10QSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 130R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 000-13041 TTI INDUSTRIES, INCORPORATED ---------------------------- (Exact name of small business issuer as specified in its charter) Texas 75-1939021 -------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3838 Oak Lawn Avenue, Dallas, Texas 75219 ----------------------------------------------------------------- (Address of principal executive offices) (214) 520-1702 ----------------------------------------------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 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 [ ] No [X] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,169,414 as of June 30, 2000 Transitional Small Business Disclosure Format (Check One) Yes ; No X ---- ---- PART I. Item 1. Financial Statements TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets February 28 February 29 August 31 1999 2000 1999 ----------- ----------- ----------- (Unaudited) (Unaudited) ASSETS CURRENT Cash $ 10,057 $ 11,028 $ 166 Advances receivable (trade) - 57,924 - Advances receivable (affiliates) 126,000 - ---------- --------- ---------- - Total current assets 136,057 68,952 166 INVESTMENT IN SUBSIDIARIES 5,000 5,000 5,000 ---------- ---------- --------- Total Assets $ 141,057 $ 73,952 $ 5,166 ========== ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $22,031 $ 145,467 $ 47,477 Notes payable and due to related parties 10,000 67,986 7,400 ---------- ---------- -------- Total current liabilities 32,031 213,453 54,877 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock ($1.00 par, 100,000,000 authorized, 1775, 2700 and 2950 issued and outstanding at February 29, 2000 and August 31, 1999, respectively) 1,775 2,700 2,950 Common stock (100,000,000 shares authorized, $.01 par, 4,072,151, 4,159,414 and 4,068,914 shares issued and outstanding at February 28, 1999, February 29, 2000 and August 31, 1999, respectively) 42,003 43,133 42,128 Additional Paid-in Capital 1,171,723 1,418,793 1,342,928 Accumulated deficit (1,106,475) (1,602,687) (1,437,717) ----------- ----------- ----------- Total Stockholders' Equity (109,026) (138,781) (49,111) ----------- ----------- ---------- $ 141,057 $ 73,952 $ 5,166 =========== =========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements -2- TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) February 29 February 28 2000 1999 ------------ ----------- NET REVENUES $ 56,637 COST OF SALES $ 70,753 ----------- $ (14,116) GENERAL ADMINISTRATIVE Salaries (Allocated) $ 78,402 Interest and bank charges 10 Equipment rental 2,400 Computer lease 11,728 Insurance 702 Postage and delivery 406 Office expense 981 Printing and reproduction 4,721 Professional fees 44,141 $ 29,884 Promotion 141 Rent 3,762 Travel and entertainment 3,152 Trade Show expenses 928 Other Administrative Expenses 100 2,357 ---------- ---------- Total General and Administrative 151,574 32,241 ---------- ---------- NET INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (165,690) (32,241) INCOME TAXES -- -- ----------- ----------- NET INCOME (LOSS) $ (165,690) $ (32,241) =========== =========== PER SHARE DATA: Net income (loss) per share - basic $ (.04) $ (.01) =========== ========== Net earnings (loss) per share - diluted $ (.03) $ (.01) =========== ========== Weighted average shares outstanding - basic 4,088,851 4,033,189 =========== ========== Weighted average shares outstanding - diluted 5,588,851 5,533,189 =========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements -3- TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) February 29 February 28 2000 1999 ------------ ------------ NET REVENUES $ 56,637 COST OF SALES $ 52,753 $ 3,884 GENERAL ADMINISTRATIVE Salaries (Allocated) $ 39,201 Interest and bank charges Equipment rental 1,200 Computer lease 7,378 Insurance Postage and delivery 406 Office expense Printing and reproduction 3,209 Professional fees 36,480 $ 9,884 Promotion 141 Rent 1,881 Travel and entertainment Trade Show expenses 928 Other Administrative Expenses 100 618 ----------- ---------- Total General and Administrative 90,923 10,502 NET INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (87,040) (10,502) INCOME TAXES -- -- NET INCOME (LOSS) $ (87,040) $ (10,502) =========== ========== PER SHARE DATA: Net earnings (loss) per share - basic $ (.02) $ (.00) =========== ========== Net earnings (loss) per share - diluted $ (.02) $ (.00) =========== ========== Weighted average common shares outstanding - basic 4,088,851 4,033,189 =========== ========== Weighted average common shares outstanding - diluted 5,588,851 5,533,189 =========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements -4- TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended For the Six Months Ended -------------------------- ------------------------------- February 29 February 28 February 28 February 28 2000 1999 2000 1999 ----------- ----------- -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from operations $ (87,040) $ (10,502) $ (165,690) $ (32,241) Adjustments to reconcile income (loss) from operations to cash provided by (used in) operating activities: Depreciation and amortization Imputed officers' salaries Change in assets and liabilities: Increase in accounts (57,924) (57,924) receivable - trade Increase in advances payable 54,200 (15,000) 60,587 (126,000) Increase in accounts payable and accrued expenses $ 65,636 10,046 97,989 9,195 ----------- --------- ---------- ---------- Net cash flow used in operating activities (25,128) (15,456) (65,038) (149,046) CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Preferred Stock net of offering costs 30,000 162,640 Sale of Common Stock net of offering costs 35,180 375 35,180 1,475 Purchase of subsidiaries (5,000) (5,000) Sale of Common Stock option 720 40,720 ---------- --------- ----------- ------------ Net cash flows provided by investing activities 35,900 25,375 75,900 159,115 CASH FLOW FROM FINANCING ACTIVITIES: Retirement of debt Net cash flows provided by financing activities Increase (decrease) in Cash 10,772 9,919 10,862 10,069 Cash, beginning of period 256 138 166 (12) ----------- --------- ---------- ---------- Cash, end of period $ 11,028 $ 10,057 $ 11,028 $ 10,057 =========== ========= ========== ==========
See accompanying summary of accounting policies and notes to consolidated financial statements -5- TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Capital Deficit) (Unaudited) For the Six Months Ended February 29, 2000 Preferred Stock Common Stock Total Equity $1.00 Par Value $.01 Par Value Additional Stockholders' ---------------- ------------------- Paid-In Accumulated Equity Shares Amount Shares Amount Capital Deficit (Deficiency) -------- ------- -------- --------- ----------- ------------ ---------------- Balance - August 31, 1999 (Adjusted) 2,950 $ 2,950 4,068,914 $ 42,128 $1,342,928 $(1,437,717) $ (49,711) Sale of Common Stock Option $ 40,720 $ 40,720 Sale of Common Stock 75,500 $ 755 $ 34,425 $ 35,180 Conversion to Common Stock (250) $ (250) 25,000 $ 250 Net Loss for Period $ (165,690) $ (165,690) -------- ------- --------- --------- ----------- ----------- ------------ Balance - February 29, 2000 2,700 $ 2,700 4,169,414 $ 43,133 $ 1,418,793 $(1,603,407) $ (138,781) ======== ======= ========= ========= =========== ============ =============
-6- See accompanying summary of accounting policies and notes to consolidated financial statements TTI INDUSTRIES, INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements February 29, 2000 1. SUMMARY OF ACCOUNTING POLICIES Unaudited Interim Financial Information The financial statements as of February 29, 2000 and 1999 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and are unaudited. These statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented. The balance sheet at August 31, 1999 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations. Operating results for the quarter ended February 29, 2000 are not necessarily indicative of the results that may be expected for the year ending August 31, 2000. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes included in the Company's annual Report on Form 10-KSB for the year ended August 31, 1999. Certain prior period balances have been reclassified to conform to the current period presentation. Nature of Business and Basis of Presentation The accompanying consolidated financial statements include the accounts of TTI Industries, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Business Combinations and Investments For business combinations which have been accounted for under the purchase method of accounting, the Company includes the results of operations of the acquired business from the date of acquisition. Net assets of the companies acquired are recorded at their fair value at the date of acquisition. The excess of the purchase price over the fair value of net assets acquired is included in goodwill and other purchased intangibles in the accompanying consolidated balance sheets. Other investments, for which the Company does not have the ability to exercise significant influence, are accounted for under the cost method of accounting. Dividends and other distributions of