FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 33-46104-FW
-----------
THERMOENERGY CORPORATION
------------------------
(EXACT NAME OF REGISTRATION AS SPECIFIED IN ITS CHARTER)
Arkansas 71-00659511
--------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.Employer
of incorporation or organization) Identification Number)
323 Center Street, Suite 1300, Little Rock, Arkansas 72201
-----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(501) 376-6477
----------------------------------------------------
(Registrant's telephone number, including area code)
Innotek Corporation
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
50,511,443 shares of Common Stock, par value $.001 per share
Total of ____ Sequentially Numbered Pages
THERMOENERGY CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements are included herein:
Balance Sheets - December 31, 1996 (Unaudited) and September
30, 1996.
Statements of Operations - Cumulative During Development Stage
Through December 31, 1996 (Unaudited) and Three Months Ended
December 31, 1996 and 1995 (Unaudited).
Statements of Changes in Stockholders' Equity (Deficit) -
Periods Ended September 30, 1988 through September 30, 1996
and Three Months ended December 31, 1996 (Unaudited).
Statements of Cash Flows - Cumulative During Development Stage
Through December 31, 1996 (Unaudited) and Three Months Ended
December 31, 1996 and 1995 (Unaudited).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Since its formation in 1988, the Company has devoted
substantially all of its resources to funding the payments due
under license agreements, searching for opportunities to employ its
technologies in a demonstration facility and seeking capital
necessary to sustain the Company's efforts until a demonstration
unit is successfully operated and the technologies are proven
commercially viable.
The net losses for the periods presented resulted primarily
from salaries and other administrative expenses, travel expenses
and professional fees. General and administrative expenses and
travel expenses increased during the period ended December 31, 1996
compared to December 31, 1995 due to the Company's efforts in
pursuing equity capital and selected projects. Interest expense
also increased between the same two periods due to the $387,835
increase in notes payable to stockholders.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended December 31, 1996, the Company used
$202,661 of cash in operations compared to $90,593 during the same
period in 1995.
During the quarters ended December 31, 1996 and 1995, the
Company met its liquidity needs primarily from proceeds from notes
payable to stockholders.
Management plans to meet the Company's liquidity needs during
the year ending September 30, 1997, primarily through proceeds from
the sale of additional common stock through a proposed public
offering (see Note 3 of Notes to Financial Statements) and
additional loans from stockholders.
Management plans to meet its long term liquidity needs
primarily from revenues derived from commercial contracts the
Company hopes to obtain subsequent to successful demonstrations of
its technologies associated with projects discussed in "Item 1.
Business" of the Company's Annual Report on Form 10-K for the year
ended September 30, 1996. The following changes in the status of
the Company's projects more fully discussed in the Form 10-K filing
referred to above are as follows:
STORS DEMONSTRATION
To sell a full scale commercial STORS waste water treatment
system to a municipality, a demonstration plant must be built at
and integrated with a working waste water treatment facility and
operated for a sufficiently long period of time to generate
engineering data satisfactory to initiate construction of a full
scale commercial system. This requires a "host" city willing to
join with ThermoEnergy and Battelle in such a project and
participate by contracting to have a STORS system located at one of
its waste water treatment facilities. San Bernadino, California
has been identified as a "host" city.
In May, 1996, ThermoEnergy and Battelle representatives met
with officials from the City of San Bernadino, California, and
subsequently with officials of the San Bernadino Valley Water
District ("SBVWD") to discuss siting a STORS project in the San
Bernadino area. As a result of the meetings, the SBVWD agreed to
host a STORS project, and to provide matching funds for the project
in the event that a federal grant was obtained for development of
the project. Subsequently, the United States House and Senate
appropriated $3,000,000, Public Law 104-204 signed September 26,
1996, approving the grant to the SBVWD for the design, construction
and operation of a large-scale STORS/Wastewater Treatment
Demonstration Facility. The $3,000,000 appropriation has been
received by the United States Environmental Protection Agency
("EPA") office in San Francisco, California who will administer the
grant for SBVWD project.
It is anticipated that the San Bernadino Demonstration Plant
will have a throughput capacity equal to or larger than seventy-
five percent (75%) of the currently operating waste water treatment
facilities in the United States. The Company met in December of
1996 with both officials from the City of San Bernadino and the
SBVWD to plan implementation of the project and discuss
ThermoEnergy's participation in the design, construction,
installation and operation of the demonstration facility.
