Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ..............to........
Commission file number: 0-23897
TOUPS TECHNOLOGY LICENSING, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Florida 59-3462501
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7887 Bryan Dairy Road, Suite 105, Largo, Florida 33777
(Address of principal executive offices)
(813)-548-0918
(Issuer's telephone number)
None
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 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
(a) has been subject to such filing requirements for the past 90 days. Yes X
No_
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable
As of June 30, 1999, the Company had 25,256,224 of its $0.001 par value
Common Shares outstanding and 750,000 of its $1.00 par value Preferred Shares
out standing.
Transitional Small Business Disclosure Format (check one); Yes___ No X
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Unaudited Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations for the three month period
ended June 30, 1999 and 1998 (Unaudited)
Consolidated Statements of Operations for the six-month period
ended June 30, 1999 and 1998 (Unaudited)
Consolidated Statement of Stockholders' Equity for the
six-month period ended June 30 1999 (Unaudited)
Consolidated Statements of Cash Flows for the six-month period
ended June 30, 1999 and 1998 (Unaudited)
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Toups Technology Licensing, Inc.
BALANCE SHEETS
June 30, 1999 (Unaudited) and December 31, 1998
(Unaudited)
June 30, December 31,
1999 1998
---- ----
Assets:
Cash $ 13,590 $ 772,080
Accounts Receivable, net of
Allowance for doubtful accounts
Of $402,000 and $74,237 1,057,539 1,768,999
Notes Receivables 87,826 0
Inventory at cost 740,927 542,655
Current portin of land, net of sale
contingency reserve 1,546,875 0
Prepaid royalty expenses 144,000 89,000
Other current assets 0 2,776
------------- -------------
Total Assets $ 3,590,757 $ 3,175,510
============= =============
Property and equipment, net of
accumulated depreciation of
$298,003 and $152,159, respectively 2,670,701 2,017,913
Goodwill, net of amortization of
$59,142 and $19,597, respectively 332,800 372,345
Land, net of sale contingency
reserve, net of current portion 2,578,125 0
Related party receivables 44,201 87,485
Other assets 5,055 31,932
---------- --------
Total Assets $9,221,639 $ 5,685,185
============= =============
Current Liabilities:
Accounts payable and
accrued liabilities 1,245,544 1,432,388
Notes payable related party 30,560 0
Royalty Payable 0 42,843
Customer deposits 7,535 39,000
Capital lease obligations 96,550 66,125
Line of Credit 49,574 49,574
------------- -------------
Total current liabilities $ 1,429,763 $ 1,629,930
------------- -------------
Long Term Liabilities
Note payable related party, net
of current portion 34,440 0
Capital lease obligation,
net current portion 574,508 322,112
Long-Term liabilities,
less current portion 750,000 0
------------- -------------
Total long-term liabilities 1,358,948 322,112
------------- -------------
Total Liabilities $ 2,788,711 $ 1,952,042
Stockholders' equity
Common stock 25,256 22,217
Preferred Stock 750,000 0
Additional paid-in capital 11,564,929 8,892,522
Retained Earnings (5,907,257) (5,181,596)
------------- -------------
Total stockholders' equity $ 6,432,928 $ 3,733,143
------------- -------------
Total liabilities and
stockholders' equity $ 9,221,639 $ 5,685,185
============= ============
See Notes to Financial Statements
Toups Technology Licensing, Inc.
STATEMENTS OF OPERATIONS
for the three-month period ended June 30, 1999 (Unaudited)
and for the three-month period ended June 30, 1998 (Unaudited)
(Unaudited) (Unaudited)
Three-Month Three-Month
Period ended Period ended
June 30, June 30
1999 1998
---- ----
Sales $ 5,852,627 $ 109,143
Cost of Goods Sold 241,850 65,018
------------- -------------
Gross Income from Operations 5,610,777 44,125
------------- -------------
General and administrative 4,254,800 549,580
------------- -------------
Total expenses 4,254,800 549,580
------------- -------------
Net Operating Loss 1,355,977 (505,455)
------------- -------------
Other Income (Expense):
Interest Income 1,044 1,495
Interest expense (100,000) 0
------------- -------------
Net Income (Loss) $1,257,021 $ (503,960)
Preferred stock dividends 150,000 0
Net income (loss) applicagble
to Common Stock $1,107,021 $ (503,960)
============= =============
Weighted average number of
shares outstanding 24,908,974 11,077,232
Net loss per share $ 0.0444 $ (0.0455)
============= =============
See Notes to Financial Statements
Toups Technology Licensing, Inc.
