-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P/dVaL4NHuAPKLNr13TQ5RkhjDS1m2dblsrOPCAm6j9o6m6bg3A9adj/MteuuOK6 zVBkfMFZrZjXTTBRGdDyLA== 0000880591-01-000001.txt : 20010308 0000880591-01-000001.hdr.sgml : 20010308 ACCESSION NUMBER: 0000880591-01-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20010306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL THERMAL PACKAGING INC CENTRAL INDEX KEY: 0000880591 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 954029019 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19625 FILM NUMBER: 1561865 BUSINESS ADDRESS: STREET 1: 6730 SAN FERNANDO RD STREET 2: 5743 CORSA AVE STE 220 CITY: GLENDALE STATE: CA ZIP: 91201 BUSINESS PHONE: 8186378572 MAIL ADDRESS: STREET 1: 6730 SAN FRANCISCO ROAD CITY: GLENDALE STATE: CA ZIP: 91201 10-Q 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended April 30, 2000 Commission File No. 0-29625 INTERNATIONAL THERMAL PACKAGING, INC. A California Corporation EIN: 95-4029019 6730 San Fernando Road Glendale, CA 91201 (818-637-8572) Telephone: 818-637-8582 Securities to be registered under Section 12(g) of the Act: $ 0.001 Par Value Common Shares Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Q or any amendment to this Form 10-Q [X] State the aggregate market value of the voting stock held by non affiliates of the Registrant: There is no current market for the Registrant's common stock. The number of shares outstanding of the Registrant's $0.001 par value common stock, its only class of equity securities as of April 30, 2000 was 17,434,434 shares. PART I ITEM 1. FINANCIAL INFORMATION INTERNATIONAL THERMAL PACKAGING, INC. Financial Statements For the Quarters Ended April 30, 2000 and 1999. INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) BALANCE SHEETS April 30, 2000 and January 31, 2000 (Unaudited) ASSETS April 30. January 31, 2000 2000 CURRENT ASSETS: Cash and cash equivalents $ 305,329 $ 95,347 Notes receivable, net of allowances for doubtful amounts of $ 965,000 at April 30, 2000 and January 31, 2000 - - License fee receivable, net of allowance for doubtful amounts of $ 1,071,553 at April 30, 2000 and January 31, 2000 - - ------- --------- Total current assets 305,329 95,347 ------- --------- PROPERTY AND EQUIPMENT, at cost net of accumulated depreciation of $ 7,173 and $ 6,102 at April 30, 2000 and January 31, 2000 26,374 14,671 OTHER ASSETS: License fee receivable, net of doubtful amounts of $ 3,562,500 at April 30, 2000 and - - January 31, 2000 Patents, net of accumulated amortization of $ 219,894 and $ 214,259 at April 30, 2000 and January 31, 2000. 163,314 168,949 Other assets, net of allowance for doubtful amounts of $ 57,137 at April 30, 2000 and January 31, 2000. - - Deposit 3,300 3,300 ---------- --------- Total other assets 166,614 172,249 ---------- --------- TOTAL ASSETS $ 498,317 $ 282,267 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accrued payroll taxes, interest and penalties 601,540 590,290 Accounts payable and Accrued expenses 58,394 320,850 Accrued franchise tax - - -------- ------- Total current liabilities 659,934 911,140 -------- ------- DEFERRED LICENSING REVENUE, net of allowance of $ 4,634,054 at April 30, 2000 and January 31, 2000 365,946 365,946 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Common stock - Authorized shares 50,000,000 Issued and outstanding - 17,343,434 and 16,162,552 at April 30, 2000 and January 31, 2000 11,646,352 9,892,689 Deficit accumulated during the development stage (12,173,915) (10,887,508) ---------- --------- Total stockholders' equity (deficit) (527,563) (994,819) ---------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 498,317 $ 282,267 =========== ========== INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENTS OF OPERATIONS Three Months Ended April 30, 2000 and 1999 April 30, April 30, 2000 1999 REVENUE $ - $ - OPERATING EXPENSES Research and development 514,007 1,145 General and administrative 653,882 405,993 Financial consulting 107,667 107,842 -------- -------- 1,275,556 514,980 LOSS FROM OPERATIONS (1,275,556) (514,980) Interest income 1,199 2,697 Interest expense- payroll taxes (11,250) (11,250) ------------ --------- LOSS BEFORE INCOME TAXES (1,285,607) (523,533) Income taxes 800 3,100 ---------- ---------- NET LOSS $ (1,286,407) $( 526,633) ========== =========== LOSS PER COMMON SHARE Basic $ (0.08) $ (0.03) ========== =========== Diluted $ (0.08) $ (0.03) ========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 16,752,993 16,754,937 ========== ========== INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENT OF OPERATIONS From Inception (February 7, 1986) to April 30, 2000 (UNAUDITED) REVENUE $ - OPERATING EXPENSES Research and development 3,763,525 General and administrative 6,348,505 Financial consulting 574,895 --------- 10,686,925 LOSS FROM OPERATIONS (10,686,925) Loss on investment in affiliate under equity method (173,933) Other income 11,764 Other expense (29,552) Interest income 14,866 Interest expense - payroll taxes (277,087) Provision for reserve for advances (1,022,137) ----------- LOSS BEFORE INCOME TAXES (12,163,004) Income taxes 10,911 ---------- NET LOSS $ (12,173,915) ============== LOSS PER COMMON SHARE Basic $ (0.82) ============== Diluted $ (0.82) ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,853,789 ============= INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENTS OF CASH FLOWS Years Ended April 30, 2000 and 1999 April 30 April 30 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,286,407) $ (526,633) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 6,706 6,571 (Increase) in officers' advances - (46,137) (Increase) in other assets (5,000) Increase in accrued payroll taxes, interest and penalties 11,250 11,250 (Decrease) in accounts payable and accrued expenses (262,455) (49,555) Decrease in license fee receivable - 13,704 --------- ------- Net cash used in operating activities (1,530,906) (595,800) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (12,775) - Notes receivable funded - (775,000) --------- --------- Net cash used in investing activities (12,775) (775,000) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued 1,753,663 1,040,248 --------- --------- Net cash provided by financing activities 1,753,553 1,040,248 --------- --------- Net change in cash and cash equivalents 209,982 (330,552) -------- -------- CASH AND CASH EQUIVALENTS, beginning of period 95,347 845,668 ------- -------- CASH AND CASH EQUIVALENTS, end of period $ 305,329 $ 515,116 ========= ======= SUPPLEMENTAL DISCLOSURE, Cash paid for income taxes $ 800 $ 3,100 ========= ======== Cash paid for interest $ - $ - ========= ======== INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENT OF CASH FLOWS From Inception (February 7, 1986) to April 30, 2000 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (12,173,915) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Stock issued for compensation 1,035,432 Depreciation and amortization 377,830 Loss on sale of property and equipment 28,683 (Increase) in deposit (3,300) (Increase) in patents (383,208) (Increase) in officer advances (46,137) (Increase) in other assets (5,500) Increase in accrued payroll taxes, interest and penalties 601,540 Increase in accounts payable And accrued expenses 58,395 Increase in deferred licensing revenue 365,946 ---------- Net cash used in operating activities (10,092,597) ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (284,406) Proceeds from the sale of property and equipment 118,725 --------- Net cash used in investing activities (165,681) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued 10,624,421 Common stock repurchased (13,501) Payments on obligations under capital leases (47,313) ---------- Net cash provided by financing activities 10,563,607 ---------- Net change in cash and cash equivalents 305,329 CASH AND CASH EQUIVALENTS, beginning of period - ---------- CASH AND CASH EQUIVALENTS, end of period $ 305,329 ========== SUPPLEMENTAL DISCLOSURE, Cash paid for income taxes $ 10,111 ========== Cash paid for interest $ 70 ========== INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Period Ended April 30, 2000 and Year Ended January 31, 2000 Accumulated Deficit During Common Stock Paid-in Development Shares Amount Capital Stage Total 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) (994,819) ---------- ------ --------- ---------- ------- Common stock issued 1,180,882 1,181 1,732,482 - 1,753,663 Net Loss - - - (1,286,407) (1,286,407) Balance, 4/30/2000 17,343,434 $17,343 $ 11,629,009 $ (12,173,915) $ (527,563) ========== ====== ========= ========== ========= INTERNATIONAL THERMAL PACKAGING, INC. (A Development-Stage Enterprise) STATEMENTS OF STOCKHOLDERS' EQUITY From Inception (February 7, 1986) to April 30, 2000 (UNAUDITED) Accumulated Deficit During Common Stock Paid-in Development Shares Amount Capital Stage Total Total Balance, Inception (February 7, 1986) - $ - $ - $ - $ - Common stock issued 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 - - - (5,913,177)(5,913,177) --------- ------ ---------- ---------- --------- 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)(994,819) Common Stock issued 1,180,882 1,181 1,752,482 - 1,753,663 Net loss - - - (1,286,407)(1,286,407) ---------- ------- ---------- ---------- --------- Balance, 4/30/2000 17,343,434 $ 17,343 $ 11,629,009 $(12,173,915) $ (527,563) ========== ========= ========== ============ ========= International Thermal Packaging, Inc. A Development-Stage Enterprise) Notes to Financial Statements April 30, 2000 and January 31, 2000 1. Basis of Presentation Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this Form 10-Q in accordance with the Rules and Regulations of the Securities and Exchange Commission (the "SEC"). The accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position as of April 30, 2000 and the results of operations for the three months ended April 30, 2000 and 1999 and cash flows for each of the three month periods ended April 30, 2000 and 1999. The results of operations for the three month period ended April 30, 2000 are not necessarily indicative of the results which may be expected for any other interim period or for the entire fiscal year. In the opinion of International Thermal Packaging, Inc. (the "Company") the disclosures contained in this Form 10-Q are adequate to make the information presented not misleading. See the Company's Annual Report on Form 10-K for the year ended January 31, 2000 for additional information relevant to significant accounting policies followed by the Company. 