00) (.01) (.09) (.22)
Total Assets 237,00 5,116,000 5,705,000 282,000
Long Term
Obligations 0 0 0 0
Cash Dividends/Share 0 0 0 0
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a development-stage enterprise and has had mininimal
revenue to date. The Company remains dependent on
continued sales of common stock to fund its research and
development efforts. In the fiscal year ended January 31,
2000 the Company received proceeds for the sale of common stock of
$ 2,460,268 net of issuance costs. In the fiscal year ended
January 31, 1999 the Company received proceeds for the sale of
common stock of $ 1,929,922 net of issuance costs.
Additional sources of liquidity in the next fiscal year are
expected to be additional proceeds from license agreements.
Proceeds from license agreements are expected to be
$ 4,000,000 during the fiscal year ended January 31, 2001.
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 $ 680,000 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 fiscal years ended January 31, 2000 and 1999 the
Company had operating losses of $ 2,503,139 and $ 1,367,215.
There was no revenue recorded during these periods.
We expended $ 365,035 for research and development for
the year ended 1/31/2000 and $ 205,131 for the year ended 1/31/1999.
We had legal and other professional fees of $ 909,339
for the fiscal year ended January 31, 2000 compared to $95,845
during the fiscal year ended January 31, 1999. 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 from fiscal year
1999 to fiscal year 2000, were increased travel and
marketing costs.
Travel costs increased from $ 18,607 in fiscal year 1999 to
$ 323,987 for the fiscal year 2000. Marketing costs
increased from $ 239,192 in 1999 to $ 416,843. 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
$ 2,460,268 and $ 1,929,922 during fiscal
years 2000 and 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached are audited financial statements for the
Company For the Years ended January 31, 2000 and 1999.
International Thermal Packaging, Inc.
Financial Statements and
Report of Independent Public Accountant
For the Years Ended
January 31, 2000 and 1999
INDEPENDENT AUDITORS REPORT
To the Board of Directors
International Thermal Packaging, Inc.:
We have audited the accompanying balance sheets of
International Thermal Packaging, Inc. (a Development Stage
Enterprise) as of January 31, 2000 and 1999, and the related
statements of operations, stockholders' equity (deficit) and
cash flows for each of the years then ended and from
inception (February 7, 1986) to January 31, 2000.
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 principals 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 International Thermal Packaging, Inc. as of
January 31, 2000, and 1999, and the results of its
operations and its cash flows for each of the years then
ended January 31, 2000 in conformity with generally accepted
accounting principals.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the
Company is a development-stage enterprise which has
suffered recurring losses. The Company also has an accumulated
deficit, is financially dependent upon additional funding
and has no established commercial product or market
channels. These factors raise a substantial doubt about the
ability of the Company to continue as a going concern.
Management's plans in regards to those matters are also
described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/
JAY J. SHAPIRO, C.P.A.
a professional corporation
Encino, California
August 16, 2000
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
BALANCE SHEETS
January 31, 1999 and January 31, 2000
ASSETS January 31,
1999 2000
CURRENT ASSETS:
Cash and cash equivalents $ 845,668 $ 95,347
Notes receivable, net of
allowance for doubtful
accounts of -0- and
$ 965,000 at January
31, 1999 and 2000 - -
License fee receivable,
net of allowance for
doubtful amounts of
-0- and $ 1,071,553 at
January 31, 1999 and
2000 1,085,257 -
---------- ---------
Total current assets 1,930,925 95,347
---------- ---------
PROPERTY AND EQUIPMENT,
at cost - net of
accumulated depreciation
of $ 2,187 and $ 6,102
at January 31, 1999
and 2000 16,535 14,671
OTHER ASSETS:
License fee receivable,
net of allowance for
doubtful amounts of
-0- and $ 3,562,500 at
January 31, 1999 and
2000 3,562,500 -
Patents, net of accumulated
amortization of
$ 191,718 and $ 214,259
at January 31, 1999 and
2000 191,490 168,649
Other assets, net of
allowance for doubtful
amounts of -0- and $ 57,137
at January 31, 1999 and
2000 - -
Deposit 3,300 3,300
---------- ---------
Total other assets 3,757,290 172,249
---------- ---------
TOTAL ASSETS $ 5,704,750 $ 282,267
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accrued payroll taxes
interest and penalties $ 545,290 $ 590,290
Accounts payable and
accrued expenses 49,555 320,850
Accrued franchise tax 1,371 -
-------- -------
Total current liabilities 596,216 911,140
-------- -------
DEFERRED LICENSING REVENUE,
net of allowance of -0-
and $ 4,634,054 at January
31, 1999 and 2000 5,000,000 365,946
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Authorized shares - 50,000,000;
Issued and outstanding shares-
15,853,549 and 16,162,552
at January 31, 1999 and
2000 7,432,421 9,892,689
Deficit accumulated during the
development stage (7,323,887) (10,887,508)
---------- ---------
Total stockholders'
equity (deficit) 108,534 (994,819)
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 5,704,750 $ 282,267
=========== ==========
The accompanying notes are an integral part of the financial statements.
