RISK FACTORS RELATING TO THE COMPANY
From Form SB-2/A for ONTRO INC filed on Apr 13 1998
NO OPERATING REVENUES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has experienced operating losses in each fiscal period since its
inception in 1994. As of December 31, 1997, the Company had a deficit
accumulated in the development stage of approximately $3.8 million and a working
capital deficiency of approximately $2.0 million. The Company expects to incur
additional operating losses through at least 1998 and possibly thereafter. The
Company has generated no revenues from operations. The development of the
Company's integrated thermal containers will require the commitment of
substantial resources in order to make it feasible for such containers to be
sold, or for the underlying technology to be licensed to third parties, and/or
for the Company to sell its proposed containers to distributors or others who
may be responsible for the manufacture and marketing of the proposed containers,
or to establish commercial scale manufacturing processes and facilities for such
manufacturing, and to establish additional quality control, marketing, sales and
administrative capabilities. There can be no assurance the Company will be
successful in any of these endeavors. There can be no assurance the Company will
enter into arrangements with third parties for product development and
commercialization, or will successfully market or license any containers. To
achieve profitable operations, the Company, alone or with others, must
successfully develop, manufacture and market its proprietary containers or
technologies. There can be no assurance the Company will be able to accomplish
these tasks. Significant delays in any of these matters could have a material
adverse impact on the Company's business, financial condition and results of
operations.
GOING CONCERN ASSUMPTION
The Company's independent auditors' report on the Company's financial
statements at December 31, 1997 and for the years ended December 31, 1996 and
1997 contains an explanatory paragraph indicating the Company had recurring
operating losses and net working capital and net capital deficiencies that raise
substantial doubt about its ability to continue as a going concern. In addition,
the Company had an accumulated deficit of approximately $3.8 million at December
31, 1997. The Company may require substantial additional funds in the future,
and there can be no assurance that any independent auditors' report on the
Company's future financial statements will not include a similar explanatory
paragraph if the Company is unable to raise sufficient funds or generate
sufficient cash from operations to cover the cost of its operations. The
existence of the explanatory paragraph may materially adversely affect the
Company's relationship with prospective customers and suppliers, and therefore
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FUTURE CAPITAL REQUIREMENTS UNCERTAIN; NO ASSURANCE OF FUTURE FUNDING
The Company will be required to make substantial expenditures to conduct
existing and planned research and development, to manufacture or contract for
the manufacture of, and to market its proposed containers. The net proceeds from
this Offering are expected to be approximately $15.9 million at an assumed
Offering Price of $5.50, assuming no exercise of the Over-allotment Option. In
the absence of
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receiving the proceeds of this Offering, the Company anticipates its existing
capital resources and cash generated from operations, if any, will be sufficient
to meet the Company's cash requirements only through the end of May 1998 at its
anticipated level of operations. The Company's future capital requirements will
depend upon numerous factors, including the amount of revenues generated from
operations (if any), the cost of the Company's sales and marketing activities
and the progress of the Company's research and development activities, none of
which can be predicted with certainty. The Company anticipates the proceeds of
this Offering, together with existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
for at least the next 18 to 24 months at its anticipated level of operations.
However, the Company may seek additional funding during the next 24 months and
could seek additional funding after such time. There can be no assurance any
additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the
Company could be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors purchasing the Units offered hereby. The
Company has experienced in the past, and may continue to experience, operational
difficulties and delays in its product development due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 1 of Notes to Financial Statements.
The Company has no established bank financing arrangements, and it is not
anticipated the Company will secure any bank financing in the foreseeable
future. The Company intends to finance the development and marketing of its
proposed containers through license agreements, distribution agreements,
strategic alliances and other arrangements with third parties. There can be no
assurance such license, distribution, marketing, strategic, or other
collaborative arrangements will be obtained, or that additional funds will be
available when needed, or on terms acceptable to the Company. If adequate funds
are not available, the Company may be required to relinquish rights to certain
of its technologies or potential products the Company would not otherwise
relinquish. The Company's future cash requirements will be affected by results
of research and development, collaborative relationships, if any, changes in the
focus and direction of the Company's research and development programs,
competitive and technological advances, and other factors. See "Use of Proceeds"
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition."