NITREM DEMONSTRATION
To sell a full-scale commercial NitRem system to a
municipality, industrial or military facility, a demonstration
facility must be built and operated for a sufficient length of time
to generate engineering data satisfactory to initiate construction
of a full scale commercial system. The Company has initiated such
a demonstration facility and will begin the generation of
engineering data in the spring of 1997 (described below in the
United States Department of the Army program). Additionally, the
Company anticipates initiating another demonstration facility
located in New York City in the spring of 1997 (described below in
New York City/NitRem Demonstration).
United States Department of the Army Program
ThermoEnergy and Sam Houston State University, doing
business as, the Texas Regional Institute for Environmental
Studies ("TRIES") signed an agreement October, 1994 allowing
ThermoEnergy to demonstrate its NitRem technology to evaluate
the nitrogen removal process and its ability to economically
and safely treat TNT redwater, DNT contaminated wastewater and
various other RCRA waste streams within the DoD industrial
base and DoD commercial facilities. ThermoEnergy is the lead
subcontractor on this project.
The redesign of the NitRem demonstration unit destined
for the Radford Army Ammunition Plant, in Radford, Virginia,
has been completed and been approved by the Army Armament
Research Development Command. The Army Command has issued a
purchase order for the new unit. Foster Wheeler and Glitsch
Process System (a wholly owned subsidiary of Foster Wheeler)
are finalizing fabrication of the NitRem unit.
The NitRem unit is scheduled to be delivered to the site
in February, 1997, to begin shake-down procedures. Current
scheduling calls for the unit to come on-line in March. Under
ThermoEnergy's supervision, the unit will initially process
hazardous waste residuals from the manufacture of various
munitions and explosives. This NitRem system has been
designed as a mobile system in order to process additional
waste streams from other Department of Defense sites.
New York City/NitRem Demonstration
ThermoEnergy and Foster Wheeler Corporation, as provided
for under the Worldwide Marketing Agreement signed in 1994,
have been working with engineers from the City of New York-
Bureau of Clean Water-Department of Public Works to evaluate
the Company's NitRem technology capability to solve the City's
nitrogen removal requirements as a result of new water
discharge standards imposed upon the City of New York.
Successful laboratory and pilot plant results from testing
actual samples of the City's centrate discharge led to the
design of a large-scale NitRem demonstration system. The
Company and Foster Wheeler have collaborated on the final
design which was approved by engineers for the Bureau of Clean
Water in April of 1996.
Based on the favorable test results on the City's
centrate and the final design plans approval, an agreement has
been reached with the City to demonstrate NitRem. The City
and the Company signed a No Cost Test Agreement in July 1996
which allows the Company to demonstrate, on site, the services
and capabilities of NitRem. The period of performance under
the agreement shall be not less than 150 (one hundred fifty)
consecutive calendar days nor more than 200 (two hundred)
consecutive calendar days from the start up of the test
equipment. It is anticipated that the test will begin April
1, 1997 and that Foster Wheeler will build and own the test
equipment.
Strategic Corporate Alliances
In September 1994, ThermoEnergy and Foster Wheeler
Corporation executed a Worldwide Marketing Agreement whereby
both companies would jointly market NitRem and STORS
worldwide. ThermoEnergy and Foster Wheeler are working on a
marketing strategy for private sector business, initially
targeting the pharmaceutical, pulp & paper and petrochemical
industries in the U.S. and Europe. In addition, ThermoEnergy
and Foster Wheeler will begin a joint marketing effort within
the Department of Navy Surface System Command as provided for
under the Worldwide Marketing Agreement.
In March of 1996, the Company entered into a Joint
Marketing Agreement with an Atlanta based firm, Dan Cowart,
Inc. ("DCI"), to pursue municipal waste water projects within
the states of Georgia and Florida. ThermoEnergy, in
conjunction with Battelle Laboratories, is developing a
comprehensive audio-visual presentation to be used by DCI in
its marketing efforts. In addition, DCI has engaged the
services of a regional engineering firm to work directly with
ThermoEnergy and Battelle to work on scheduling meetings with
municipal and state waste water authorities in Georgia and
Florida.
In April of 1996, ThermoEnergy entered into a Teaming
Agreement with Roy F. Weston, Inc. of West Chester,
Pennsylvania. The purpose of the Teaming Agreement is to
jointly pursue both municipal and governmental projects using
the STORS and NitRem technologies.