earnings from other investees, if any, are included in income when declared. The Company periodically evaluates the carrying value of its investments accounted for under the cost method of accounting and as of February 29, 2000, such investments were recorded at the lower of cost or estimated net realizable value. -7- 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 and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue from sales, net of discounts when services are rendered and products are shipped. Reclassifications Certain consolidated financial statement amounts were reclassified from the previously reported financial statements in order to conform with current presentation. Income Taxes Income taxes are provided for the tax effect of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property, plant and equipment, inventory, and accounts and notes receivable for financial and income tax reporting. The net deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deducible when the assets and liabilities are recovered or settled. Product Development Product development expenses consist principally of personnel and consultants, patents and cost of acquired products. To date, all product development costs have been expensed as incurred. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Earnings Per Share Basic EPS is computed by dividing net income (loss) available for common shareholders, as well as other applicable items in the Consolidated Statement of Loss, by the weighted average number of common shares outstanding during the respective periods. Diluted EPS gives effect to potential common shares outstanding during the respective periods and related adjustments to net income (loss) available for common shareholders and other reportable items as applicable. No potential common shares shall be included in the computation of any diluted per share amount when a loss from continuing operations exists, even if the entity reports net income. -8- Accordingly, earnings per share assuming dilution on the face of the income statement reflects the same earnings per share and weighted average shares outstanding as for the basic EPS. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose the estimated fair values for its financial instruments for which it is practicable to estimate their values. The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Notes payable to related party - The carrying value of notes payable to related party approximate fair value because of the short- maturity of those instruments. New Accounting Standards In July 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Management does not believe this will have a material effect on the operations. Implementation of this standard has recently been delayed by the FASB for a 12-month period through the issuance of SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - deferral of the effective date of FASB Statement No. 133". The Company will now adopt SFAS 133 as required for its first quarterly filing of fiscal year 2001. 2. NOTES PAYABLE AND DUE TO RELATED PARTIES Notes payable and due to related parties consist of $67,986 and $7,400 due AMJ at February 29, 2000 and August 31, 1999, respectively. The Company initiated a non-cancelable lease on a computer system effective March 1, 2000. The original lease term was 36 months. This lease meets the criteria of a capital lease and has been capitalized with an implicit interest rate of 31.4%. The related assets are included in property and equipment at March 1, 2000 in the amount of $34,884. Minimum future lease obligations on capitalized leases in effect at March 1, 2000 are: 2000 $11,662 2001 $17,268 2002 $17,268 2003 $ 7,195 Total minimum lease payments $53,394 Amount representing interest 18,510 Present value of net minimum lease payments $34,884 Current portion 5,901 Long-term obligation at March 1, 2000 28,983 -9- 3. TRANSACTIONS WITH RELATED PARTIES AND SUBSEQUENT EVENTS During 1999 and 1998, the officers of the Company determined that they would not take a salary until cash flow from operations permitted them to pay each of three officers $50,000. Therefore, no salaries were paid in fiscal 1999 and 1998. The SEC staff has determined that the historical statement of operations should reflect all costs of doing business. Accordingly, officers' salaries for 1999 and 1998 were imputed. This expense is reflected in the 1999 and 1998 statements of loss as an increase to paid-in capital. In addition, certain other operating expenses absorbed by related parties were charged to expense and credited to accrued expenses to be