International Thermal Packaging, Inc.
(A Development-Stage Enterprise)
STATEMENTS OF OPERATIONS
Years Ended January 31, 1999 and 2000
January 31,
1999 2000
REVENUE $ - $ -
OPERATING EXPENSES
Research and development 205,131 365,035
General and administrative 896,319 1,936,641
Financial consulting 265,765 201,463
--------- ---------
1,367,215 2,503,139
LOSS FROM OPERATIONS (1,367,215) (2,503,139)
Other income 5,731 -
Interest income 5,931 7,736
Interest expense-
Payroll taxes (40,865) (45,070)
Provision for reserve
for advances - (1,022,137)
------------ ---------
LOSS BEFORE INCOME TAXES (1,396,418) (3,562,610)
Income taxes 800 1,011
---------- ----------
NET LOSS $ (1,397,218) $(3,563,621)
========== ===========
LOSS PER COMMON SHARE
Basic $ (0.09) $ (0.22)
========== ===========
Diluted $ (0.09) $ (0.22)
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 14,781,370 16,008,051
========== ==========
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENT OF OPERATIONS
From Inception (February 7, 1986) to January 31, 2000
REVENUE $ -
OPERATING EXPENSES
Research and development 3,249,518
General and administrative 5,694,623
Financial consulting 467,228
---------
9,411,369
LOSS FROM OPERATIONS (9,411,369)
Loss on investment
in affiliate
under equity method (173,933)
Other income 11,764
Other expense (29,552)
Interest income 13,667
Interest expense-
Payroll taxes (265,837)
Provision for reserve
for advances (1,022,137)
------------
LOSS BEFORE INCOME TAXES $ (10,877,397)
Income taxes 10,111
----------
NET LOSS (10,877,508)
==============
LOSS PER COMMON SHARE
Basic $ (0.74)
==============
Diluted $ (0.74)
==============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 14,687,813
=============
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF CASH FLOWS
Years Ended January 31, 1999 and 2000 January 31
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,397,218) $ (3,563,621)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 24,727 26,456
(Increase) in other assets - -
(Decrease) in accounts payable (19,186) -
Increase in accrued payroll
taxes, interest and penalties 40,866 45,000
(Decrease) in accrued royalties (15,575) -
Increase in accounts payable
and accrued expenses 49,555 271,295
(Decrease) in deferred licensing
revenue - (4,634,054)
Decrease in license
fee receivable 251,243 4,647,757
(Decrease) increase in accrued
franchise tax 571 (1,371)
------------ ---------
Net cash used in
operating activities (1,065,017) (3,208,538)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18,721) (2,051)
----------- -----------
Net cash used in investing activities (18,721) (2,051)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 1,929,922 2,460,268
----------- -----------
Net cash provided by
financing activities 1,929,922 2,460,268
----------- -----------
Net change in cash and
cash equivalents 846,184 (750,321)
----------- ----------
CASH AND CASH EQUIVALENTS,
beginning of period (516) 845,668
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $ 845,668 $ 95,347
============ ==========
SUPPLEMENTAL DISCLOSURE,
Cash paid for income taxes $ 800 $ 1,011
============ =========
Cash paid for interest $ 0 $ 70
============ ==========
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENT OF CASH FLOWS
From Inception (February 7, 1986) to January 31, 2000
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (10,887,508)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock issued for compensation 1,035,432
Depreciation and amortization 371,124
Loss on sale of property and equipment 28,683
(Increase) in other current assets -
(Increase) in deposit (3,300)
(Increase) in patents (383,208)
Increase in accrued payroll taxes,
interest and penalties 590,290
Increase in accounts payable and
accrued expenses 320,850
Increase in deferred licensing revenue 365,946
----------
Net cash used in operating activities (8,561,691)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (271,631)
Proceeds from the sale of property and equipment 118,725
---------
Net cash used in investing activities (152,906)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 8,870,758