In September, 1996, the Company entered into a Memorandum
of Understanding ("MOU") with Foster Wheeler and Mitsui & Co.
(U.S.A.) Inc. to pursue various water and waste water projects
in Brazil, Mexico and Peru. Several meetings between the
participants have been held and the next step is joint
presentation to the governments of Brazil and Mexico,
tentatively scheduled for mid-January, 1997. The Japanese
government has committed to funding several large water/waste
water projects, and these projects will be the primary target
of the MOU group.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to
any pending legal proceedings, nor are any legal proceedings
pending of which any of the Company's property is the subject.
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
A special meeting of shareholders of the Company was held
December 12, 1996 at the Westin Hotel, 909 North Michigan Avenue,
Chicago, Illinois 60611, at 9:30 a.m., pursuant to notice to
shareholders or record date November 18, 1996 and the consent of
the Board of Directors. The Company had 50,511,443 issued and
outstanding shares as of November 18, 1996. 40,483,255 shares were
indisputably represented at the meeting in person and by proxy.
At least 39,618,294 shares, constituting a majority of the
quorum present in person and by proxy necessary to conduct the
business of the Corporation at the Special Shareholders Meeting,
voted to reduce the number of outstanding shares of common stock of
ThermoEnergy Corporation by a 4 to 1 ratio;
At least 39,273,662 shares, constituting a majority of the
quorum present in person and by proxy necessary to conduct the
business of the Corporation at the Special Shareholders Meeting,
voted "For" each of the following items of business:
To Amend and Restate the Articles of Incorporation the Company
with the following changes:
(1) To authorize the designation of 10,000,000 shares as
"Series A Shares" and 65,000,000 shares as "Series B Shares"
from the 75,000,000 shares of $0.001 par value per share
common stock authorized originally under Section 8 of the
Articles of Incorporation;
(2) To authorize the designation of and reclassification of
all issued and outstanding shares to Series B Shares as
described in Item 2 of the Proxy Statement sent to the
Shareholders with the Notice and Proxy.
(3) To change the name of the Corporation from "Innotek
Corporation" to "ThermoEnergy Corporation".
Item 5. Other Information
None
Item 6. Exhibits and Report on Form 8-K
(a) None.
(b) No reports on Form 8-K have been filed during
the quarter ending December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment report to be
signed on its behalf of the undersigned, thereunto duly authorized.
Date: ___________________, 1997
THERMOENERGY CORPORATION
BY: /s/ P. L. Montesi
--------------------------------
P. L. MONTESI
President, Treasurer and
Principal Financial Officer
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 44,672 $ 62,333
Advances to officers 122,200 96,200
Accrued interest receivable -
officers 11,451 9,138
---------- ----------
Total Current Assets 178,323 167,671
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (14,553) (14,147)
---------- ----------
5,256 5,662
---------- ----------
$ 183,579 $ 173,333
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 329,651 $ 360,288
Accrued expenses:
Salaries 417,024 364,314
Consulting fee 100,000 100,000
Other 112,990 92,513
---------- ----------
630,014 556,827
Deferred compensation 219,940 215,460
Notes payable to stockholders
(Note 2) 920,000 735,000
---------- ----------
Total Current Liabilities 2,099,605 1,867,575
---------- ----------
Stockholders' equity (deficit)
(Note 3):
Preferred stock, non-voting, $1
par value:
Authorized - 10,000,000 shares;
none issued
Common Stock, $.001 par value:
Series A Common Stock; Authorized
- 10,000,000 shares; no shares
issued and outstanding
Series B Common Stock; Authorized
- 65,000,000 shares; issued -
51,852,693 shares; outstanding -
50,511,443 shares 51,853 51,853
Additional paid-in capital 3,795,306 3,795,306
Deficit accumulated during the
development stage (5,763,185) (5,541,401)
---------- ----------
(1,916,026) (1,694,242)
---------- ----------
$ 183,579 $ 173,333
========== ==========
</TABLE>
See notes to financial statements.