reimbursed. Effective October 4, 1999 the Company entered into an agreement with Terminator Technologies, Inc. (Texas) whereby the Terminator Turtle Product would be sold thru Terminator Technologies, Inc. and the revenues received would be applied to costs and expenses incurred on the products. Options Agreement with AMJ In connection with the Company's Business Plan adopted in January 1999 (the "Business Plan"), on January 19, 1999 the Company entered into an agreement (the "Option Agreement") with AMJ which Agreement was amended on October 4, 1999. Pursuant to the Agreement as originally executed, among other things, (i) the Company acquired AMJ's rights to use, manufacture and sell three separate products when they are market ready, on such terms as would be mutually agreeable at a future date by and between the Company and AMJ; (ii) the Company's rights under the Option Agreement were for a period of twenty-four (24) months, and (iii) AMJ had the right to assign the rights to the Products to a limited partnership for the purpose of funding research and development, provided the Company retains its rights to use, manufacture and sell the Products. On October 4, 1999 the Company and AMJ amended the Option Agreement to eliminate the condition of subsequent pricing and to lengthen the terms of the agreement to the life of existing and pending patents and to provide for the Company's reimbursement of AMJ's actual costs for the development of the products. On January 7, 2000, AMJ agreed to eliminate and cancel the reimbursement provision of the Option Agreement. There can be no assurance that the Option Agreement will result in any revenue or income for the Company that the Company will obtain financing necessary to manufacture and distribute the products, or that the Option Agreement will have any ultimate realizable value to the Company. Assignment by AMJ In connection with the Business Plan, on January 19, 1999 AMJ and the Company entered into an Assignment Agreement (the "Assignment") which was also amended on October 4, 1999. Pursuant to the Assignment, among other things, AMJ assigned to the Company all of AMJ's rights under a license agreement dated June 16, 1998 between AMJ and Terminator Turtle TM L.P. ("TTLP") (the "License Agreement"), in exchange for the Company assuming all of AMJ's obligations under the License Agreement and the payment by the Company to AMJ of a cashless -10- warrant exercisable for a period of two (2) years to purchase 2,000,000 shares of the Company's common stock at $0.05 per share. Although the Assignment was approved by the Company's Board of Directors, it provided that it would not become effective until (i) the Company became current with its filings to the Securities and Exchange Commission under the reporting requirements of the Securities Exchange Act of 1934, as amended, and (ii) the Company had completed the sale of certain 12 1/2% convertible preferred shares. Under the Assignment, among other things, (i) TTLP, assigned its rights to certain products to the Company, (ii) the Company was granted until December 31, 2009, exclusive worldwide use of the patent relating to certain products, and (iii) the Company was granted the right to manufacture, market, sell and distribute these products, all in exchange for a royalty payable to TTLP equal to 5% of all related sales, but in no event less than $100,000. On October 4, 1999 the Company and AMJ amended the Assignment so that (a) AMJ would receive a cashless warrant to acquire 2,000,000 shares of the Company's common stock exercisable at $0.05 per share; (b) the warrant would expire on November 10, 2001 but would not be exercisable until September 11, 2000; (c) the conditions to effectiveness of the Assignment were eliminated; and (d) the royalty from the Company to AMJ was eliminated. There can be no assurance that the Company will obtain financing necessary to manufacture and distribute these products or that the Assignment will have any ultimate realizable value to the Company or will result in any revenue or income to the Company. Agreement with Speed Release Lock Company On October 5, 1999, the company entered into a Stock Purchase and Exchange Agreement (the "Speed Release Agreement") with Speed Release Lock Company ("Speed Release") and Mr. Steve Bedowitz. Pursuant to the Speed Release Agreement, among other things, (i) Mr. Steve Bedowitz, president and majority shareholder of Speed Release, purchase an option exercisable upon 60 days prior written notice, at a price of $40,000 paid to the Company, to purchase 165,000 shares of the Company's Common Stock at