Common stock repurchased (13,501)
Payments on obligations under capital leases (47,313)
----------
Net cash provided by financing activities 8,809,944
----------
Net change in cash and cash equivalents 95,347
CASH AND CASH EQUIVALENTS, beginning of period -
----------
CASH AND CASH EQUIVALENTS, end of period $ 95,347
==========
SUPPLEMENTAL DISCLOSURE
Cash paid for income taxes $ 9,311
==========
Cash paid for interest $ 70
==========
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended January 31, 1999 and 2000
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 - 1,929,922
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 2,897,886 2,898 2,457,370 - 2,460,268
Common stock
cancelled (2,588,883) (2,589) 2,589 - -
Net loss - - - (3,563,621) (3,563,621)
---------- ------ --------- ---------- ---------
Balance,
1/31/2000 16,162,552 $16,162 $9,876,527 $(10,887,508) $(984,819)
========== ====== ========= ============ =========
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL THERMAL PACKAGING, INC.
(A Development-Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
From Inception (February 7, 1986) to January 31, 2000
Accumulated
Deficit
During
Common Stock Paid-in Development
Shares Amount Capital Stage Total
Balance, Inception
(February 7, 1986) - $ - $ - $ - $ -
Common stock
issued
(see Note 5) 13,718,190 13,718 5,488,790 - 5,502,508
Common stock
repurchased
(see Note 5) (9,000) (9) - (13,492) (13,501)
Net loss,
cumulative - - - (5,793,752) (5,793,752)
--------- ------ ---------- ---------- ---------
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 2,897,886 2,898 2,457,370 - 2,460,268
Common stock
cancelled (2,588,883) (2,589) 2,589 - -
Net loss - - - (3,563,621) (3,563,621)
---------- ----- --------- ---------- ---------
Balance
1/31/2000 16,162,552 $16,162 $9,876,521 $(10,887,508) $ (994,819)
========== ======= ========== ============ =========
The accompanying notes are an integral part of the financial statements.
International Thermal Packaging, Inc.
A Development-Stage Enterprise)
Notes to Financial Statements
January 31, 1999 and 2000
1. 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 has no
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 that licensing agreements 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 of $ 10,887,508 and no established product or marketing channels.
The Company also has negative working capital of $ 815,793 at January
31, 2000. These factors raise a substantial doubt about the company
being able 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.
As of January 31, 2000 and 1999 the Company's fixed assets were comprised
of the following:
2000 1999
Computers $ 12,019 $ 12,019
Office Equipment 8,754 6,703
------ -------
Total Cost 20,773 18,722
Less accumulated
depreciation 6,102 2,187
------- -------
Net fixed assets $ 14,671 16,535
======= =======
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 were deferred and were to 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 would receive
commercial acceptance in the marketplace. As of January 31, 2000 all
amounts provided for under the Agreement have been fully reserved for
in the accompanying statements. See note 5(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 of common stock issued
net of rescissions and cancellations since inception on February 7,
1986. The impact of the common stock equivalents (Note 9) 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 an 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
disposition 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.
3. Income Taxes
There was no statuary Federal tax expense for the fiscal years ended January
31, 2000 and 1999 since the Company had net losses for each of these two
years. At January 31, 2000 and 1999, the Company had net operating loss
carryforwards for federal income tax and financial reporting purposes of
approximately $ 10,101,000, and $ 6,750,000 and for state income tax
reporting purposes $ 8,121,000 and $ 4,769,000. The net operating loss
carryforwards expire in various years from fiscal 2007 through 2020.