2. Organization and Nature of Business International Thermal Packaging, Inc. (the "Company") was incorporated on February 7, 1986 ("Inception"), in the State of California. The Company is in the development stage and operations have consisted primarily of research and development and administrative activities. The Company uses employees and independent contractors to manage the Company and to sell securities. The Company has developed certain prototypes for demonstration purposes only, which showcase its unique self-cooling processes and technology for potential use in the food and beverage industries. Patent applications are pending on the technology. 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 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 and no established product or marketing channels. These factors raise a substantial doubt about the company to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. Summary of Significant Accounting policies a. Income Taxes For financial reporting purposes, the Company provides for income taxes under the liability method and recognizes the minimum California franchise tax of $800 on an annual basis. b. Research and Development Costs related to conceptual formulation, design and the development of prototypes are considered research and development and are expensed as incurred. c. Cash and Cash Equivalents Management defines cash and cash equivalents as cash in banks and highly liquid instruments with maturities of 90 days or less. d. Property and Equipment Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the related assets, ranging from 3 to 10 years e. Patents Patent costs are amortized using the straight-line method over the life of the patents, not to exceed 17 years. Due to the current financial position of the Company there is no assurance as to full recovery of the patent costs. f. Revenue Recognition Initial license fees received are deferred and amortized over the life of the respective Agreements not to exceed 20 years. In the quarter ended January 31, 2000, all amounts provided for under the FUTECH Agreement have been fully reserved. See Note 6(b) for additional information related to the FUTECH Corp. License Agreement. g. Per Share Information The per share information included in the accompanying statements of operations considers the effects of all shares issued (net of rescissions and cancellations) since inception on February 7, 1986. The impact of the common stock equivalents (Note 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 any asset may not be fully recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual dispositions are less than its carrying amount. j. Fair Value of Financial Instruments Cash and cash equivalents, short term investments, accounts receivable, and accounts payable are carried at amounts that approximate a reasonable estimate of their fair value using available market information and appropriate valuation methodologies. k. Effects of New Accounting Pronouncements Statement on Financial Accounting Standards Number 133 "Accounting for Derivative Investments and Hedging Activities", as amended by Statement on Financial Accounting Standards Number 137 and 138 will have no financial impact on the Company's financial statements. l Other Comprehensive Income The Company has no Other Comprehensive Income. 4. Income Taxes There was no statuary Federal tax expense for the interim periods since the Company had net losses for each of these two interim periods. 5 Capital Transactions Since inception, the primary source of working capital has been provided by common stock issuances to the public. Shares have been issued to management and others as a source of compensation. Commissions paid for sales of stock have reduced the cash received from such issuances. From time to time, shares have been issued to individuals and companies for services rendered. 