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months Ended December 31,
Stage Through -------------------------------
December 31, 1996 1996 1995
----------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating expenses:
General and
administrative $ 4,260,040 $ 176,208 $ 131,543
Research and development 627,266
Travel and entertainment 785,472 34,802 18,777
---------- -------- --------
5,672,778 211,010 150,320
---------- -------- --------
Loss From Operations (5,672,778) (211,010) (150,320)
---------- -------- --------
Other Income (Expense)
Interest income 63,098 2,313 1,497
Interest expense (153,505) (13,087) (8,705)
---------- -------- --------
(90,407) (10,774) (7,208)
---------- -------- --------
Net Loss $(5,763,185) $(221,784) $(157,528)
========== ======== ========
Per Common Share (Note 4)
Loss from operations $ (.10) $ (.00) $ (.00)
Net loss $ (.10) $ (.00) $ (.00)
</TABLE>
See notes to financial statements.
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through September 30, 1996
and the Three Months Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Issuance of stock, January
1988, (35,285,714 shares
at $.005 per share) $35,285 $ 145,015 $ $ 180,300
Net loss (290,483) (290,483)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1988 35,285 145,015 (290,483) (110,183)
Conversion of $412,000 of
debentures and accrued
interest, September 1989
(4,901,350 shares) 4,902 452,099 457,001
Net loss (338,985) (338,985)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1989 40,187 597,114 (629,468) 7,833
Net loss (255,036) (255,036)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1990 40,187 597,114 (884,504) (247,203)
Conversion of $63,000 of
unsecured debentures
and accrued interest at
10%, March 1991,
(708,566 shares) 709 70,148 70,857
Issuance of stock, May -
June 1991, (6,206,078
shares: 5,866,078 at
$.10 per share; 340,000
shares at $.05 per share) 6,206 597,401 603,607
Issuance of stock for
interest, June 1991,
(22,000 shares at $.10
per share) 22 2,178 2,200
Issuance of stock for
expenses incurred by
stockholders, July 1991
(81,295 shares at $.10
per share) 81 8,048 8,129
Net loss (670,179) (670,179)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1991 47,205 1,274,889 (1,554,683) (232,589)
Issuance of stock, October -
December 1991 (2,414,800
shares at $.10 per share) 2,415 239,065 241,480
Shares purchased in
rescission offer (168,985
shares) (169) (16,730) (16,899)
Issuance of stock, public
offering, August -
September 1992 (5,500
shares at $1.00 per share) 5 5,495 5,500
Net loss (562,751) (562,751)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1992 49,456 1,502,719 (2,117,434) (565,259)
Issuance of stock, public
offering October 1992 -
September 1993 (1,484,550
shares at $1.00 per share) 1,485 1,483,065 1,484,550
Issuance of stock for
exercise of stock options,
May 1993 (40,000 shares at
$.10 per share) 40 3,960 4,000
Issuance of warrants to
stockholder 6,333 6,333
Conversion of $103,000 of
notes payable to stock-
holders and accrued
interest, December 1992
(103,000 shares) 103 102,897 103,000
Issuance of stock for
consulting services, June
1993 (150,000 shares at
$1.00 per share) 150 149,850 150,000
Net loss (1,207,921) (1,207,921)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1993 51,234 3,248,824 (3,325,355) (25,297)
Issuance of warrants to
stockholders 226,000 226,000
Issuance of stock for
exercise of stock
options, March 1994
(60,000 shares at $.10
per share) 60 5,940 6,000
Issuance of stock for
exercise of warrants by
stockholder, August 1994
(58,825 shares at $.85
per share) 59 49,942 50,001
Net loss (767,427) (767,427)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1994 51,353 3,530,706 (4,092,782) (510,723)
Issuance of warrants to
stockholders 9,760 9,760
Issuance of stock, May
1995 (100,000 shares at
$.50 per share) 100 49,900 50,000
Issuance of stock for
exercise of warrants by
stockholder, June 1995
(100,000 shares at $.50
per share) 100 49,900 50,000
Issuance of stock for
expenses, July 1995
(300,000 shares at $.50
per share) (Note 7) 300 149,700 150,000
Net loss (896,998) (896,998)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1995 51,853 3,789,966 (4,989,780) (1,147,961)
Issuance of warrants to
stockholders 5,340 5,340
Net loss (551,621) (551,621)
------ --------- ---------- ----------
Balance (deficit),
September 30, 1996 51,853 3,795,306 (5,541,401) (1,694,242)
Net loss (221,784) (221,784)
------ --------- ---------- ----------
Balance (deficit),
December 31, 1996
(Unaudited) $51,853 $3,795,306 $(5,763,185) $(1,916,026)
====== ========= ========== ==========
</TABLE>
See notes to financial statements
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development Three Months Ended December 31,
Stage Through -------------------------------
December 31, 1996 1996 1995
----------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net loss $(5,763,185) $(221,784) $(157,528)
Items not requiring
(providing) cash:
Depreciation 14,553 406 700
Expenses funded by
Common Stock issuance 543,187
Other 3,341
Changes in:
Advances to officers (321,183) (26,000) (14,000)