The statutory rate for Federal income tax will be reduced to zero by
utilization of loss carryforwards.
The primary difference between the net operating loss for federal tax and
financial reporting purposes relates to the Company's election under
Section 195 of the Internal Revenue Code to defer the deduction of certain
costs until operating revenues commence; such costs will be amortized on a
straight-line basis over five years once operations commence.
Effective fiscal year 1992, the recognition of Section 195 costs will begin
prior to any utilization of net operating loss carryforwards. The
deductibility of net operating loss carryforwards had been temporarily
suspended in California during fiscal 1994 and reinstated in 1996.
4. 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.
5. 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, 2000 the Company offered and
sold approximately 2,897,886 shares of common stock at 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 August 1, 1998. The Company
received approximately $ 2,460,268 from the sale of these shares, net of
issuance costs.
Discrepancies exist between disclosures contained in the new 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 discrepancies.
Counsel believes compulsory rescission to be remote.
The financial statements contain no adjustments that may result from the
rescission of the sale of any of these securities.
iii. Effective February 15, 1999 the Company cancelled 2,583,883
previously issued shares for lack of consideration, and in some cases,
other irregularties. The Board of Directors met on the above date
and ratified this cancellation.
iv. A summary of common stock transactions since inception
is as follows:
Shares Price Cash Compensation
Range Per Received and other
Share Net Expense (D)
Balance at
inception
February 7, 1986) - $ - $ - $ -
---------- --------- --------
Common stock issued:
Unrelated
investors 3,837,553(B) $.25-$1.75 2,142,495 -
Management
and others 3,272,500(A) $.001-$.33 3,272 324,375
--------- -------- -------
Balance,
January 31, 1989 7,110,053 2,145,767 324,375
---------- --------- --------
Common stock
issued:
Unrelated
Investors 590,190 $.50-$1.75 621,715 -
Management
and others 1,270,000 $.001-$.34 1,270 429,583
---------- --------- -------
1,860,190 622,985 429,583
---------- ---------- --------
Balance,
January 31, 1990 8,970,243 2,768,752 753,958
---------- ---------- ----------
Common stock
issued:
Unrelated
Investors 1,795,714 $.23-$1.75 1,377,737 -
Management
and others 1,995,200(C) $.001-$.10 1,995 199,520
--------- --------- -------
3,790,914 1,379,732 199,520
---------- --------- -------
Balance,
January 31, 1991 12,761,157 4,148,484 953,478
---------- ---------- --------
Common stock
issued:
Unrelated
investors, net
of repurchases 263,511 $.80-$1.75 332,085 -
Management
and others 684,522(E) $.00-$0.10 - 68,453
--------- --------- ---------
948,033 332,085 68,453
---------- ---------- ---------
Balance,
January 31, 1992 13,709,190 $4,480,568 $1,021,931
---------- ---------- ----------
Common stock
issued:
Unrelated
investors
2,144,359 $1.00 1,929,922 -
--------- --------- ----------
Balance,
January 31, 1999 15,853,549 $6,410,490 $1,021,931
---------- ---------- ----------
Common stock
Issued:
Unrelated
Investors 2,589,586 $ 1.00 1,776,593 -
Unrelated
Investors 308,300 $ 2.50 693,675 -
Common stock
Cancelled (2,588,883) - - -
----------- ---------- --------
Balance,
January 31, 2000 16,162,552 $8,870,758 $1,021,931
========== ========= =========
(A) Includes issuances of 1,600,000 common shares to founders.
(B) Includes an issuance of 700,000 shares at a gross sales price of
$.55 per share.
(C) Includes issuances of 1,780,000 common shares to management.
(D) Expense charged to operations is based upon the excess fair market
value over the purchase price received by the Company.
(E) Shares issued to Jantar for settlement and license agreement.
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 the Licensee
had timely exercised the original option of the Agreement. The March
1998 new agreement superceded the old Agreement between the Company
and FUTECH Corp., which was effective July 1997.