STATEMENTS OF OPERATIONS
for the six-month period ended June 30, 1999 (Unaudited)
and for the six-month period ended June 30, 1998 (Unaudited)
(Unaudited) (Unaudited)
Six-Month Six-Month
Period ended Period ended
June 30, June 30
1999 1998
---- ----
Sales $ 6,215,573 $ 274,040
Cost of Goods Sold 600,498 137,139
------------- -------------
Gross Income from Operations 5,615,075 51,223
------------- -------------
General and administrative 5,998,944 795,829
------------- -------------
Total expenses 5,998,944 795,829
------------- -------------
Net Operating Income (Loss) (383,869) (658,928)
------------- -------------
Other Income (Expense):
Interest Income 3,301 2,937
Interest expense (187,500) 0
------------- -------------
Net Income (Loss) $(568,068) $ (655,991)
Preferred stock dividends 150,000 0
Net income (loss) applicagble
to Common Stock $(718,068) $ (655,991)
============= =============
Weighted average number of
shares outstanding 24,908,974 11,077,232
Net loss per share $ (0.0288) $ (0.0592)
============= =============
See Notes to Financial Statements
Toups Technology Licensing, Inc.
CONSOLIATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the six-month period ended Juen 30, 1999 (Unaudited)
Common Additional Retained
Number Stock Paid-In Preferred Earnings
Of Shares (At Par) Capital Stock (Deficit)Total
Balance, Decemeber 31,
1998 22,217,299 $22,217 $8,892,522 $0 $(5,181,596)$3,733,143
Stock issued for:
Cash 2,262,425 2,262 1,824,174 - - 1,826,436
Services 776,500 777 698,233 - - 699,010
Sharr 750,000 - 750,000
Distribution to
Shareholder (7,593) (7,593)
Dividend recognized
from conversion discounts 150,000 (150,000) 0
Net Income (loss) for
the six months ended
June 30, 1998 (568,068) (568,068)
---------- ------ -------- ------ ----------- --------
Balance, June 30,
1999 25,256,224 25,256 11,564,929 750,000 $(5,907,257) 6,432,928
========== ====== ========= ======= =========== =========
See Notes to Financial Statements
Toups Technology Licensing, Inc.
STATEMENTS OF CASH FLOWS
for the six-month period ended June 30, 1999 (Unaudited)
and for the six-month period ended June 30, 1998 (Unaudited)
(Unaudited) (Unaudited)
Six-month Six-month
Period ended Period ended
June 30, June 30
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(568,068) $(655,991)
Add (deduct) items not affecting cash:
Depreciation and amortization 185,038 17,197
Capital stock issued for services 699,010 0
Licensing fee - land for resale (4,125,000) 0
Cash provided (used) due to changes in
assets and liabilities
(increase) in inventory (198,272) (85,785)
(Increase) decrease in accounts receivable 711,460 (64,960)
(Increase) decrease in notes receivable (87,826) (32,000)
(Increase) in prepaid royalty expense (55,000) (60,000
(Increase) decrease in prepaid expenses 0 (3,457)
(Increase) decrease in other assets 72,937 0
Increase (decrease) accounts payable
and accrued liabilities (186,844) 115,404
Increase (decrease) in deposits (31,465) 6,000
--------------- ----------
Net cash used by operating activities (3,584,030) (763,592)
--------------- ----------
Cash flows from investing activities:
Acquisition of equipment (798,632) (45,551)
--------------- ---------
Net cash used by investing activities (798,632) (45,511)
--------------- -----------
Cash flows from financing activities:
Proceeds from sale of capital stock 1,826,436 1,029,870
Proceeds from sale of preferred stock 750,000 0
Proceeds from capital lease obligation 341,200 0
Issuance of long-term debt 815,000 0
Distribution to owners (7,593) (7,593)
Payment of Notes Payable (42,843) 0
Principal payments on
capital lease obligations (58,028) (10,316)
Payment of long-term debt 0 (47,062)
--------------- ---------
Net cash provided by financing activities 3,624,172 1,011,961
------------- ----------
Net increase (decrease) in cash (758,490) 202,818
-------------- ----------
Cash, beginning of period 772,080 74,636
--------------- ----------
Cash, end of period $13,590 $227,454
=============== ==========
Supplemental Cash Flows Disclosures
Noncash items
Equipment acquired under capital lease $341,200 $124,666
=============== ==========
Common stock issued for consulting
services and rent $699,010 $286
============ ==========
See Notes to Financial Statements
TOUPS TECHNOLOGY LICENSING, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
1. Summary of Significant Accounting Policies
Company - Toups Technology Licensing, Incorporated ("TTL or The Company"), a
Florida Corporation was formed on July 28, 1997, and activated its startup
operations on November 1, 1997. TTL is a diversified technology development and
manufacturing company that seeks, authenticates and secures the rights to
manufacture and market new technological advances that have applications in the
energy, environment, natural resources, and health care industries. At the end
of the second quarter of 1999, the Company was comprised of nine divisions. The
consolidated financial statements include the accounts of the Company and the
following wholly owned subsidiaries. All material intercompany transactions have
been eliminated.
