<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1997.
REGISTRATION NO. 333-22001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
THERMACELL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 2850 59-3223708
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
5419 PROVOST DRIVE
NEW PORT RICHEY, FLORIDA 34690-2939
(813) 938-3269
(Address, including zip code, and telephone number, including area code, of
small business issuer's principal executive offices)
JOHN PIDORENKO
5419 PROVOST DRIVE
NEW PORT RICHEY, FLORIDA 34690-2939
(813) 938-3269
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Michael T. Cronin, Esquire Gregory Sichenzia, Esq.
Johnson, Blakely, Pope, Bokor, Ruppel Singer Zamanzky LLP
& Burns, P.A. 40 Exchange Plaza
911 Chestnut Street New York, New York
P.O. Box 1368 (212) 809-8550
Clearwater, Florida 34617
(813) 461-1818
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] --
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] --
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE (3)
<S> <C> <C> <C> <C>
Units (2)........................... 100 $4.00 $400 $100
Common Stock, $.01 par value........ 100 $4.25 $425 --
Total........................................................................................... $100
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes an aggregate of 100 shares of Common Stock and 100 Series A
Redeemable Common Stock Purchase Warrants ("Series A Warrants") to be
offered to the public in 100 Units. Each Unit consists of one share of
Common Stock and Series A Warrant and will be sold to the public for $4.00
per Unit. No value has been assigned to the Series A Warrants.
(3) Previously paid.
Also registered hereunder pursuant to Rule 416 are an indeterminate number
of shares of Common Stock which may be issued pursuant to the anti-dilution
provisions applicable to the Series A Warrants, the Underwriter's Warrants and
the Series A Warrants issuable under the Underwriter's Warrants.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
FILED PURSUANT TO RULE 429 AND RELATING BACK TO SEC REGISTRATION NO. 333-4864-A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THERMACELL TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-B
This cross-reference sheet is provided pursuant to Regulation S-B, showing
the location in the Prospectus of information required by Part I of Form SB-2.
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Cover Page, Risk Factors, Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Selling Security Holder
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Selling
Security Holders; Underwriting;
9. Legal Proceedings.................................... Legal Matters
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Business; Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Security Ownership of Certain Beneficial Owners and
Management
12. Description of Securities to be Registered........... Front Cover Page of Prospectus; Prospectus Summary;
Capitalization; Selling Security Holders;
Description of Securities
13. Interests of Named Experts and Counsel............... Legal Matters; Experts
14. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Dividend Policy;
Selected Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Security Ownership of Certain
Beneficial Owners and Management; Certain
Transactions; Financial Statements
15. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
16. Organization Within Last Five Years.................. Prospectus Summary; Business
17. Description of Business.............................. Risk Factors; Business
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
18. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................ Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business
<C> <S> <C>
19. Description of Property.............................. Business
20. Certain Relationships and Related Transactions....... Certain Transactions
21. Market for Common Equity and Related Stockholder
Matters............................................. Prospectus Summary; Risk Factors; Description of
Securities
22. Executive Compensation............................... Management
23. Financial Statements................................. Financial Statements
24. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................. Not applicable
</TABLE>
(iii)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THAT REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 10, 1997
PROSPECTUS
[LOGO]
1,375,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
---------------------
THERMACELL TECHNOLOGIES, INC. (the "Company") is hereby offering to the
public 1,375,000 Units, each Unit consisting of one (1) share of Common Stock,
$.0001 par value ("Common Stock") and one (1) Series A Redeemable Common Stock
Purchase Warrant ("Warrants"). The Common Stock and the Warrants will be
separately transferable 90 days after the closing of this offering or such
earlier date as Monroe Parker Securities, Inc. (the "Underwriter") may
determine. Each Warrant shall entitle the holder thereof to purchase one (1)
share of Common Stock during the period commencing twelve (12) months from the
date of this Prospectus and expiring at the close of business on the last day of
the four (4) year period following the date of this Prospectus. The exercise
price of the Warrants shall be $4.25 per share. The Company may call the
Warrants for a redemption price of $.10 per Warrant commencing eighteen (18)
months after the date of this Prospectus (or earlier at the sole discretion of
the Underwriter) if notice of not less than thirty (30) days is given and the
closing sale price of the Common Stock has been at least 250% of the then
exercise price of the Warrants on all twenty (20) of the trading days ending on
the third day prior to the day on which notice is given. See "Description of
Securities."
This Prospectus also relates to the sale of up to 416,067 shares of Common
Stock of the Company by John Pidorenko, who is the Chief Executive Officer of
the Company (the "Selling Security Holder"). The Selling Security Holder has
entered into an agreement with Monroe Parker Securities (the "Underwriter") to
lock up his shares for at least a two year period from the date of this
Prospectus, which shares may be sold earlier with the consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Security Holder. The Selling Security Holder may offer
his shares in ordinary brokerage transactions in the over-the-counter market,
negotiated transactions or otherwise, at market prices prevailing at the time of
the sale or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Security Holder in
connection with the sale of his shares. The sale of such shares may have a
depressive effect on the market price of the Common Stock being offered pursuant
to this Prospectus. See "Risk Factors," "Selling Security Holder," "Certain
Transactions," "Shares Eligible for Future Sale," "Description of Securities,"
and "Underwriting."
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. The initial public offering prices of the Units and
Common Stock and the exercise price of the Warrants have been determined by
agreement between the Company and the Underwriter. For the factors considered in
determining these prices, see "Underwriting." The Company has applied for
quotation of the Units, Common Stock and Warrants on the NASDAQ SmallCap market
system under its symbols VCLL-U, VCLL and VCLL-W, respectively. There can be no
assurance that a market will develop for the Company's securities in the future
or that if developed, such market will be sustained.
--------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND AN IMMEDIATE SUBSTANTIAL
DILUTION. THE COMPANY HAS A LIMITED OPERATING EXPERIENCE, LOSSES FROM OPERATIONS
AND UNPROVEN COMMERCIAL VIABILITY OF ITS PRODUCTS AND TECHNOLOGY. SEE PAGES 6
THROUGH 12 FOR A DETAILED DESCRIPTION OF SUCH RISKS. THE SECURITIES OFFERED
HEREBY SHOULD NOT BE PURCHASED BY ANY INVESTOR WHO CANNOT AFFORD THE LOSS OF HIS
ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
DISCOUNT AND
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit........................................ $4.00 $.40 $3.60
Total (3)....................................... $5,500,000 $550,000 $4,950,000
</TABLE>
(FOOTNOTES CONTINUED ON PAGE 2)
The shares offered by this Prospectus (other than the shares offered by the
Selling Security Holder) are being offered by the Underwriter on a "firm
commitment" basis subject to prior sale, when, as and if accepted by the
Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject any order in whole or in
part in accordance of the Underwriting Agreement and applicable state law. It is
expected that delivery of the certificates representing the shares will be made
in the offices of the Underwriter, 2500 Westchester Avenue, Purchase, New York
10577, on or about March , 1997.
MONROE PARKER SECURITIES, INC.
The date of this Prospectus is March 10, 1997.
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(1) Does not include additional compensation to be received by the Underwriter,
including (i) a non-accountable expense payable to the Underwriter equal to
3% of the gross proceeds of this offering; (ii) warrants entitling the
Underwriter to purchase from the Company 137,500 Units (the "Underwriter
Warrants") at 165% of the public offering price for a period of 4 years
commencing 1 year after the date hereof; (iii) a 5 year finders fee
agreement based upon the transaction value of any transaction consummated by
the Company, which was originated by the Underwriter; (iv) the right of the
Underwriter for 5 years to designate one person to serve on the board of
directors. The Company has also agreed to indemnify the Underwriter against
certain liabilities incurred under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses of this offering estimated at $515,000 including
the Underwriter's non-accountable expense allowance and financial consulting
fee, payable by the Company.
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable within 45 days after the date of this Prospectus, to
purchase from it up to an additional 206,250 Units at the public offering
price of $4.00, less underwriting discounts and commissions, to cover Over-
Allotment Options, if any. If the Over-Allotment Options is exercised in
full, the total price to the public, underwriting discounts and commissions
and proceeds to the Company will be $6,325,000, $632,500 and $5,089,500,
respectively. See "Underwriting."
------------------------
SELLING SECURITY HOLDER MATTERS
The Selling Security Holder may be deemed to be an "underwriter" as defined
in the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Security Holder, any commissions paid to broker-dealers and,
if broker-dealers purchase any shares as principal, any profits received by such
broker-dealers on the resales of the shares may be deemed to be underwriting
discounts and commissions under the Securities Act. In addition, any profits
realized by the Selling Security Holder may be deemed to be underwriting
commissions. The Company has agreed to indemnify the Selling Security Holder
against certain liabilities, including liabilities under the Securities Act.
FOR CALIFORNIA RESIDENTS
THE UNITS WILL BE SOLD TO CALIFORNIA RESIDENTS PURSUANT TO A LIMITED
OFFERING QUALIFICATION UNDER A SUITABILITY STANDARD OF A LIQUID NET WORTH OF NOT
LESS THAN $225,000 (A NET WORTH EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES), PLUS $65,000 GROSS ANNUAL INCOME OR $500,000 LIQUID NET WORTH.
AFTER THE CLOSING OF THIS OFFERING THE UNDERWRITER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OF THE COMPANY AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. ALL SHARES AND PER SHARE AMOUNTS GIVE EFFECT TO A ONE FOR TEN
REVERSE STOCK SPLIT EFFECTIVE AUGUST 12, 1996. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS MEAN THERMACELL
TECHNOLOGIES, INC. THIS PROSPECTUS CONTAINS FORWARD LOOKING INFORMATION AND
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS CONTAINED IN
THIS PROSPECTUS.
THE COMPANY
The Company was incorporated in Florida in August, 1993, for the purpose of
developing, manufacturing and marketing insulating materials and coatings using
partially evacuated glass microspheres (sometimes referred to as "shells"). The
process of evacuation removes air from the sphere, thereby creating a vacuum. A
shell is a very small glass sphere (generally the size of a grain of salt) made
by crushing glass particles. The insertion of shells into various materials and
products ("shell technology") can substantially improve the thermal resistive
characteristics of such materials and products resulting in improved insulation
("R") values. The more a shell is evacuated, the higher the thermal resistive
characteristics of the product or material to which the shells are added.
Management of the Company believes that there is a broad range of
applications for introduction into products of evacuated or partially evacuated
shells, the effect of which is improved energy efficiency of such products
because of the inherent insulating characteristics provided by the glass
spheres. The Company's strategy is to commercially exploit the use of shell
technology to improve the "R" values of a number of products. In fiscal year
1995, the Company completed the development of its first product line which
consists of paints and coatings containing shells in order to reduce heat
transmission and improve insulation values of the products. The products are
marketed under the ThermaCool-TM- label.
On November 30, 1995, the Company acquired the assets of C.F. Darling Paint
& Chemicals, Inc., a paint manufacturing company, located in New Port Richey,
Florida ("Darling Paint") for $251,016 in cash. The Company acquired these
assets so that it would have a facility to produce and develop paints and
coatings for its ThermaCool-TM- product line which incorporates its shell
technology. Prior to this acquisition, the Company was required to purchase
paints and coatings from independent paint and coating manufacturers.
The Company's business strategy is to (i) expand the marketing and
distribution of ThermaCool-TM- paints and coatings, (ii) develop and manufacture
the Company's own shells and (iii) expand the shell technology to other
products, such as drywall, gypsum board, home siding materials and space foam
insulation. Other markets may include refrigeration and cooling systems,
automotive and transportation applications and cups and thermoses. There is no
assurance that the Company will be successful in penetrating any markets for the
ThermaCool-TM- product lines, developing commercially viable manufacturing
techniques or addressing other markets.
The Company's principal executive offices are located at 5419 Provost Drive,
New Port Richey, Florida 34690-2939, and its telephone number is (813) 938-3269.
The Company's fiscal year ends on November 30.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered (1)............ Up to 1,375,000 Units. Each Unit consists of one share
of Common Stock and one Warrant to purchase one share of
Common Stock at $4.25 per share.
Common Stock Presently Outstanding
(2)............................... 1,457,019 shares
Common Stock to be Outstanding
After Completion of Offering
(1)............................... 2,832,019 shares.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Warrants to be Outstanding........ 1,375,000. Each Warrant shall entitle the holder thereof
to purchase one (1) share of Common Stock during the
period commencing twelve (12) months from the date of
this Prospectus and expiring at the close of business on
the last day of the four (4) year period following the
date of this Prospectus. The exercise price of the
Warrants shall be $4.25 per share. The Company may call
the Warrants for a redemption price of $.10 per Warrant
commencing eighteen (18) months after the date of this
Prospectus (or earlier at the sole discretion of the
Underwriter) if notice of not less than thirty (30) days
is given and the closing sale price of the Common Stock
has been at least 250% of the then exercise price of the
Warrants on all twenty (20) of the trading days ending
on the third day prior to the day on which notice is
given. See "Description of Securities -- Warrants."
Estimated Net Proceeds............ $4,435,000
Use of Proceeds................... The estimated net proceeds of this offering will be
principally utilized by the Company for (i) advertising
and marketing, (ii) acquisition of property, plant and
equipment, (iii) repayment of loans, (iv) new product
applications and development, (v) automating and
updating the Darling Paint equipment and facilities and
(vi) working capital. See "Use of Proceeds."
Risk Factors...................... The securities offered hereby involve a high degree of
risk and immediate substantial dilution from the public
offering price. See "Risk Factors."
Shares Available for Resale....... The Company is also registering up to 416,067 shares of
Common Stock. See "Selling Security Holders."
Proposed NASDAQ SmallCap
Market Symbols (3)................ Common Stock "VCLL", Units "VCLL-U", Warrants "VCLL-W".
</TABLE>
- ------------------------
(1) Prior to this offering, the Company in a "best efforts" underwriting,
offered a minimum of 833,333 Units in a maximum of 1,833,333 Units at $6.00
per Unit under a registration statement on Form SB-2 declared effective by
the Commission on August 20, 1996. This offering did not close. All funds
received and placed in escrow as a result of that offering have been
returned to the investors and the escrow account has been closed.
(2) Excludes (i) the Warrants, (ii) the Over-Allotment Option and Underwriter's
Warrants, (iii) 350,000 shares reserved for issuance under the Company's
1996 Stock Option Plan, (iv) 500,000 shares reserved upon exercise of
options granted to Mr. Pidorenko in connection with his employment agreement
exercisable at $4.00 for five years. Includes the 416,067 shares of Common
Stock registered on behalf of the Selling Security Holder. Also includes
550,583 shares of Common Stock issued to retire $938,500 of certain
convertible note obligations plus accrued interest thereon. See "Certain
Transactions."
(3) There can be no assurance that the Company's application for NASDAQ SmallCap
Market listing will be approved. Inclusion in the NASDAQ SmallCap Market
does not imply that a meaningful, sustained market for the Units, Common
Stock and Warrants will develop. Moreover, continued inclusion in NASDAQ
SmallCap Market is subject to certain maintenance criteria. The failure to
meet these maintenance criteria in the future may result in a
discontinuation of the inclusion of the Company's Units, Common Stock, and
Warrants on the NASDAQ SmallCap Market, which would have an adverse effect
on the market for these securities. See "Risk Factors -- "No Assurance of
NASDAQ SmallCap Listing" and "Broker-Dealer Sales of Company's Securities."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
INCOME STATEMENT DATA (1)
Total revenue....................................................................... $ 615,845 $ 43,691
Net loss............................................................................ $ (1,033,553) $ (314,857)
Net loss per share.................................................................. $ (1.34) $ (0.53)
Shares used in per share computation................................................ 771,154 626,191
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-------------------------- AS ADJUSTED
1996 1995 (3)(4)
------------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................................................... $ 1,537,273 $ 734,733 $ 5,012,273
Working capital (2)................................................... $ (2,444,417) $ (874,313) $ 3,148,739
Long-term debt........................................................ $ $ -- $ --
Stockholders' equity.................................................. $ (1,363,939) $ (330,395) $ 4,229,217
Net tangible book value............................................... $ $ (448,719) $ 3,606,773
Net tangible book per share........................................... $ (1.70) $ (0.67) $ 1.27
</TABLE>
- ------------------------
(1) Excludes operating activity of Darling Paint, which the Company acquired
November 30, 1995. Had the operations of the paint company been included in
the Company's financial statements for the years ended November 30, 1995, a
summary pro forma effect on the Company's operating results would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1995
----------------------------
<S> <C>
Total revenue......................................... $ 458,041
Net loss.............................................. $ (268,989)
Net loss per share.................................... $ (.43)
Shares used in per share computation.................. 626,191
</TABLE>
(2) Includes convertible debt of $740,203 and $1,898,500 at November 30, 1995
and November 30, 1996, respectively. Assumes that $938,500 such convertible
debt plus accrued interest thereon has been converted into Common Stock.
(3) Adjusted to reflect the sale of the 1,375,000 Units after deduction of the
underwriting discounts and commissions payable by the Company, and estimated
offering expenses.
(4) Excludes the (i) Over-Allotment Option (ii) Underwriter's Warrants (iii)
350,000 shares reserved for issuance under the Company's 1996 Stock Option
Plan, (iv) 500,000 shares reserved upon exercise of options granted to Mr.
Pidorenko in connection with his employment agreement exercisable at $4.00
for five years. Also includes the effect of issuing 550,583 shares of Common
Stock to retire $938,500 of certain convertible note obligations, plus
accrued interest thereon. See "Certain Transactions."
5
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve a
high degree of risk, including the principal risk factors described below.
Prospective investors should carefully consider the various risks and
speculative factors inherent in and affecting the business of the Company and
this offering prior to making an investment in the Company. Purchase of the
Company's securities should not be made by investors who do not have sufficient
financial means to sustain the loss of their entire investment.
Prospective investors should carefully consider the following risk factors:
1. LIMITED OPERATING EXPERIENCE. The Company operates as a development
stage company principally engaged in product and market research, product
development activities, initial product manufacturing and marketing, obtaining
capital to fund operations, recruitment of management and formation of a
business plan, and therefore has a limited operating history. Accordingly, the
Company remains subject to the risks inherent in the creation and operation of a
new business, including unpredictable expenses, uncertainty of market acceptance
of products utilizing shells and lack of capital resources. There is no
assurance that the Company will become profitable. See "Business."
2. LOSSES FROM OPERATIONS; ACCUMULATED DEFICIT; NEGATIVE NET WORTH;
NEGATIVE WORKING CAPITAL AND GOING CONCERN OPINION. The Company has sustained
significant operating losses since its inception resulting in an accumulated
deficit of approximately $1,548,840 at November 30, 1996. As of November 30,
1996, the Company has a negative net tangible net worth of $(1,475,950) and
negative working capital of $(2,444,417). The Company's independent auditors in
their report regarding the Company's financial statement as of November 30,
1996, indicate that since the Company has a history of reccurring losses from
operations and insufficient cash resources to fund a plan of operations,
substantial doubt exists as to the Company's ability to continue as a going
concern. Management's strategy of expanding the ThermaCool-TM- product line,
developing a commercially viable manufacturing process for shells and expansion
into new markets for its shell technology will result in the Company incurring
substantial additional losses due to the costs associated with these strategies.
The Company is not currently generating sufficient revenues from its operations
to repay existing indebtedness or fund product development activities. The
Company expects to use a portion of the net proceeds of this offering for
repayment of certain of its existing indebtedness and for general working
capital purposes. The Company will continue to incur significant losses until
the Company is able to increase its sales, expand its product line and increase
its distribution capabilities sufficiently to offset ongoing operating and
expansion costs. There can be no assurance that the Company will ever generate
sufficient revenues to allow the Company to achieve profitable operations. See
"Use of Proceeds," "Selected Financial Data," and "Business."
3. NO ASSURANCE OF SUCCESSFUL BUSINESS STRATEGY; LIMITED PRODUCTS. There
is no assurance that the Company's business strategy will be successful. A
substantial portion of the proceeds of this offering will be used to develop and
manufacture shells. If management's estimates prove to be incorrect or if
unforeseen technological or production difficulties are encountered, the
Company's ability to develop and operate it's planned shell manufacturing
facilities will be adversely affected. To date, evacuated or substantially
evacuated glass shells have not been manufactured on a commercially viable
basis. There is no assurance that the manufacturing facilities and techniques
used by the Company will be commercially viable or profitable. See "Business --
Manufacturing Facilities and Techniques." Although the Company sells paints
under its "Scientific Coatings" product line, these paints do not utilize shell
technology. The application of shell technology under the ThermaCool-TM- label
is currently limited to roof coatings and exterior wall coatings where the
energy efficiency characteristics are most beneficial. There is no assurance
that the Company will be able to expand its ThermaCool-TM- product line beyond
coating. There is no assurance that the commercial exploitation of shell
technology beyond coatings will be successful. See "Business -- Business
Strategy."
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4. DEPENDENCE ON NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE. The
Company's continued existence is dependent on increased consumer awareness and
acceptance of the Company's existing and new products which promote energy
efficiency through the use of partially evacuated shells. No assurances can be
given that the Company will be able to successfully develop new products, that
any new products developed will meet with consumer acceptance in the
marketplace, or that the Company's current products will be accepted by
consumers. The acceptance and demand for the Company's products are based upon
the need for, and technological acceptance, of the Company's shell technology
which requires higher upfront costs for a customer. No assurance can be given
that the Company's existing or future products can be sold at acceptable gross
profit levels or that the Company will be able to develop, manufacture and
distribute new products at such levels. See "Business."