6. Commitments and Contingencies a. Sales of Securities i. From incorporation through January 31, 1993, the Company had a series of original offerings and sold approximately 6,486,968 shares of its common stock to unrelated investors in reliance upon certain exemptions provided by the Securities Act of 1933, as amended, and the securities laws of the various states wherein the purchasers of such shares reside. The exemptions relied upon by the Company may not have been available for these sales. If such exemptions were not available, the purchasers would have the right under both federal and state securities laws to rescind the purchase and seek the recovery of the purchase price paid for the stock together with statutory interest thereon from the date of sale. The Company had retained securities counsel to evaluate these matters and such counsel believes compulsory recession to be remote. The Company thus has taken no action regarding this and no communications were ever received from the SEC. ii. During the fiscal year ended January 31, 2000 the Company offered and sold approximately 2,897,886 shares of common stock at $ 1.00 per share, to unrelated investors in reliance upon certain exemptions provided by the Securities Act of 1933, as amended, and the securities laws of the various states wherein the purchasers of such shares reside, through a Private Placement Memorandum ("PPM") dated August 1, 1998. The Company received approximately $ 2,460,268 from the sale of these shares, not of issuance costs. Discrepancies exist between disclosures contained in the PPM and these financial statements including but not limited to; use of proceeds, offering costs and commissions, note receivable - real estate, executive compensation limits, comprehensive insurance coverage, number of employees, payroll tax liabilities and the now ineffective FUTECH Agreement. The Company previously had retained counsel to evaluate these matters and such counsel believed compulsory recession to be remote. The financial statements contain no adjustments that may result from the rescission of the sale of any of these securities. The financial statements contain no adjustments that may result from the recession of the sale of any of these securities. iii. Effective, February 15, 1999 the Company cancelled 2, 588,883 previously issued shares for lack of consideration, and in some cases, other irregularities. The Board of Directors met on the above date and ratified this cancellation. b. Option and License Agreement Effective March 1998, the Company entered into a new exclusive option and license agreement with FUTECH Corp., 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 portion of the agreement. The March 1998 new Agreement superseded the old Agreement between the Company and FUTECH Corp., which was effective July, 1997. Consideration for this agreement was five million dollars and was to have been 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 * $1,187,500 no later than October 1, 2002 The five million dollars license fee is non-refundable. However, if the Agreement is deemed to be invalid, unenforceable or otherwise inoperable by any court or administrative body, in FUTECH's sole discretion the Agreement may be terminated and the Company was to be obligated to return that portion of the License and Technical Assistance Fee which, at the time of the termination, has been paid to the Company in cash, as opposed to credits in accordance with the Agreement. As of April 30, 2000 no such cash has been received. In addition to the license fee above, Licensee was required to pay royalties of 1 cent ($.01) per unit for cooling beverages containers and 4.75% of the selling price for heating products or 50% of the total royalty received by FUTECH, depending on the sublicense. The royalty rate was to 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 was not to exceed 150% over the term of the Agreement. As of January 31, 2000, the Licensee had advanced $365,946 in the form of credits to the Company, which is reflected as a reduction of the Licensee Fee Receivable. A majority of the advances were payments made on behalf of the Company for research and development. FUTECH made payments directly to research laboratories for the Company and the Company would record research and development expense and reduce the License Fee Receivable. The Company came to the conclusion in the quarter ended January 31, 2000 that since FUTECH had not provided the necessary consideration for the license, nor had Licensee made any scheduled royalty payments, the License Agreement is null and void. As a result, all License Fee Revenue and Receivable amounts under the Agreement were reserved for in the financial statements for the quarter ended January 31, 2000. There have been no changes to the amount reserved since January 31, 2000. c. Payroll Taxes The Company failed to make federal and state payroll tax deposits totaling $212,651 through October 1992. Penalties and interest totaling $ 388,889 and $ 377,639 were accrued through April 30, 2000 and January 31, 2000, respectively and are reflected in the total outstanding liability of $ 601,540 and $ 590,290. The current period amounts are reflected on the accompanying balance sheets. The Company has had discussions with Internal Revenue Service and State of California to pay off the outstanding balances, which total $ 601,540 at April 30, 2000. The Company has not paid any of these outstanding amounts as of the date of this report. 