Subsidiaries Name Business Activity
Brounley Associates, Inc. (Brounley) Brounley Associates, Inc., a Florida
Corporation, was formed on February 23, 1994. The Company is engaged in the
design, manufacture and sale of radio frequency (RF) generators.
InterSource Healthcare, Inc. (InterSource) InterSource Healthcare, Inc., a
Florida Corporation, was formed on November 9,1996. The Company sells and
refurbishes medical equipment, provides services for medical facility
development, and sells pharmaceutical products.
Basis of Accounting - The accompanying consolidated financial statements are
prepared using the accrual basis of accounting where revenues are recognized
when earned and expenses are recognized when incurred. This basis of accounting
conforms to generally accepted accounting principles.
Basis of Presentation - Six Months Ended June 30, 1999 - The unaudited interim
financial statements for the six months ended June 30, 1999 included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of the
Company, reflect all adjustments (consisting only of normal recurring
adjustments) and disclosures which are necessary for a fair presentation. The
results of operations for the six months ended June 30, 1999 are not necessarily
indicative of the results of the full year.
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 the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market. Work-in-process and finished goods include
material, labor and overhead.
Property, Plant and Equipment - All property, plant and equipment are
recorded at cost. Depreciation, which includes the amortization of assets
recorded under capital leases, is computed on the straight-line method over the
estimated useful lives of the assets. Repair and maintenance costs that do not
increase the useful life of the assets are charged to operations as incurred.
Allowance for Doubtful Accounts - The Company establishes an allowance for
uncollectible trade accounts receivable based on historical collection
experience and management's evaluation of collectibility of outstanding accounts
receivable. The allowance for doubtful accounts was $402,000 and $74,237 as of
June 30, 1999 and December 31, 1998, respectively.
Income Taxes - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of the management, it is more likely than not
that some portion of all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Earnings (Loss) per Share - Earnings per share are computed by dividing net
income (loss) by the weighted-average number of shares issued and outstanding
during the reporting period. Shares issued or purchased during the period affect
the amount of shares outstanding and are weighted by the fraction of the period
they are outstanding.
2. Inventories
Inventories as of June 30, 1999 and December 31, 1998 consisted of the
following:
June 30, 1999 December 31, 1998
Raw materials $ 352,514 $ 455,357
Work-in-progress 192,848 46,004
Finished Goods 195,565 41,294
--------- --------
Total $ 740,927 $ 542,655
3. Property, Plant and Equipment
Property, plant and equipment, at cost, and related accumulated
depreciation and amortization as of June 30, 1999 and December 31, 1998 are
summarized as follows:
June 30, 1999 December 31, 1998
Leasehold improvements $ 157,086 $ 96,999
Office furniture & equip 198,948 199,467
Machinery & equip 1,797,814 1,425,517
Equipment under capital leases 814,856 448,089
------- --------
$ 2,968,704 $ 2,170,072
Less:Accumulated depreciation 298,003 152,159
and amortization
Total $ 2,670,701 $ 2,017,913
========= =========
4. Licensing Fee - Land for Resale
On June 15, 1998, the Company entered an Exclusive Representative Agreement
with Rancho La Regina Agropecuaria, S.A., Calle Monte Cristi, Dominican Republic
(the "Licensee") (the "Exclusive Agreement"). Under the terms of the Exclusive
Agreement, TTL shall make available its Pyrolytic Carbon Extraction , Balanced
Oil Recovery System Lift , Tunnel Bat Reclamation Vehicle and any other item
offered as a result of intellectual rights held by TTL on an exclusive basis for
commercialization and resale throughout South and Central America, including the
Dominican Republic, Puerto Rico, Venezuela, Colombia, Ecuador, Brazil, Peru,
Bolivia, Paraguay, Argentina, Uruguay, Chile, Costa Rica and Mexico. In exchange
for these rights within the specified territory, the licensee shall pay the sum
of $5,500,000. Payment for the Company's license agreement was securitized
through a limited-use title to a Dominican Republic Federal House Authority
insured Public Urban Development consisting of a planned 2,500 home site,
750,000 square-meter parcel of land located at the Dominican Republic. Under the
terms of the Exclusive License, the Company receives a 10% interest in the sale
price of each lot sold or a net realizable cash flow from the home site sales of
$5,500,000 to be paid out pari passu with the sale of the 2,500 home sites. The
licensing fee was a one-time fee for the exclusive rights to the Company's
technologies. The Company realized 100% of the licensing fee in the second
quarter ended June 30, 1999. The Company expects to realize the payment evenly
over a 24-month period. The Company has established a reserve of 25% or
$1,375,000 against the license fee for potential undeveloped home sites. The
Dominican Republic Federal Housing Authority has conducted a feasibility study
and approved the 2,500 home site PUD for their FHA financing guarantee relating
to the purchase of each home site. The PUD expects to begin home site sales in
October 1999.