5. POSSIBLE NEED FOR ADDITIONAL FINANCING; REPAYMENT OF DEBT. The Company
may require additional financing in the future to support its operations and any
expansion plans may result in additional dilution to the investors in this
offering. There can be no assurance that the Company's operations will supply
the revenues necessary for such purpose. There can be no assurances given that
such financing will be available in the amounts required or, if available, that
such financing may be obtained on terms satisfactory to the Company. A
substantial portion of the proceeds of this offering will be used to repay
existing debt, further reducing the Company's working capital. See "Financial
Statements."
6. LOSS OF KEY PERSONNEL. Although the Company has an employment agreement
with Mr. Pidorenko which expires on December 30, 2001, the loss of the services
of Mr. Pidorenko, the Company's Chief Executive Officer, could have a material
adverse effect on the Company. The Company does not maintain any key man life
insurance on the life of Mr. Pidorenko. In addition, there is no assurance the
Company will be able to attract other competent and qualified employees on terms
deemed acceptable to the Company to implement its expansion plans. See
"Management."
7. NO ASSURANCE OF PATENT PROTECTION. The Company intends to devote a
substantial portion of the proceeds of this offering to secure the facility and
equipment necessary to manufacture partially evacuated glass spheres. While
management believes that the processes as described in its patent applications
to manufacture evacuated shells are based upon sound scientific principles,
there is no assurance that the Company will be successful in manufacturing
commercially viable partially evacuated shells on a large scale basis. The
Company has filed a patent application with the United States Patent and
Trademark Office, which covers certain processes that the Company proposes to
utilize relating to the production of evacuated microspheres which improve
energy efficiency and the application of shells in paints and coatings. There is
no assurance that the Company's patent applications will be granted or that the
Company will be able to commercially exploit such patent rights. If assertions
were made that the Company's products or technology infringe the intellectual
property rights of others, the Company could be prohibited from using such
technology or marketing such products and could also incur substantial costs to
redesign its products or defend any legal action that may be taken against the
Company. In addition, there can be no assurance that any patents which may be
issued to the Company will not be challenged, invalidated or circumvented or
that any rights granted thereunder will provide proprietary protection to the
Company. See "Business -- Patents."
8. PRODUCT LIABILITY CLAIMS. The Company could be subject to product
liability claims in connection with the use of the products that it sells. There
can be no assurance that the Company would have sufficient resources to satisfy
any liability resulting from the product claims or would be able to have its
customers indemnify or insure the Company against such claims. Although the
Company currently carries product liability insurance there can be no assurance
that such coverage will be adequate in terms and scope to protect the Company
against material adverse effect in the event of a successful product liability
claim.
9. ENVIRONMENTAL CONCERNS. The process of formulating paints and coatings
involves the mixing of resins and other substances, which if spilled, could
potentially contaminate the soil or ground water at or
7
<PAGE>
surrounding the Company's facilities. The Company believes that it is
substantial compliance with all applicable laws and regulations. However,
changes to current laws or regulations or an unforeseen spill or accident at the
Company's facilities could have a material adverse effect on the Company.
10. COMPETITION. The paint and coatings business is extremely competitive.
There is no assurance that the Company will be able to compete profitably in the
paint and insulative coatings industry or other industries in which the
Company's shell technology may be applicable in the future. The Company does not
anticipate that there are significant barriers of entry which would prevent
competitors from introducing comparable products and technologies. The Company
has identified at least three suppliers of partially evacuated shells. All of
these suppliers provide shells to the Company and are substantially larger and
better capitalized that the Company. There is no assurance that these suppliers
will not market comparable products and technologies to those of the Company.
The Company expects that if its products become successful, competitors may be
more likely to develop and introduce into the marketplace comparable products
and technologies. Such increased competition may result in reduced sales,
reduced margins, or both. The Company is and will be competing with larger,
better capitalized companies which are better positioned to respond to shifts in
consumer demand and other market-based changes. If other companies successfully
introduce competing products before the Company achieves significant market
entrenchment, the Company could experience sales below its expectations, or the
Company could be forced to reduce its sales price, or both, which could have a
material adverse effect on the Company's operating results. See "Business --
Competition."
11. CHANGES IN APPLICATION OF PROCEEDS AND ACQUISITIONS. Under certain
circumstances, the Company may find it necessary or advisable to reallocate some
of the proceeds among the currently intended uses of such proceeds. Accordingly,
the Company and its management will have discretion as to the application of
such proceeds. In addition, a portion of the proceeds may be used to consummate
an acquisition of other businessess or products. In seeking such a business
venture, management will focus upon businesses that are complimentary to the
Company's shell technology or which would be a viable application for commercial
utilization of the Company's shell technology. The company will not acquire or
merge with a business or corporation in which the company's officers, directors
or promoters or their affiliates or associates, have any direct or indirect
ownership interest. It is anticipated that any such acquisitions would involve
companies located in the sunbelt region of the United States. There are no
pending agreements or understandings for any acquisitions. See "Use of Proceeds"
and "Business -- Business Strategy."
12. FUTURE ACQUISITIONS. The Company may expand its business, in part,
through the acquisition of compatible products or businesses. In attempting to
locate and consummate such acquisitions, the Company may be competing with other
prospective purchasers of the acquisition candidate, many of which may have
greater resources than the Company. There can be no assurance that suitable
acquisition candidates can be identified and acquired on terms favorable to the
Company, or that the acquired product lines or operations can be profitably
operated or integrated into the Company's operations. In addition, any
internally generated growth experienced by the Company could place significant
demands on the Company's management, thereby restricting or limiting its
available time and opportunity to identify and evaluate potential acquisition,
candidates. The ability of the Company to consummate acquisitions will depend on
it's ability, to obtain sufficient financing on acceptable terms, of which there
can be no assurance. To the extent management is successful in identifying
suitable companies or products lines for acquisition, the Company may deem it
necessary or advisable to finance such acquisitions through the issuance of
Common Stock, securities convertible into Common Stock, or debt financing, or a
combination thereof. In such cases, the issuance of Common Stock or convertible
securities could result in further dilution to the purchasers at the time of
such issuance or conversion. The issuance of debt to finance acquisitions may
result, among other things, in the encumbrance of certain of the Company's
assets, may impede the Company's ability to obtain bank financing, decrease the
Company's liquidity, decrease the
8
<PAGE>
Company's liquidity and adversely affect the Company's ability to declare and
pay dividends to its stockholders. See "Use of Proceeds" and "Business --
Business Strategy."
13. UNSUCCESSFUL PRIOR PUBLIC OFFERING. Prior to this offering, the
Company, in a "best efforts" underwriting, offered a minimum of 833,333 Units in
a maximum of a 1,833,333 Units at $6.00 per Unit under a registration statement
on Form SB-2 declared effective by the Commission on August 28, 1996. All funds
received and placed in escrow as a result of that offering have been returned to
the investors and the escrow account has been closed. The failure to close this
prior public offering has adversely affected the Company. The Company has closed
its Sarasota, Florida retail sales office, vacated its executive offices,
curtailed marketing plans and reduced the number of the Company's employees. The
Company currently conducts its business from the Darling Paint facilities
located in New Port Richey, Florida. Because this prior offering did not close,
the Company was, as of November 30, 1996 in default of $505,000 of its bridge
loans. As a condition to closing this offering, the Company has converted
$938,500 of its outstanding convertible notes plus accrued interest thereon,
into 550,583 shares of Common Stock, subject to the lock up restrictions
described elsewhere in this Prospectus. Although management believes that the
implementation of organizational and operational changes necessitated by the
failure to close the public offering along with the proceeds from this offering
will enable the Company continue as a going concern, no assurance can be given
as to the ultimate success of any of these actions.
14. LIMITATION OF DIRECTORS' LIABILITY. The Company's Certificate of
Incorporation contains a provision which, in substance, eliminates the personal
liability of the directors to the Company and its stockholders for monetary
damages for breaches of their fiduciary duties as directors to the fullest
extent permitted by Florida law. By virtue of this provision, under current
Florida law a director of the Company will not be personally liable for monetary
damages for breach of his fiduciary duty, except for liability for: (a) breach
of his duty of loyalty to the Company or to its stockholders; (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (c) dividends or stock repurchases or redemptions that are
unlawful under Florida laws; and (d) any transaction from which he receives an
improper personal benefit. This provision pertains only to breaches of duty by
directors and not in any other corporate capacity, such as officers, and limits
liability only for breaches of fiduciary duties under Florida corporate law and
not for violations of other laws such as the federal securities laws. As a
result of the inclusion of such provision, stockholders may be unable to recover
monetary damages against directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. The inclusion of this provision in the
Company's Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders. It is the position of
the Securities and Exchange Commission that, insofar as the foregoing provisions
may be invoked to disclaim liability for damages arising under the Securities
Act, such provisions are against public policy as expressed in the Securities
Act and are therefore unenforceable.
15. NO DIVIDENDS AND NONE ANTICIPATED. The payment by the Company of
dividends, if any, in the future rests within the discretion of its Board of
Directors and will depend, among other things, upon the Company's earnings, its
capital requirements and its financial condition, as well as other relevant
factors. The Company has not paid or declared any dividends upon its Common
Stock since its inception and by reason of its present financial status and its
contemplated future financial requirements does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future. See
"Dividend Policy."
16. LIMITED SOURCES OF SUPPLIERS; INTERRUPTION OF RAW
MATERIALS. Currently, the Company has identified three sources to supply
partially evacuated shells which it utilizes in its ThermaCool-TM- product line.
To date, the Company has relied exclusively upon one such supplier for acquiring
the partially evacuated shells which are utilized in its ThermaCool-TM- product
line. There is no assurance that this supplier will
9
<PAGE>
continue to provide the Company with partially evacuated shells at favorable
prices, on a timely basis or at all. In addition, the inability of the Company
to obtain other raw materials necessary to produce its ThermaCool-TM- painting
and coating product lines, such as resins, would adversely affect the Company.
See "Business."
17. NO ASSURANCE OF TRADEMARKS. The Company believes that its trademarks
have significant value and are important to the marketing of its products. The
Company has registered and received approval for the mark "ThermaCool"-TM- with
the United States Patent and Trademark Office. The Company intends to file other
applications to register additional marks. There can be no assurance, however,
that the Company's future products will result in registration for additional
marks, that such marks will not violate the proprietary rights of others, or
that the Company's marks would be upheld if challenged. In addition, there can
be no assurance that the Company will have the financial resources necessary to
enforce or defend its trademarks and service marks. Any difficulty experienced
by the Company in utilizing its marks or defending an infringement action could
have a material adverse effect on the Company.
18. CONTROL OF THE COMPANY BY THE COMPANY'S CHIEF EXECUTIVE OFFICER. Upon
completion of this offering, John Pidorenko, the Company's Chief Executive
Officer, will own approximately 17.6% of the outstanding Common Stock (excludes
options to acquire up to 500,000 shares of Common Stock exercisable at $4.00 per
share). In addition, Mr. Pidorenko owns 5,000,000 shares of Series A Voting
Convertible Preferred Stock (the "Voting Preferred Stock"). Each share of Voting
Preferred Stock has one-half vote per share on all matters submitted to the
holders of Common Stock. The Voting Preferred Stock was issued to Mr. Pidorenko
to provide him with control of the Company after completion of this offering.
The issuance of the Voting Preferred Stock to Mr. Pidorenko constitutes an
anti-takeover action. Mr. Pidorenko is provided the opportunity to convert his
Voting Preferred Stock into up to 1,250,000 shares of Common Stock subject to
the Company achieving certain earnings objectives. See "Management" and "Certain
Transactions".
19. CONFLICTS OF INTERESTS; AFFILIATED PARTY TRANSACTIONS. Mr. Pidorenko
has an employment agreement with the Company which provides for a base salary of
$90,000, expense reimbursement and the right to bonus compensation. Mr.
Pidorenko owns 416,067 shares of the Company's Common Stock being registered
under the Securities Act as part of this Prospectus, which he received in
connection with the formation of the Company and the contribution of certain
proprietary rights. Mr. Pidorenko is the holder of options which entitles him to
acquire up to 500,000 shares of the Company's Common Stock exercisable of $4.00
for five years. Mr. Pidorenko is also the holder of the Voting Preferred Stock
which provides him with control over the affairs of the Company and the ability
to convert such Voting Preferred Stock into shares of Common Stock. During
fiscal year 1996, the Company advanced $257,134 to Mr. Pidorenko and received
payment of advances of $226,031. Certain relatives and family members of Mr.
Pidorenko are employed by the Company. Kendall B. Stiles, M.D., is the
brother-in-law of Mr. Pidorenko and is the holder of 71,542 shares. See
"Management", and "Certain Transactions."
20. IMMEDIATE SUBSTANTIAL DILUTION. This offering involves an immediate
and substantial dilution of $2.73 per share from the offering price
(approximately 68% of the offering price). See "Dilution."
21. COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. The private
placement of $1,898,500 of the Company's securities consisting of certain notes
and common stock during the period September 1995 through April 1996 was not
registered under the Securities Act or the blue sky laws of various states in
reliance upon the provisions of exemptions from registration under applicable
laws. There is no assurance that these private offerings qualify for such
exemptions due to, among other things, the adequacy of disclosure and the manner
of distribution of such offering materials. If and to the extent that suits for
rescission are successfully concluded by such investors for failure to register
the prior private placements of the Company's securities pursuant to state or
federal securities laws or for acts or omissions constituting certain prohibited
practices pursuant to federal and state securities laws, both the capital and
assets of the Company could be adversely affected, thus jeopardizing the ability
of the Company to operate successfully.
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22. SHARES ELIGIBLE FOR FUTURE SALE. As of March 7, 1997, the Company had
outstanding 1,457,019 shares of its Common Stock. Of this amount, 416,067 shares
of Common Stock are being registered on behalf of the Selling Security Holder.
Holders of 1,290,743 shares of Common Stock (89% of current outstanding shares)
have agreed not to sell their shares for a period of at least two (2) years from
the date of this Prospectus, without the Underwriter's consent. The Underwriter
has the right to extend this lock-up period for one (1) additional year if the
Company has not achieved during any 12 consecutive month period a cumulative
pre-tax profit or income, calculated in accordance with GAAP, of at least
$3,000,000. Approximately 60,000 shares of the Company's common stock will be
available for resale pursuant to Rule 144 after the closing of this offering.
The possibility of future sales by existing stockholders under Rule 144 or
otherwise may, in the future, have a depressive effect on the market price of
the Common Stock, and such sales, if substantial, might also adversely affect
the Company's ability to raise additional capital. See "Description of
Securities," and "Underwriting."
23. ANTI-TAKEOVER PROVISIONS. Florida law, the Certificate of
Incorporation and By-Laws of the Company contain various provisions which may
have the effect of discouraging future takeover attempts which the Company's
stockholders may deem to be in their best interests and perpetuating the
Company's existing management. Mr. Pidorenko's ownership of the Voting Preferred
Stock provides him with control over the business and affairs of the Company. In
addition, in certain circumstances, Florida law requires the approval of
two-thirds of all shares eligible to vote for certain business combinations
involving a stockholder owning 15% or more of the Company's voting securities,
excluding the voting power held by such stockholder. In addition to the
potential impact on future takeover attempts and the possible perpetuation of
management, the existence of all of the above provisions could have an adverse
effect on the market price of the securities offered hereby. See "Management"
and "Description of Securities."
25. LACK OF PUBLIC TRADING MARKET; OFFERING PRICE AND POSSIBLE FLUCTUATION
OF STOCK PRICE. Prior to this offering, there has been no public market for the
Units, Common Stock or Warrants of the Company and there can be no assurance
that a regular or active public trading market for the securities will develop
or be sustained after this offering. The initial public offering price of the
Units and Common Stock and the exercise price of the Warrants has been
determined solely by negotiations between the Company and the Underwriter, and
may not be indicative of the market prices for the securities after this
offering. Factors such as quarterly variations in the Company's financial
results, announcements by the Company or others, and development affecting the
Company or its customers could cause the market price of the Units, Common Stock
or Warrants to fluctuate substantially. In addition, the stock market is
sometimes characterized by extreme price and value fluctuations, which may have
a substantial effect on the market prices of the Company's securities and
related effect on the Company's operating performance. See "Description of
Securities" and "Underwriting."
26. CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants have the right to exercise the Warrants for
the purchase of shares of the Common Stock only if a current prospectus relating
to such shares is then in effect and only if shares are qualified for sale under
applicable securities laws of the states in which the various Warrant holders
reside. The maintenance of a currently effective registration statement could
result in substantial expense to the Company. There is no assurance the Company
will be able to keep this Prospectus covering the shares issuable upon the
exercise of the Warrants current. The Warrants may be deprived of any value if a
current prospectus covering the shares issuable upon exercise thereof is not
kept effective or if such shares are not registered in the states in which
certain Warrant holders reside. See "Description of Securities -- Warrants."
27. BROKER-DEALER SALES OF COMPANY'S SECURITIES. In the absence of a
security being quoted on NASDAQ, a market price of at least $5.00 per share or
the Company having in excess of $2,000,000 in net tangible assets, trading in
the Company's securities may be covered by a Commission rule that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally persons with net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse). For transactions
covered by the
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<PAGE>
rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchasers' written agreement to the transaction prior
to the sale. Consequently, the rule affects the ability of broker-dealers to
sell the Company's securities and also may affect the ability of purchasers in
this offering to sell their securities in the secondary market.
Previously, the Commission adopted certain rules ("Rules") under the
Exchange Act requiring broker/dealers engaging in certain transactions with
their customers in specified equity securities falling within the definition of
"penny stock" (generally non-NASDAQ securities priced below $5.00 per share) to
provide to those customers certain specified information. Unless the transaction
is exempt under the Rules, broker/dealers effecting customer transactions in
such defined penny stocks are required to provide their customers with: (i) a
risk disclosure document; (ii) disclosure of current bid and ask quotations, if
any; (iii) disclosure of the compensation of the broker/dealers and its sales
person in the transaction; and (iv) monthly account statements showing the
market value of each penny stock held in the customer's account.
As a result of the aforesaid rules regulating penny stocks, the market
liquidity for the Company's securities could be severely adversely affected by
limiting the ability of broker-dealers to sell the Company's securities and the
ability of purchasers in this offering to sell their securities in the secondary
market.
28. NO ASSURANCE OF MAINTAINING NASDAQ SMALLCAP LISTING. Although
management believes that the proceeds of this offering together with anticipated
growth will result in profitable operations there is no assurance the Company
will not generate losses or a reduction in asset value such that the Company
will be able to maintain a NASDAQ SmallCap Market system listing. In addition,
NASDAQ may change its continued listing requirements to a level the Company
cannot maintain. If the Company were to lose its NASDAQ SmallCap Listing
privileges investors will not have access to the liquidity and trading
privileges afforded by the NASDAQ SmallCap market. In such event the Company's
securities would trade in the over-the-counter electronic bulletin board or
"pink sheets". As a result, the market liquidity and an investor's ability to
resell the Company's securities could be severely adversely affected.
29. SELLING SECURITY HOLDER RISKS AND LIABILITIES. The sale of shares by
Selling Security Holder can have a depressive effect on the trading price of the
Common Stock acquired by investors in this offering or from the Selling Security
Holder. If the Company, for whatever reason, is unable to keep this Prospectus
current under applicable state and federal securities laws, the Selling Security
Holder may be unable to sell their shares outside of Rule 144 or another
available exemption from registration under Section 5 of the Securities Act. The
Selling Security Holder through his participation in the distribution of the
shares offered by this Prospectus may be deemed to be statutory "underwriter" as
that term is defined in Section 2(11) of the Securities Act and as such may be
subject to certain liabilities under Section 11 or 12 of the Securities Act for,
among other matters, the material misstatement or material omission of facts in
the Prospectus. See "Selling Security Holder."
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Units
(after deducting the Underwriting discounts and commissions, the non-accountable
expense allowance, and other estimated expenses of this offering) are estimated
to be $4,435,000 ($5,089,500 if the Over Allotment Option is exercised). The
Company expects to apply the net proceeds approximately as shown in the
following table:
<TABLE>
<CAPTION>
APPROXIMATE
USE OF NET PROCEEDS AMOUNT PERCENTAGE
- -------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Advertising and Marketing (1)......................................................... $ 500,000 11%
Acquisition of Property, Plant and Equipment (2)...................................... $ 1,700,000 38%
Repayment of Loans (3)................................................................ $ 960,000 22%
Research New Products and Applications (4)............................................ $ 465,000 10%
Automate and update Darling Paint equipment and facilities (5)........................ $ 200,000 5%
Officers' and Directors' Compensation (6)............................................. $ 140,000 3%
Working Capital....................................................................... $ 470,000 11%
------------ ---
TOTAL............................................................................... $ 4,435,000 100%
------------ ---
------------ ---
</TABLE>
- ------------------------
(1) Advertising and marketing efforts will be centered around a public relations
campaign and strategically placed advertisements in leading paint, paint
dealer, and other related magazines. The Company intends to aggressively
solicit established distributors and contractors and to open additional
retail outlets in West Central Florida. See "Business--Marketing and
Distribution."
(2) Management intends to use these proceeds to locate a suitable production
facility and to equip this facility with the necessary machinery, tooling,
furnaces and other items necessary to manufacture evacuated or partially
evacuated microspheres. These estimates are based solely upon management's
prior experience and no independent engineering or other outside consultant
data has been utilized to determine these amounts. There is no assurance
that the Company will be successful in its efforts to manufacture evacuated
shells. See Business--Manufacturing Facilities and Techniques."