Other receivables (11,451) (2,313) (1,497)
Accounts payable 329,651 (30,637) 29,964
Accrued expenses 630,014 73,187 46,507
Deferred compensation 418,922 4,480 4,261
---------- -------- --------
Net cash used in
operating activities (4,156,151) (202,661) (91,593)
---------- -------- --------
Investing activities:
Purchase of fixed assets (19,808)
Other (3,341)
---------- -------- --------
Net cash used in
investing activities (23,149)
---------- -------- --------
Financing activities:
Proceeds from issuance
of Common Stock and
warrants 2,620,562 1,200
Proceeds from notes
payable and convertible
debentures 1,649,609 185,000 58,800
Payments on notes payable (154,609)
Other 108,410
---------- -------- --------
Net cash provided by
financing activities 4,223,972 185,000 60,000
---------- -------- --------
Increase (decrease) in
cash 44,672 (17,661) (31,593)
Cash, beginning of period 0 62,333 52,524
---------- -------- --------
Cash, end of period $ 44,672 $ 44,672 $ 20,931
========== ======== ========
</TABLE>
See notes to financial statements.
THERMOENERGY CORPORATION
(A DEVELOPMENT STATE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
UNAUDITED
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of December 31, 1996, the statements of
operations and cash flows cumulative during development stage
through December 31, 1996 and for the three months ended December
31, 1996 and 1995 and the statement of changes in stockholders'
equity (deficit) for the three months ended December 31, 1996, have
been prepared by ThermoEnergy Corporation (the "Company"), formerly
Innotek Corporation, without audit. In the opinion of management,
all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position, results of
operations and cash flows at December 31, 1996 and for all periods
presented have been made. Operating results for the three months
ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending September
30, 1997.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with
Article 10 of Regulation S-X. These financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's September 30, 1996 Form 10-K.
NOTE 2: NOTES PAYABLE TO STOCKHOLDERS
As of September 30, 1996 notes payable to stockholders
aggregating $735,000 were outstanding. The unsecured notes mature
four years from the date of issuance with interest at a rate of
6.63%. The notes provide that the principal balances and accrued
interest will become immediately due and payable at the closing of
the next public offering of securities of the Company should that
event occur prior to the stated maturity date. In addition, if the
Company obtains financing from a third party on terms more
favorable to the third party than the terms of the notes to the
stockholders, the Company and the stockholders may agree to modify
the notes to the stockholders to reflect such more favorable terms.
The notes payable have been classified as current liabilities since
management anticipates that they will be paid off within one year.
On December 9, 1996, the Board of Directors authorized the
Company to borrow from stockholders up to $500,000 to fund
operations through the completion of a proposed public offering
(see Note 3). The terms of the unsecured notes provide for
maturities six months from the date of execution or the closing of
the proposed public offering, whichever is sooner, with interest at
a rate of 10%. The notes also provide for the issuance of shares
of Series B Common Stock (see Note 3), to the holders of the notes,
in the ratio of one share for each $10 loaned to the Company,
within six months from the date of execution of the notes or the
closing of the proposed public offering, whichever is sooner.
At December 31, 1996, the Company had executed notes payable
to stockholders under this arrangement for an aggregate amount of
$185,000. During January 1997, an additional $315,000 of the notes
payable to stockholders were executed. The Company is committed to
issue 50,000 shares of Series B Common Stock, which are not subject
to the reverse stock splits more fully described in Note 3, to the
holders of the notes.
NOTE 3: COMMON STOCK
On October 23, 1996, the Board of Directors of the Company
approved the execution of a nonbinding letter of intent with a NASD
member broker-dealer to act as managing underwriter in connection
with a proposed public offering. The letter of intent provides for
the underwriting on a firm commitment basis of approximately
1,600,000 shares of Series A Common Stock (as described more fully
below) and 1,600,000 warrants redeemable for Series A Common Stock,
based upon no more than 3,500,000 shares of Common Stock and
1,600,000 warrants convertible to Common Stock outstanding
immediately prior to closing. The redeemable warrants will entitle
the holder to acquire one share of Common Stock at a price per
share equal to 150% of the initial public offering price per share,
subject to adjustment. Commencing 12 months after the effective
date of a registration statement for the proposed offering, the
Company may redeem all, but not less than all, of the redeemable
warrants if specified conditions are met.