The following is a schedule of future cash flow from the land held for
resale as payment for the license agreement:
Land held for resale: $5,500,000
Less sale contingency reserve 1,375,000
----------
$4,125,000
Current portion: $1,546,875
Long-term portion 2,578,125
----------
$4,125,000
5. Related Party Transactions
Related Party Receivables:
The Company has the following receivables from officers and/or
stockholders:
June 30, 1999 December 31, 1998
Interest-free demand note-Unsecured:
Shareholders $ 41,979 $ 85,263
Officers 2,222 2,222
--------- ---------
Total $ 44,201 87,485
========= =========
Related Party Debt:
In June 1999, the company executed a $65,000 promissory note with DMV,
Inc., a company 100% owned by the Company's Chief Executive Officer. The note
bears interest at a rate of 12%, with 24 monthly principle and interest payments
of $3,060. The note is secured by the Company's accounts receivable, inventory,
and equipment.
6. Capital Leases
The following is an analysis of the equipment under capital leases by major
classes:
June 30, 1999 December 31, 1998
Machinery and equipment $ 814,856 $ 488,089
Less: Accumulated depreciation 117,324 53,003
---------- ----------
Total $ 697,532 $ 435,086
Amortization of leased equipment is included in depreciation
expense and totaled $70,746 and $50,753 for the six months ending June
30, 1999 and the year ending December 31, 1998, respectively. The
following is a schedule by years of future minimum lease payments as of
June 30, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
1999 110,790 111,359
2000 203,432 118,403
2001 200,843 115,817
2002 179,875 101,541
2003 155,568 61,549
--------- --------
Total minimum lease payments $ 850,508 $508,669
Less:Amount representing interest $ 179,450 $120,432
--------- --------
Present value of net minimum
lease payments $ 671,058 $388,237
The present value of net minimum lease payments are reflected in the
balance sheet as:
June 30, 1999 December 31, 1998
Current portion of capital lease obligations $96,550 $66,125
Capital lease obligations,
net of current portion 574,508 322,112
---------- ---------
$ 671,058 $ 388,237
7. Line of Credit
InterSource maintains a $50,000 bank line of credit with interest
payable monthly at bank prime (current 8.75%) plus 2%. At June 30, 1999 and
December 31, 1998, the amounts due were $49,574 and $49,574 respectively. The
line of credit matures November 30, 1999. Inventory and the personal guarantee
of certain stockholders secure the line.
8. Convertible Notes
On February 17, 1999, the Company sold $75,000 of Series 1999-A Eight
Percent (8%) convertible notes due January 1, 2002. Under the securities
purchase agreement, the investor will purchase another $75,000 in convertible
notes within 30 days after the Company files a Registration Statement or at such
time as the parties mutually agree.
The notes can be converted to common stock of the company at the conversion
price (the "Conversion Price") for each share of common stock equal to the
lesser of (x) one hundred percent (100%) of the lowest closing bid prices for
the Common Stock for the five (5) trading days immediately preceding the Closing
Date (defined as the date of this Note); or (y) eighty percent (80%) of the
lowest of the closing bid prices for the Common Stock for the five (5) trading
days immediately preceding the Conversion Date as reported on the National
Association of Securities Dealers OTC Bulletin Board Market.
Additionally, the investor was issued a warrant to purchase 75,000
shares of the Company's stock at $2.3375 per share through February 17, 2002.