a purchase price of $.01 per share; (ii) the Company acquired 10% of Speed Release's Common Stock in exchange for 9.9% of the Company's Common Stock; (iii) the Company obtained the right for a period of 180 days to demand that Speed Release, at Speed Release's cost, file a registration statement with the Securities and Exchange Commission, with respect to the Speed Release shares owned by the Company, provided however, that the Company, if such right is exercised, is limited to distributing such Speed Release shares only to shareholders of the Company (and may not sell such shares in the open market); and (iv) if the Company does not exercise its right to demand registration within 180 days from the date of the Speed Release Agreement, Speed Release may rescind the transaction and reacquire its shares in return for the Company's shares acquired by Speed Release. The Company has notified Speed Release that the Company has exercised its demand registration rights. Speed Release has filed a registration statement (May 2000) with respect to such shares. Such registration statement has not yet become effective. Legal Proceedings On October 18, 2000, the Company was served with Plaintiff's Original Petition in the case of Santo Andrei, Ltd. v. TTI Industries, Inc., AMJ Resources Corporation, A.J. Miller and Jesus H. "Chuy" Muniz; Cause No. C-1784-00F, In the 332nd Judicial District Court, Hidalgo County, Texas. Essentially, the Petition alleges that the Plaintiff invested $75,000 for the purchase of 150,000 shares of the Company's common stock and in connection therewith, the Defendants misrepresented to Plaintiff among other things, that the Company's common stock would trade at a value of $8.00 per share. The Petition alleges breach of contract, fraud and negligent misrepresentation and asks for damages in the amount of $1,200,000 (calculated at 150,000 shares of the Company's common stock times $8.00 per share that Plaintiff alleges he was promised for his shares) plus exemplary damages. The Company denies the material allegations of Plaintiff's Original Petition and intends to vigorously defend against the litigation. The case is in its preliminary stages and no discovery has been conducted. -11- 4. INCOME TAXES Management established a 100 percent valuation allowance since it is more likely than not that the deferred tax assets will not be realized based on the weight of available evidence. In accordance with the Internal Revenue Code, the availability to carry forward net operating losses incurred prior to 1987 are limited due to a significant change in ownership during that year. If not utilized, these net-operating losses will begin to expire in 2006. During fiscal 1996 and 1998 there were two separate significant changes in ownership, which limit the availability of the net operating losses. The extent of the limitation has not been determined. The net deferred tax asset in the accompanying balance sheets includes the following at: August 31 February 29 Year ended August 31, 1999 2000 -------------------------------------------------- Deferred tax asset $ 293,000 $ 458,690 Less valuation allowance (293,000) (458,690) Net deferred tax asset $ - - -------------------------------------------------- The valuation allowance activity for: August 31 February 29 Year ended August 31, 1999 2000 -------------------------------------------------- Balance, beginning of year $ 169,000 $ 293,000 current year net operating loss 124,000 165,690 Balance, end of period $ 293,000 $ 458,690 -------------------------------------------------- 5. PREFERRED STOCK The preferred stock has following features: a. $100 par value b. Preferred as to liquidation of assets c. Carries a dividend rate of 12.5% per annum, payable semi- annually d. Voting rights of 1 vote per share e. Convertible into 67 common shares upon 30-day notice f. Redeemable at any time at par plus 10% plus accrued dividends 6. STOCK PURCHASE WARRANTS As part of the May 1, 1998 acquisition Agreement, the Company issued a 1.5 million Stock Purchase Warrant to AMJ for $20,000. The value of these shares is considered de minimus. The warrants are initially exercisable at $0.04445 per share and expire May 6, 2000. The transaction resulted in a $20,000 credit to additional paid-in capital. -12- On October 5, 1999, pursuant to a Stock Purchase and Exchange Agreement by and among the Registrant, Speed Release Lock Company ("Speed Release") and Steve Bedowitz ("Bedowitz"), the Company issued to Steve Bedowitz an option to purchase 165,000 shares of the Registrant's common stock at a purchase price of $.01 per share exercisable upon 60 days prior written notice. The purchase price for the option was $40,000. On December 19, 1999, the Company issued to Frank Harrison III an option to purchase 18,000 shares of the Company's common stock at a purchase price of $0.01 per share exercisable at any time prior to December 19, 2001. The purchase price for the option was $720. 