(3) In addition to the repayment of the above amount from the proceeds of this
offering and the conversion of approximately $938,500 of convertible notes
plus accrued interest thereon into 550,583 shares of Common Stock, Mr.
Pidorenko has agreed to personally assume and indemnify the Company against
approximately $690,000 of principal and accrued interest obligations under
certain promissory notes. Mr. Pidorenko intends to utilize the proceeds from
the sale of his shares of Common Stock registered under the Prospectus to
satisfy such obligations. See "Certain Transactions."
(4) Represents proceeds allocated to the development of new products and
applications utilizing shell technologies beyond paints and coatings.
(5) Represents funds to purchase automated mixers, sealers and label machines,
tanks and storage facilities. Also includes leasehold improvements for
retail outlets.
(6) Represents the base salaries of Mr. Pidorenko and Mr. Trusty. See
"Management--Employment Agreements."
The Company anticipates that the Offering proceeds will be sufficient to
satisfy its anticipated cash needs for approximately 12 months following the
completion of this offering.
The above amounts and priorities for the use of proceeds represent
management's estimates based upon currently proposed plans and assumptions
relating to its operations, and does not take into consideration receipt of
revenues, if any, from operations during such period. Although the Company does
not contemplate any changes in the proposed use of proceeds, to the extent the
Company finds that general economic and industry conditions or prevailing
business conditions vary from those which were
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<PAGE>
assumed in arriving at the amount set forth above, the Company may find it
necessary or advisable to reallocate the amount shown among the above-described
categories.
The Company reserves the right to change the use of the balance of the net
proceeds if its sales or expenses are materially higher or lower than
anticipated, if competitive or technological developments occur in the areas of
energy efficient coatings or other areas of the Company's business which cause
management to conclude that it would be in the Company's best interest to pursue
alternative products or services, or if an opportunity, not presently known to
the Company arises to develop additional products or to acquire additional
products or marketing resources either directly or through the acquisition of
additional companies. If any of these events should occur, the Company may
reallocate the net proceeds among their intended applications, or it may use a
part of the remaining net proceeds to acquire additional products, other
resources or businesses.
There are no pending agreements or understandings for any acquisitions. It
is anticipated that the purchase price of acquisitions which may be undertaken
by the Company may be paid in cash, by issuance of securities or notes payable
to the Company or a combination thereof. Funds used for acquisitions may also be
used to absorb operating expenses of the acquired company, and to pay
accounting, legal and other expenses of the Company in connection with such
acquisitions. In seeking a business venture, management will focus upon
businesses that are complimentary to the Company's shell technology or which
would be a viable application for commercial utilization of the Company's shell
technology. The Company will not acquire or merge with a business or corporation
in which the Company's officers, directors, or promoters or their affiliates or
associates, have any direct or indirect ownership interest. It is anticipated
that any such acquisitions would involve companies located in the Sunbelt region
of the United States. See "Risk Factors--Future Acquisitions."
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other interest-bearing
investments.
DIVIDEND POLICY
The payment by the Company of cash dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any cash dividends upon its Common Stock since its inception and its
contemplated financial requirements do not anticipate paying dividends upon its
Common Stock in the foreseeable future.
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<PAGE>
DILUTION
At November 30, 1996, the negative net tangible book value of the Company
was $(1,475,950), or $(1.70) per share based upon 869,899 shares of Common Stock
then issued and outstanding. Net tangible book value per share is the amount of
the Company's tangible assets less all liabilities, divided by the number of
shares of Common Stock outstanding.
After giving effective this offering (net of underwriting discounts and
commissions and the estimate expenses of this offering), the net tangible book
value of the Company would be $3,606,773, or $1.27 per share of Common Stock,
based upon 2,832,019 shares of Common Stock outstanding. Purchasers in this
offering would own an aggregate of 48.6% of the outstanding shares of Common
Stock, with a dilution to the investors in this offering of $2.73 per share.
The following table illustrates the per share dilution to the investors in
this Offering:
<TABLE>
<S> <C>
Assumed initial public offering price per Unit.................................... $ 4.00
Net tangible book value per share of Common Stock before the offering............. $ (1.70)
Increase per share of Common Stock attributable to new investors.................. $ 2.97
Proforma net tangible book value per share upon completion of the offering........ $ 1.27
Dilution per share of Common Stock to new investors............................... $ 2.73
Dilution as a percentage of the per share purchase price.......................... 68%
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share of Common Stock paid by existing stockholders and by
purchasers of shares in this offering at an offering price of $4.00 per Unit
(before deduction of underwriting commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER % AMOUNT % SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Promoters, Officers and Directors............. 601,486 21.2% $ 205,703 3.2% $ .34
Current Shareholders........................ 855,533 30.2% $ 730,154 11.3% $ 85.3
Investors in this offering.................. 1,375,000 48.6% $ 5,500,000 85.5% $ 4.00
---------- --- ------------ --- -----
Total..................................... 2,832,019 100% $ 6,435,857 100% $ 2.27
---------- --- ------------ --- -----
---------- --- ------------ --- -----
</TABLE>
Excludes the (i) Underwriter's Warrants (ii) 350,000 shares reserved for
issuance under the Company's 1996 Stock Option Plan, (iii) 500,000 shares
reserved upon exercise of options granted to Mr. Pidorenko in connection with
his employment agreement exercisable at $4.00 for five years. Also reflects the
conversion of $938,500 convertible notes plus accrued interest of approximately
$162,665 into 550,583 shares of Common Stock.
15
<PAGE>
SELECTED FINANCIAL DATA
The following presents selected financial information of the Company as of
November 30, 1995 and 1996. The financial statements as of November 30, 1995 and
1996, and the report of the Independent Certified Public Accountants thereon are
included elsewhere in this Prospectus. The information set forth below is
qualified by, and should be read in conjunction with, the financial statements
and related notes thereto in their entirety.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
INCOME STATEMENT DATA (1)
Total revenue......................................................................... $ 615,845 $ 43,691
Net loss.............................................................................. $ (1,033,553) $ (314,857)
Net loss per share.................................................................... $ (1.34) $ (0.53)
Shares used in per share computation.................................................. 771,154 626,191
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-------------------------- AS
1996 1995 ADJUSTED (3)(4)
------------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets...................................................... $ 1,537,273 $ 734,733 $ 5,012,273
Working capital................................................... $ (2,444,417) $ (874,313 (2) $ 3,148,739
Long-term debt.................................................... $ -- $ -- $ --
Stockholders' equity.............................................. $ (1,363,939) $ (330,395) $ 4,229,217
Net tangible book value........................................... $ (1,475,950) $ (448,719) $ 3,606,773
Net tangible book value per share................................. $ (1.70) $ (0.67) $ 1.27
</TABLE>
- ------------------------
(1) Excludes operating activity of Darling Paint, which the Company acquired
November 30, 1995. Had the operations of the paint company been included in
the Company's financial statements for the year ended November 30, 1995, a
summary pro forma effect on the Company's operating results would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1995
------------
<S> <C>
Total revenue............................................................................. $ 458,041
Net loss.................................................................................. $ (268,989)
Net loss per share........................................................................ $ (0.43)
Shares used in per share computation...................................................... 626,191
</TABLE>
(2) Includes convertible debt of $740,203 and $1,898,500 at November 30, 1995
and 1996, respectively. $938,500 of these convertible notes plus accrued
interest thereon were exchanged for 550,583 shares of Common Stock by such
note holders. See "Certain Transactions."
(3) Adjusted to reflect the sale of the Offering after deduction of the
underwriting discounts and commissions payable by the Company, and estimated
offering expenses.
(4) Excludes the (i) Underwriter's Warrants and Over-Allotment Option (ii)
350,000 shares received for issuance under the Company's 1996 Stock Option
Plan, (iii) 500,000 shares reserved for the exercise of options granted to
Mr. Pidorenko in connection with his employment agreement exercisable at
$4.00 for 5 years. Also includes the effect of issuing 550,583 shares of
common stock to retire $938,500 of certain convertible note obligation plus
accured interest thereon. See "Certain Transactions."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at November
30, 1996, and as adjusted to give effect to: (i) a 1 for 10 reverse common stock
split effective August 12, 1996; and (ii) the sale by the Company of the
1,375,000 Units offered hereby (excluding the Over-Allotment Option), and the
application of the net proceeds therefrom. The table should be read in
conjunction with the financial statements of the Company and related notes
thereto included elsewhere in this Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
ACTUAL (1) AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholder's Equity:
Common Stock, $.0001 par value; 20,000,000 shares authorized; 869,899 shares
(3,017,210 at Offering) issued and outstanding.................................. 87 302
Voting Preferred Stock, par value $.01; 5,000,000 shares authorized, issued
and outstanding.................................................................... 500 500
Additional paid-in capital.......................................................... 184,314 $ 5,777,255
Accumulated (deficit), equity....................................................... (1,548,840) (1,548,840)
------------- -------------
Total stockholders' equity...................................................... $ (1,363,939) $ 4,229,217
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Excludes the (i) Underwriter's Warrants (ii) 350,000 shares reserved for
issuance under the Company's 1996 Stock Option Plan, (iii) 500,000 shares
reserved for the exercise of options granted to Mr. Pidorenko in connection
with his employment agreement exercisable at $4.00 for 5 years. Also
reflects the conversion of $938,500 convertible notes plus accrued interest
into 550,583 shares of Common Stock.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENTAL STAGE ACTIVITIES
The Company had been a developmental stage enterprise during its initial
three years of operation. During this period, management devoted the majority of
its efforts to research and development, financing, purchasing and activities
related to starting up production and marketing. These activities were funded by
investments from stockholders and borrowings from unrelated third parties. The
Company has not generated sufficient revenues during its limited operating
history to fund its ongoing operating expenses, repay its outstanding
indebtedness or to fund its product development activities. In fiscal year 1994,
the Company completed the development of its first product line.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Total revenue for the year ended November 30, 1996, was $626,845 compared to
$43,691 for the same period of 1995, which represents an increase of $583,154.
The increase was a result of expanded sales of paint products and coatings
produced by the Company's paint manufacturing facility acquired in the 1995
fiscal year. The increased sales were a direct result of increased marketing
efforts and production capabilities. The net loss and the net loss per share
were $1,033,553 and $1.34 per share respectively, for the year ended November
30, 1996, as compared to a net loss and net loss per share of $314,857 and $.53,
respectively, for the same period of 1995. As discussed below under "Liquidity
and Capital Resources", the Company plans to institute a marketing campaign upon
the closing of this offering to cover the sunbelt region of the United States.
For the year ended November 30, 1996, total selling, general and
administrative expenses were $1,280,339, as compared to $376,919 for the same
period of the previous year, an increase of $903,420. The increases were due to
expenses incurred with the initial production of the Company's proprietary
products in its newly acquired manufacturing facility, expenses incurred in
relation to the refinement of the formulations of the paint and paint coatings
being manufactured, as well as costs associated with increased marketing
efforts, staffing and other expenses associated with the Company's expanded
operations.
In June 1996 the Company opened a new retail location in Sarasota, FL, based
upon the prospects of completing a public offering in the near term. Due to the
failure of the prior offering the Company is experiencing negative cash flow. In
a effort to streamline operations and cut costs, management closed the Sarasota
location in January 1997. The effect of this closure is an anticipated reduction
of $10,000 per month in the Company's operating costs. In addition to the above
retail store closure, the Company also closed its executive offices in Tampa, FL
and relocated all operations to the manufacturing facility in New Port Richey,
FL. This closure will result in a monthly reduction of $7,000 per month in
operating costs. Additionally, the Company executives have reduced their pay by
a cumulative amount of $6,500 per month. The total cost savings of these actions
reduced company operatings costs by $23,500 per month or $282,000 on an annual
basis.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
During the period from inception through November 30, 1994, the Company
realized revenues of $17,800. The Company was a developmental stage company and
was continuing the development of its first products.
Net revenues of $43,700 for the fiscal year ended November 30, 1995,
represent an increase of 145% over the prior year, resulting primarily from
increased sales of the Company's roof products. While the revenue volume of the
1994 and 1995 fiscal years is indicative of the Company's developmental state,
the Company is expected to become fully operational in fiscal year 1996.
18
<PAGE>
Cost of sales for the 12 months ended November 30, 1994 and 1995 were
approximately $25,300 and $15,400, respectively. Management expects the cost of
sales as a percentage of sales to decrease due to better utilization of
production capabilities and improved purchasing methods. Cost of sales for
fiscal year 1995 and 1994 were higher than normal in relation to sales due to
the need to give samples to prospective customers, as well as the necessity to
pay third parties to manufacture and sell the Company's product. If the Company
obtains increased market recognition and curtails the voluminous testing
required during the developmental stage, the volume of samples to be provided
may decrease, therefore reducing the cost of sales.
Operating expenses totaled $617,600 for the period from inception through
November 30, 1995. Total operating expenses were $377,000 in fiscal year 1995
and $239,700 in fiscal year 1994. Expenses in 1994 were primarily incurred in
connection with product research and development activities. In 1995, the
Company incurred significant expenses related to sales activities of introducing
the initial products to the marketplace, as well as legal fees and financing
costs incurred in seeking and obtaining funding and in acquiring Darling Paint,
a paint manufacturing company.
The Company has accumulated net operating losses of $640,944 for the period
from inception through November 30, 1995.
DARLING PAINT
Development of roof and wall coatings has been an ongoing process that has
progressed from the Company's product being manufactured by a third party to its
current capability of manufacturing its own paint and coating products. The
acquisition of the operating assets of Darling Paint, effective November 30,
1995 for $251,016, provides the Company with the production equipment and
initial distribution channels for its products.
The Company has improved its purchasing procedures, by buying to support
larger production volumes and expanding its supplier base. As a result, the cost
of manufactured products has dropped significantly. The reduced costs are
expected to continue to be realized or improved during fiscal year 1997.
However, increased costs associated with marketing and expansion are expected to
offset any cost savings associated with improved cost of goods due to the
Darling Paint acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its initial capital operations and product
development activities with funds provided by the sale of its securities and
from borrowings.
During fiscal years 1994 and 1995, the Company raised approximately $184,900
through issuance of its Common Stock. During fiscal years 1995 and 1996, the
Company raised approximately $1,898,500 through the private placement of its
convertible notes, notes and Common Stock. $938,500 of certain convertible notes
plus accrued interest thereon were exchanged in to 550,583 shares of Common
Stock as a condition to this Offering required by the Underwriter. The Company
anticipates satisfying or has satisfied all indebtedness relating to these
obligations either through the payment of such notes with the proceeds of this
offering or the conversion of certain of these notes into shares of the
Company's Common Stock and the undertaking of the Company's chief executive
officer to personally assume certain of these obligations. See "Certain
Transactions" and "Financial Statements--Note 16."
The Company's operating losses have resulted in working capital and
stockholders' equity deficits of approximately $2,444,417 and $1,363,939 at
November 30, 1996, respectively. The Company is not presently generating
sufficient revenues from operations to fund capital requirements. The ability of
the Company to alleviate its working capital deficit and obtain capital adequate
to fund future costs associated with operations and expansion plans is dependent
upon (i) successful completion of the public offering; and (ii) realization of
projected increases in sales of new product lines.
19
<PAGE>
In the opinion of management, the net proceeds from the Offering will
provide sufficient working capital to enable the Company to finance planned
expansion for the next twelve months without the need for additional capital.
However, the Company will require substantial revenues from the sale of
ThermaCool-TM- products in addition to the proceeds of this offering in order to
fund anticipated operations for the twenty-four months after the closing of this
offering. There is no assurance that such revenues will be generated or that
other funding will be available to the Company.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company believes it will experience stronger demand for its products in
the spring, summer and fall of each year. By directing its marketing efforts to
the warmer states, the Company feels that fluctuations resulting from
seasonality will be minimized.
INFLATION
Inflation has not proven to be a factor in the Company's business since its
inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
20
<PAGE>
BUSINESS
GENERAL
The Company was incorporated in Florida in August, 1993, for the purpose of
developing, manufacturing and marketing insulating materials and coatings using
partially evacuated glass microspheres (sometimes referred to as "shells"). The
process of evacuation removes air and other gases from the sphere, thereby
creating a vacuum. A shell is a very small glass sphere (generally the size of a
grain of salt) made by crushing glass particles. The insertion of shells into
various materials and products ("shell technology") can substantially improve
the thermal resistive characteristics of such materials and products resulting
in improved insulation ("R") values. The more a shell is evacuated, the higher
the thermal resistive characteristics of the product or material to which the
shells are added.
Management of the Company believes that there is a broad range of
applications for introduction in products of evacuated or partially evacuated
shells, the effect of which is improved energy efficiency of such products
because of the inherent insulating characteristics provided by the glass
spheres. The Company's strategy is to commercially exploit the use of its shell
technology to improve the "R" values of a number of products. In fiscal year
1995, the Company completed the development of its first product line which
consists of paints and coatings containing shells in order to reduce heat
transmission and improve the insulation values of the products. The products are
marketed under the ThermaCool-TM- label.
On November 30, 1995, the Company acquired the assets of C.F. Darling Paint
& Chemicals, Inc., a paint manufacturing company, located in New Port Richey,
Florida ("Darling Paint") for $251,016 in cash. The Company also assumed the
real estate lease for the Darling Paint Facility. The Company acquired these
assets and assumed this real estate lease so that it would have a facility to
produce and develop paints and coatings for its ThermaCool-TM- product line
which incorporate its shell technology. Prior to this acquisition, the Company
was required to purchase paints and coatings from independent paint and coating
manufacturers.
The Company's business strategy is to (i) expand the marketing and
distribution of ThermaCool-TM- paints and coatings (ii) develop and manufacture
the Company's own shells and (iii) expand the shell technology to other
products, such as drywall, gypsum board, home siding materials and space foam
insulation. Other markets may include refrigeration and cooling systems,
automotive and transportation applications and cups and thermoses. There is no
assurance that the Company will be successful in penetrating any markets for the
ThermaCool-TM- product lines, developing commercially viable manufacturing
techniques or addressing other markets.
BUSINESS STRATEGY
The Company's business strategy to become profitable by commercially
exploiting its shell technologies is dependent upon the successful
implementation of the following:
(i) EXPAND THE MARKETING AND DISTRIBUTION OF THERMACOOL-TM- PAINTS AND
COATINGS. The use of shells in paints and coatings is the Company's initial
attempt to commercially apply its shell technology. Although the ultimate
objective of the Company is to commercially exploit fully evacuated shells
in a variety of products, management believes that the use of partially
evacuated shells properly combined with paints and coatings can improve the
insulating properties of these products. Management believes that the
acquisition of the assets of Darling Paint combined with the proceeds of
this offering which are earmarked for expanding and improving the Company's
painting and coating capacities and implementing a marketing program will
enable the Company to generate revenues from the sale of its ThermaCool-TM-
painting and coating products.
The initial ThermaCool-TM- product is a roof coating material which
incorporates the partially evacuated microspheres into a roof coating
mixture which the Company is able to manufacture through the assets it
acquired from Darling Paint. This product can be used to coat new roofs as
well as on the top
21
<PAGE>
of existing tiles, shingles and flat roofs. The coating can also be applied
by manufacturers of concrete and ceramic tiles. The Company is also
marketing a ThermaCool-TM- exterior wall coating which it believes can also
reduce emissivity and thermal conductivity.
Coatings are characterized as a protective barrier that is applicable to
various surfaces for protection from the elements. Paint is characterized as
a product to change the color of a particular surface. By this definition,
some paints may be classified as coatings, such as a semi-gloss enamel,
while flat wall paint would not. The basic difference between a roof and a
wall coating is that the viscosity or thickness of the product. A roof,
being less vertical than a wall, can accept a thicker coating without the
product running or sagging. A thicker coat for a roof is preferable due to
its exposure to the elements. The application of shell technology to the
Company's products is limited to the ThermaCool-TM- roof and exterior wall
coatings where the insulative and energy efficiency characteristics of the
product are most beneficial. To date, in excess of 90% of the Company's
sales of ThermaCool-TM- products relate to roof products. The Company has
not yet developed an interior paint using its ThermaCool-TM- process. There
is no assurance that the Company will be able to develop products other than
roof and exterior wall coatings utilizing its ThermaCool-TM- process.
(ii) DEVELOP AND MANUFACTURE THE COMPANY'S OWN SHELLS. The Company has
applied for a patent involving the production of insulating microspheres in
a manner which enables the evacuation of gases in the shells. Such
evacuation results in lower gas pressure within the shells which can reduce
thermal conductivity, thus providing improved insulation qualities. The
manufacturing procedure involves the formation of water vapor in the shells
and then the subsequent evacuation of the shells by heating the shells which
causes out-permeation of the water vapor. Other patents have been granted
relating to various processes to evacuate glass shells. To the best of
management's knowledge, no one has been able to develop a commercially
viable process for the production of fully evacuated glass shells, due to
among other factors, manufacturing and technical restraints. Currently, the
Company is aware of three large multinational companies which manufacture
shells. The essential difference between the manufacturing process for
partially evacuated shells as compared to substantially or fully evacuated
shells are the techniques employed to evacuate gases from the shell which
improve its thermal conductivity or insulating value. Management of the
Company believes that the facilities and equipment currently exist which the
Company can use to manufacture highly or partially evacuated shells. The
Company intends to utilize $1,500,000 of the offering proceeds to locate a
suitable production facility and to equip this facility with the necessary
machinery, tooling, furnaces, and other items necessary to manufacture
highly or partially evacuated shells. There is no assurance that the Company
will be successful in its efforts to manufacture shells.