Since the investor did not convert the notes on the day of closing, the
Company is required to recognize as interest expense the beneficial conversion
terms of the notes. This additional interest of $187,500 will be amortized over
the period between the closing date (February 17, 1999) and the first date (May
17, 1999) on which the notes can be converted.
At such time as the investor completes the agreement and pays the
company the balance of $750,000, the investor will receive a three-year warrant
to purchase 75,000 shares at 110% of the market price on the date of closing.
If the investor does not convert the second series of notes at the
second closing date, the Company will again be required to recognize additional
interest expense due to the beneficial conversion terms of notes. Assuming the
market price is unchanged as of the second closing, the Company would amortize
$187,500 over the three months beginning with the date of the second closing.
9. Capital Stock
Common
As of June 30, 1999 and December 31, 1998, there were 25,256,224 and 22,217,299
shares issued and outstanding respectively. Of the 25,256,224 issued and
outstanding at June 30, 1999, 6,034,056 shares are unrestricted and 19,222,168
shares are restricted as to the sale to other parties pursuant to the resale
provisions of Sec. Rule 144. Of the 22,217,299 shares issued and outstanding at
December 31, 1998, 6,034,056 shares are unrestricted and 16,183,243 shares are
restricted as to the sale to other parties pursuant to the resale provisions of
SEC rule 144.
Pursuant to existing agreements, the Company is obligated to issue an
additonal 2,500,000 common shares primarily in connection with the AquaFuel
Dominicana Joint Venture agrement. The Company anticipates these shares will
become fully vested during the third quarter, 1999.
Preferred
The Company is also authorized to issue 10 million shares of preferred
stock having a par value of $1 per share. As of June 30, 1999, there are 750,000
preferred shares issued and outstanding and no shares issued or outstanding at
December 31, 1998.
On March 30, 1999, the Company executed a series of agreements and amended
its articles of incorporation in order to complete the placement of $750,000 of
its Series A 7% Preferred Stock with an investor. Under the terms of the Series
A Preferred Stock, the holder may convert at 105% of the closing price anytime
up to 90 days after issuance; 85% of the closing price anytime between 91 days
and 119 days following closing; 80% of the closing price anytime between 120 and
149 days following closing, or; 75% of the closing price anytime after 150 days
following the closing date through March 30, 2004. The Company also issued
93,750 warrants exercisable at $2.40 per share to the investor in connection
with the sale of the Preferred Stock. As a part of the finders fee the Company
issued 50,000 warrants allowing for the purchase of a like number of shares of
the Company's stock at $2.40 per share through March 30, 2004. The Company will
recognize a dividend of $250,000 due to the conversion discounts noted above for
the period June 30, 1999 to August 30, 1999.
For the quarter ended June 30, 1999, the company has recognized $150,000 of the
total dividend which represents 60% of the total discount to be recognized as
determined by the discount dates.
10. Operating Leases
The Company has leases for buildings, which are classified as operating
leases. Total rent expense for all operating leases for June 30, 1999 and
December 31, 1998 was $ 176,195 and $ 17,154, respectively.
Future minimum lease payments under the noncancellable operating leases
with initial or remaining terms of one year or more are as follows:
1999 $ 126,565
2000 263,718
2001 276,904
2002 265,414
----------
$ 932,601
11. Income Taxes
The Company has cumulative net operating losses of approximately $5,200,000
at December 31, 1998, which are expected to provide future tax benefits of
approximately $1,768,000 and $18,280, respectively, for both Federal and State
purposes. A valuation allowance for the entire benefit has not been recognized
as it is not reasonable to estimate when or if the benefit will be realized.
These tax benefits expire beginning in 2012.
12. Noncash Disclosures
In 1999, the company issued 776,500 shares of restricted common stock for
services. These shares were recorded at a total of $669,010.
13. Contingencies
The year 2000 is expected to create computer problems for many
organizations because some computers and their programs only recognize the last
two digits in the year. For example, the year 1998 is recognized as 98. When the
year 2000 arrives some computers may not process information accurately or may
shut down. Management is in the process of evaluating their systems to correct
any problems which may be created by the year 2000. The Company plans to have
all their vital internal systems compliant before the year 2000 arrives.
However, it is not possible to insure that outside entities will be 2000
compliant.
14. Subsequent Events
Subsequent to December 31, 1998, certain officers of the Company offered
to rescind 1,950,000 shares of stock previously issued to them as compensation.