7. COMMITMENTS AND CONTINGENCIES The Company is generally self-insured for losses and liabilities related primarily to workers' compensation, health and welfare claims, physical damage to property, business interruption resulting from certain events, and comprehensive general, product and vehicle liability. 8. SUPPLEMENTAL CASH FLOW INFORMATION During the year ending August 31, 1999 there was no cash paid for interest or income taxes, and $862 paid for Texas franchise taxes. 9. GOING CONCERN AND SUBSEQUENT EVENTS The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Recurring losses from operations that raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are described in the following paragraphs. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Since May 1998, Management developed a broad operational and financial restructuring plan. That plan was presented to the Company's Board of Directors in January 1999. TTI Industries, Inc. had virtually no business operations during fiscal 1999 and 1998. The Company plans to operate as a holding company for certain subsidiaries. One subsidiary, Terminator Technologies, Inc., was formed as a manufacturing and marketing subsidiary and TermTex Corporation was formed as a research and development subsidiary. In January 1999, the Company concluded the purchase of the two subsidiary companies, Terminator Technologies, Inc. and TermTex Corporation, from AMJ, which consisted of the purchase of all of the 1,000 issued and outstanding shares of each Company's common stock for a total purchase price of $5,000 ($2,500 each). The Company's primary focus in the retail market will be the production and sale of a series of pest control products for the home and garden, with an emphasis on products that (1) are safe for children, pets and wildlife, (2) are environmentally friendly, (3) are low cost and (4) utilize attractive animal-shaped designs. Going forward, significant amounts of additional cash will be needed to pay the costs to implement the proposed business plan and to fund losses until the Company has achieved profitability. Based on management's proposed plan, the Company estimates that at least $1.5 million -13- will be required to fund the Company's restructuring costs and operations through the end of fiscal 2000 and that additional amounts could be required thereafter. While there is no assurance that funding will be available to execute the plan, the Company is continuing to seek financing exploring a number of alternatives in this regard. The Company believes that this additional financing, along with its current credit facilities, will be sufficient to support the Company's liquidity requirements through the end of fiscal 2000 depending on operating results. In the absence of long-term financial support from investors, there can be no assurance that additional financing can be obtained from conventional sources. Management is exploring alternatives that include seeking strategic investors, or pursuing other transactions that could result in diluting existing shareholders. There can be no assurance that management's efforts in this regard will be successful. Management believes that, despite the financial hurdles and funding uncertainties going forward, it has under development a Business Plan that, if successfully funded and executed can significantly improve operating results. The support of the Company's vendors, customers, lenders, stockholders and employees will continue to be key to the Company's future success. 10. YEAR 2000 COMPLIANCE (UNAUDITED) Like other companies, the Company could be adversely affected if the computer systems the Company, its suppliers or customers use do not properly process and calculate date-related information and data from the period surrounding and including January 1, 2000. This is commonly known as the "Year 2000" or "Y2K" issue. Additionally, this issue could impact non-computer systems and devices such as production equipment, elevators, etc. While the Company's project to assess and correct Y2K related issues regarding the year 2000 has been completed, and the Company has not experienced any significant Y2K related events, interactions with other companies' systems make it difficult to conclude there will not be