The letter of intent provides for a 10% underwriter's
discount, an over-allotment option, an expense allowance equal to
3% of the gross proceeds of the offering, a financial advisory fee
of $48,000 and five year warrants, exercisable at the beginning of
the second year after issuance, to purchase 10% of the aggregate
principal amount of Common Stock and warrants offered at $.0001 per
warrant. It also provides for restrictions on the disposition by
stockholders of Common Stock outstanding prior to the proposed
offering and for the underwriter to have the right to designate one
person for election to the Company's Board of Directors for a
period of five years.
In order to comply with the pre-conditions set forth in the
letter of intent, the Board of Directors approved a resolution for
a four-to-one reverse stock split of the Company's Common Stock in
addition to the four-to-one reverse stock split approved by
stockholders in 1994. The Board of Directors also approved
amendments to the Company's Articles of Incorporation as follows:
(1) To authorize the designation of 10,000,000 shares as Series A
Common Stock and 65,000,000 shares as Series B Common Stock, which
are convertible to Series A Common Stock commencing 12 months after
the effective date of a registration statement for the proposed
offering subject to certain conditions, from the 75,000,000 shares
of $0.001 par value Common Stock authorized originally under the
Company's Articles of Incorporation; (2) To authorize the
designation of and reclassification of all shares of Common Stock
issued prior to the adoption of the proposed amendments to the
Articles of Incorporation to Series B Common Stock; and (3) To
change the name of the Company from Innotek Corporation to
ThermoEnergy Corporation. Stockholders' approval of these matters
was obtained on December 12, 1996 during a special stockholders'
meeting.
During 1997, the Board of Directors approved a Stock Option
Plan which provides for incentive and non-incentive stock options
for an aggregate of 750,000 shares of Series B Common Stock , which
are not subject to the reverse stock splits discussed in this Note,
for key employees and non-employee Directors of the Company.
Implementation of the Plan is subject to approval by stockholders.
On January 5, 1994, the Board of Directors adopted a
resolution for a four-to-one reverse stock split of the Company's
Common Stock. Stockholder approval for the reverse stock split was
obtained at the March 2, 1994 annual meeting of stockholders.
The reverse stock splits have not been implemented.
NOTE 4: LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss for
the period by the weighted average number of shares outstanding
during the period. Stock options and warrants issued within twelve
months of the initial public offering filing date (February 27,
1992) have been treated as outstanding for all periods presented.
The weighted average number of common shares used in the loss
per share computations were 59,224,384, 60,792,870 and 60,792,870
shares for the period cumulative since inception through December
31, 1996, and for the three months ended December 31, 1996 and
1995, respectively.
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
The Company has incurred net losses since inception.
Additionally, substantial capital will likely be required to
commercialize the Company's technologies. The financial statements
have been prepared assuming the Company will continue as a going
concern, realizing assets and liquidating liabilities in the
ordinary course of business and do not reflect any adjustments that
might result from the outcome of the aforementioned uncertainties.
Management is considering several alternatives for mitigating these
conditions, including the sale of stock pursuant to a public
offering (see Note 3) and fees from projects involving the
Company's technologies.
NOTE 6: EXECUTIVE BONUS PLAN
On January 3, 1997, the Company's Board of Directors
established a five-year Executive Bonus Plan (the "Bonus Plan") to
reward executive officers and other key employees based upon the
Company achieving certain performance levels. Under the Bonus
Plan, commencing with the Company's 1997 fiscal year and for each
of the four fiscal years thereafter, the Company will have
discretion to award bonuses in an aggregate amount in each fiscal
year equal to 1% of the Company's net sales revenues for each
fiscal year, provided and on condition that the Company achieves a
net profit before taxes of not less that 5% of net sales but less
that 15% of net sales. The Board of Directors approved bonus
payment percentages for certain individuals for fiscal 1997. In
the future, the Compensation Committee of the Board of Directors of
the Company will determine the allocable amounts or percentages of
the bonus pool which may be paid annually to participants.
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