EARLY STAGE OF DEVELOPMENT; ABSENCE OF PRODUCTS
The Company is a development stage company. It has not completed the final
development of any product and, has not begun to market or generate revenues
from operations. The Company's first anticipated commercial product is a
self-heating beverage container which will require final design improvements,
testing, and marketing studies before it will likely be introduced in the
marketplace. There can be no assurance such efforts will be successful, and the
self-heating beverage container or any of the Company's other potential products
under development will be able to be manufactured at acceptable costs and
quality standards. See "Business--Manufacturing and Production." The Company
cannot predict with certainty when, if ever, it will begin to market the
proposed self-heating beverage container or any other integrated thermal
container it is developing, and currently does not expect them to be available
to consumers prior to the first quarter of 1999.
While the Company believes it is in the final stages of completing
development of its self-heating beverage container, additional work testing or
verifying different aspects of the containers is planned before the prototypes
will likely be put into commercial production. Such aspects include, but are not
limited to, the areas of seam failure, heat transfer, type of content issues,
heating control, pasteurization, timing and temperature ranges, appearance, and
packaging. The Company has identified certain unusual circumstances where the
self-heating container could heat to unacceptably high levels and jeopardize the
structural integrity of the container to the extent it might not withstand the
market reliability and quality control standards generally required of
containers for food and beverage products. The Company is
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currently researching the use of moderating agents and other design refinements
to inhibit such potential reactions. The Company is also researching different
compositions of the active ingredients to increase the predictability of the
heating reaction and simplify the manufacturing process. There can be no
assurance the Company will be successful in completing such design refinements
or achieve significant commercial distribution of its proposed products. See
"Business."
COMPLETE DEPENDENCE ON MARKET ACCEPTANCE OF INTEGRATED THERMAL CONTAINERS
The Company has not yet commenced sales of its self-heating beverage
container, which is currently the Company's only substantially developed
product. The Company anticipates it will derive substantially all of its
revenues from the sale of licenses of its integrated thermal container
technology. Consequently, the Company is entirely dependent on the successful
introduction and commercial acceptance of this technology. Unless and until such
integrated thermal containers receive market acceptance, the Company will not
likely have any material source of revenue. There can be no assurance that
integrated thermal containers will achieve market acceptance. The Company's
ability to license its technology or sell its containers will be substantially
dependent on the results of certain market studies, and there can be no
assurance the studies currently underway or to be conducted in the future will
demonstrate the level of probable market acceptance sufficient to interest
licensees and distributors to enter into agreements with the Company regarding
its products and technologies. Although the Company has one distributor for its
containers, commercial acceptance of its containers will require the Company to
successfully establish sales through this and other distribution channels, of
which there can be no assurance. Any such failure will likely have a material
adverse effect on the Company's business, financial condition and results of
operations. Failure of the Company's integrated thermal containers to achieve
significant market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Overview."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
If the Company's proposed integrated thermal containers are commercially
accepted, such markets are expected to be characterized by rapid technological
advances, evolving industry standards, and frequent new product introductions
and enhancements. The introduction by competitors of containers embodying new
integrated thermal technologies and the emergence of industry standards could
render the Company's containers currently under development obsolete or
unmarketable. The Company's future success may depend upon its ability to keep
pace with technological development and respond to evolving consumer demands.
Failure by the Company to anticipate or respond adequately to technological
developments or changes in consumer tastes, or significant delays in product
development, could damage the Company's potential position in the marketplace
and could result in less revenues and/or lack of profits. The Company may need
to increase the size of its product development staff in the near term to meet
these challenges. There can be no assurance the Company will be successful in
hiring and training adequate product development personnel to meet its needs or
that it will have the resources to do so. There can be no assurance the Company
will be successful in developing and marketing its proposed containers, new
products, or product enhancements, or will not experience significant delays in
such endeavors in the future. Any failure to successfully develop and market its
integrated thermal containers or other products and product enhancements could
have a material adverse effect on the Company's financial condition, business,
and results from operations. See "Business."
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