U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-21279
THERMACELL TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 59-3223708
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1125 Commerce Blvd., Sarasota, FL 34243
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(Address of Principal Executive Offices)
(941) 358-0306
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(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such a
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par
Value, as of December 31, 1998 was 7,206,325.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Index
Page
Part I - Financial Information ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
December 31, 1998 and September 30, 1998.................. 1 - 2
Consolidated Statements of Operations -
Three months ended December 31, 1998 and 1997............. 3
Consolidated Statements of Cash Flows -
Three months ended December 31, 1998 and 1997............. 4
Notes to Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6 - 9
Part II - Other Information
Item 1. Legal Proceedings............................................ 10
Signatures.................................................. 11
Exhibit 11........................................................... 12
i
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------------ ------------------
<S> <C> <C>
Current assets
Cash $ 41,622 $ 67,405
Accounts receivable
Trade, net of allowance for uncollectible accounts
of $64,591 and $64,227, respectively 964,118 314,262
Notes receivable - trade 52,000 52,000
Notes receivable - other 81,514 76,622
Other assets 4,880 18,998
Inventories 674,532 489,259
Prepaid expenses and other 143,374 161,308
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Total current assets 1,962,040 1,179,854
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Property and equipment 1,653,376 1,141,502
Less - accumulated depreciation 288,107 248,530
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1,365,269 892,972
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Other assets
Deposits 34,257 16,266
Deferred income tax benefit, net 850,828 795,309
Goodwill, net of accumulated amortization
of $95,602 and $75,937, respectively 1,545,439 815,010
Other intangibles, net of accumulated amortization
of $33,173 and $16,471, respectively 197,571 162,469
------------------ ------------------
2,628,095 1,789,054
------------------ ------------------
Total assets $ 5,955,404 $ 3,861,880
================== ==================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------------ ------------------
<S> <C> <C>
Current liabilities
Accounts payable $ 981,443 $ 445,118
Accrued expenses 179,034 45,396
Accrued payroll and payroll taxes 36,550 13,647
Current maturities of long-term debt
Notes payable 35,340 20,340
Capital leases 37,030 38,644
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Total current liabilities 1,269,397 563,145
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Long-term debt, net of current maturities
Notes payable 92,653 58,128
Capital lease obligations 112,025 73,079
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Total long-term debt, net of current maturities 204,678 131,207
------------------ ------------------
Total Liabilities 1,474,075 694,352
------------------ ------------------
Commitments and contingencies - -
Stockholders' equity
Preferred stock, Series A, par value $.0001
5,000,000 shares, authorized, issued
and outstanding 500 500
Preferred stock, Series B convertible, $1,000 stated value, 8% dividend
Authorized 1,500 shares,
250 issued and outstanding 250,000 250,000
Common stock, par value $.0001
Authorized 20,000,000 shares,
7,206,325 and 5,129,325 issued and outstanding, respectively 721 513
Additional paid-in capital 8,262,285 6,612,481
Deduct notes receivable associated with stockholder loan (567,829) (453,695)
Accumulated deficit (3,464,348) (3,242,271)
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Total stockholders' equity 4,481,329 3,167,528
------------------ ------------------
Total liabilities and stockholders' equity $ 5,955,404 $ 3,861,880
================== ==================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
-----------------------------------
1998 1997
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(unaudited) (unaudited)
<S> <C> <C>
Revenue
Sales $ 811,410 $ 758,284
Less cost of sales 573,143 492,709
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Gross profit 238,267 265,575
Selling, general and administrative
expenses 517,460 339,645
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Loss from operations (279,193) (74,070)
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Other income (expense)
Interest income 4,431 11,986
Interest expense (2,835) (4,679)
Other - 1,695
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Total other income (expense) 1,596 9,002
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Loss before income taxes (277,597) (65,068)
Income taxes
Deferred income tax benefit 55,519 13,014
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Net loss $ (222,078) $ (52,054)