(iii) EXPAND THE SHELL TECHNOLOGY TO OTHER PRODUCTS. Management of the
Company believes the potential exists to commercially exploit other markets
suitable for the Company's shell technologies. Since 1992, the Company's
founders have been investigating the possibility of using evacuated glass
microspheres in a variety of products. Management has identified
construction components such as drywall, gypsum board, home siding materials
and space foam insulation as potential markets. Other potential markets
include refrigeration and cooling systems, automotive and transportation
applications, cups and thermoses. There is no assurance the Company will be
successful in penetrating other markets. The Company will only be able to
achieve this strategy if it is able to manufacture its own highly or
partially evacuated shells on an economical basis.
SHELL TECHNOLOGY
The Company has the rights to certain patent applications relating to
evacuated shells. The first involves a technique for manufacturing insulating
microspheres in a manner which enables the evacuation of retained gases within
the shells. This evacuation results in low gas pressure within the shell which
can
22
<PAGE>
reduce the thermal conductivity, thus improving insulation qualities. Evacuated
shells are capable of forming vacuums which limits heat transfer. The use of
evacuated glass microspheres as an important component of improved insulation
and the use of a reflective layer within or outside of the shells has also been
referred to in prior patents. The Company's patent application describes a
procedure that which through the use of water vapor and heat combined with the
introduction of certain gases results in the evacuation or substantial
evacuation of the gases contained in the interior of the shells.
The Company's other patent application uses evacuated shells introduced into
a coating. Such coatings may be used for roofs, exterior paints, interior paints
and other uses. The addition of evacuated or substantially evacuated spheres
into a coating provides the following characteristics: (i) a reduction in
radiant heat transfer by use of reflective coatings, (ii) the reduction of heat
transfer between shells by restricting the transfer to point contact and (iii) a
reduction in the heat transfer across a shell by a use of a partial or full
vacuum. Although patent counsel to the Company believes that patent protection
is available for these inventions, there is no assurance that such patents will
be granted. Although management believes that the processes described in the
patent applications are grounded upon sound scientific principles and the
machinery and equipment are available to implement the production techniques
necessary to manufacture evacuated shells on a commercial basis, there is no
assurance the Company will be able to economically and profitably manufacture
evacuated shells or otherwise exploit these inventions. The ThermaCool-TM-
product line currently offered by the Company does not rely upon these
inventions because ThermaCool-TM- paintings and coatings use partially, rather
than fully or substantially evacuated shells.
MANUFACTURING FACILITIES AND TECHNIQUES
Management intends to use $1,700,000 of the offering proceeds to acquire a
suitable production facility and to equip this facility with the necessary
machinery, tooling, furnaces and other items necessary to manufacture evacuated
shells. Management anticipates the Company will lease this facility on a three
to five year term and acquire the equipment necessary to manufacture shells.
Internal cost estimates prepared by management indicate that the Company will
require at least $5,000,000 for the initial 24 months of operations to develop
and operate its ThermaCool-TM- production facility and shell manufacturing
facility. Management anticipates that revenues generated from the sale of
ThermaCool-TM- products along with the offering proceeds allocated to these
facilities will be sufficient to absorb these anticipated production and
operating costs. These estimates are based solely upon management's prior
experience and no independent engineering or other outside consultants' data,
has been utilized to determine these amounts. If these estimates prove to be
incorrect or if the sale of ThermaCool-TM- products does not generate sufficient
revenues, the Company's ability to develop and operate these facilities will be
adversely affected. See "Use of Proceeds."
The basic process for manufacturing glass shells involves heating glass and
then partially drying and crushing the glass composition. The glass composition
is then size separated for different applications. Glass shells are then formed
and blown at high temperatures with the use of heat in a vertical furnace. The
completed glass shells are then separated from the shell residue. Management is
aware of three other companies that currently manufacture glass shells. These
glass shells are primarily used as filler material for plastics and ceramics.
The unevacuated glass shells are used in such material because they provide an
improved "ball bearing" effect for better flow and as a low cost filler material
in compounding. The manufacturing techniques proposed by the Company would be
similar to those currently utilized to manufacture shells, except that the
Company would also employ procedures which evacuate or substantially evacuate
the shells in the final stages of the production process. See "Risk Factors --
Uncertain Manufacturing Techniques and Technology."
The Company currently produces its ThermaCool-TM- product line at the
Darling Paint facility it acquired in November, 1995. The Company also continues
to sell general paint products using conventional grinding and mixing methods
with the exception of the addition of spheres acquired from other
23
<PAGE>
sources necessary to formulate ThermaCool-TM- products. The Darling Paint
facility currently accommodates production of 360,000 gallons per year. The
current plant facility is capable of producing up to $5,000,000 in gross product
sales. There is no assurance that the Company will generate such revenues. The
Company intends to utilize approximately $200,000 of the offering proceeds to
automate and retool the Darling Paint facility.
COMPETITION
The Company's ThermaCool-TM- products compete in the special purpose
coatings market which is an extremely competitive market principally composed of
large multinational companies which have significantly greater assets, working
capital and marketing personnel than the Company. Special purpose coatings are
similar to architectural coatings such as normal house paints but differ in that
they are formulated for special applications or environmental conditions, such
as extreme temperatures, chemicals or corrosive conditions. Major producers of
special purpose coatings include PPG Industries, DuPont, Sherwin-Williams, RPM,
Inc., Inmont, Courtaulds, PLC, Glidden, Azkon.V. and Valspar Corp. The U.S.
Bureau of Census values the special purpose coatings market at approximately $3
billion in 1995. The roofing, coating and industrial construction coating market
segment represents approximately 15% of the total "special purpose coatings"
market, or 28,000,000 gallons valued at approximately $454,000,000.
Management believes that the primary competitive factors in the special
coatings product segment are quality, ease of use, service, warranty,
availability and price. The cost per gallon of ThermaCool-TM- is at the high end
of the price spectrum for paints and coatings ($17.00 to $25.00 per gallon).
Although management believes that the improved insulating characteristics of
ThermaCool-TM- add significant value and justify the higher cost, there is no
assurance that the Company's products will be accepted because of the higher
cost. The Company will be competing with larger, better capitalized and
nationally recognized competitors. The Company's current supply sources of
shells could become competitors. The Company expects that if its products become
successful, competitors will be more likely to develop and introduce into the
market place comparable products and technologies. There is no assurance that
the Company will be able to compete in the special purpose coatings or other
markets. See "Risk Factors -- Competition."
MARKETING AND DISTRIBUTION
The Company intends to market its ThermaCool-TM- products to roofers,
painters, distributors and manufacturers of special purpose coatings. The
Company's initial target markets include industrial and residential
construction, maintenance, storage tanks and roof coatings. The Company intends
to place advertisements in trade journals for the plastics, glass and
construction industries. In addition, the Company intends to participate in
trade shows and intends to aggressively promote the energy saving
characteristics of its ThermaCool-TM- product lines.
Currently, management believes that contractors, who purchase from
distributors, will be the primary customers for the Company's products. The
Company also intends to solicit established contractor distribution centers as a
source of marketing its ThermaCool-TM- products. It is anticipated that the
Company will add between two to four marketing and sales personnel after the
closing of this offering to implement its marketing strategy. Management's
strategy is to attract individuals that have significant contacts in the special
purpose coatings industry. There is no assurance that the Company will be able
to attract individuals or that such individuals will be successful in their
marketing efforts. Currently, the Company has a limited sales staff which is
concentrating on direct sales until such time as the Company has adequate funds
to expand its sales force.
The Company currently has a retail outlet in New Port Richey, Florida. The
Company intends to utilize a portion of the offering proceeds to open additional
retail outlets in the West Central Florida area. Such expansion may occur
through the acquisition of an existing retail outlet, such as Darling Paint or
the opening of a new retail store through the assumption of a lease of a former
paint and coatings retail outlet
24
<PAGE>
such as the Sarasota location. In addition to new retail outlets, the Company
plans to market directly to specialty industries such as the RV motor home
industry and manufacturing housing industry. The Company will also target chains
such as Home Depot and Builder's Square as point of sale distribution outlets
for its products. The Company believes that viable business opportunity,
franchising and distribution relationships with existing painting and coating
contractors are additional marketing and distribution strategies which can
expand the sale of the Company's products. The Company also believes that its
products may be distributed through private label arrangements with other
distributors. There is no assurance that any of these marketing or distribution
strategies will be successful.
NEW PRODUCT APPLICATIONS AND DEVELOPMENT.
The Company anticipates using $465,000 from the proceeds of this offering
for the research and development of new products and applications utilizing
shell technologies beyond paintings and coatings. Management has identified
construction components such as drywall, gypsum board, home siding materials and
space foam insulation as potential markets. Other potential markets include
refrigeration and cooling systems, automotive transportation applications and
cups and thermoses. This research and development will primarily focus on the
techniques and procedures necessary to combine evacuated shells into materials
which can benefit from improved insulation and "R" values. There is no assurance
that the Company will be successful developing any new applications for
evacuated shells. See "Use of Proceeds."
PRODUCT LIABILITY INSURANCE AND WARRANTIES
The Company currently has product liability insurance in force with limits
of $1,000,000 per occurrence and $2,000,000 aggregate limit. There is no
assurance the Company can maintain this coverage or that it will be adequate to
protect the Company.
The Company supplies the following warranties for its products: (1) All
ThermaCool-TM- products have eight year warranties; (2) #44000 Acrylic House
Paint has a nine year warranty; (3) #4000 Acrylic House Paint has a seven year
warranty; (4) #2400 Acrylic Latex House Paint has a five year warranty; (5)
#2200 100% Vinyl Acrylic House Paint has a five year warranty. No other
warranties are issued by the Company. All remedies as to warranty failures
require only replacement of the product.
PROPERTIES AND EMPLOYEES
The Company currently leases and occupies 18,000 sq. ft. of space in New
Port Richey, Florida which lease expires in 1998 where C.F. Darling formerly
operated. This real estate lease was assumed in connection with the November 30,
1995, agreement to acquire Darling Paint's assets. The Company did not acquire
any real property in connection with the Darling Paint acquisition. Rather, the
Company assumed the real estate lease for the Darling Paint facility. Current
payments are $2,800 per month. The facility consists of approximately 5,000
square feet of office and retail space with the balance being used for
warehousing and manufacturing. The prior owners of C.F. Darling Paint &
Chemicals, Inc. were Frank and Anita Darling, unrelated parties to the Company.
In January 1997, the Company vacated its 2,500 square foot executive office
in the Interstate Business Park at 8306 Laurel Fair Circle, Suite 240, Tampa,
Florida. This lease expires on October 31, 1998 and requires monthly rent of
approximately $3,000.00. In addition, the Company closed its Sarasota, Florida
retail location located at 4215 South Tamiami Trail, Sarasota, Florida. Monthly
lease payments were $4,000.00 and the lease expires on April 30, 1999. The
Company is currently negotiating with the landlords for each of these properties
to terminate these leases on mutually agreeable terms. The landlord of the
Sarasota location has agreed to accelerate the expiration date to February 28,
1997. As part of such arrangements, the Company may reoccupy these premises.
Management of the Company believes that the proceeds generated from this
offering will enable the Company to negotiate acceptable lease termination
provisions. Management further believes that there are other suitable locations
in the Tampa Bay area to
25
<PAGE>
locate its executive offices after the closing of this Offering and that there
are other suitable retail outlets in Sarasota, Florida and other areas to expand
its distribution capacity. The failure of the Company to negotiate with the
landlords of the vacated premises acceptable lease termination terms could
result in the Company having to pay such landlords the estimated remaining
amounts due under such leases of $67,500 plus attorneys fees and court costs. If
the Company were required to pay such amounts, the Company would not be able to
utilize a portion of the offering proceeds for their intended uses and the
financial position of the Company could be adversely affected.
The Company intends to use approximately $200,000 from the proceeds of this
offering to automate and modernize the current production facility acquired from
Darling Paint in November, 1995. Although the Company's current lease expires on
October 31, 1998, management, may, if the terms are acceptable, terminate this
lease and transfer the assets currently utilized at the Darling Paint facility
to the new production facility the Company intends to occupy using the proceeds
of this offering. See "Use of Proceeds."
The Company intends to use a substantial portion of the proceeds of this
offering to acquire a production facility suitable for the manufacture and
production of evacuated spheres. It is anticipated that this facility will be
located in the Tampa Bay area. Management has not yet identified a suitable
site, although it believes that a suitable site is available. There is no
assurance that a suitable site and facility will be available on terms
acceptable to Company. See "Use of Proceeds."
The Company currently has eleven employees and one independent sales
representative, all residing in the west central part of Florida. Currently two
of the employees are in management positions. None of the Company's employees
belong to a labor union and the Company believes its relations with employees
are satisfactory.
RAW MATERIALS AND GOVERNMENT REGULATIONS
The Company's current ThermaCool-TM- and paint production facilities are
subject to compliance with all regulatory requirements of federal, state and
municipal authorities, including regulations covering labor relations, safety
standards, affirmative action and the protection of the environment including
requirements in connection with water discharge, air emissions and hazardous and
toxic substance discharge. The process of formulating paints and coatings
involves the mixing of resins and other substances, which if spilled could
potentially contaminate the soil or ground water at or surrounding the Company's
facilities. The Company believes that it is in substantial compliance with all
applicable laws and regulations. However, changes to current laws or regulations
or an unforeseen spill or accident at the Company's Darling Paint facility could
have a material adverse effect on the Company.
LEGAL PROCEEDINGS
On February 6, 1997 the Company received a letter from the counsel to the
Williams family which owns in the aggregate 21,923 shares of the Company's
Common Stock which was acquired for an aggregate purchase price of $31,950. The
Williams family claims Mr. Pidorenko fraudulently induced their investment and
the Company is obligated for personal disputes between Mr. Pidorenko and this
family which primarily concern a disagreement over a purchase of a personal
residence. The Company does not believe it is obligated to these individuals for
personal disputes with Mr. Pidorenko. The Williams family has rejected the
Company's request to purchase their shares at their original purchase price. The
Company believes it has meritorious defenses to any legal proceedings which may
be instituted by such individuals. Mr. Pidorenko has agreed to indemnify the
Company against any claims asserted by these parties.
To the knowledge of the officers and directors of the Company, other than as
disclosed above and the notes to the financial statements, there are no material
legal proceedings now pending or threatened against the Company.
26
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
INITIAL DATE OF
NAME OFFICE AGE SERVICE
- -------------------------- --------------------------------------------- --- ----------------------
<S> <C> <C> <C>
John J. Pidorenko Chairman of the Board, President, Chief 55 August 12, 1993
Executive Officer
John R. Trusty Secretary, Treasurer, Chief Financial 41 January, 1995
Officer, Chief Accounting Officer, Director
Kendall B. Stiles, M.D. Director 40 April 4, 1996
Michael Hankins, Sr. Director 55 April 4, 1996
Darryl Riley Director 33 August 12, 1993
</TABLE>
Executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualify, subject to earlier removal by the
Board of Directors. Directors are elected at the annual meeting of shareholders
to serve for their term and until their respective successors are duly elected
and qualify, or until their earlier resignation, removal from office, or death.
The remaining directors may fill any vacancy in the Board of Directors for an
unexpired term. Directors serve for a one year term of office.
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
JOHN J. PIDORENKO is the founder of the Company and is currently its
Chairman of the Board, President and Chief Executive Officer. From 1990 through
August 1993, Mr. Pidorenko was an independent marketing consultant for
telemarketing strategies employed by large companies, such as Beneficial
Insurance. Mr. Pidorenko was employed as an Executive Vice President of
Fiberoptic Sensor Technologies according monitoring medical equipment
manufacturer for the years 1985 to 1989. Mr. Pidorenko was the founder, in 1983,
of Micro Technologies, which was sold to Fiberoptic Sensor Technologies in 1985.
JOHN R. TRUSTY has been the Company's Secretary and Chief Financial Officer
since January, 1995. Prior to his employment with the Company, Mr. Trusty was a
Certified Public Accountant sole practitioner from July 1992 through December
1994. During 1994, Mr. Trusty was involved with the Company as an independent
consultant. From April 1986 through July 1992, Mr. Trusty served as Controller
for Westshore Glass Corp., a glass, mirror and aluminum storefront wholesaler.
KENDALL B. STILES, M.D. has been a director of the Company since April 4,
1996. Dr. Stiles has been employed as an emergency room physician for the last
five years in the State of Virginia and is the officer, director and sole
shareholder of American Medical Emergency Services, Inc. located in Virginia.
Dr. Stiles is the brother-in-law of John Pidorenko.
MICHAEL HANKINS, SR. has been a director of the Company since April 4, 1996.
Since 1990, Mr. Hankins has been the owner/operator of the Southern Hotel, which
is a historic inn located in Missouri. From 1978 through 1990, Mr. Hankins was a
lead project analyst for Ralston Purina Company.
DARRYL RILEY has been a director of the Company since August 12, 1993. For
the last five years he has owned a general contracting company in the Central
Florida area.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
During 1996, the Board of Directors held three meetings.
27
<PAGE>
There are no committees of the Board of Directors at the present time. In
order to meet NASDAQ SmallCap Market listing qualifications, the Board of
Directors of the Company intends to establish a compensation and audit
committee, each to be comprised of three members, following the completion of
this offering. Two of the three members on each committee shall be independent
directors. The Audit Committee functions will include recommending to the Board
of Directors the engagement of the Company's independent public accountants,
reviewing with such accountants the plan for and the results and scope of their
auditing engagement and certain other matters relating to their services as
provided to the Company. The Compensation Committee will make recommendations to
the Board of Directors regarding the compensation of executive officers,
including the bonus pool arrangement, and administer the Company's employee
benefit plans.
DIRECTOR COMPENSATION
A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings. A director who is not an employee of the Company is paid $100 for each
Board or Committee meeting which the director attends, in person or otherwise. A
director who is not an employee is also reimbursed for out-of-pocket
expenditures incurred in attending or otherwise participating in meetings.
The Company currently has no other arrangements regarding compensation for
services as a director.
EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued by the Company
for the fiscal years ended November 30, 1996, to or for the account of the Chief
Executive Officer. No executive officer of the Company received compensation in
excess of $100,000 or more during the stated periods. Accordingly, the summary
compensation table does not include compensation of other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------------- --------- --------- --------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John Pidorenko(1) 1996 120,481 35,000 -- -- 500,000(2) --
President, Chief 1995 50,000 -- -- -- -- --
Executive Officer 1994 -0- -- -- -- -- --
<CAPTION>
ALL OTHER
NAME AND COMPENSATION (1)
PRINCIPAL POSITION ($)
- ------------------------------- ------------------
<S> <C>
John Pidorenko(1) $ 31,103
President, Chief 15,000
Executive Officer 12,500
</TABLE>
- ------------------------
(1) Represents the net amount due the Company for advances. See "Certain
Transactions".
(2) See "Employment Agreements".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
There were no options which were exercised by any executive officers during
fiscal 1996. There are further, no options which were granted to executive
officers which could have been exercised during fiscal 1996. Accordingly, the
aggregated options table has been omitted from this Prospectus.
EMPLOYMENT AGREEMENTS
On April 4, 1996, Mr. Pidorenko entered into an Employment Agreement with
the Company, which provides for his employment as President, and Chief Executive
Officer for a five year. Under this Agreement, Mr. Pidorenko will receive a base
salary of $150,000. As an additional inducement for entering into the Agreement,
the Board of Directors awarded Mr. Pidorenko a $35,000 bonus. Mr. Pidorenko was
also awarded options exercisable for five years which entitle him to acquire up
to 500,000 shares of the
28
<PAGE>
Company's Common Stock at the initial public offering price of $4.00. Mr.
Pidorenko has agreed with the Underwriter to reduce his base salary from
$150,000 to $90,000 annually, effective upon the closing of this offering. Mr.
Pidorenko has also agreed that so long as any current shareholders are subject
to a "lock-up" agreement with the Underwriter he shall not be paid a bonus or
granted a salary increase under his Employment Agreement.
The Compensation Committee will meet periodically, as the results of each
fiscal year are available, to consider awarding additional compensation to Mr.
Pidorenko above his salary. Mr. Pidorenko's employment agreement contains a
restrictive covenant not to compete for the term of the Agreement and for two
years following termination of service. The employment agreement also provides
for a car allowance and also requires the Company to indemnify Mr. Pidorenko to
the maximum extent provided under the laws of the State of Florida. This
Agreement provides for severance payments equal to 299% of the annual base
compensation, or a maximum of $270,000, due under this agreement in the event
there is a "change of control" of the Company, as defined therein, and he is
subsequently terminated without cause.
On April 4, 1996, Mr. Trusty entered into an Employment Agreement with the
Company, which provides for his employment as Chief Financial Officer for a one
year term. The Agreement is automatically renewable for an additional one year
period unless either party decides to terminate. Under the Agreement, Mr. Trusty
receives a base salary of $55,000 and was paid a $10,000 bonus. If the Agreement
is extended beyond one (1) year, Mr. Trusty's salary increases 10% in each year.
The Company and Mr. Trusty have agreed to extend his employment agreement until
April 1998. The Compensation Committee will meet periodically, as the results of
each fiscal year are available to consider awarding additional compensation to
Mr. Trusty above his salary. The Agreement contains a restrictive covenant not
to compete for the term of the Agreement and for two years following termination
of service. The Agreement provides for a car allowance and also requires the
Company to indemnify Mr. Trusty to the maximum extent provided under the laws of
the State of Florida. This Agreement also provides for severance payments equal
to 299% of the annual base compensation due under the Agreement in the event
there is a "change of control" of the Company, as defined therein, and he is
subsequently terminated without cause.