7. Related-Party Transaction Certain management and directors of the Company have assigned all patent rights to the Company in exchange for three percent of all license and related royalty fee consideration received by the Company. Currently only one of these agreements is still in effect. It is with Dennis Thomas, the President of the Company. For the periods ended April 30, 2000 and January 31, 2000, no royalties were accrued. Previously accrued royalties were $ 15,575 at January 31, 1998 and officer advances for the year ended January 31, 1999 in the amount of $ 15,575 were used to offset a portion of the balance of accrued royalties. Additionally, the Company advanced certain officers a total of $ 46,137 during the period ended 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 expense. These amounts are included in Officers' Advances on the accompanying balance sheet, and were fully reserved in the quarter ended January 31, 2000. There has been no changes to the amount reserved since January 31, 2000. 8. 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 are from FUTECH as well. Management has determined that there is no potential loss due to the credit risk as of January 31, 1999. In the quarter ended, and as of January 31, 2000, all license fee receivable and deferred revenue amounts have been fully reserved for. See note 6(b) for additional information related to the FUTECH Corp. License Agreement. There have been no changes to the amount reserved since January 31, 2000. Additionally, at various times throughout the year, the Company maintained cash balances with financial institutions in excess of FDIC limits. 9. Notes Receivable In February, 1999 the Company loaned $725,000 to CRT Company, a New Jersey corporation. The note required interest at 10% per annum and matured on April 30, 1999. The Company received an assignment of a partnership interest held by CRT as security for the note. The Partnership, Delran Associates, L.L.C., holds as its primary asset, undeveloped land appraised at $4,000,000, located in New Jersey. Delran has a contract to sell part of the land to Trafalgar Associates for residential development. During fiscal year ended January 31, 2000 the Partnership is expected to either receive sufficient payments from Trafalgar Associates or obtain refinancing and repay the loan in one payment to include all principal and accrued interest. Because of the delinquency of the note, and due to the uncertainty of the timing of the refinance and/or sale, and the fact that CRT held a minority interest in the Partnership, the Company has engaged New Jersey legal counsel which has filed legal action on the Company's behalf. This note was fully reserved for in the quarter ended January 31, 2000, although the Company intends to vigorously pursue this action. There has been no change to the amount reserved since January 31, 2000. In April 1999, the Company advanced $ 50,000 to CH Technologies for its purchase of a Canadian license from FUTECH Corp., The Company's former worldwide licensee. CH Technologies executed a note for this amount, and this amount, and the note matures when the Company delivers a working prototype to FUTECH. Due to the current state of the FUTECH Agreement, this amount was fully reserved for in the quarter ended January 31, 2000.There has been no changes to the amount reserved since 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 the Company's sell-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 not been reserved as uncollectible at January 31, 2000. There have been no changes to the amount reserved since January 31, 2000. 10. Stock Options a. On July 15, 1998 the board of directors approved the Company's Stock Option Plan with authorization to grant options to purchase up to 2,750,000 shares of the Company's common stock. Of the total options granted 2,250,000 shares were granted to employees of the Company. Following is a list of the options granted to the employees: Employee Number of Shares Dennis Brown 1,000,000 Dennis Thomas 1,000,000 Hans Schieder 250,000 ----------- Total 2,250,000 =========== The board also granted stock options to Lance Kerr, the Company's outside attorney, for 500,000 shares. The options entitle the holder to purchase one share of common sock at a price of $0.70 per share beginning on July 15, 1999, one year after grant date. The Options are valid for a period of five years and expire on July 15, 2003. b. The Company determined in February 2000 that 2,350,000 options granted to Dennis Thomas, President and Dennis Brown, Chief Financial Officer had been cancelled by prior management without giving either Brown or Thomas the opportunity to exercise these options. The options granted on May 23, 1990 at .10 per share were to have expired on May 23, 1995. The Board of Directors in their meeting on April 19, 2000 reinstated retroactively these options giving Thomas and Brown until May 1, 2004 to exercise them. There is no financial effect to the reinstatement of these options since the Company had a loss in each of the prior two fiscal years and any earnings per share adjustment would be antidilutive. 