The Company has accepted the rescission offer to assist the officers in
mitigating potentially adverse personal income tax consequences of the stock
received as compensation in 1998. Under the terms of the rescission, the
officers will receive immediately exercisable three year stock options to
purchase 1,950,000 shares of the Company's stock at the 5-day trailing average
of the market price at the date of grant. The Company expects to complete the
exchange of shares for the stock options during the third quarter of 1999.
The Company will account for the stock options when issued under the
provisions of Accounting Principles Board pronouncement No. 25. Additionally,
the reacquired shares will be treated by the Company as treasury stock (contra
equity accounts). The treasury stock will be recorded at $1,246,050 (the
compensation value in 1998) and additional paid-in capital will be increased by
the same amount to reflect the stock rescission.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations for the Three Months Ended
March 31, 1999
Overview:
Toups Technology Licensing, Incorporated's ("TTL or "The Company") business
purpose is commercializing late-stage technologies, which are acquired through
license agreements and acquisitions. The Company's technologies and acquisitions
to date are in the energy, environmental, natural resources and healthcare
market place. At the end of 1998, the Company was comprised of nine divisions.
During the second quarter, 1999, the Company consolidated its nine divisions
into three major segments: Manufactured Products, Environmental Solutions, and
Electronic Commerce.
The consolidation was part of the Company's overall strategic plan, which allows
management the flexibility to take advantage of immediate opportunities while
continuing technological developments that build the foundation for tomorrow's
revenues. This plan has been established to transition the Company from a
technology developer to a technology manufacturer.
Management engineered two main events in the second quarter consistent with
furthering its goals:
1. One positively impacted its second quarter performance by completing
license agreement for the sale of the Company's technologies centered
around the Company's PCE process for a 2,500 home public urban development
in the Dominican Republic. This relationship not only impacted revenues and
earnings in the second quarter, but the Comany anticipates it will continue
to contribute to revenues and earnings into the foreseeable future.
2. The second completed an evaluation of the company's business activities and
set the stage for continued growth by structuring TTL into the three
divisions that represent its manufactured products, environmental solutions
and electronic commerce products.
About Toups Technology
The Manufactured Products Division is located in the company's 50,000 sf state
of the art manufacturing facility and includes:
o BORS Lift(TM), a device that increases production and decreases the
cost of producing oil in stripper wells, or relatively low volume oil
wells;
o Brounley RF Technologies, TTL's electronics manufacturing subsidiary
that makes radio frequency power generators for aerospace, military,
industrial and advanced communications applications;
o TTL Manufacturing, which provides production, metal fabrication,
machining and a wide variety of precision welding services for
internally manufactured products, other TTL Divisions and outside
customers; and,
o Tunnel Bat(TM), a mechanized vehicle used to clean out water drainage
culverts.
The Environmental Solutions Division includes:
o Waste Processing Technologies:
|X| PCE(TM), the waste treatment process that handles liquid and
solid hydrocarbon-based waste and makes Phoenix777(TM);
|X| HPDD(TM), the process that produces AquaFuel(TM) and renders
industrial and other hydrocarbon-based waste inert; and,
|X| Magnegas(TM), the process that uses carbon suspended in
hydrocarbon-based industrial waste or sewage to produce a gas
similar to AquaFuel(TM) while neutralizing the waste.
o Alternative Fuel Products features three unique clean-burning, high
performance fuel gasses derived from its waste processing
technologies:
|X| AquaFuel(TM)
|X| Phoenix777(TM), and
|X| Magenagas(TM)
The E-Commerce Division is the company's on-line distribution system that
includes:
* InterSource Health Care, which sells medical supplies, equipment and
pharmaceuticals through organizational joint-marketing programs such as
group purchasing, professional and corporate health care organizations and
over the internet; and,
* TTLOnline, TTL's internet distribution network and international outreach
that is currently under construction.
Results of Operations
Three Months Ended June 30, 1999, Compared to Three Months Ended June 30, 1998
For the three months ended June 30, 1999, the Company reported revenues from
operations of $5,852,627, a 5,262% increase over 1998 second quarter revenues of
$109,143. Second quarter revenues were primarily derived from an Exclusive
Representative Agreement with Rancho La Regina Agropecuaria, S.A., Calle Monte
Cristi, Dominican Republic (the "Licensee") (the "Exclusive Agreement"). Under
the terms of the Exclusive Agreement, the Company shall make available its
Pyrolytic Carbon Extraction, Balanced Oil Recovery System Lift, Tunnel Bat
Reclamation Vehicle and any other item offered as a result of intellectual
rights held by the Company on an exclusive basis for commercialization and
resale throughout South and Central America, including the Dominican Republic,
Puerto Rico, Venezuela, Colombia, Ecuador, Brazil, Peru, Bolivia, Paraguay,
Argentina, Uruguay, Chile, Costa Rica and Mexico. In exchange for these rights
within the specified territory, the licensee shall pay the sum of $5,500,000.