STOCK OPTION PLAN
The Company intends to adopt a stock option plan which will authorize the
grant of stock options under Section 422 of the Internal Revenue Code. A total
of 350,000 shares have been reserved for issuance under the plan. The plan will
provide that the exercise price of options granted under the plan shall not be
less than the fair market value of the shares on the date on which the option is
granted unless an employee, immediately before the grant owns more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiaries, whereupon the exercise price shall be at least 110% of the fair
market value of the Shares on the date on which the option is granted. The term
of each option and the manner in which it may be exercised is determined by the
Board of Directors, or a committee appointed by the Board of Directors, provided
that no option may be exerciseable more than 10 years after the date of grant,
and, in the case of an incentive option granted to an eligible employee owning
more than 10% of the common stock, no more than five years. Options may be
granted to officers, directors, employees, and consultants. In the event of
death or disability, options may be exercised during a twelve month period
following such event. In the event that an optionholder is terminated other than
pursuant to death, disability or retirement, all options must be exercised by
the date of termination. Options are not transferable, except upon death of
optionee.
INDEMNIFICATION
The Company's Bylaws provide, in general, that the Company shall indemnify
its directors and officers under the circumstances specified under applicable
Florida law and gives authority to the Company to purchase insurance with
respect to such indemnification.
29
<PAGE>
Mr. Pidorenko and Mr. Trusty's employment agreements provide, among other
things, for: (i) indemnification by the Company of such individual to the
fullest extent permitted by law against any and all expenses, judgments, fines
and amounts paid in settlement of any claim against an indemnified party (the
"Indemnitee") unless it is determined that the indemnification is not permitted
under the law; and (ii) the prompt advancement of expenses to any Indemnitee in
connection with his defense against any threatened or pending claim. Similar
indemnification arrangements may from time to time be entered into with
additional officers of the Company or certain other employees or agents of the
Company. All directors of the Company are also parties to indemnification
agreements which provide for similar rights of indemnification.
The Company has been advised that it is the position of the Commission that
insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Securities Act, that such provisions are against
public policy as expressed in the Securities Act and are therefore
unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership as of February 15, 1997, of the Company's Common Stock by the
directors and executive officers, individually and as a group. The table also
sets forth the only persons who, to the Company's knowledge, are the beneficial
owners of more than five (5%) percent of the outstanding voting securities of
the Company. Each person has sole voting and investment power with respect to
the shares reported, except as otherwise noted. The address of each individual
is in care of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT OWNED (2)(8)
BEFORE -------------------------------------
NAME OF BENEFICIAL OWNER OFFERING (1)(7) BEFORE OFFERING AFTER OFFERING
- ----------------------------------------------------------------- -------------------- ------------------- ----------------
<S> <C> <C> <C>
John Pidorenko (3)(4)............................................ 916,067 63% 17.6%
John R. Trusty (3)............................................... 20,000 1% 1%
Michael Hankins, Sr. (5)......................................... 0 --% --%
Kendall B. Stiles, M.D. (6)...................................... 71,542 5% 2.5%
Darryl Riley (3)(7).............................................. 93,877 6% 3.3%
All Directors and Officers (as a group).......................... 1,101,486 76% 38.9%
</TABLE>
- ------------------------
(1) The amount and percentage of securities beneficially owned by an individual
are determined in accordance with the definition of beneficial ownership set
forth in the regulations of the Securities and Exchange Commission to the
Securities Exchange Act of 1934 and, accordingly, may include securities
owned by or for the spouse and/or minor children of the individual and any
other relative who has the same home as an individual, as well as other
securities as to which the individual has shares voting or investment power
or has the right to acquire within 60 days of the date of this Prospectus.
Beneficial ownership may be disclaimed as to certain of the securities.
Unless otherwise indicated, all shares listed are owned both of record and
beneficially.
(2) Based upon 1,457,019 shares of Common Stock issued and outstanding as of
March 7, 1977, and securities not outstanding which are subject to such
options, warrants, rights or conversion privileges shall be deemed to be
outstanding for the purpose of computing the percentage of outstanding
securities of the class owned by such person but shall not be deemed to be
outstanding for the purpose of computing the percentage of the class by any
other person.
(3) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act of 1933, as amended.
(4) 416,067 shares of the Company's Common Stock currently held by Mr. Pidorenko
are being registered under the Securities Act as part of this Prospectus.
The above amount also includes options to acquire up to 500,000 shares
granted to Mr. Pidorenko in connection with his employment agreement
exercisable at $4.00 for 5 years. If the options are excluded, Mr. Pidorenko
currently owns approximately 23% of the outstanding shares of Common Stock
and would own approximately 16% of the outstanding shares of Common Stock
upon the closing of the offering. The above amount excludes 5,000,000 shares
of Voting Preferred Stock held by Mr. Pidorenko. Each share of Voting
Preferred Stock is entitled to a one-half ( 1/2) vote. Upon the closing of
this offering, and assuming the 416,067
30
<PAGE>
shares of Common Stock currently held by Mr. Pidorenko are sold, he would
control 45% of the voting equity securities of the Company through the
voting Preferred Stock. See "Certain Transactions", "Description of
Securities" and "Selling Security Holder."
(5) As of March 7, 1997, Mr. Hankins and his son, who hold $225,000 of
convertible promissory notes, plus accrued interest thereon have not
converted such notes. Mr. Pidorenko has agreed to assume the obligations
under these notes. See "Certain Transactions."
(6) Includes 58,252 shares of Common Stock issued in exchange for cancelling a
$100,000 convertible note, plus accrued interest thereon. Dr. Stiles is the
brother-in-law of Mr. Pidorenko. See "Certain Transactions."
(7) Includes 37,282 shares of Common Stock issued in exchange for cancelling
$60,000 of a $100,000 convertible note, plus accrued interest thereon. See
"Certain Transactions."
(8) Excludes (i) the Warrants, (ii) the Underwriter's Warrants, (iii) 350,000
shares reserved for issuance under the Company's 1996 Stock Option Plan.
Also reflects the conversion of $938,500 convertible notes, plus accrued
interest into 550,583 shares of Common Stock. See "Certain Transactions."
SELLING SECURITY HOLDER
The following table sets forth certain information with respect to the
Selling Security Holder for whom the Company is registering the Shares for
resale to the public. The Company will not receive any of the proceeds from the
sale of the Shares by the Selling Security Holder. Beneficial ownership of the
Shares by such Selling Security Holder after this Offering will depend on the
number of shares sold by the Selling Security Holder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ NUMBER OF ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT (1) SHARES OFFERED NUMBER PERCENT (2)
- ------------------------------------------------ --------- ------------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
John Pidorenko(1) 916,067 55% 416,067 500,000 17.6%
c/o 5419 Provost Drive
New Port Richey, Florida 34690-2939
</TABLE>
- ------------------------
(1) See Note (4) to "Security Ownership of Certain Beneficial Owners and
Management."
In connection with the formation of the Company, Mr. Pidorenko received
416,067 shares of Common Stock and he currently owns 5,000,000 of voting
Preferred Stock. Mr. Pidorenko has also entered into an employment agreement
with the Company that provides for the issuance of options to acquire up to
500,000 shares of the Company's Common Stock at the public offering price of
$4.00 per share for a five (5) year period. The Selling Security Holder agreed
not to sell his shares for a period of at least two (2) years from the date of
this Prospectus, without the Underwriter's consent. The Underwriter has the
right to extend this lock-up period for one (1) additional year if the Company
has not achieved during any 12 consecutive month period a cumulative pre-tax
profit on income, calculated in accordance with GAAP, of least $3,000,000.
Subject to this lock-up restriction, the Selling Security Holder have
advised the Company that sales of the Shares may be effected from time to time
in transactions (which may include block transactions) in the over-the-counter
market, in negotiated transaction, through the writing of options on the Common
Stock or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Security Holder may effect such transactions by selling the
Common Stock directly to purchasers or through broker-dealers that may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
31
<PAGE>
The Selling Security Holder and any broker-dealers that act in connection
with the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of the Section 2(11) of the Securities Act and
any commissions received by them and any profit on the resale of the shares of
Common Stock as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Shareholders may agree to
indemnify any agent, dealer, or broker-dealer that participates in transactions
involving sales of the shares of Common Stock against certain liabilities
arising under the Securities Act. The Company will not receive any proceeds from
the sales of the Shares by the Selling Shareholders. Sales of the Shares by
Security Holder, or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock.
At the time a particular offer of Shares is made by or on behalf of the
Selling Security Holder, to the extent required, a Prospectus will be
distributed which will set forth the number of Shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for Shares
purchased from the Selling Shareholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged in a
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling off" period (two to
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rule 10b-6 and 10b-7, in connection
with transactions involving such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Security Holder.
CERTAIN TRANSACTIONS
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible notes in order to obtain funds to be used
for working capital, to pay operating expenses, to acquire a complementary paint
company or equipment necessary to manufacture the Company's insulative coatings,
and to pay the organizational and underwriting costs to be incurred in an
initial public offering of the Company's stock. A second offering of unsecured
notes and common stock was commenced January 1996 to obtain additional funds for
the purposes stated above. The selling agents received up to ten percent (10%)
of the amounts raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offering as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15 through July 26, 1996.
The notes were convertible, at the option of the holder, to an amount of common
stock based between 50% to 60% of the price of the shares of the Company's
common stock to be offered in the public offering. The option to convert was
conditioned upon the closing of the initial public offering of the Company's
stock. Because the closing did not occur, the notes are payable at the original
one year maturity date. At November 30, 1996, $505,000 of these notes were in
default.
As a condition to this offering, the holders of $938,500 of these notes
payable agreed to convert such notes plus accrued interest thereon into an
aggregate of 550,583 shares of Common Stock. 469,250 shares were issued in
exchange for a principal debt reduction of $938,500 and 81,333 shares of Common
Stock were issued to satisfy approximately $162,665 of accrued interest due on
all outstanding notes. Dr. Stiles,
32
<PAGE>
and Mr. Riley, each of whom are directors of the Company converted $100,000 and
$40,000 notes respectively, plus accrued interest thereon into 16,504 and 34,564
shares of the Company's Common Stock as part of this exchange Mr. Hankins and
his son loaned the Company an aggregate of $225,000 plus accrued interest which
debt has been personally assumed by Mr. Pidorenko and is not being converted
into Common Stock. The Company does not expect that Mr. Hankins will be
reappointed to the board of directors. In connection with the conversion such
holders have agreed not to sell their shares for a period of at least two (2)
years from the date of this Prospectus, without the Underwriter's consent. The
Underwriter has the right to extend this lock-up period for one (1) additional
year if the Company does not achieve during any 12 consecutive month period a
cumulative pre-tax profit on income, calculated in accordance with GAAP of at
least $3,000,000. The holders of approximately $960,000 of obligations under
various notes described above will be paid off in cash at the closing of this
offering.
On February 17, 1997 the Company entred into a settlement agreement with
Consolidated Financial Management, Inc. ("Consolidated"). Consolidated was a
maker of a certain promissory note in the principal amount of $200,000 payable
to the Company, which was secured by 60,000 shares of Meadow Valley Corporation
common stock. Consolidated is the current holder of $300,000 face amount of
notes issued by the Company in favor of two bridge investors, who subsequently
assigned their notes to Consolidated. The Company was in default under its notes
due to the investors now held by Consolidated. Consolidated was in default under
its $200,000 note due to the Company, which is secured by the Meadow Valley
Corporation shares.
On February 13, 1997, Consolidated obtained a temporary restraining order in
the Superior Court, State of Arizona in and for the County of Mariposa which
prohibits ThermaCell from selling the Meadow Valley Corporation shares. The
settlement agreement provides that ThermaCell will release the Meadow Valley
Corporation shares to Consolidated upon ThermaCell receiving $100,000 from
Consolidated. The parties consummated this part of the settlement agreement.
ThermaCell is obligated to pay Consolidated upon the earlier of the closing of
this offering or 90 days the remaining sum of $258,789.01. The parties have
executed mutual releases and made appropriate representations in connection with
this settlement agreement.
To induce certain stockholders to enter into the Lock-Up arrangements
required by the Underwriter, the Company issued approximately 318,150 shares of
Common Stock so that such stockholders would have a $2.00 cost basis in their
shares of Common Stock, which is the same cost basis offered to the converting
noteholders.
John Pidorenko has agreed to personally assume and indemnify the Company
against approximately $690,000 of principal and accrued interest obligations
under certain of the Company's outstanding promissory notes. Mr. Pidorenko has
agreed to assign his interest in the proceeds from the sale of his shares of
Common Stock registered under this Prospectus to secure this undertaking to
repay this debt on the Company's behalf.
Through all private placements of the notes described above, Company relied
upon exemptions from registration under the Securities Act pursuant to Sections
3(b) and 4(2) and Regulation D promulgated thereunder. Of the 55 investors, 40
represented to the Company that they were "accredited" as that term is defined
under Regulation D. All purchasers represented, in a manner satisfactory to the
Company, that they were sophisticated and otherwise understood the risks
associated with the offering.
In connection with the formation of the Company, Mr. Pidorenko received
416,067 shares of Common Stock and 5,000,000 shares of Preferred Stock. The
Preferred Stock has one-half vote per share on all matters submitted to the vote
of the holders of Common Stock, but did not originally have any conversion
rights. The voting Preferred Stock was entitled to one vote per share but was
reduced by one-half vote per share.
33
<PAGE>
In order to provide Mr. Pidorenko a long-term financial incentive for the
Company's success, Mr. Pidorenko has the option to convert all or part of his
Voting Preferred Stock into shares of the Company's Common Stock. To the extent
the Company has generated at least one fiscal quarter of positive net income
during any subsequent fiscal year after this offering, Mr. Pidorenko would be
entitled to convert up to one half (1/2) of his shares of Voting Preferred Stock
into shares of Common Stock at a conversion ratio of four shares of Voting
Preferred Stock for one share of Common Stock, or up to 625,000 shares of Common
Stock. The other half of Mr. Pidorenko's Voting Preferred Stock is convertible
into an additional 625,000 shares of Common Stock at the same conversion ratio
provided that the Company generates at least one complete fiscal year with
positive net income. The issuance of the Voting Preferred Stock to Mr. Pidorenko
constitutes an anti-takeover device.
Mr. Pidorenko also entered into an employment agreement with the Company
that provided for a $35,000 cash payment upon execution, which he has deferred,
and the issuance of options to acquire up to 500,000 shares of the Company's
Common Stock at the public offering price of $4.00 per share for a five year
period. John R. Trusty, the Company's Chief Financial Officer, owns 20,000
shares of the Company's Common Stock which he received as nominal consideration
for his services to the Company at a salary below market levels. Mr. Trusty
received a $10,000 bonus upon execution of his employment agreement which
provides for a minimum annual base salary of $55,000. See "Management --
Employment Agreement".
From time to time Mr. Pidorenko has advanced funds to the Company and the
Company has advanced funds to Mr. Pidorenko. During the year ended November 30,
1996, the Company advanced Mr. Pidorenko $31,103 in excess of funds he advanced
to the Company. At November 30, 1996, the net amount payable by the Company to
Mr. Pidorenko was $5,723. Mr. Pidorenko also agreed to defer his $35,000 bonus
due upon execution of his Employment Agreement and a portion of his base salary.
As of February 15, 1997, Mr. Pidorenko owed the Company approximately $47,000.
Mr. Pidorenko has agreed to defer portions of his monthly salary over the next
year to repay these advances. Mr. Pidorenko's daughter and son-in-law are
employed by the Company in administrative and clerical functions. The Company
paid these individuals approximately $37,000 in fiscal 1996. These individuals
do not have employment agreements.
The Company believes that all transactions with officers, directors or
affiliates to date are on terms no less favorable than those available from
unaffiliated third parties. Although no other transactions were contemplated, it
is the Company's policy that all future transactions with its officers,
directors or affiliates will be approved by the independent members of the
Company's Board of Directors not having an interest in the transaction and will
be on terms no less favorable than could be obtained from unaffiliated third
parties.
DESCRIPTION OF SECURITIES
GENERAL
The following description is qualified in all respects by reference to the
Company's Certificate of Incorporation and Bylaws, as amended, and the Warrant
Agreement, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part.
The Company's certificate of incorporation, as amended, authorizes
20,000,000 shares of Common Stock, $0.0001 par value and 5,000,000 shares of
preferred stock, $0.0001 par value. Of this total, 1,457,019 shares of Common
Stock have been issued and are outstanding at February 15, 1997. Additionally,
the Company has reserved 850,000 shares of the Company's Common Stock for
issuance upon exercise of outstanding warrants or options or options available
under certain stock option plans. If all of the Warrants and other outstanding
options and warrants were exercised after completion of this offering, the
Company would have outstanding approximately 5,057,019 shares of Common Stock.
The Company has 5,000,000 shares of Preferred Stock outstanding designated as
the Series A Convertible Voting Preferred
34
<PAGE>
Stock (the "Voting Preferred stock"). Mr. Pidorenko is the holder of 5,000,000
shares of Voting Preferred Stock. Each share of Voting Preferred Stock is
entitled to one-half ( 1/2) vote per share on all matters submitted to a vote of
Common Stockholders.
UNITS
The Common Stock and Warrants offered hereby will be sold only in Units.
Each Unit consists of one Share of Common Stock and one Warrant. The Common
Stock and Warrants will be separately transferable 90 days after the date of
this Prospectus, or such shorter period, as determined by the Underwriter.
COMMON STOCK
Holders of shares of Common Stock are entitled to dividends when and as
declared by the Board of Directors from funds legally available therefor and
upon liquidation are entitled to share ratably in any distribution to
stockholders. All holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote, including the election of
directors. In keeping with stockholder democracy rights, the Company's
Certificate of Incorporation permits the stockholders to remove any director or
the entire board of directors, with or without cause, upon a vote of a majority
of the outstanding shares.
All issued and outstanding shares of Common Stock are validly issued, fully
paid and non-assessable. Holders of the Common Stock do not have pre-emptive
rights or other rights to subscribe for unissued or treasury shares or
securities convertible into shares.
Under the Florida General Corporation Law, the Company has availed itself of
the provisions permitting the limitation of liability through the
indemnification of officers, directors, employees and agents of Florida
corporations. See "Risk Factors -- Limitation of Directors'
Liability/Indemnification."
PREFERRED STOCK
As of the closing of this offering, the Company will have outstanding
5,000,000 shares of Voting Preferred Stock, all of which were held by Mr.
Pidorenko. The Voting Preferred Stock has the right to cast one-half vote per
share on each and any matter on which the Common Stock is entitled to vote.
Accordingly, Mr. Pidorenko, will be able to control the affairs and operations
of the Company including, but not limited to, election of directors, sale of
assets or other business opportunities upon the closing of this offering.
In addition to preferential voting rights, the Voting Preferred Stock held
by Mr. Pidorenko is subject to conversion into shares of Common Stock if the
Company meets certain earning targets after the closing of this offering. The
Voting of Preferred Stock has no dividend rights, redemption provisions or
preemptive rights.
WARRANTS
The Warrants will be issued subject to the terms and conditions of a Warrant
Agreement between the Company and Corporate Stock Transfer, Denver, Colorado, as
Warrant Agent. The following description of the Warrants is not complete and is
qualified in all respects by the Warrant Agreement which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
Each Warrant shall entitle the holder thereof to purchase one (1) share of
Common Stock during the period commencing twelve (12) months from the date of
this Prospectus and expiring at the close of business on the last day of the
four (4) year period following the date of this Prospectus. The exercise price
of the Warrants shall be $4.25 per share. The Company may call the Warrants for
a redemption price of $.10 per Warrant commencing eighteen (18) months after the
date of this Prospectus (or earlier at the sole discretion of the Underwriter)
if notice of not less than thirty (30) days is given and the closing sale price
of
35
<PAGE>
the Common Stock has been at least 250% of the then exercise price of the
Warrants on all twenty (20) of the trading days ending on the third day prior to
the day on which notice is given.
The exercise price of the Warrants has been determined by negotiations
between the Company and the Underwriter. In determining the price, the Company
and the Underwriter considered a number of factors, including the prospects of
the Company and the industry in which it competes, an assessment of the
Company's management and the general conditions of the securities market. The
Company may, at the sole discretion of its Board of Directors, reduce the
exercise price (upon effectiveness of a post-effective amendment to the
registration statement under the Securities Act), increase the number of shares
that may be purchased upon exercise of a Warrant and/or extend the expiration
date of the Warrants should it deem that such actions are in the best interests
of the Company.
The Warrants contain adjustment provisions to avoid dilution of the equity
interest represented by the underlying shares upon the occurrence of certain
events, such as share dividends or splits. The Warrants do not have
anti-dilution protection if the Company issues equity securities at a price
below the Warrant exercise price. In the event of liquidation, dissolution or
winding up of the Company, Warrant Holders will not be entitled to receive any
assets of the Company available for distribution to the holders of Common Stock.
Warrants Holders will have no voting, pre-emptive, liquidation or other rights
of a stockholder, and no dividends will be declared on the Warrants.
The Warrants may be exercised upon surrender of the applicable Warrant
certificate on or prior to the expiration of the Warrant exercise period,
accompanied by payment in full of the exercise price for the number of Warrants
being exercised.