future effects. Consequently, at this time, management cannot provide assurances that the Year 2000 issue will not have any impact on the Company's future operations. Since January 1, 2000 through May 31, 2000, the Company has had no material impact from the Y2K issue. Item 2. Management's Discussion and Analysis or Plan of Operation Liquidity and Capital Resources At February 29, 2000, the Company's principal sources of liquidity consisted of $11,028 of cash compared to $10,057 of cash at February 28, 2000. Working capital at February 29, 2000 was ($144,501) compared to $104,026 at February 28, 1999. The Company obtained $35,900 from the private placement of securities during the quarter ended February 29, 2000 and used $90,923 in operating activities for the quarter ended February 29, 2000 and $151,574 for the six months ended February 29, 2000, as compared to $10,502 and $32,241, respectively, for similar periods of 1999. During the quarter and six months ended February 29, 2000, $54,200 and $60,587, respectively, was advanced to AMJ -14- Resources, Inc., an affiliate of the Company, to assist in the implementation of the Business Plan by the Company. See "Results of Operations" below. The Company made no capital acquisitions or improvement expenditures during the quarter and six months ended February 29, 2000 (similarly for the quarter and six months ended February 28, 1999), but anticipates a substantial increase in its capital needs consistent with the implementation of the Company's Business Plan when implemented. The Company initiated a non-cancelable capital lease on a computer system effective March 1, 2000. The original lease term was 36 months. The Company believes that its current capital will not be sufficient to meet its anticipated cash needs for the next 12 months. However, any projections of future cash needs and the cash flow are subject to substantial uncertainty. While the Company intends to seek additional financing, there can be no assurance that the Company will obtain financing necessary to fully implement and undertake its Business Plan. Moreover, the obtaining of any financing by the Company, will, in all likelihood, involve the sale of additional equity, debt or convertible debt securities, which could result in additional dilution to the Company's shareholders. Additionally, the Company will, from time to time, consider the acquisition of or investment in complementary businesses, products, services and technologies, which might impact the Company's liquidity requirements or cause the Company to issue additional equity or debt securities. There can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all, in order to implement its Business Plan. Results of Operations Net revenues for the quarter and six months ended February 29, 2000 were $56,637 and $56,637 as compared to $0 and $0 for the quarter and six months ended February 28, 1999, respectively. The revenue for the quarter and six months ended February 29, 2000 was derived solely from the Terminator Turtles. The Company incurred an operating loss for the quarter and six months ended February 29, 2000 of ($87,040) and ($165,690), respectively, compared to ($10,502) and ($32,241), respectively, for similar periods of 1999. The operating loss for the quarter and six months ended February 29, 2000 was primarily due to professional fees of $36,480 and $44,141 as compared to $9,884 and $29,884 for similar periods of 1999 and to allocated salaries of $39,301 and $78,402 for the quarter and six months ended February 29, 2000, respectively, as compared to $0 and $0 for similar periods of 1999. While the Company's Business Plan was adopted in January 1999, the Company does not have, and has not secured, the financing to implement the Business Plan in any meaningful manner. The Business Plan requires substantial additional financing, and there can be no assurance that the Company can obtain such financing or that, even if such financing is obtained, the Business Plan will be successful or will produce any revenue or income for the Company. PART II Item 1. Legal Proceedings On October 18, 2000, the Company was served with Plaintiff's Original Petition in the case of Santo Andrei, Ltd. v. TTI Industries, Inc., AMJ Resources Corporation, A.J. Miller and Jesus H. "Chuy" Muniz; Cause No. C-1784-00F, In the 332nd Judicial District Court, Hidalgo County, Texas. Essentially, the Petition alleges that the Plaintiff invested $75,000 for the purchase of 150,000 shares of the Company's common stock and in connection therewith, the Defendants misrepresented to Plaintiff among other things, that