=============== =============
Basic loss per common share $ (0.04) $ (0.02)
=============== =============
Weighted average number of
common shares outstanding 5,730,568 3,024,761
=============== =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
---------------------------------
1998 1997
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities
Net loss $ (222,078) $ (52,054)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 39,577 30,265
Amortization 36,367 16,271
Deferred income tax benefit (55,519) (13,014)
Changes in assets and liabilities, net of acquisitions
(Increase) in accounts and notes receivable (61,932) (27,510)
(Increase) decrease in inventories 49,239 (35,742)
(Increase) decrease in prepaid and other assets 37,576 (2,282)
(Decrease) in accounts payable (22,906) (59,006)
Increase (decrease) in accrued expenses 134,768 (94,628)
Common stock issued for services - 23,285
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Net cash used in operating activities (64,908) (214,415)
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Cash flows from investing activities
Capital expenditures (71,875) (47,536)
Acquisitions (1,420,101) -
Expenditures for patent, net (40,000) -
--------------- ---------------
Net cash used in investing activities (1,531,976) (47,536)
--------------- ---------------
Cash flows from financing activities
Proceeds from issuance of common stock 1,650,000 -
Proceeds from issuance of notes payable 35,235 -
Principal payments on notes payable - (9,076)
Principal advances on stockholder loan (114,134) (21,920)
--------------- ---------------
Net cash provided by financing activities 1,571,101 (30,996)
--------------- ---------------
Net increase (decrease) in cash (25,783) (292,947)
Cash beginning 67,405 580,522
--------------- ---------------
Cash ending $ 41,622 $ 287,575
=============== ===============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited financial statements should
be read in conjunction with the financial statements and the footnotes thereto
contained in Form 10-KSB for the fiscal period ended September 30, 1998 of
ThermaCell Technologies, Inc. (the "Company"), as filed with the Securities and
Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the three months ended December 31, 1998 are not necessarily indicative of
the results to be expected for the full year.
Note 2 - Basic loss per share calculations
The computation of net earnings (loss) per common share has been based upon the
weighted average number of shares of outstanding common stock, which for the
three month periods ended December 31, 1998 and December 31, 1997 were 5,730,568
and 3,024,761, respectively.
Note 3 - Accounting Change
The Company adopted Statement of Accounting Standards #128, Earnings per Share,
during the quarter ended December 31, 1997. Since the Company has reported a
loss only the basic earnings (loss) per share is thereby reported as the
reporting of diluted loss per share would be anti-dilutive. The inclusion of
converted preferred shares in the calculation of weighted average shares for
diluted earnings per share purposes would be anti-dilutive and per FASB 128,
cannot be included in the financial statements.
Note 4 - Equity Transactions
During the quarter ended December 31, 1998, the Company received $250,000 that
it recorded as an equity investment for 1,205,000 shares of common stock. These
funds were used for working capital purposes. These shares were issued without
any restrictive legend on the direction of David Feingold, SEC counsel to the
Company. Subsequently on December 21, 1998, David Feingold's firm, Feingold &
Kam resigned as SEC counsel to the Company and on December 30, 1998 commenced a
law suit for unpaid fees. The Company is presently reviewing all the securities
transactions during the October to December 1998 period that attorney Feingold
represented the Company.
5
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-QSB, that are not purely
historical, are 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. These include statements regarding the Company's
expectations, intentions, or strategies regarding future matters. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements contained in this Form 10-QSB. The forward-looking
statements contained here-in are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments regarding, among other things, the Company's ability to secure
financing or investment for capital expenditures, future economic and
competitive market conditions, and future business decisions. All these matters
are difficult or impossible to predict accurately and many of which may be
beyond the control of the Company. Although the Company believes that the
assumptions underlying its forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this form 10-QSB will prove to be
accurate.
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 ("shells"). The Company's technology
utilizes the insertion of the shells in various materials and products that
improve the thermal resistive characteristics of such products.