Consideration for this Agreement is five million dollars payable 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
* $1,187,500 no later than October 1, 2002
The five million dollars license fee is non-refundable. However, if the
Agreement is deemed to be invalid, unenforceable or otherwise inoperable
by any court or administrative body, in FUTECH's sole discretion the
Agreement could be terminated and ITP shall be obligated to return that
portion of the License and Technical Assistance Fee which, at the time of
the termination, has been paid to ITP in cash, as opposed to credits in
accordance with the Agreement.
In addition to the license fee above, Licensee shall pay royalties of 1
cent ($.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 place for the preceding calendar
year. The CPI increase cannot exceed 150% over the term of the Agreement.
As of January 31, 2000, the Licensee advanced $ 365,946 to Company, which
is reflected as a reduction of the Licensee Fee Receivable. A majority of
the advances were payments made on behalf of ITP for research and
development. FUTECH made payments directly to research laboratories for
the Company and ITP would record research and development expense and
reduce the License Fee Receivable.
The Company currently believes that since FUTECH has not provided the
necessary consideration for the license, nor has Licensee made any
scheduled royalty payments, the License Agreement is null and void.
As a result, all Licensee Fee Revenue and Receivable amounts under the
Agreement have been reserved for in the accompanying financial statements
as of January 31, 2000.
b. Operating Leases
The Company rents office space in Glendale, California under a month
to month lease requiring monthly payments of $ 1,750. A previous
noncancellable lease at this same location expired in August 1998.
Total rent expense for all operating leases for the years ended January
31, 1999, and 2000, were $ 23,402, and $ 20,680, respectively.
c. Payroll Taxes
The Company failed to make federal and state payroll tax deposits totaling
$ 212,651 through October 1992. Penalties and interest totaling $ 377,639
and $ 332,639 were accrued through January 31, 2000 and 1999, respectively
and are reflected in the total outstanding liability of $ 590,290 and
$ 545,290.
The Company has had discussions with Internal Revenue Service and State of
California to pay off the outstanding balances, which total $ 590,290 at
January 31, 2000. The Company has not paid any of these outstanding
amounts as of the date of this report.
6. 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 years
ended January 31, 1999 and 2000, 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 fiscal year ended January 31, 2000. It is uncertain whether the Company
intends to pursue collection of these advances, and the amounts may
subsequently be reclassified as compensation expenses. These amounts are
included in Other Assets on the accompanying balance sheet, and are fully
reserved for at January 31, 2000.
7. Concentration of Credit Risk
Previously approximately 100% of the Company's potential sources of
revenue from license fees and royalties are from its Licensee FUTECH Corp.
Additionally, approximately 100% of the Company's receivables were from its
licensee as well. Management had determined that there was no potential
loss due to the credit risk as of January 31, 1999. As of January 31,
2000 all licensee fee receivable and deferred revenue amounts have been
fully reserved for. See note 5(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.
8. 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 has been fully
reserved for in the accompanying financial statements as of January 31,
2000, although the Company intends to continue to vigorously pursue this
action.
In April 1999, ITP 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 the note
matures when ITP delivers a working prototype to FUTECH. Due to the current
state of the FUTECH Agreement, this amount has been fully reserved for as
of January 31, 2000.
The Company advanced $ 190,000 in October and November 1999 to Richard
Barkley. Barkley received these as advance payments for purchase of a water
company, Oxy-Tech. This company was to be acquired as a demonstration
company for ITP's self-chilling technology. A dispute arose as to the
purchase price for Oxy-Tech and the Company refused to advance further
funds. The Company has not made a decision as to whether they will take
any action with regards to the advances and, as a result, the full amount
has been reserved as uncollectible at January 31, 2000.
9. 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. All of these 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 statement 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.
10. General and Administrative Expenses
The components of general and administrative expenses for the two
fiscal years ended January 31, 2000 and 1999 were as follows:
2000 1999
Depreciation and amortization $ 26,456 $ 24,727
Marketing and trade shows 454,264 281,954
Officers' compensation 233,000 272,688
Office expenses 179,613 202,496
Professional fees 719,339 95,846
Travel expense 323,969 18,608
------- -------
Total $ 1,936,641 $ 896,319
11. Subsequent Events
a. 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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
There is no disagreement with any prior accountant. We
engaged our current accountants in 1998.