11. Subsequent Event Subsequent to January 31, 2000 and through the six months ended July 31, 2000. the Company offered up to 2,000,000 and sold approximately 1,303,000 shares of its common stock between $ 1.00 and $ 2.50 per share, to unrelated investors in reliance upon certain exemptions provided by the Securities Act of 1933, as amended, and the securities laws of the various states wherein the purchasers of such shares reside, through a Private Placement Memorandum ("PPM") dated February 15, 2000. The Company received approximately $ 2,007,000 from the sale of these shares, net of issuance costs. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF PLAN OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES The Company is a development-stage enterprise and has had minimal revenue to date. The Company remains dependent on continued sales of common stock to fund its research and development efforts. In the three months ended April 30, 2000 the Company received proceeds for the sale of common stock of of $ 1,753,661 (unaudited)net of issuance costs. In the three months ended April 30, 1999 the Company received proceeds for the sale of common stock of $ 1,040,248 (unaudited)net of issuance costs. Additional sources of liquidity in the next fiscal year are expected to be additional proceeds from the Company's exclusive option and license agreement and the proceeds from repayment of a real estate loan the Company made in February 1999. Proceeds from the license agreement are expected to be $1,085,257 during the fiscal year ended January 31, 2001 and $625,000 from the real estate loan during this same period. Although there is no assurance that funds will be available from any of the above sources, the Company expects that sufficient resources will be obtained to fund ongoing research and development expenses. The Company expects to expend at least $1,000,000 in the fiscal year ended January 31, 2001 for ongoing research and development efforts. These expenditures are required to complete the prototype of the self-cooling beverage can. RESULTS OF OPERATIONS For the three months ended April 30, 2000 and 1999 the Company had operating losses of $ 1,275,556 (unaudited) and $ 514,980 (unaudited) respectively. There was no revenue recorded during these periods as the Company has deferred the income from its licensing agreement until the successful completion of a prototype self-cooling beverage can. We expended $ 514,007 (unaudited) for research and development for the three months ended 4/30/2000 and $ 1,145 (unaudited) for the three months ended 4/30/1999. We had legal and other professional fees of $ 125,303 (unaudited) for the three months ended April 30, 2000 compared to $ 85,321 (unaudited) during the three months ended April 30, 1999. The majority of the legal and professional fees resulted from litigation with Tempra Technology, Inc., a former licensee, and the former President of the Company, ongoing patent protection and audit and accounting fees for the audit for the last three fiscal years. The litigation with Tempra and the former President has been resolved with no material negative financial consequences to us. Other costs which contributed to the increased loss were travel and marketing costs. Travel costs were $ 72,385 (unaudited)for the three months ended April 30, 1999 and $ 62,634 (unaudited) for the three months ended April 30, 2000. Marketing costs increased from $ 141,671 (unaudited)to $ 125,429 (unaudited)for the three months ended April 30, 1999 and 2000, respectively. The 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 marketing costs relate to the efforts of the company to sell additional stock during the past year to fund ongoing activities. The Company issued additional common stock for cash net of issuance costs in the amount of $ 1,753,661 (unaudited) and $ 1,040,248 (unaudited) during quarters ended April 30, 2000 and 1999, respectively. PART II ITEM 1. LEGAL PROCEEDINGS. We filed litigation in the State of New Jersey to protect our rights to payment on a loan secured by an interest in a limited liability corporation which owns substantial real estate in that state. There is no other material pending litigation ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K. There have been no 8-K filings during the quarter ended April 30, 2000. EX-27 2 0002.txt ART 5 F'S FOR QUARTER ENDED APRIL 30, 2000 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CORPORATIONS FINANCIAL STATEMENTS FOR THE QUARTER ENDED APRIL 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 QUARTER JAN 31-2000 APR-30-2000 305,329 0 0 0 0 305,329 33,547 (7,173) 498,317 659,934 0 0 0 11,646,352 0 498,317 0 0 0 1,275,556 0 0 (11,250) (1,285,607) 800 (1,286,407) 0 0 0 (1,286,407) (.08) (.08) -----END PRIVACY-ENHANCED MESSAGE-----