The Company has agreed to use its best efforts to maintain the effectiveness
of the Registration Statement under the Securities Act for the Common Stock
underlying the Warrants and to take such other actions under the laws of various
States as may be required to cause the lawful sale of securities upon the
exercise of Warrants if, in the opinion of the Board of Directors, upon advice
of counsel, the sale of securities upon such exercise would be unlawful. In
addition to the 1,375,000 Warrants included in the Units offered hereby, the
Company may issue up to 137,500 Warrants included in the Units issuable upon
exercise of the Underwriter's Warrants.
CERTAIN FEDERAL INCOME TAX MATTERS
The following is a brief summary of certain federal income tax consequences
associated with the purchase and ownership of the Units, the Common Stock and
Warrants included in the Units and the exercise of the Warrants. Prospective
investors are urged to consult with their individual tax advisors concerning the
tax aspects of the Units in their own particular circumstances.
For federal income tax purposes, the issue price of a Unit must be allocated
between the Common Stock and the Warrant included in the Units in proportion to
their respective fair market values at the time of issuance. The amount
allocated to each component element in the Unit will constitute the tax basis of
that element. Upon exercise of a Warrant, the basis of the Warrant plus the
amount paid on the exercise of the Warrant will be the basis of the new share of
Common Stock issued with respect thereto.
No gain or loss will be recognized upon the exercise of a Warrant (nor will
the Company recognize any income upon the exercise of a Warrant). The holding
period of a share of Common Stock acquired upon the exercise of a Warrant will
commence upon the exercise date of the Warrant. Any gain or loss recognized by a
holder upon the sale of a share of Common Stock will generally constitute a
capital gain or capital loss. Any loss recognized upon the lapse of a Warrant
would ordinarily constitute a capital loss.
The federal income tax considerations discussed above are based upon the
current provisions of the Internal Revenue Code, and there can no assurance that
such provisions will not be changed in the future, either prospectively or
retroactively.
36
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
Upon the closing of this offering, the transfer agent and warrant agent for
the Company's securities will be Continental Stock Transfer & Trust Company, New
York, N.Y.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had outstanding 1,457,019
shares of its Common Stock. Of this amount, 416,067 shares of Common Stock are
being registered on behalf of the Selling Security Holder. Holders of 1,290,743
shares of Common Stock (89% of current outstanding shares) have agreed not to
sell their shares for a period of at least two (2) years from the date of this
Prospectus, without the Underwriter's consent. The Underwriter has the right to
extend this lock-up period for one (1) additional year if the Company has not
achieved during any 12 consecutive month period a cumulative pre-tax profit or
income, calculated in accordance with GAAP, of at least $3,000,000.
Approximately 60,000 shares of the Company's common stock will be available for
resale pursuant to Rule 144 after the closing of this offering. The possibility
of future sales by existing stockholders under Rule 144 or otherwise may, in the
future, have a depressive effect on the market price of the Common Stock, and
such sales, if substantial, might also adversely affect the Company's ability to
raise additional capital. See "Description of Securities," and "Underwriting."
Generally under Rule 144, a person holding restricted securities for a
period of two years may, if there is adequate public information available
concerning the Company, sell every three months in ordinary brokerage
transactions or transactions with a market maker an amount equal to the greater
of (a) 1% of the Company's then outstanding stock or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale 90 days after
the date of this Prospectus. Rule 144 does not limit the amount of restricted
securities which a person who is not an affiliate of the Company may sell after
three years. Affiliate sales under Rule 144 are subject to such volume
limitations regardless of the length of the holding period. Sales under Rule 144
may, in the future, have a depressive effect on the market price of the
Company's securities should a public market develop.
Future sales of the Common Stock underlying the Warrants, the Underwriter's
Warrants, and options granted for issuance under stock option plans, or to Mr.
Pidorenko pursuant to Rule 144 or otherwise, could depress the market price of
Common Stock. The Company is unable to predict when such options, warrants or
other commitments to purchase the Common Stock of the Company would in fact be
exercised. See "Risk Factors."
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
by and between the Company and the Underwriter (the "Underwriting Agreement"),
the Underwriter has agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriter, an aggregate of 1,375,000 Units, at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of certificates representing the Units is subject
to certain conditions precedent, and that the Underwriter will purchase all of
the Units offered hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Units directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $.20 per Unit. After the initial public offering,
the public offering price and concession may be changed.
37
<PAGE>
The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase up to an aggregate
of 206,250 additional Units at the initial per Unit public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriter may exercise this option only to cover
over-allotments, if any, made in connection with the sale of the Units offered
hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of this offering, including any
Units purchased pursuant to the Underwriter's over-allotment option, no portion
of which has been paid to date.
The Company and the Underwriter have agreed to indemnify each other against
certain civil liabilities in connection with this offering, including
liabilities under the Securities Act.
The Company and the holders of 1,290,743 shares of common stock issued by
the Company in various private offerings have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights to
acquire shares of Common Stock without the prior written consent of the
Underwriter for a period of 24 months after the date of this Prospectus and up
to an additional 12 months if the Company does not achieve certain performance
goals.
The Company has agreed to sell to the Underwriter, for an aggregate price of
$10, the right to purchase up to an aggregate of 137,500 Units (the
"Underwriter's Options"). The Underwriter's Options will be exercisable for a
four-year period commencing one year after the date of the Prospectus, at a per
Unit exercise price equal to 165% of the initial per Unit public offering price
of the Units being offered hereby. The warrants underlying the Underwriter's
Options have the same terms and conditions as the Warrants to be sold to the
public in this Offering, except that they are not subject to redemption by the
Company until the Underwriter's Options have been exercised and the underlying
warrants are outstanding. The Underwriter's Options may not be sold, assigned,
transferred, pledged or hypothecated for a period of 12 months from the date of
the Prospectus except to the Underwriter or its officers.
The Company has agreed to file, during the four-year period beginning one
year from the date of the Prospectus, at the request of the holders of a
majority of the Underwriter's Options and the underlying shares of Common Stock
and Warrants, and to use its best efforts to cause to become effective, a post-
effective amendment to the Registration Statement or a new registration
statement under the Securities Act, as required to permit the public sale of the
shares of Common Stock and Warrants issued or issuable upon exercise of the
Underwriter's Options. In addition, the Company has agreed to give advance
notice to holders of the Underwriter's Options of its intention to file certain
registration statements commencing one year and ending six years after the date
of the Prospectus, and in such case, holders of such Underwriter's Options or
underlying shares of Common Stock and warrants shall have the right to require
the Company to include all or part of such shares of Common Stock and Warrants
underlying such Underwriter's Options in such registration statement at the
Company's expense.
For the life of the Underwriter's Options, the holders thereof are given the
opportunity to profit from a rise in the market price of the shares of Common
Stock and Warrants, which may result in a dilution of the interests of other
shareholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Underwriter's Options are outstanding. The holders of the
Underwriter's Options might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional equity capital on
terms more favorable to the Company than those provided by the Underwriter's
Options. Any profit realized on the sale of the shares of Common Stock issuable
upon the exercise of the Underwriter's Options may be deemed additional
underwriting compensation.
As part of the Underwriting arrangements, the Company has agreed to enter
into an agreement that will provide for a finder's fee, ranging from 5% of the
first $3,000,000 down to 1% of the excess over $10,000,000 of the consideration
involved in any capital business transaction (including mergers and
38
<PAGE>
acquisitions) consummated by the Company in which the Underwriter introduced the
other party to the Company during the five-year period following the completion
of the offering.
Additionally, the Underwriting Agreement provides that the Underwriter shall
have the right for a period of two years to either designate an observer to the
Company's Board of Directors or to cause the Company to elect a designee of the
Underwriter to the Company's Board of Directors.
Upon the exercise of the Warrants, the Company will pay the Underwriter a
fee of 5% of the aggregate exercise price if (i) the market price of its Common
Stock on the date the Warrant is exercised is greater than the then exercise
price of the Warrants; (ii) the exercise of the Warrant was solicited by a
member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrants; (v) the solicitation of
exercise of the Warrant was not in violation of Rule 10b-6 promulgated under the
Securities Exchange Act of 1934; and (vi) no fee will be paid on non-solicited
exercises. The Underwriter as well as another broker-dealer must cease bidding
for or purchasing the Company's securities for up to nine business days prior to
such solicitation efforts until the later of the termination of such efforts or
the waiver of such fee. There will not be a Warrant solicitation for 12 months
from the date of this Prospectus.
Prior to this offering there has been no public trading market for the
Company's securities. The initial public offering price of the Units and the
exercise price and the terms of the Warrants have been determined by
negotiations between the Company and the Underwriter. Factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, included the history of and prospects for the industry in which the
Company competes, and assessment of the Company's management, the prospects of
the Company, its capital structure and such other factors as were deemed
relevant.
The foregoing is a summary of the material terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Underwriter has informed the Company that no sales will be made to any
account over which the Underwriter exercises discretionary authority.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act, omits certain information contained in the
Registration Statement. Statements contained herein concerning provisions of any
documents are not necessarily complete, and each statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
The Company will provide without charge to each person who receives a Prospectus
upon written or oral request of such person a copy of any information
incorporated by reference.
The obligation to file certain periodic reports arises under Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as a
result of the effectiveness of a registration statement under the Securities Act
as well as a registration under the Exchange Act. The Company's registration of
its securities under Section 12(g) of the Exchange Act will obligate the Company
to file proxy statements and triggers other reports. The Company intends to
furnish its stockholders with annual reports containing audited financial
statements. The Company intends to register securities offered in this offering
under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act").
The Registration Statement, reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 5th Street, NW,
Washington, DC 20549-1004, and at the regional offices of the Commission at 7
World Trade Center, 13th Floor,
39
<PAGE>
New York, New York 10048 and at the Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661-2511. The Registration Statement, including the
exhibits thereto, may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004 at prescribed
rates.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida. This
law firm owns 60,000 shares of the Company's Common Stock. Singer Zamansky LLP,
New York, New York, is acting as counsel for the Underwriter in connection with
this offering.
EXPERTS
The financial statements of the Company as of November 30, 1995 and 1996 and
for each of the years then ended and for the period from August 12, 1993
(inception) to November 30, 1995, have been included herein and in the
registration statement in reliance upon the report of Cherry, Bekaert & Holland,
L.L.P., independent certified public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing. The
report of Cherry, Bekaert & Holland, L.L.P., covering the financial statements
contains an explanatory paragraph that, based upon operating losses and working
capital deficiency, substantial doubt about the Company's ability to continue as
a going concern exists. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
40
<PAGE>
THERMACELL TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ThermaCell Technologies, Inc.:
Report of Independent Certified Public Accountants................................................... F-2
Balance Sheets....................................................................................... F-3
Statements of Loss................................................................................... F-4
Statements of Changes in Stockholders' Equity........................................................ F-5
Statements of Cash Flows............................................................................. F-6
Notes to Financial Statements........................................................................ F-7-14
C.F. Darling Paint & Chemicals, Inc.:
Report of Independent Certified Public Accountants................................................... F-15
Balance Sheets....................................................................................... F-16
Statements of Income................................................................................. F-17
Statements of Stockholders' Equity................................................................... F-18
Statements of Cash Flows............................................................................. F-19
Notes to Financial Statements........................................................................ F-20-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Board of Directors
ThermaCell Technologies, Inc.
Tampa, Florida
We have audited the accompanying balance sheets of ThermaCell Technologies,
Inc. as of November 30, 1995 and 1996 and the related statements of loss,
changes in stockholders' equity, and cash flows for the years then ended and the
period from August 12, 1993 (inception) to November 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ThermaCell Technologies,
Inc. as of November 30, 1995 and 1996 and the results of its operations and its
cash flows for the years ended and the period from August 12, 1993 (inception)
to November 30, 1995 in conformity with generally accepted accounting
principles.
As described in Note 2 to the financial statements, the accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. As shown in the financial statements, the Company's accumulated
deficit at November 30, 1996 was $1,548,840. At November 30, 1996, the Company's
current liabilities exceeded current assets by $2,444,417. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding these matters are further described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Clearwater, Florida
January 15, 1997
except for Note 17 as to which
the date is February 7, 1997
F-2
<PAGE>
THERMACELL TECHNOLOGIES, INC.
BALANCE SHEETS
NOVEMBER 30, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash.................................................................................... $ 90,773 $ 3,512
Notes receivable........................................................................ 213,750
Accounts receivable
Trade, net of allowance for uncollectible accounts of $21,000 for 1996................ 2,677 64,006
Employees............................................................................. 224 --
Officers.............................................................................. 18,582 4,637
Other................................................................................. -- 6,000
--------- ----------
21,483 74,643
--------- ----------
Inventories............................................................................. 71,016 150,872
Prepaid assets.......................................................................... -- 7,695
Deposits................................................................................ 7,543 6,323
--------- ----------
TOTAL CURRENT ASSETS................................................................ 190,815 456,795
--------- ----------
PROPERTY AND EQUIPMENT.................................................................... 114,373 322,979
Less accumulated depreciation........................................................... 11,011 41,060
--------- ----------
103,362 281,919
--------- ----------
OTHER ASSETS
Note receivable......................................................................... 100,000 --
Restricted cash......................................................................... -- 15,000
Organizational costs, net............................................................... 2,445 2,604
Patents................................................................................. 10,058 14,271
Trademark............................................................................... -- 3,036
Agreement not to compete, net........................................................... 25,000 16,667
Deferred offering costs................................................................. 16,590 297,648
Deferred Loan Costs, net................................................................ 79,985 36,550
Deferred income tax benefit, net........................................................ 125,657 337,350
Goodwill, net........................................................................... 80,821 75,433
--------- ----------
440,556 798,559
--------- ----------
$ 734,733 $1,537,273
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable
Bridge financing........................................................................ $ 740,203 $1,898,500
Stockholders............................................................................ 203,304 135,000
Other................................................................................... -- 24,323
--------- ----------
943,507 2,057,823
Accounts payable and accrued expenses
Trade accounts.......................................................................... 16,181 444,537
Accrued payroll and payroll taxes....................................................... 55,024 175,696
Accrued interest........................................................................ 29,396 223,156
Commissions payable..................................................................... 21,020 --
--------- ----------
TOTAL CURRENT LIABILITIES........................................................... 1,065,128 2,901,212
--------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001.......................................................
5,000,000 shares authorized, issued and outstanding, 1995 and 1996.................... 500 500
Common stock, par value $.0001.
Authorized 20,000,000 shares, outstanding 667,472 and 869,899 shares, 1995 and 1996,
respectively......................................................................... 66 87
Additional paid-in capital.............................................................. 184,326 184,314
Accumulated deficit:
During developmental stage............................................................ (515,287) (515,287)
Subsequent to developmental stage..................................................... -- (1,033,553)
--------- ----------
Total accumulated deficit........................................................... (515,287) (1,548,840)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY........................................................ (330,395) (1,363,939)
--------- ----------
$ 734,733 $1,537,273
--------- ----------
--------- ----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE YEARS ENDED
AUGUST 12, 1993 NOVEMBER 30,
(INCEPTION) TO --------------------------
NOVEMBER 30, 1995 1995 1996
----------------- ----------- -------------
<S> <C> <C> <C>
REVENUE...........................................................
Sales........................................................... $ 61,473 $ 43,691 $ 615,845
LESS COST OF SALES................................................ 40,722 15,431 394,867
----------------- ----------- -------------
GROSS PROFIT.................................................. 20,751 28,260 220,978
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...................... 616,594 376,919 1,280,339
----------------- ----------- -------------
LOSS FROM OPERATIONS.......................................... (595,843) (348,659) (1,059,361)
----------------- ----------- -------------
OTHER INCOME (EXPENSE)
Commissions..................................................... 20,448 2,272 --
Interest income................................................. -- -- 24,763
Interest expense................................................ (65,549) (47,645) (207,147)
Loss on sale of fixed assets.................................... -- -- (3,500)
----------------- ----------- -------------
TOTAL OTHER INCOME (EXPENSE).................................. (45,101) (45,373) (185,884)
----------------- ----------- -------------
LOSS BEFORE INCOME TAXES...................................... (640,944) (394,032) (1,245,245)
INCOME TAXES
Deferred income tax benefit..................................... 125,657 79,175 211,692
----------------- ----------- -------------
NET LOSS...................................................... $ (515,287) $ (314,857) $ (1,033,553)
----------------- ----------- -------------
----------------- ----------- -------------
Loss per common share............................................. $ (0.50) $ (1.34)
----------- -------------
----------- -------------
Weighted average number of common share outstanding............... 626,191 771,154
----------- -------------
----------- -------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash..... 5,669,551 $ 567 -- $ -- $ 177,383 $ -- $ 177,950
Issuance of preferred stock for
cash................................. -- -- 4,975,000 497 45 -- 542
Issuance of common stock under
employment contracts................. 60,000 6 -- -- (6) -- --
Issuance of common stock to directors
for services......................... 31,400 3 -- -- (3) -- --
Effect of reverse stock split:
Common -- one for ten shares........ (5,184,855) (519) -- -- 519 -- --
Issuance of stock as perquisite for
providing services................... 30,000 3 -- -- (3) -- --
Net loss for the year ended November
30, 1994............................. -- -- -- -- -- (200,430) (200,430)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1994......... 606,096 60 4,975,000 497 177,935 (200,430) (21,938)
Issuance of common stock for cash..... 11,400 1 -- -- 6,399 -- 6,400
Issuance of common stock under
employment contracts................. 300,000 30 -- -- (30) -- --
Issuance of stock as a perquisite for
providing bridge loan financing...... 52,364 5 -- -- (5) -- --
Issuance of stock to a promoter as a
perquisite........................... 250,000 25 -- -- (25) -- --
Effect of reverse stock split:
Common -- one for ten shares........ (552,388) (55) -- -- 55 -- --
Net loss for the year ended November
30, 1995............................. -- -- -- -- -- (314,857) (314,857)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1995......... 667,472 $ 66 4,975,000 $ 497 $ 184,329 $ (515,287) $ (330,395)
Issuance of common stock as incentive
to employees......................... 19,000 2 -- -- (2) -- --
Issuance of stock as a perquisite for
providing financing/capital.......... 153,227 16 -- -- (7) -- 9
Issuance of stock to a promoter as a
perquisite........................... 20,000 2 -- -- (2) -- --
Issuance of stock as a credit for
services............................. 10,200 1 -- -- (1) -- --
Net loss for the year ended November
30, 1996............................. -- -- -- -- -- (1,033,553) (1,033,553)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1996......... 869,899 $ 87 4,975,000 $ 497 $ 184,317 $(1,548,840) $(1,363,939)
----------- ----- ----------- ----- ----------- ------------ ----------
----------- ----- ----------- ----- ----------- ------------ ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE YEARS ENDED
AUGUST 12, 1993 NOVEMBER 30,
(INCEPTION) TO ---------------------------
NOVEMBER 30, 1995 1995 1996
----------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash used in operating
activities
Net loss..................................................... $ (515,287) $ (314,857) $ (1,033,553)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation............................................... 11,011 6,606 30,049
Amortization............................................... 810 486 171,930
Loss on sale of capital asset.............................. -- -- 3,500
Deferred income tax benefit................................ (125,657) (79,175) (211,692)
(Increase) decrease in accounts receivable................. (21,483) 8,926 (53,160)
Increase in inventories.................................... (71,016) (71,016) (79,856)
(Increase) decrease in prepaid assets...................... -- -- (7,695)
(Increase) decrease in deposits............................ (7,543) (7,543) 1,220
Increase in other assets................................... (119,134) (110,736) (7,249)
Increase (decrease) in accounts payable.................... 16,181 (8,372) 428,356
Increase in accrued expenses............................... 105,440 105,440 293,412
----------------- ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES.................... (726,678) (470,241) (464,738)
----------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................... (114,373) (92,349) (213,606)
Proceeds from sale of capital asset............................ -- -- 1,500
Issuance of note receivable.................................... (100,000) (100,000) (115,000)
Collections on notes receivable................................ -- -- 1,250
----------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES.................... (214,373) (192,349) (325,856)
----------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock......................... 184,892 6,400 68
Proceeds from issuance of notes payable........................ 1,137,707 1,037,707 1,192,822
Principal payments on notes payable............................ (194,200) (194,200) (10,202)
Principal payments on stockholder loans........................ -- -- (68,304)
Costs associated with obtaining financing...................... (96,575) (96,575) (396,051)
----------------- ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 1,031,824 753,332 718,333
----------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH.......................... 90,773 90,742 (72,261)
CASH BEGINNING................................................... -- 31 90,773
----------------- ------------ -------------
CASH ENDING...................................................... $ 90,773 90,773 $ 18,512
----------------- ------------ -------------
----------------- ------------ -------------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company was formed August 12, 1993. For the year ended November 30,
1995, the Company was in the developmental stage. During the first three
quarters of fiscal year end 1996 significant manufacturing and sales efforts
began ushering the company out of the development stage by the beginning of the
fourth quarter of that year. Operations prior to that time were devoted
primarily to developing products, raising capital, obtaining financing,
acquiring manufacturing and sales facilities, marketing, and administrative
functions.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method. All
inventories are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of assets.
INTANGIBLE ASSETS
Intangible assets subject to amortization include organization costs,
agreement not to compete, loan costs, trademark, goodwill and patents.
Organizational costs and agreement not to compete are being amortized on a
straight-line basis over five years and three years, respectively. Loan costs
are being amortized using the interest method over the lives of the related
loans. Trademark and goodwill are being amortized on a straight-line basis over
ten and fifteen years, respectively. Amounts attributable to patents will be
amortized over the useful life of the patent (but not more than 20 years)
beginning the month the patent becomes effective.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's cash, trade accounts receivable
and payable approximated their carrying value at year end. It is not practicable
to estimate the fair value of other financial instruments held or owned by the
Company including, but not limited to, other receivables and payables due to the
lack of readily available information regarding the marketability of such
instruments and the effect of credit risk on the measurement of fair value for
such instruments.