the Company's common stock would trade at a value of $8.00 per share. The Petition alleges breach of contract, fraud and negligent misrepresentation and asks for damages in the amount of $1,200,000 (calculated at 150,000 shares of the Company's common stock times $8.00 per share that Plaintiff alleges he was promised for his shares) plus exemplary damages. The Company denies the material allegations of Plaintiff's Original Petition and intends to vigorously defend against the litigation. The case is in its preliminary stages and no discovery has been conducted. Item 2. Changes in Securities On December 19, 1999, the Company issued to Frank Harrison III an option to purchase 18,000 shares of the Company's Common Stock at a exercise price of $0.01 per share exercisable at any time prior to December 19, 2001. The purchase price for the option was $720. -15 Mr. Harrison exercised the option in full on December 19, 1999 and was issued 18,000 shares of Common Stock. The issuance was made in reliance on Section 4(2) of the Securities Act of 1933 as a transaction of an issuer not involving a public offering. On January 12, 2000, the Company issued to Joe Nicholson 50,000 shares of its Common Stock at a purchase price of $0.50 per share. The issuance was made in reliance on Section 4(2) of the Securities Act of 1933 as a transaction of an issuer not involving a public offering. On February 2, 2000, Joe Nicholson converted 250 shares of the Company's preferred stock into 25,000 shares of Common Stock. The issuance was made in reliance on Section 4(2) of the Securities Act of 1933 as a transaction of an issuer not involving a public offering. On February 10, 2000, the Company issued to Al Trevino 53,340 shares of its Common Stock at a purchase price of $0.75 per share. The issuance was made in reliance on Section 4(2) of the Securities Act of 1933 as a transaction of an issuer not involving a public offering. On February 19, 2000, the Company issued to Al Reutlinger 18,667 shares of its Common Stock at a purchase price of $0.75 per share. The issuance was made in reliance on Section 4(2) of the Securities Act of 1933 as a transaction of an issuer not involving a public offering. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits No. Description --- ----------- 3.1(1) Articles of Incorporation of the Registrant. 3.2(1) Amendment to the Registrant's Articles of Incorporation changing the name of the Registrant from HAS Acquisition Company to HAS Oil & Gas, Inc. 3.3(1) Amendment to the Registrant's Articles of Incorporation changing the name of the Registrant from HAS Oil & Gas, Inc. to Kinlaw Energy Partners Corporation 3.4(1) Amendment to the Registrant's Articles of Incorporation changing the name of the Registrant from Kinlaw Energy Partners Corporation to Environmental Plus, Inc. 3.5(1) Amendment to the Registrant's Articles of Incorporation changing the name of the Registrant to TTI Industries, Incorporated and effecting a 1-for-10 reverse stock split of the Registrant's Common Stock. 3.6(1) Amendment to Registrant's Articles of Incorporation changing the name of the Registrant from Environmental Plus, Inc. to TTI Industries, Inc. 3.7(1) Bylaws of Registrant 4.1(1) Form of Common Stock Certificate of Registrant 10.1(1) Stock Purchase Agreement, dated as of January 15, 1998, by and among the Registrant, certain of its shareholders and Terminator Technologies, Inc. -16- 10.2(2) Option agreement, dated as of January 19, 1999, by and between the Registrant and AMJ Resources Corporation 10.3(2) Amendment to Option Agreement, dated as of October 4, 1999, by and between the Registrant and AMJ Resources Corporation 10.4(2) Stock Purchase and Exchange Agreement, dated as of October 5, 1999, and among the Registrant, Speed Release Lock Company and Steve Bedowitz. (schedules omitted) 27.1(3) Financial Data Schedule _________________ 1 Incorporated by reference from the Registrant's Form 10-KSB for the period ended August 31, 1998. 2 Incorporated by reference from the Registrant's Form 10-KSB for the period ended August 31, 1999. 3 Filed herewith. (b) Reports on Form 8-K. No Reports on Form 8-K were filed by the Company during the quarter ended February 29, 2000. -17- SIGNATURES ---------- In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TTI INDUSTRIES, INCORPORATED December 28, 2000 /s/ JESUS H. MUNIZ ------------------- --------------------------------- Date Jesus H. "Chuy" Muniz, President December 28, 2000 /s/ ALBERT J. MILLER ------------------- ---------------------------------- Date Albert J. Miller Principal Accounting and Financial Officer -18-