PART III
ITEM 10. OFFICERS AND DIRECTORS OF THE COMPANY.
The current officers and directors of our company are:
Name Age Position
Dennis A. Thomas 57 Director, President, CEO and
Chairman of the Board
Dennis L. Brown 56 Director, Chief Financial
Officer and Treasurer
Background information concerning the Officers and
Directors is as follows:
Dennis A. Thomas, the President and Chief Executive
Officer of our company, was a founder of the Company and has
been employed by the Company from 1986 to 1992, and from 1997
to the present. From 1993 to 1996, Mr. Thomas was a self-
employed business consultant. Before founding the Company,
Mr. Thomas was the President of Commercial Laundry Sales from
1976 to 1984. Before working for Commercial Laundry Sales,
Mr. Thomas was a sales Engineer with Wascomat of America from
1970 to 1976. Before his tenure there he was a development
engineer for the Chrysler Corporation from 1963 to 1969. Mr.
Thomas attended the Detroit College of Business for two
years. While working for Chrysler Corporation, Mr. Thomas
attended the Chrysler Engineering School. Mr. Thomas was
runner up in California for Inc. Magazines 1990 Entrepreneur
of the year award, having been nominated by Merrill Lynch of
New York.
Dennis L. Brown, the Chief Financial Officer and
Treasurer of our company, was employed by us from 1989 to
1992, and from 1997 to the present. From 1993 to 1996, Mr.
Brown was employed by YAFA, Inc., as its Chief Financial
Officer. Mr. Brown received his B.S. in Business from
Indiana University and his M.B.A. from Cleveland State
University. From February of 1988, until joining the
Registrant, Mr. Brown was employed by Theim Industries as its
Vice President of Finance. From April 1970 to February of
1988, he was employed by Gould, Inc. as a controller.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information
concerning the remuneration paid by our company for the
fiscal year ended January 31, 2000. Only the following
persons may be considered to have received annual
remuneration of more than $60,000.00.
FY 2000 Annual Long Term
Compensation Compensation
Options
Name and Principal Position
Dennis L. Thomas
President and Chief
Executive Officer $ 140,963 2,000,000 shares(A)
Dennis L. Brown
Chief Financial
Officer and Treasurer $ 131,725 350,000 shares(A)
(A) Options granted to purchase the number of shares shown at the
price of $ .10 per share at any time prior to May 1, 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
On January 31, 2000, the ownership by the Company's management of
its common stock, its only voting security, was as follows:
(1) (2) (3) (4)
Title of Name and address of Amount and nature Percent of
Class of Beneficial owner of Beneficial owner Class(A)
Stock
$0.001 par Dennis L. Thomas 1,940,337 (B) 20.1
value 6730 San Fernando Rd. 635,000 (C) 2.5
common Glendale, CA 91201
$0.001 par Dennis L. Brown 7,000 (D) 1.8
value 6730 San Fernando Rd.
common Glendale, CA 91201
Officers and Directors owned 2,590,337 shares of record
and beneficially.
(A) Percentages calculated without regard to options.
(B) In addition Dennis L. Thomas has an option to purchase 2,000,000
shares for $.10 per share expiring on May 1, 2004.
(C) These shares are owned by former wives of Dennis L. Thomas. Mr.
Thomas has the right to vote said shares and thus may be considered
to be the beneficial owner.
(D) In addition Dennis L. Brown has an option to purchase 350,000
shares for $.10 per share expiring on May 1, 2004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In the past fiscal year, there have been no transactions
or proposed transactions that exceeds $ 60,000 with any
officer, director, holder of 5% or more of stock, or any
family member of any of this group.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
There have been no 8-K filings during the past year. Under
Item 8 are audited financial statements for the
Company as of January 31, 2000.
Exhibits:
23.1 Consent of Jay Shapiro, C.P.A.
27 Financial Data Schedule