F-7
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER COMMON SHARE
Primary loss per common share equals net loss divided by the weighted
average number of common shares outstanding. The convertible securities are not
included in the fully diluted earnings per share calculation for November 30,
1995 because they are anti-dilutive. There were no convertible securities at
November 30, 1996 as discussed in Note 7. Consequently, there is no separate
presentation of fully dilutive loss per share.
ADVERTISING
The Company expenses advertising costs as they are incurred.
INCOME TAXES
Income taxes are accounted for by an asset and liability approach for
financial accounting and reporting purposes. Deferred income taxes are provided
based on the estimated future tax effects of differences between financial
statement carrying amounts and the tax bases of existing assets and liabilities,
and are adjusted for changes in tax laws and tax rates when those changes are
enacted. The provision for income taxes represents the total of income taxes
paid or payable for the current year, plus the change in deferred taxes during
the year.
NOTE 2--GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses since its inception. At November 30, 1996, the Company's
accumulated deficit was $1,548,840, and current liabilities exceeded current
assets by $2,444,417.
The history of reoccurring losses from operations and insufficient cash
resources to fund operations raise substantial doubt as to the Company's ability
to continue as a going concern. Management, however, believes the following
actions which are being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue as a going
concern, although no assurance to that effect can be given.
Management is actively seeking an underwriter for a second attempt at an
initial public offering. Management believes the proceeds expected to be
received from the offering will be sufficient to satisfy its anticipated cash
needs for approximately twelve months following the completion of the offering.
Also, management plans to negotiate extensions on all the notes payable.
Management believes that these actions, as well as the implementation of
organizational and operational changes, will enable the Company to continue as a
going concern, although no assurance can be given as to the ultimate success of
any of these actions. The Company is also currently investigating options to
merge with an existing public company or to sell to interested buyers, should
the offer fail to close.
F-8
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INVENTORIES
Inventories consist of the following at November 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Raw Materials.................................................................... $ 36,633 76,374
Finished goods (manufactured and purchased)...................................... 34,383 74,498
--------- ----------
$ 71,016 $ 105,872
--------- ----------
--------- ----------
</TABLE>
NOTE 4--RESTRICTED CASH
Cash restricted for payment to former note holder and held in agency by the
Company was $15,000 at November 30, 1996.
NOTE 5--NOTES RECEIVABLE
A note receivable of $200,000 at November 30, 1996 is from an unrelated
third party. Quarterly payments of interest at twelve percent commenced March 6,
1996, with full payment due by December 17, 1996. The note is collateralized by
equity securities. Subsequent to fiscal year end November 30, 1996, the note
went into default. However, no allowance for uncollectible amount has been
recorded because of the settlement agreement as discussed in Note 16.
An unsecured, non-interest bearing note receivable of $13,750 at November
30, 1996 is from a customer of the Company. Monthly principal payments commended
in November 1996, and full payment is due September 17, 1997.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 30, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures.......................................................... $ 34,732 $ 38,233
Equipment....................................................................... 78,991 255,473
Vehicles........................................................................ -- 26,023
Leasehold improvements.......................................................... 650 3,250
---------- ----------
Total cost...................................................................... 114,373 322,979
Accumulated depreciation........................................................ 11,011 41,060
---------- ----------
Property and equipment, net..................................................... $ 103,362 $ 281,919
---------- ----------
---------- ----------
</TABLE>
NOTE 7--BRIDGE FINANCING
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible unsecured notes in order to obtain funds
to be used for working capital, to pay operating expenses, to acquire a
complementary paint company or equipment necessary to manufacture the Company's
insulative coatings, and to pay the organizational and underwriting costs to be
incurred in an initial public offering of the Company's stock. A second offering
of unsecured notes and common stock
F-9
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--BRIDGE FINANCING (CONTINUED)
was commenced January 1996 to obtain additional funds for the purposes stated
above. The selling agents received up to ten percent (10%) of the amounts
raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offerings as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15, 1995 through July 26,
1996. The notes contain a provision for penalty upon default. The notes were
convertible, at the option of the holder, to an amount of common stock based
between 50% to 60% of the price of the shares of the Company's common stock to
be offered in the public offering. The option to convert was conditioned upon
the closing of the initial public offering of the Company's stock. Because the
closing did not occur, the notes are payable at the original one year maturity
date. At November 30, 1996, $505,000 of these notes were in default. As of the
date of the auditors' report, approximately $1.3 million of the notes were in
default.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company leased vehicles from an individual who is its president and
stockholder. Total lease expense for 1995 was $9,600.
The Company has notes payable to stockholders at November 30, 1995 and 1996
of $203,304 and $135,000, respectively. The notes were issued on varying dates
and are due one year from the date of issuance, plus interest at 12% to 15%. The
notes were in default at November 30, 1996.
The Company had sales of $83,339 during fiscal year 1996 with individuals
and companies which are stockholders. The Company had sales of $12,164 during
fiscal year 1996 with individuals and companies which are both stockholders and
directors.
The Company had bridge financing notes payable held by stockholders of
$117,500 at November 30, 1995 and 1996.
The Company received $121,060 in legal services from a law firm which is a
stockholder and had an account payable of $11,589 and $110,470 at November 30,
1995 and 1996, respectively.
During fiscal year 1996, the Company purchased a vehicle from an individual
who is its president and stockholder. The vehicle was subsequently sold by the
Company to a third party for a loss of $3,500.
During fiscal year 1996, the Company advanced $257,134 and received payment
of advances of $226,031 to an individual who is its president and stockholder.
The balance due to the Company at November 30, 1996 was $4,277.
NOTE 9--STOCK TRANSACTIONS
In April 1996, the Company effected a one-for-ten reverse stock split and
increased the number of common shares authorized from 10,000,000 shares to
20,000,000 shares. All references in the 1995 financial statements to numbers of
common shares and loss per share amounts have been restated to give retroactive
effect to the reverse stock split.
F-10
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK TRANSACTIONS (CONTINUED)
The Company has two employment contracts which provide for granting shares
of stock for years of service to an officer and a key employee. The Company's
president was awarded options exercisable for five years which entitle him to
acquire up to 500,000 shares of the Company's common stock at a price to be
determined upon closing of the Company's initial public offering. In addition,
the Company from time to time grants stock incentive awards to officers and
other key employees. There were no awards outstanding under the Company's
various agreements at November 30, 1995 and 1996.
NOTE 10--OPERATING LEASES
The Company leases a building, office space, office equipment, and a vehicle
under operating leases. The leases expire at various dates through 1999. Rental
expense under these leases was $6,069 and $100,944 for 1995 and 1996,
respectively.
The following is a schedule by years of minimum rentals under the above
lease agreements as of November 30, 1996.
<TABLE>
<S> <C>
Year ending November 30
1997............................................................ $ 114,207
1998............................................................ 108,062
1999............................................................ 19,727
---------
$ 241,996
---------
---------
</TABLE>
NOTE 11--RESEARCH AND DEVELOPMENT COSTS
Research and development cost included in the statements of loss totaled
$557 and $9,500 for the year ended November 30, 1995 and 1996, respectively.
NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid totaled $17,887 and $13,198 for the years ended November 30,
1995 and 1996, respectively.
NOTE 13--CONCENTRATION OF CREDIT RISK
The Company operates from two locations in West Central Florida and
manufactures and sells paint and related products. The Company extends credit to
its customers substantially without collateral. The business operations are
influenced by the general economic conditions of the surrounding area.
NOTE 14--ACQUISITION OF PAINT MANUFACTURING COMPANY
The Company entered into an agreement to purchase the operating assets of
C.F. Darling Paint & Chemicals, Inc. (Paint Company), a paint manufacturing
company in West Central Florida, effective November 30, 1995. The total purchase
price of $251,016 was paid in cash at time of closing. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated to
the assets acquired based upon their estimated fair market values. The excess of
the purchase price over the estimated fair market value of assets acquired
amounted to $105,821, of which $25,000 has been accounted for as the estimated
value of the agreement not to compete, and $80,821 is accounted for as goodwill.
F-11
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--ACQUISITION OF PAINT MANUFACTURING COMPANY (CONTINUED)
The operating results of Paint Company have not been included in the
Company's statement of loss for 1995 since the acquisition was completed
effective November 30, 1995. Had the operations of Paint Company been included
in the Company's financial statements for the year ended November 30, 1995, the
pro forma effect on the Company's operating results would have been as follows:
<TABLE>
<CAPTION>
1995 (UNAUDITED)
-----------------------------------------
THERMACELL
TECHNOLOGIES, PAINT
INC. COMPANY TOTAL
---------------- ---------- -----------
<S> <C> <C> <C>
Net Sales............................................................. $ 43,691 $ 414,350 $ 458,041
Cost of sales......................................................... 15,431 209,056 224,487
---------------- ---------- -----------
Gross profit.......................................................... 28,260 205,294 233,554
Selling, general & administrative..................................... 376,919 187,526 564,445
---------------- ---------- -----------
Operating income (loss)............................................... (348,659) 17,768 (330,891)
Interest expense...................................................... (47,645) (1,258) (48,903)
Commissions income.................................................... 2,272 -- 2,272
Other income.......................................................... -- 344 344
Gain on sale of assets................................................ -- 40,000 40,000
---------------- ---------- -----------
Income (loss) before income taxes..................................... (394,032) 56,854 (337,178)
Income taxes - current expense........................................ -- 10,986 10,986
Income taxes - deferred benefit....................................... 79,175 -- 79,175
---------------- ---------- -----------
Net income (loss)..................................................... $ (314,857) $ 45,868 $ (268,989)
---------------- ---------- -----------
---------------- ---------- -----------
Loss per share........................................................ $ (.43)
-----------
-----------
Weighted average number of common shares outstanding.................. 626,191
-----------
-----------
</TABLE>
These pro forma results have been prepared for comparative purposes only.
They do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect on December 1, 1994 or of
future results of operations of the consolidated entities.
NOTE 15--INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109) ("Accounting for Income Taxes"), the Company recorded deferred tax assets
to reflect the future tax benefits of financial operating loss carryforwards in
1995 and 1996.
The Company has a net operating loss carryforward of $1,886,189 at November
30, 1996 which expires in 2009 through 2011. Management's determination of an
adequate valuation allowance is based upon its current estimates of future
taxable income. If the Company is unable to generate sufficient taxable income
in the future through operating results, increases in the valuation allowance
will be required through a charge to expense. However, if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax asset,
the valuation allowance will be reduced through a credit to income.
A valuation allowance is required by SFAS 109 if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The need for the
F-12
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--INCOME TAXES (CONTINUED)
valuation allowance is evaluated periodically by management. Based on available
evidence, management concluded that a valuation allowance of 50 percent is
sufficient at November 30, 1995 and 1996.
Significant components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred taxes................................................................ $ 251,312 $ 674,700
Less: Valuation allowance................................................... (125,655) (337,350)
----------- -----------
Net deferred tax assets................................................... $ 125,657 $ 337,350
----------- -----------
----------- -----------
</TABLE>
Based on management's assessment, it is more likely than not that the net
deferred tax assets will be realized through future taxable earnings.
NOTE 16--SUBSEQUENT EVENTS
On January 13, 1997, a nonbinding letter of intent was received from
Ecological Technologies, Inc. proposing to negotiate an exclusive distribution
agreement for the Company's products in Japan. Consummation of the agreement is
subject to a number of conditions including test results in Japan confirming
product performance and agreement by the Company to secure patents in Japan for
the technology. Purchases, based on aforementioned conditions, were proposed in
the following volume:
<TABLE>
<S> <C>
1997............................................ $ 800,000
1998............................................ $1,000,000
1999............................................ $1,100,000
2000............................................ $1,210,000
2001............................................ $1,331,000
2002 through 2006, 10% increase of prior year.
</TABLE>
Either party may terminate the discussions. Due to the contingencies
involved, the Company is unable to predict whether or when a transaction with
Ecological Technologies, Inc. will be consummated.
On December 17, 1996, the collateralized note receivable of $200,000 became
due and was not paid. The Company entered into a settlement agreement with the
maker of the note receivable providing for temporary financing to the Company
and offsets of amounts owed. The agreement resulted in the extinguishment of the
note receivable and a net increase in the Company's liabilities of approximately
$258,000.
On December 6, 1996, the Company borrowed $200,000 from an unrelated third
party. The note bears interest at the rate of one percent (1%) per month, with
principal and interest due on December 17, 1996. The Company is required to pay
all cost of collection for the note payable. The holder of the note, subsequent
to November 30, 1996, made a demand upon the Company for repayment. The Company
is in the process of settling this claim which includes an undertaking by the
Company's chief executive officer to assume all obligations under this note.
F-13
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
On January 13, 1997, the initial public offering failed to close, as
scheduled. If this event had occurred on or prior to November 30, 1996 it would
have increased the loss by $247,048, the amount capitalized as cost related to
the initial public offering, net of related tax benefit.
The following proforma presentation shows the effect on the Company's
financial statements:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
----------------------------
AS REPORTED PRO FORMA
------------- -------------
<S> <C> <C>
Total other assets........................................................ $ 798,559 $ 551,511
------------- -------------
Total assets.............................................................. $ 1,537,273 $ 1,290,225
------------- -------------
------------- -------------
Total stockholders' equity................................................ $ (1,363,939) $ (1,610,987)
------------- -------------
Total liabilities and stockholders' equity................................ $ 1,537,273 $ 1,290,225
------------- -------------
------------- -------------
<CAPTION>
FOR THE YEAR ENDED
NOVEMBER 30, 1996
----------------------------
AS REPORTED PRO FORMA
------------- -------------
<S> <C> <C>
Total other income (expense).............................................. $ (185,884) $ (483,532)
------------- -------------
Loss before income taxes.................................................. $ (1,245,245) $ (1,542,893)
------------- -------------
Deferred income tax benefit............................................... $ 211,692 $ 262,292
------------- -------------
Net loss.................................................................. $ (1,033,553) $ (1,280,601)
------------- -------------
------------- -------------
Loss per common share..................................................... $ (1.34) $ (1.66)
------------- -------------
------------- -------------
</TABLE>
Subsequent to the Company's year end, $200,000 was advanced to an individual
who is its president and stockholder.
NOTE 17--EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
On February 7, 1997, the Company closed the corporate office and the retail
outlet that had opened in the first quarter of 1996. The Company may have a
contingent liability for leases of these premises up to a maximum amount of
$67,500. Management anticipates these actions will represent substantial savings
to the Company in the form of reduced operating costs.
F-14
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
ThermaCell Technologies, Inc.
We have audited the accompanying balance sheets of C.F. Darling Paint &
Chemicals, Inc. as of November 30, 1995 and July 31, 1995 and the related
statements of income, stockholders' equity, and cash flows for the years ended
July 31, 1995 and 1994 and the four months ended November 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C. F. Darling Paint &
Chemicals, Inc. as of November 30, 1995 and July 31, 1995 and the results of its
operations and its cash flows for the years ended July 31, 1995 and 1994 and the
four months ended November 30, 1995 in conformity with generally accepted
accounting principles.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Clearwater, Florida
January 3, 1996
F-15
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
BALANCE SHEETS
NOVEMBER 30, 1995 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30 JULY 31
------------ ---------
<S> <C> <C>
CURRENT ASSETS
Cash................................................................................... $ 119,064 $ 22,276
Accounts receivable.................................................................... 23,312 14,461
Inventories............................................................................ -- 58,009
------------ ---------
TOTAL CURRENT ASSETS................................................................. 142,376 94,746
Property and equipment, net.............................................................. -- --
Deposits................................................................................. 2,502 2,502
------------ ---------
$ 144,878 $ 97,248
------------ ---------
------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................................... $ 13,137 $ 14,318
Accrued expenses....................................................................... 3,658 3,003
Income taxes payable................................................................... 9,587 1,761
------------ ---------
TOTAL CURRENT LIABILITIES............................................................ 26,382 19,082
LOANS FROM STOCKHOLDERS.................................................................. 24,131 24,131
------------ ---------
TOTAL LIABILITIES.................................................................... 50,513 43,213
------------ ---------
STOCKHOLDERS' EQUITY
Common stock, 100 shares authorized, issued and outstanding in 1995 and 1994........... 1,000 1,000
Retained earnings...................................................................... 93,365 53,035
------------ ---------
TOTAL STOCKHOLDERS' EQUITY........................................................... 94,365 54,035
------------ ---------
$ 144,878 $ 97,248
------------ ---------
------------ ---------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENTS OF INCOME
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NOVEMBER 30, JULY 31, JULY 31,
1995 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Net sales.................................................................. $ 122,862 $ 420,329 $ 407,062
Cost of sales.............................................................. 58,198 230,466 241,807
------------ ---------- ----------
Gross profit............................................................... 64,664 189,863 165,255
Selling, general and administrative expenses............................... 54,716 175,385 166,788
------------ ---------- ----------
Net operating income (loss)................................................ 9,948 14,478 (1,533)
Other income (expense)
Gain on sale of assets................................................... 40,000 -- --
Interest expense......................................................... (150) (1,108) (744)
Other income............................................................. 119 409 7,261
------------ ---------- ----------
Income before income taxes................................................. 49,917 13,779 4,984
Income taxes............................................................... 9,587 2,511 750
------------ ---------- ----------
Net income................................................................. $ 40,330 $ 11,268 $ 4,234
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See notes to financial statements.
F-17
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
----------- ---------
<S> <C> <C>
BALANCE AT JULY 31, 1993..................................................................... $ 1,000 $ 37,533
NET EARNINGS................................................................................. -- 4,234
----------- ---------
BALANCE AT JULY 31, 1994..................................................................... 1,000 41,767
NET EARNINGS................................................................................. -- 11,268
----------- ---------
BALANCE AT JULY 31, 1995..................................................................... $ 1,000 $ 53,035
NET EARNINGS................................................................................. -- 40,330
----------- ---------
BALANCE NOVEMBER 30, 1995.................................................................... $ 1,000 $ 93,365
----------- ---------
----------- ---------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NOVEMBER 30, JULY 31, JULY 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 40,330 $ 11,268 $ 4,234
Adjustments to reconcile net income to net cash from operating activities:
Gain on sale of assets................................................... (40,000) -- --
(Increase) decrease in accounts receivable............................... (8,851) (2,606) 2,096
(Increase) decrease in inventories....................................... (13,007) (4,849) (323)
Increase (decrease) in accounts payable.................................. (1,181) 789 (287)
Increase (decrease) in accrued expenses.................................. 655 (712) 533
Increase (decrease) in income taxes payable.............................. 7,826 2,411 (611)
------------ --------- ---------
NET CASH FROM OPERATING ACTIVITIES..................................... (14,228) 6,301 5,642
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets............................................... 111,016 -- --
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from stockholders.................................................... -- -- 1,487
Repayment of loans from stockholders....................................... -- (1,060) --
------------ --------- ---------
NET CASH FROM FINANCING ACTIVITIES..................................... -- (1,060) 1,487
------------ --------- ---------
Net changes in cash.......................................................... 96,788 5,241 7,129
Cash at beginning of year.................................................... 22,276 17,035 9,906
------------ --------- ---------
Cash at end of year.......................................................... $ 119,064 $ 22,276 $ 17,035
------------ --------- ---------
------------ --------- ---------
Supplemental disclosure of amounts paid for
Interest................................................................... $ 150 $ 1,108 $ 744
------------ --------- ---------
------------ --------- ---------
Income taxes............................................................... $ 1,761 $ 100 $ 1,134
------------ --------- ---------
------------ --------- ---------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
C.F. DARLING PAINT AND CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 AND NOVEMBER 30, 1995
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company's primary business is the manufacture and sale of paint for
commercial and residential applications.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method. All
inventories are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of assets.
INCOME TAXES
Income taxes are accounted for by an asset and liability approach for
financial accounting and reporting purposes. Deferred income taxes are provided
based on the estimated future tax effects of differences between financial
statement carrying amounts and the tax bases of existing assets and liabilities,
and are adjusted for changes in tax laws and tax rates when those changes are
enacted. The provision for income taxes represents the total of income taxes
paid or payable for the current year, plus the change in deferred taxes during
the year.
2 INVENTORY
Inventories consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Raw Materials.............................................. $ 28,530
Finished goods (manufactured and purchased)................ 29,479
---------
$ 58,009
---------
---------
</TABLE>
3 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Furniture and fixtures..................................... $ 23,194
Equipment.................................................. 1,442
Vehicles................................................... 13,917
Leasehold improvements..................................... 240
---------
Total cost................................................. 38,793
Accumulated depreciation................................... 38,793
---------
Property and equipment, net................................ $ --
---------
---------
</TABLE>
F-20
<PAGE>
C.F. DARLING PAINT AND CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1995 AND NOVEMBER 30, 1995
4 OPERATING LEASES
The Company leases its facilities under an operating lease which has an
original term of six years, and expires September 30, 1998. See Note 6.
5 CONCENTRATION OF CREDIT RISK
The Company operates from one location in West Central Florida and
manufactures and sells paint and related products. The Company extends credit to
its customers substantially without collateral. The business operations are
influenced by the general economic conditions of the surrounding area.