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,
among others.
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. 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.
On March 19, 1997, the Company completed a public offering for 1,375,000 Units,
each Unit consisting of one share of Common Stock, $.0001 par value, and one
Series A Redeemable Common Stock Purchase Warrant, at a price of $4.00 per Unit.
In addition, the underwriter exercised its over-allotment purchase option and
purchased 206,250 additional Units at the initial per Unit public offering price
less the underwriting discounts and commission. The net proceeds from this
offering was more than $4.7 million.
On July 28, 1997, the Company acquired all the outstanding common stock,
representing 100% ownership, of Atlas Chemical Company, a paint manufacturer and
distributor, located in Miami, Florida. The Company acquired this firm so that
it would have a larger manufacturing facility to both expand production of
paints and coatings and to obtain an established marketing distribution channel
which included major accounts such as Builders Square, Ace Hardware, among
others.
On March 2, 1998, the Company acquired the assets of Ladehoff Paints, Inc., a
paint manufacturer and distributor located in Mesa, Arizona. The total purchase
price was $115,000. This acquisition is classified as a purchase transaction.
6
<PAGE>
On October 15, 1998, the Company agreed to acquire T-Coast Pavers/Sealco
Systems, Inc. which have annual revenues of more than $2 million. ThermaCell
acquired these associated businesses effective December 1, 1998 for 300,000
shares of its common stock valued at $300,000 and in an employment agreement
with its founder and key executive, a payment of an additional 300,000 shares
over the three year employment period. This company provides paver installation
and driveway sealant and coating services primarily to contractors in Southeast
Florida.
The Company acquired American Paints, Inc., a Pompano Beach, Florida paint
manufacturer and distributor with $2.5 million in annual revenues, for 572,000
common shares on December 1, 1998. American Paints' operations will be
consolidated into the Company's Atlas manufacturing facility to reduce duplicate
costs and increase operating profits.
The Company has sustained significant operating losses since its inception.
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 may result in the Company incurring additional
losses due to the costs associated with these strategies. The Company expects to
incur losses until it is able to increase its sales, expand its product line and
increase its distribution capabilities to a sufficient revenue level to offset
ongoing operating and expansion costs.
RESULTS OF OPERATIONS
Three months ended December 31, 1998 compared to three months ended December 31,
1997
Total consolidated revenue for the three months ended December 31, 1998 was
$811,410 compared to $758,284 for the same period of 1997, which represents an
increase of $53,126, or 7%. This increase was primarily attributed to the
additional revenues of two recent acquisitions: American Paints and
T-Coast/Sealco Systems, Inc. even though their contribution was for one month
during this quarter. The revenues for the Company's existing business declined
for this period over the prior period., This resulted from the loss of some
customers and adverse weather conditions within the Company's Florida markets
that depressed sales.
Gross profit margins were 29.4% and 35.0%, respectively, for the three month
period ended December 31, 1998, as compared to the prior period ended December
31, 1997. This decrease is the result of a change in the mix of paint and
coatings products sold by the Company, and in part, by lower contribution margin
from the America Paints and Sealco acquisitions. Sealco has traditionally had
gross profit margins in the 16% range. The Company expects that with buying
efficiencies and the opportunity to provide all coating and sealant needed for
the Sealco operations, that business' overall gross profit margin can be
improved to 25%.
For the three months ended December 31, 1998, total selling, general and
administrative expenses were $517,460 as compared to $339,645 for the same
period of the previous year, an increase of $177,815, or 52%. This increase is
the result of higher marketing, staffing and other general expenses associated
with both the Company's acquisitions. The Company has taken steps to reduce
duplication of personnel and is in the process of consolidating its staffing,
marketing, and production for more efficient and effective business operations
for both the recent acquisitions. With the expansion of distribution channels
provided by the American Paints acquisition, the Company anticipates substantial
benefit from the sales of products to an expanded customer base.