Payment for the Company's license agreement was securitized through a
limited-use title to a Dominican Republic Federal House Authority insured Public
Urban Development consisting of a planned 2,500 home site, 750,000 square-meter
parcel of land located at the Dominican Republic. Under the terms of the
Exclusive License, the Company receives a 10% interest in the sale price of each
lot sold or a net realizable cash flow from the home site sales of $5,500,000 to
be paid out pari passu with the sale of the 2,500 home sites. The licensing fee
was a one-time fee for the exclusive rights to the Company's technologies. The
Company realized 100% of the licensing fee in the second quarter ended June 30,
1999. The Company expects to realize the payment evenly over a 24-month period.
The Company has established a reserve of 25% or $1,375,000 against the license
fee for potential undeveloped home sites. The Dominican Republic Federal Housing
Authority has conducted a feasibility study and approved the 2,500 home site PUD
for their FHA financing guarantee relating to the purchase of each home site.
The PUD expects to begin home site sales in October 1999.
The Company's Manufactured Products division's efforts for the second quarter
were on production control, sales organization and building its quality
standards. The Company's Electronic Commerce division revenues come from
InterSource Health Care. InterSource upgraded its licensing status from a
pharmaceutical broker to a pharmaceutical wholesaler and has applied for its own
Drug Enforcement Agency (DEA) number so as to inventory pharmaceutical products.
The higher level of licensure allows InterSource to deal directly with the
national wholesalers and manufacturers under a more favorable pricing-tier
structure.
Cost of goods sold in the second quarter of 1999 was $241,850 or 4% of revenues,
which was down from 60% of revenues for the second quarter of 1998. The decrease
in cost of goods sold as a percentage of revenues in 1999 was the result of the
limited associated costs with the licensing fee.
The Company's selling and administrative expenses of $4,254,800 were comprised
of salaries, consulting fees, and other operating costs in the second quarter of
1999, up from $549,580 during the second quarter of 1998. The increase in
operating expenses was primarily the result of increased personnel expenses
incurred by the Company in building its infrastructure, assembling a team of
engineers, scientists and other professionals, and preparing its technologies
for market applications. As a percentage of sales, selling and administrative
expenses dropped to 73% of sales during the second quarter of 1999, down from
504% of sales during the second quarter of 1998. During the second quarter of
1999, the Company completed its reorganization by installing strong, experienced
divisional management while focusing the operational structure to maximize sales
and earnings.
As a result of these activities, the Company had second quarter 1999 operating
income of $1,355,977, an increase from an operating loss of $505,455 for the
same period of 1998.
Interest income during the second quarter period was generated from excess cash
balances resulting from the Company's private equity and debt offerings. The
$100,000 in interest expense was related to the beneficial conversion terms of
the convertible notes since the investor did not convert the notes on the day of
closing.
Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998
For the six months ended June 30, 1999, the Company reported revenues from
operations of $6,215,573, a 2,168% increase over 1998 six month revenues of
$274,040. Revenues were primarily derived from the $5.5 million Exclusive
Agreement involving the licensing of the Company's technologies.
Cost of goods sold in the first six-month period of 1999 was $600,498 or 10% of
revenues, which was down from 50% of revenues for the first six-month period of
1998. The decrease in cost of goods sold as a percentage of revenues in 1999 was
the result of the limited associated costs with the licensing fee.
The Company's selling and administrative expenses of $5,998,944 were comprised
of salaries, consulting fees, and other operating costs in the first six month
period of 1999, up from $795,829 during the first six month period of 1998. The
increase in operating expenses was primarily the result of increased personnel
expenses incurred by the Company in building its infrastructure, assembling a
team of engineers, scientists and other professionals, and preparing its
technologies for market applications. As a percentage of sales, selling and
administrative expenses dropped to 97% of sales during the first six-month
period, down from 290% of sales during the first six-month period of 1998.
During the first six-month period, the Company completed its reorganization by
installing strong, experienced divisional management while focusing the
operational structure to maximize sales and earnings
As a result of these activities, the Company had an operating loss of $383,869
for the first six month period of 1999, an increase from an operating loss of
$658,928 for the same period of 1998.