6 SALE OF CORPORATE ASSETS
The Company and C.F. Darling entered into an agreement to sell the operating
assets of the Company to ThermaCell Technologies, Inc. effective November 30,
1995. The Company's inventory, property and equipment, as well as intangible
assets were sold for $111,016. Of this amount, $71,016 represents the amount
received for inventory, with the remaining $40,000 recognized as gain on the
sale. The Company discontinued its operations effective November 30, 1995. The
Company's lease was subsequently assigned to ThermaCell Technologies, Inc.
7 INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current:
Federal.................................................... $ 2,019 $ 750
State...................................................... 492 --
--------- ---------
Total income tax expense................................. $ 2,511 $ 750
--------- ---------
--------- ---------
</TABLE>
F-21
<PAGE>
[LOGO]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THE COMPANY HAS AGREED TO AMEND AND UPDATE
THIS PROSPECTUS IN THE EVENT OF A FUNDAMENTAL CHANGE IN ITS AFFAIRS OR BUSINESS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Summary Financial Information.................. 5
Risk Factors................................... 6
Use of Proceeds................................ 13
Dividend Policy................................ 14
Dilution....................................... 15
Selected Financial Data........................ 16
Capitalization................................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 21
Management..................................... 27
Security Ownership of Certain Beneficial Owners
and Management................................ 30
Selling Security Holder........................ 31
Certain Transactions........................... 32
Description of Securities...................... 34
Shares Eligible for Future Sale................ 37
Underwriting................................... 37
Available Information.......................... 39
Legal Matters.................................. 40
Experts........................................ 40
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,375,000 UNITS
---------------------
PROSPECTUS
---------------------
MONROE PARKER SECURITIES
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
------------------------
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation (the "Certificate") provides that a
Director shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except, (i) for any
breach of the duty of loyalty; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of laws; (iii) for
liability under Section 607.0850 of the Florida General Corporation Law (the
"Florida GCL") (relating to certain unlawful dividends, stock repurchases or
stock redemptions); or (iv) for any transaction from which the Director derived
any improper personal benefit. The Certificate also provides that the Company
shall indemnify each Director and such of the Company's officers, employees and
agents as the Board of Directors shall determine from time to time to the
fullest extent provided by the Florida GCL.
The Company's Bylaws provides, in general, that the Company shall indemnify
its directors and officers under the circumstances specified in the Florida GCL
and gives authority to the Company to purchase insurance with respect to such
indemnification.
Upon consummation of the offering, the Company will enter into
indemnification agreements (the "Indemnification Agreement") with certain
officers and directors. Each Indemnification Agreement will provide, among other
things, for: (i) indemnification by the Company of such individual to the
fullest extent permitted by law as of the date of the Indemnification Agreement
against any and all expenses, judgments, fines and amounts paid in settlement of
any claim against an indemnified party (the "Indemnitee") unless it is
determined, as provided in the Indemnification Agreement, that the
indemnification is not permitted under the law; and (ii) the prompt advancement
of expenses to any Indemnitee in connection wit his or her defense against any
threatened or pending claim. Similar Indemnification Agreements may from time to
time be entered into with additional officers of the Company or certain other
employees or agents of the Company.
Following this offering, the Company intends to use its reasonable efforts
to obtain directors and officers liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby, other than underwriting discounts and
commissions, are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 7,045
NASD Fees................................................................. 3,400
NASDAQ application and listing fees....................................... 10,000
Accounting fees and expenses.............................................. 70,000
Legal fees and expenses................................................... 150,000
Printing and engraving expenses........................................... 70,000
Blue Sky fees and expenses (including legal fees)......................... 30,000
Transfer Agent and Registrar fees and expenses............................ 5,000
Miscellaneous............................................................. 4,555
---------
TOTAL................................................................. $ 350,000
---------
---------
</TABLE>
- ------------------------
The Registrant will bear all expenses listed above.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information describes sales of unregistered securities by the
Registrant since November 1991:
a. Organization and Capitalization of the Company. Since inception, the
Company has been involved in organizational and capital raising efforts. The
following is a table listing of all shares of Common Stock issued by the
Company, including the paid in amounts in cash or if issued in consideration of
services rendered on behalf of the Company is indicated by a "0":
SCHEDULE OF COMMON STOCK ISSUE
<TABLE>
<CAPTION>
COMMON AMOUNT
STOCKHOLDER SHARES PAID IN CERT. DATE
- --------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Pidorenko, John.................................................................. 416,067 500 2/10/94
Sherrill, F. L. Trustee.......................................................... 278 1,000 2/10/94
Wise, Edmond..................................................................... 694 2,500 2/10/94
Cooler, Roy...................................................................... 694 2,500 2/10/94
Riley, Darryl.................................................................... 1,389 5,000 2/10/94
Fielding, Clay................................................................... 2,500 0 2/10/94
Johnson, Blakely................................................................. 30,000 0 2/10/94
Ries, Larry...................................................................... 2,500 0 2/10/94
Sherrill, Fred L. Jr............................................................. 1,667 6,000 2/10/94
Sherrill, Gwen................................................................... 1,667 6,000 2/10/94
Sherrill, Fred L................................................................. 1,667 6,000 2/10/94
Sherrill, Augusta................................................................ 1,667 6,000 2/10/94
Sherrill, Charles................................................................ 1,667 6,000 2/10/94
Sherrill, F.L. III............................................................... 278 1,000 2/10/94
Sypinewski, Frank................................................................ 556 2,000 3/5/94
Wade, Richard.................................................................... 4,167 15,000 3/29/94
Ashburn, Marvin.................................................................. 139 500 4/20/94
Stockley, Russell................................................................ 3,333 12,000 4/21/94
Murphy, R.C...................................................................... 1,556 5,600 5/3/94
Watts, Robert G.................................................................. 250 0 5/3/94
Baumgardner, Lloyd............................................................... 250 0 5/3/94
Bell, Virgil..................................................................... 500 0 5/3/94
Frasier, Donald.................................................................. 1,570 0 5/3/94
Riley, Darryl.................................................................... 1,570 0 5/3/94
Williams, S.A.................................................................... 1,389 5,000 5/3/94
Royse, Christine................................................................. 1,389 5,000 5/9/94
Butters, Jeffrey................................................................. 279 1,000 5/13/94
Emerson, James................................................................... 1,389 5,000 5/13/94
Williams, S.A.................................................................... 1,931 6,950 5/16/94
Williams, Jackie................................................................. 5,556 20,000 5/19/94
Wood, Patricia................................................................... 1,389 5,000 5/27/94
Kelly, Warren.................................................................... 5,556 20,000 5/27/94
Milano, Gloria................................................................... 1,389 5,000 5/30/94
May, Dorothy..................................................................... 1,389 5,000 5/30/94
Marquis, Dan..................................................................... 500 1,400 6/4/94
Peters, Cecil.................................................................... 1,667 5,000 6/5/94
Stiles, Kendall.................................................................. 3,200 0 7/20/94
Harrington, Sharon............................................................... 2,800 7,000 8/1/94
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
COMMON AMOUNT
STOCKHOLDER SHARES PAID IN CERT. DATE
- --------------------------------------------------------------------------------- --------- --------- -----------
Patton, Lucia.................................................................... 0 0 8/1/94
<S> <C> <C> <C>
Patton, Lucia.................................................................... 10,000 0 8/1/94
McKibbin, John................................................................... 5,556 20,000 8/10/94
Bryan, Diedre.................................................................... 833 3,000 8/29/94
Crowe, William III............................................................... 389 1,400 2/1/95
Riley, Darryl.................................................................... 50,000 0 2/3/95
Donald Frasier................................................................... 50,000 0 2/3/95
Hundhausen, Betty................................................................ 1,000 1,400 2/3/95
Murphy, R.C...................................................................... 1,050 0 2/3/95
Murphy, R.C...................................................................... 0 0 2/3/95
Fielding, James C................................................................ 1,000 0 2/3/95
Trusty, John..................................................................... 2,500 0 2/3/95
May, Dorothy Janet............................................................... 600 0 3/23/95
To, Vincent K.................................................................... 500 0 6/30/95
Murphy, R.C...................................................................... 1,000 0 8/3/95
Murphy, R.C...................................................................... 6,450 0 8/9/95
Murphy, R.C...................................................................... 500 0 8/9/95
Murphy, R.C...................................................................... 5,000 0 8/9/95
Murphy, R.C...................................................................... 2,000 0 8/9/95
Trusty, John..................................................................... 5,000 0 8/9/95
Barrs, Howard L.................................................................. 500 0 8/14/95
Fielding, James C................................................................ 2,500 0 8/25/95
Rasmussen, Ray................................................................... 25,000 0 8/29/95
Martin, Al....................................................................... 2,500 0 8/29/95
Ackerman, Keith.................................................................. 500 0 8/29/95
Riley, Darryl.................................................................... 3,635 0 11/1/95
Fielding, James C................................................................ 2,500 0 1/1/96
Trusty, John..................................................................... 2,500 0 1/1/96
Walte, Dean...................................................................... 200 0 2/10/94
Garcia, Julian................................................................... 1,600 0 2/14/96
Dumont, Allen.................................................................... 8,000 0 2/26/96
Flovin, Jim...................................................................... 200 0 2/26/96
Trusty, John..................................................................... 10,000 0 3/21/96
Duff, John....................................................................... 500 0 3/21/96
Abrams, Scottee.................................................................. 500 0 3/21/96
Smorshok, Richard................................................................ 500 0 3/21/96
Costenbader, Terry............................................................... 500 0 3/21/96
Duff, Amy........................................................................ 500 0 3/21/96
Kyle, Larry...................................................................... 500 0 3/21/96
Walte, Dean...................................................................... 500 0 3/21/96
Dulgley, James................................................................... 500 0 3/21/96
Seligson, Leslie................................................................. 10,000 0 3/21/96
Eden Group, The.................................................................. 20,000 0 3/21/96
Stiles, Kendal................................................................... 10,000 0 3/21/96
Lang, Mike....................................................................... 33,333 0 3/21/96
Smith, Mickey.................................................................... 27,778 0 3/21/96
Zattriott/CRG.................................................................... 100,000 0 3/21/96
</TABLE>
For all such transactions, the Company relied upon Sections 4(2) and 3(b) of
the Securities Act and Regulation D promulgated thereunder as an exemption
available from the registration requirements of
II-3
<PAGE>
Section 5 of the Securities Act for transactions by an issuer not involving a
public offering. The securities were issued to a purchaser who represented, in a
manner satisfactory to the Company, that it had acquired the securities for
investment and not with the view of the distribution thereof. No advertising or
general solicitation was employed by the Company in offering the securities. The
securities of the Company issued to the purchasers have been embossed with the
legend restricting transfer of such securities. A stop transfer order concerning
the transfer of the certificates representing all the common stock issued and
outstanding as indicated above has been noted on the Company's stock transfer
ledger.
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible notes in order to obtain funds to be used
for working capital, to pay operating expenses, to acquire a complementary paint
company or equipment necessary to manufacture the Company's insulative coatings,
and to pay the organizational and underwriting costs to be incurred in an
initial public offering of the Company's stock. A second offering of unsecured
notes and common stock was commenced January 1996 to obtain additional funds for
the purposes stated above. The selling agents received up to ten percent (10%)
of the amounts raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offering as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15 through July 26, 1996.
The notes were convertible, at the option of the holder, to an amount of common
stock based between 50% to 60% of the price of the shares of the Company's
common stock to be offered in the public offering. The option to convert was
conditioned upon the closing of the initial public offering of the Company's
stock. Because the closing did not occur, the notes are payable at the original
one year maturity date. At November 30, 1996, $505,000 of these notes were in
default.
As a condition to this offering, the holders of $938,500 of these notes
payable agreed to convert such notes plus accrued interest thereon, into an
aggregate of 621,230 shares of Common Stock. In connection with the conversion
such holders have agreed not to sell their shares for a period of at least two
(2) years from the date of this Prospectus, without the Underwriter's consent.
The Underwriter has the right to extend this lock-up period for one (1)
additional year if the Company does not achieve during any 12 consecutive month
period a cumulative pre-tax profit on income, calculated in accordance with GAAP
of at least $3,000,000. The holders of $400,000 of the notes described above,
will be paid off in cash at the closing of this offering.
Through all private placements of the notes described above, Company relied
upon exemptions from registration under the Securities Act pursuant to Sections
3(b) and 4(2) and Regulation D promulgated thereunder. Of the 55 investors, 40
represented to the Company that they were "accredited" as that term is defined
under Regulation D. All purchasers represented, in a manner satisfactory to the
Company, that they were sophisticated and otherwise understood the risks
associated with the offering. The Company relied upon Section 3(a)(9) and
Section 4(2) in the conversion of $938,500 of notes plus accrued interest
thereon into 621,230 shares of Common Stock as condition to this offering
required by the Underwriter.
II-4
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 Revised Form of Underwriting Agreement**
1.2 Revised Form of Underwriter's Warrants**
1.3 Revised Form of Selected Dealers Agreement**
1.4 Financial Consulting Agreement**
1.5 [Reserved]
3.1 Certificate of Incorporation and Amendment to Certificate of Incorporation of the Company**
3.1(a) Certificate of Amendment to Certificate of Incorporation to reflect 1 for 10 reverse stock
split**
3.1(b) Form of Certificate of Amendment to Certificate of Rights, Designation and Preferences of
Series A Preferred Stock**
3.2 Bylaws of the Company**
3.3 Amendment to Bylaws**
4.1 Specimen of Common Stock Certificate**
4.2 Specimen of Warrant Certificate**
4.3 Revised Form of Warrant Agreement**
4.4 Conversion Notice and Election Form for Convertible Note Holder**
5.1 Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. as to legality of issuance
of Units*
10 Employment Agreement (4/4/96) John Pidorenko**
10(A) Employment Agreement (4/4/96) John Trusty**
10(B) Form of Convertible Note**
10(C) Trademark Registration for ThermaCool-TM-**
10(D) Published International Patent Application**
10(E) Stock Option Plan**
10(F) Asset Purchase Agreement for Darling Paint and Coatings effective November, 1995**
10(G) Lease for Executive Offices**
10(H) Lease for Darling Paint**
10(I) Lease for Sarasota Store**
10(J) Promissory Note (3/6/96)**
10(K) Agreement between Consolidated Financial Management, Inc. and the Company**
10(L) Debt for Equity Exchange Agreement**
10(M) Lock-Up Letter Form**
10(N) Addendum to Employment Agreement--John Pidorenko
23.1 Consent of Cherry, Bekaert & Holland, C.P.A.'s, Clearwater, Florida*
23.2 Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida
(included in its opinion filed as Exhibit 5.1)*
</TABLE>
- ------------------------
** Previously filed.
* Filed herewith
II-5
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing, specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, as amended,
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filled by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Form SB-2 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Tampa, Florida, on
this 19th day of February, 1997.
THERMACELL TECHNOLOGIES, INC.
By: /s/ JOHN PIDORENKO
-----------------------------------
John Pidorenko,
CHIEF EXECUTIVE OFFICER, PRESIDENT,
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons, in the
capacities indicated, on the dates stated.
<TABLE>
<C> <S> <C>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ----------------------------------- --------------------
/s/ JOHN PIDORENKO
------------------------------------------- Chairman of the Board, President, February 19, 1997
John Pidorenko Chief Executive Officer
/s/ KENDALL B. STILES, M.D.
------------------------------------------- Director February 19, 1997
Kendall B. Stiles, M.D.
/s/ MICHAEL HANKINS, SR.
------------------------------------------- Director February 19, 1997
Michael Hankins, Sr.
/s/ DARRYL RILEY
------------------------------------------- Director February 19, 1997
Darryl Riley
/s/ JOHN TRUSTY
------------------------------------------- Chief Financial Officer, Chief February 19, 1997
John Trusty Accounting Officer, Director
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 Revised Form of Underwriting Agreement**
1.2 Revised Form of Underwriter's Warrants**
1.3 Revised Form of Selected Dealers Agreement**
1.4 Financial Consulting Agreement**
1.5 [Reserved]
1.6 Executed Escrow Agreement and Amendment thereto entered into by First of America, Bank of
Michigan, N.A., the Company and Underwriters*
3.1 Certificate of Incorporation and Amendment to Certificate of Incorporation of the Company*
3.1(a) Certificate of Amendment to Certificate of Incorporation to reflect 1 for 10 reverse stock
split*
3.1(b) Form of Certificate of Amendment to Certificate of Rights, Designation and Preferences of
Series A Preferred Stock**
3.2 Bylaws of the Company*
3.3 Amendment to Bylaws*
4.1 Specimen of Common Stock Certificate*
4.2 Specimen of Warrant Certificate*
4.3 Revised Form of Warrant Agreement**
4.4 Conversion Notice and Election Form for Convertible Note Holder*
5.1 Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. as to legality of issuance
of Units**
10 Employment Agreement (4/4/96) John Pidorenko*
10(A) Employment Agreement (4/4/96) John Trusty*
10(B) Form of Convertible Note *
10(C) Trademark Registration for ThermaCool-TM-*
10(D) Published International Patent Application*
10(E) Stock Option Plan*
10(F) Asset Purchase Agreement for Darling Paint and Coatings effective November, 1995*
10(G) Lease for Office*
10(H) Lease for Darling Paint*
10(I) Lease for Sarasota Store*
10(J) Promissory Note (3/6/96)*
10(K) Agreement between Consolidated Financial Management, Inc. and the Company**
10(L) Debt for Equity Exchange Agreement**
10(M) Lock Up Letter Form**
10(N) Addendum to Employment Agreement--John Ledinske**
23.1 Consent of Cherry, Bekaert & Holland, C.P.A.'s, Clearwater, Florida**
23.2 Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida
(included in its opinion filed as Exhibit 5.1)**
</TABLE>
- ------------------------
* Previously filed
** Filed herewith
<PAGE>
[LETTERHEAD]
March 7, 1997
ThermaCell Technologies, Inc.
5419 Provost Drive
Holiday, FL 34690-2939
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as your counsel in the preparation on a Registration
Statement on Amendment No. 1 to Form SB-2 (the "Registration Statement")
filed by you with the Securities and Exchange Commission covering 1,375,000
units (the "Units"), each Unit consisting of one share of common stock, $.01
par value per share (the "Common Stock") and one Series A Redeemable Common
Stock Purchase Warrants (the "Series A Warrants").
In so acting, we have examined and relied upon such records, documents
and other instruments as in our judgment are necessary or appropriate in
order to express the opinion hereinafter set forth and have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
Based on the foregoing, we are of the opinion that:
(i) the Units and the Common Stock, when issued and delivered in the
manner and on the terms described in the Registration Statement (after
it is declared effective), will be duly and validly issued, fully paid
and nonassessable;
(ii) the Series A Warrants have been duly authorized and, when (a) the
pertinent provisions of the Securities Act of 1933 (the "Act") and of
such "blue-sky" and securities laws as may be applicable have been
complied with, (b) the Series A Warrants have been executed and
authenticated in the manner set forth in the Warrant Agreement, and
(c) the Series A Warrants have been issued and delivered in the manner
set forth in the Prospectus (in the form filed by the Company
pursuant to Rule 424(b) under the Act) against payment therefor, the
Series A Warrants will have been validly executed, authenticated,
issued and
EXHIBIT 5.1
<PAGE>
[LETTERHEAD]
ThermaCell Technologies, Inc.
March 7, 1997
Page 2
delivered, will constitute the legal, valid and binding obligations of
the Company, will (subject to applicable bankruptcy, insolvency and
other laws affecting the enforceability of creditors' rights
generally) be enforceable as to the Company in accordance with their
terms and the terms of the Warrant Agreement, and will be entitled to
the benefits provided by the Warrants Agreement; and
(iii) the shares of Common Stock of the Company to be issued upon the
exercise of the Series A Warrants are validly authorized and, assuming
(a) the shares of Common Stock so issuable will be validly authorized
on the dates of exercise, and (b) the Series A Warrants will have been
duly executed, authenticated, issued and delivered, will constitute
the legal, valid and binding obligations of the Company, (subject to
applicable bankruptcy, insolvency and other laws affecting the
enforceability of creditors' rights generally) will be enforceable as
to the Company in accordance with their terms and the terms of the
Warrant Agreement, and will be entitled to the benefits provided by
the Warrant Agreement and (c) no change occurs in the applicable law
or the pertinent facts, when (d) the pertinent provisions of such
"blue-sky" and securities laws as may be applicable have been complied
with and (e) the Series A Warrants are exercised in accordance with
their terms and the terms of the Warrant Agreement, the shares of
Common Stock so issuable will be validly issued, fully paid and
nonassessable.
We hereby consent to the reference to our Firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do
not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Act, or the general rules and regulations
thereunder.
Very truly yours,
JOHNSON, BLAKELY, POPE, BOKOR,
RUPPEL & BURNS, P.A.
By: -------------------------------
MTC/ej/12137
<PAGE>
[LOGO]
March 10, 1997
Board of Directors
ThermaCell Technologies, Inc.
We consent to the use of our report dated January 3, 1996, on the
financial statements of C.F. Darling Paint & Chemicals, Inc. included in
Amendment No. 1, Form SB-2 and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ CHERRY, BEKAERT & HOLLAND, L.L.P.
CHERRY, BEKAERT & HOLLAND, L.L.P.
<PAGE>
[LOGO]
March 10, 1997
Board of Directors
ThermaCell Technologies, Inc.
We consent to the use of our report dated January 15, 1997, on the
financial statements of ThermaCell Technologies, Inc. included in
Amendment No. 1, Form SB-2 and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ CHERRY, BEKAERT & HOLLAND, L.L.P.
CHERRY, BEKAERT & HOLLAND, L.L.P.