The Company continued to experience losses from operations of $279,193 for the
period ended December 31, 1998 as compared to a loss of $74,070 for the same
prior year period. This increase in the operating loss over that of the
preceding year period reflects the lower gross margin contribution from the
Company's revenues and the higher S. G & A expense during this period.
Management anticipates that increasing levels of sales, including the
contribution of both of the recent acquisitions, will result in improvement in
future operating performances and eventually profitable operations.
7
<PAGE>
Based upon management's current estimates of future taxable income, management
has determined that a valuation allowance of fifty percent (50%) is appropriate
during the current period ended December 31, 1998 to represent that portion of
deferred taxes that may be realized in future periods.
The interest expense for the period ended December 31, 1998 was $2,835 as
compared to the prior year's quarter of $4,679. The interest expense for the
current period was incurred primarily for financing of Company vehicles that was
similar to the interest expense for prior period.
The basic loss, after income tax benefit, and basic loss per share were $222,078
and $0.04 per share respectively, for the three months ended December 31, 1998
as compared to a basic loss and basic loss per share of $52,054 and $.02
respectively, for the same period in 1997. This loss represents a 327% increase
over the basic loss experienced in the year ago quarter. The loss per share for
the period increased 100% over the previous year ago period. The weighted
average shares outstanding for the quarter ended December 31, 1998 was 5,730,568
as compared to 3,024,761 for the preceding year quarter ended December 31, 1997.
The Company has focused, in the recent quarter ended December 31, 1998, on
expanding its operations by strategic acquisitions to increase the production
throughput of its manufacturing facilities. The second quarter of this fiscal
year will benefit from the higher sales contributions of the two acquisitions
that should result in profitability for the Company. Thereafter, the company
will aggressively market its paint and coatings products, with the added
opportunity to sell its expanded product line to a greater customer base. A
focus of its strategy will be to continue to expand within the Sunbelt Region of
the United States. In addition to the Company's marketing efforts, the recent
acquisitions will further the utilization of the Company's paint and coatings
production capacity.
Management is optimistic about the benefits of its near-term strategy.
The Company anticipates improvements in raw material purchasing economies that
will result in further cost savings in its purchases within its manufacturing
operation. This benefit will continue in this fiscal year. The Company also
anticipates improvement in gross profit margins during the balance of this
fiscal year resulting from these improved purchasing economies.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has largely funded its operations and its product
development activities with funds provided by issuing securities and from
borrowings. During the three months ended, the Company received $250,000 that it
recorded as an equity investment for 1,205,000 shares of common stock. These
funds were used for working capital purposes.
The issuance of these 1,205,000 shares of common stock during November of 1998,
as the Company understood it at that time, was to acquire the equity interest of
Thomson Kernaghan Ltd. of Toronto, Canada, who held a preferred stock position
that allowed conversion to common stock pursuant to a Regulation S transaction.
The Company has recently received a demand by Thomson Kernaghan for immediate
conversion of its remaining holdings of preferred stock to common stock. Thomson
Kernaghan has asserted that no sale of its preferred stock position was ever
consummated through the efforts of the Company's former SEC counsel, Mr. David
Feingold (see Part II, Item 1, Legal Proceedings below). On February 9, 1999,
Thomson Kernaghan demanded that the Company deliver 789,089 shares of common
stock and penalties of $295,570. The Company originally disputed this demand of
common shares. On February 17, 1999, Mr. Feingold informed the Company of
Diversified Lendings assumption of the Company's obligation to Thomson Kernaghan
as part of the common stock issued during the quarter ending December 31. Based
upon its obligations to Thomson Kernaghan, the Company on February 18, 1999
agreed to issue 650,000 shares of common stock in complete satisfaction of this
issue. Thomson Kernaghan also agreed to the sale of such common stock only with
the full agreement of the Company.