Interest income during the first six-month period of 1999 was generated from
excess cash balances resulting from the Company's private equity and debt
offerings. The $187,500 in interest expense was related to the beneficial
conversion terms of the convertible notes since the investor did not convert the
notes on the day of closing.
Liquidity and Capital Resources
Net cash used by operating activities of ($3,584,030) related primarily to the
Company's $568,068 net loss for the first six-month period and the $4,125,000
increase in the licensing fee receivable of land held for resale associated with
the licensing agreement in the Dominican Republic. The Company, however, had a
net working capital surplus of $2,160,994, an increase of $615,414 from December
31, 1998. The increase in working capital was principally the result of an
increase in financing activities through the issuance of $1,826,436 in common
stock through a private equity offering and the increase associated with the
licensing fee receivable.
At fiscal year-end 12-31-98, the Company had $1,768,999 in accounts receivable,
which represented 80% of the total sales at that time. The accounts receivable
were derived primarily from sales of the Balance Oil Recovery System ("BORS")
units in the fourth quarter of 1998. Below is a BORS accounts receivable
collection schedule through June 30, 1999:
12-31-98 Collections 3-31-99 Collections 6-30-99
$1,494,000 ($60,000) $1,434,000 ($103,350) *$955,650
* After reduction for $375,000 allowance for field modifications.
For units sold in 1998, the Company did not establish a reserve for product
defects or returns because the Company did not anticipate such problems would
arise. However, based on the harsh environment the units must withstand in the
field, modifications became necessary after a 30-day period of break-in time
during February 1999. The modifications were primarily for "wear and tear"
related items, which were not discovered until late February and early March.
The Company developed the list of field modifications to be added as
improvements during the second quarter and subsequent modifications began during
this timeframe. After the problems surfaced, the Company established a reserve
for product defects and returns of $375,000 or $3,750 per unit for the units
sold. The Company has spent approximately $2,000 per unit for current
modifications and has established an additional reserve of $1,750 per unit for
unforeseen repairs to those units in the future. While the Company had no
written warranty and return policy at the time the units were sold, the Company
stood behind its products to satisfy its customers and develop its reputation
for quality and service in the field. For the above reasons, the Company
extended its customer's payment terms to enable the modifications to be
completed and to ensure customer satisfaction. The Company plans an enhanced
unit design for the second generation of the BORS unit to go into production by
October 1999.
As of June 30,1999 the Company had $49,574 drawn on a $50,000 bank line of
credit for InterSource and a $65,000 loan due to the President of the Company.
The Company has no other bank financing or other traditional debt obligations
outstanding other than trade payables, accrued expenses, and capitalized lease
obligations due from the normal course of business.
The Company completed a convertible debt offering in the first quarter of 1999,
which included two tranches for a total of $1,500,000. The Company received
$750,000 in March 1999 and is contracted to receive the second tranch of
$750,000, which the Company expects in the third quarter of 1999 once its
registration statement is effective. The proceeds of the sale of this offering
will be available for future acquisitions, working capital, and general
corporate purposes.
The Company believes its existing cash, together with projected cash flows from
operations and the availability of future equity and debt offerings, will be
sufficient to meet the Company's cash requirements in 1999.
Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
management's estimates, assumptions, and projections. Major factors that could
cause results to differ materially from those expected by management include,
but are not limited to: the timing and nature of independent test results; the
nature of changes in laws and regulations that govern various aspects of the
Company's business; retention and productivity of key employees; the
availability of acquisition candidates and proprietary technologies at purchase
prices the Company believes to be a fair market; the direction and success of
competitors; management retention; and unanticipated market changes.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is
a party or of which the Company's property is subject.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 26, 1999, the Company conducted its annual meeting of shareholders
during which a vote was held for the election of Directors. The Company received
votes either in person or by Proxy representing approximately 81% of the
Company's shares entitled to vote. Of the approximate 81% of shares voted
in the annual election of directors, 98.8% voted in favor of the slate
proposed. The Directors so elected to serve until the next annual meeting of
shareholders were Chairman Leon H. Toups; Director Mark C. Clancy; Director
Michael P. Toups; Director Leslie Reagin, III and; Director Errol Lasseigne. All
five directors accepted their appointment and agreed to serve until the next
annual meeting of shareholders
ITEM 5 OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Toups Technology Licensing, Inc.
(Registrant)
May 20 1999
By Leon H. Toups, Chief Executive Officer
S/S LEON H. TOUPS
(Signature)
(Signature)