8
<PAGE>
Net cash used in operating activities for the three months ended December 31,
1998 was $64,908 compared to net cash used of $214,415 for the three months
ended December 31, 1997. This decrease in cash used by operating activities is
primarily due to a decrease in levels of inventory and prepaid expenses with a
benefit from a higher level of accrued expenses despite the higher net loss. In
the prior year period, increases in both accounts payables and inventory coupled
with decreases in accounts payables and accrued expenses contributed to higher
net cash used in operating activities even though the Company incurred a lower
net loss.
Cash used in investing activities for the three months ended December 31, 1998
and 1997 was $1,531,976 and $47,536, respectively. The major use of funds was
for the two acquisitions-American Paints and T-Coast/ Sealco Systems completed
during this period. In addition, capital expenditures for the recent period were
increased to $71,875 from $47,536 over the prior years period. There was no
acquisition in the year ago period. The recent period includes an expenditure
for patents while in the year ago period there was no such expenditure.
Cash provided by financing activities for the three months ended December 31,
1998 was $1,571,101 as compared to cash used in financing activities of $30,996
for the three months ended December 31, 1997. During the recent quarter, the
Company issued common stock with an aggregate value of $1,400,000 for both of
its current period acquisitions. Shareholder loans increased during this period
that included the assumption of certain company incurred professional expenses
by a shareholder.
As of December 31, 1998, the Company had net working capital of $692,643 as
compared to $616,709 at fiscal year ended September 30, 1998. This increase in
net working capital of $75,934 is primarily due to in higher levels of accounts
receivable and inventories while the Company had higher levels of accounts
payable and accrued expenses. The Company's ratio of current assets to current
liabilities was 1.5 at December 31, 1998, and 2.1 at fiscal year ended September
30, 1998.
The Company is not presently profitable and continues to fund itself from the
proceeds of securities placements. Once the Company achieves profitability, it
will then be in a position to fund itself on an operating basis.
The Company continues to focus its marketing efforts within the Sunbelt Region
of the United States to increase consumer awareness and acceptance of both its
existing and new products. In addition to this marketing effort, the Company has
positioned itself to expand the near term production of its proprietary
products.
Management believes that additional capital will be needed to fund its present
plan to build within this fiscal year a manufacturing facility to produce shells
for its paint and coating technology products. The Company is optimistic that
such funds will be available from investment or financing sources to provide for
this expansion plan. Should funds not be readily available, management intends
to defer the building of such a manufacturing facility to a later time when
appropriate funding can be arranged. The Company is in need of additional
funding to provide for its working capital requirements over the next six months
to supplement the cash proceeds that can be generated from its recently acquired
businesses. Should such funding not be available, the Company would have to
significant curtail its planned operations to achieve breakeven operations.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 2, 1997, the Company was served with a summons regarding a civil action
filed in the United States District Court, Eastern District of Michigan by IA,
Inc., as plaintiff, that alleges the Company, and its president, John Pidorenko,
and Monroe Parker Securities, Inc., the Company's underwriter, breached a
marketing agreement executed by Mr. Pidorenko on March 26, 1992 relating to
technologies developed by IA, Inc. This agreement contained a confidentiality
and non-disclosure clause for technologies purportedly developed by IA, Inc. The
Company was not a party to that agreement. The Company believes that it has not
infringed on any patents held by IA, Inc., non-withstanding the validity of such
patents and/or their claims. The petition requested various court actions
including a jury trial, but no specific request for damages. The Company intends
to vigorously defend itself in this action. The Company believes it has
meritorious defenses in this matter which is in a preliminary stage and which
will not be resolved until a considerable period of time has elapsed. The
Company has agreed to indemnify Monroe Parker Securities, Inc., its underwriter,
against any claims asserted by this party.
On or about February 11, 1998, Mr. Kevin Horrell filed an amended complaint
against the Company and Mr. Pidorenko. The previous complaint has been dismissed
in the Circuit Court of the 12th Judicial Circuit, in Sarasota County, Florida,
Case No. 97-4867CA-01. Mr. Horrell alleged that he was due certain unrestricted
securities of the Company in connection with prior financing activities. Mr.
Horrell alleged breach of contract, fraud in the inducement of a contract, and
violations of Rule 10b-5. On February 16, 1999, an oral settlement was reached
in which John Pidorenko, the Company's president, transferred 40,000 shares of
the Company's common stock he personally owned to Mr. Horrell. A complete
settlement of this matter is expected.
On December 30, 1998, the law firm of Feingold & Kam initiated litigation
against the Company regarding a fee dispute and claimed fees and expenses due of
$18,750. This firm withdrew as the Company's SEC counsel on December 21, 1998
and commenced this legal action. This action is related to a Legal and
Consulting Engagement Agreement, dated October 8, 1998, which is an enclosure in
this filing. The Company believes it has meritorious defenses in this matter and
further believes it has counterclaims regarding the conduct of David Feingold, a
principal in that law firm. Specifically, Mr. Feingold issued opinions to the
Company's stock transfer agent to deliver common stock without legend to various
persons. The justification for such issuance was to acquire the equity interest
of Thomson Kernaghan who held a convertible preferred stock position pursuant to
a Regulation S. transaction. Two officers of the Company issued confirmations
that such shares should be issued but left the specific instructions as to the
form of such issuance to attorney Feingold. Subsequently, the Company has been
confronted with a demand by Thomson Kernaghan for conversion to common stock of
its remaining preferred stock issuance. Thomson Kernaghan has asserted that no
sale of its preferred stock position was ever consummated through the efforts of
Mr. Feingold and Diversified Lending. Mr. Feingold has represented that
Diversified Lending is responsible for satisfying the Company's obligations to
Thomson Kernaghan. The Company believes that if Diversified Lending did not
validly assume this obligation, then Mr. Feingold may have improperly issued
Company securities to affiliates of his law firm for his own benefit although
the Company did receive $250,000 during this period. The Company's common stock
price on the NASDAQ Small Cap market was substantially above the actual
consideration paid for each of these shares. The Company is taking all
appropriate steps to obtain documents supporting Mr. Feingold's assertions, or
alternatively, return of these shares or adequate consideration for this stock
issuance and the appropriate restrictions on these securities. On February 16,
1999, the Company was advised by Mr. Feingold that the lawsuit for his firm's
fees was being withdrawn. On February 17, 1999, Mr. Feingold informed the
Company he disagrees with the Company's position and that the issuance of
unlegended stock to certain individuals and entities was proper, notwithstanding
the fact that Thomson Kernaghan asserts it never agreed to the assumption by
Diversified Lending of the Company's Regulation S obligations which included the
issuance of common stock. On February 18, 1999, the Company agreed to issue
650,000 shares of common stock to Thomson Kernaghan in complete satisfaction of
the Company's obligation. Thomson Kernaghan also agreed to the sale of such
common stock only with the full agreement of the Company. The Company cannot
predict what the effect of this situation will have on its financial position.
10
<PAGE>
The Company anticipates that Russell Haraburda, a principal in the Eden Group, a
Sarasota Florida company will make a legal claim for monies purportedly due him
from the Company and/or its president, John Pidorenko, for arranging financing
for the Company prior to its IPO in March of 1997. The Company does not believe
any monies are due Mr. Haraburda. The Company will vigorously challenge any such
demands.
Item 5. Other Information
On January 21, 1999, Mr. Peter Mahovlich, a member of the board of directors
resigned.
Item 6. Exhibits and reports on Form 8K
Form 8-K filed on December 14, 1998 containing information regarding
the acquisition of American Paints, Inc.
Form 8-K filed on January 11, 1998 containing information regarding the
acquisition of T-Coast Pavers/Sealco Systems, Inc.
Legal and Consulting Engagement Agreement, dated October 8, 1998,
between the Company and the law firm of Feingold & Kam.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant had
duly caused the report to be signed on its behalf by the undersigned thereunto
duly authorized.
ThermaCell Technologies, Inc.
Dated 2/19/99
/s/ Gerald Couture
----------------------------
Gerald Couture
Vice-President, Finance and CFO
11
LEGAL AND CONSULTING ENGAGEMENT AGREEMENT
This Legal and Consulting Engagement Agreement ("Agreement") is made
this 8th day of October, 1998 by and between Feingold & Kam, an entity which
provides legal services and investment banking consultation services
(hereinafter "Consultant") and ThermaCell Technologies, Inc. (hereinafter
"Company").
RECITALS:
Whereas, Company desires to engage the Consultant through this
Agreement to provide services which will assist the Company in raising money,
providing public exposure to the Company, assisting in providing stability to
the Company's stock, assisting in meeting National Association of Securities
Dealer's listing requirements and providing legal services attendant thereto;
and
Whereas, Consultant has the ability to provide each of the services
enumerated above and shall provide said services to the Company based on the
terms and conditions set forth herein; and
Whereas, the parties hereto desire to memorialize the terms upon which
services shall be provided and compensated for and therefore have agreed to
enter into this Agreement.
NOW, THEREFORE, for and in consideration of valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree to the following:
1. SERVICES. Consultant shall provide the following services to the Company and
the Company agrees that the Consultant shall be the only entity to provide said
services unless the parties mutually agree to additional firms, persons or
entities to also be providing these services (hereinafter the "Services"):
a. Assist in raising all capital necessary for the operation of Company
b. Assist in all public relations matters regarding the operation of
the Company
c. Assist in creating strategic plans to help the Company's stock grow
and be stable
d. Assist in meeting National Association of Securities Dealer's
requirements
e. Assist in the creation of mergers and acquisitions
f. Provide all legal services necessary for the completion of a merger
and/or acquisition
g. Provide all legal services necessary for the creation of contracts
and the compliance with laws regarding the daily operation of the
Company.
h. Obtain market makers and broker dealers for involvement in the
securities transactions of the Company
i. Obtain retail brokerage and analyst involvement of the Company's
stock
2. DURATION OF THE AGREEMENT. This Agreement shall be in effect from the date of
execution of this Agreement until such time as either party desires to terminate
this Agreement. Notification of a desire to terminate this Agreement shall be
provided by one party to the other via Certified Mail, Return Receipt.
Thereafter, thirty days after the receipt of said letter of termination, this
Agreement shall be terminated. The purpose of this clause is to permit each
party to be continuously satisfied with the conduct of the other and thereby
maintain this Agreement so long as each party satisfies the other.
3. REPRESENTATIONS OF THE COMPANY. The Company Represents and Warrants that all
free trading stock that is in the possession of either the Company, its
officers, directors, agents, affiliates, employees, beneficial holders of more
than five percent of the Company's Stock or those persons who have received
stock via a private placement or securities act exemption; shall be deposited at
a brokerage firm identified by the Consultant and shall not be permitted to be
traded in the open market without the execution of a written agreement between
Consultant and Company which specifically agrees to such free trading. Company
understands that this term has been placed in this Agreement because any attempt
by Consultant to perform its Services could be dramatically affected by an
increase in the public float of the Company and thereby Consultant must have
adequate assurances as to the amount of and location of the freely trading float
of stock at all times.
1
<PAGE>
4. COMPENSATION. The Company agrees to pay Consultant the following compensation
(the "Compensation") for the Services:
a. On the date of execution of this Agreement and every thirty days
thereafter, the Company shall pay the Consultant, in United States funds, the
sum of $7,500.00 (Seven Thousand Five Hundred Dollars). This shall cover all
legal fees for the Company except for any legal fees that may be incurred due to
litigation that may arise wherein the Company or its officers and/or directors
are named parties.
b. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to one dollar for a three week period, then
Consultant shall be immediately given fifty thousand shares of free trading
stock in the Company.
c. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to one dollar and fifty cents for a three
week period, then Consultant shall be immediately given an additional seventy
five thousand shares of free trading stock in the Company.
d. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to two dollars for a three week period, then
Consultant shall be immediately given an additional one hundred thousand shares
of free trading stock in the Company.
e. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to two dollars and fifty cents for a three
week period, then Consultant shall be immediately given an additional one
hundred thousand shares of free trading stock in the Company.
f. If at any time during the duration of this Agreement or thirty days
after the termination thereof if the Company's stock price offer quotation shall
average greater than or equal to three dollars for a three week period, then
Consultant shall be immediately given an additional four hundred thousand shares
of free trading stock in the Company.
g. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to five dollars for a three week period,
then Consultant shall be immediately given an additional four hundred thousand
shares of free trading stock in the Company.
h. If at any time during the duration of this Agreement or thirty days
after the termination thereof, if the Company's stock price offer quotation
shall average greater than or equal to ten dollars for a three week period, then
Consultant shall be immediately given an additional five hundred thousand shares
of free trading stock in the Company.
5. ANTI-DILUTION. The Compensation paid to Consultant as referenced in this
Agreement shall not be subject to any dilution based on any stock splits,
dividends or mechanisms which may be employed by the Company to change the
amount of stock authorized, issued or outstanding.
6. GOVERNING. This Agreement shall be governed by the laws of the State of
Florida.
7. WARRANTIES. Each party warrants to the other that they are, not the subject
of nor have they ever been the subject of any Securities and Exchange Commission
or National Association of Securities Dealers investigations or administrative
proceedings and furthermore that neither party has ever been arrested nor
convicted of any crime.
8. ISSUANCE OF SECURITIES Each share of stock issued to Consultant shall be paid
in a manner that is most beneficial to the financial statements of the Company
as agreed with the mutual consent of Consultant and Company.
9. SEPARATE AGREEMENTS This Agreement shall constitute several separate
agreements for each of the Services and this Agreement shall be re-drafted into
separate agreements as requested by the Company so as to more accurately reflect
the cost of the Services and each particular Service. Therefore, although this
Agreement is binding, it is agreed that it shall be amended at a future date as
requested by the Company to accurately reflect the multiple services being
provided.
2
<PAGE>
Each party has read this Agreement and agrees to abide by the terms hereof:
/s/ David Feingold
----------------------------
Feingold & Kam, IBC
10/8/98 Date
-------
/s/ John Pidorenko
---------------------------
ThermaCell Technologies, Inc.
10/8/98 Date
-------
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Computation of Loss Per Common Share
For the Three Months Ended
December 31,
------------------------------------
1998 1997
---------------- ----------------
(unaudited) (unaudited)
Shares outstanding: 7,206,325 3,067,709
Weighted average shares outstanding 5,730,568 3,024,761
Net loss $ (222,078) $ (52,054)
---------------- ----------------
Net loss per common share $ (0.04) $ (0.02)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 41,622
<SECURITIES> 0
<RECEIVABLES> 964,118
<ALLOWANCES> 64,591
<INVENTORY> 674,532
<CURRENT-ASSETS> 1,962,040
<PP&E> 1,653,376
<DEPRECIATION> 288,107
<TOTAL-ASSETS> 5,955,404
<CURRENT-LIABILITIES> 1,269,397
<BONDS> 0
0
250,500
<COMMON> 721
<OTHER-SE> 4,230,108
<TOTAL-LIABILITY-AND-EQUITY> 5,955,404
<SALES> 811,410
<TOTAL-REVENUES> 811,410
<CGS> 573,143
<TOTAL-COSTS> 573,143
<OTHER-EXPENSES> 517,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,835
<INCOME-PRETAX> (277,597)
<INCOME-TAX> (55,519)
<INCOME-CONTINUING> (222,078)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,078)
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