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 March 31, 1999
[ ] 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.
----------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 59-3223708
----------------- --------------------
(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 No X
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par
Value, as of March 31, 1999 was 7,294,325.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Index
Page
Part I - Financial Information ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and September 30, 1998..................... 1 - 2
Consolidated Statements of Operations -
Three months and Six months ended March 31, 1999 and 1998. 3
Consolidated Statements of Cash Flows -
Six months ended March 31, 1999 and 1998.................. 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 SUBSIDIARIES
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Current assets
Cash $ 391,897 $ 67,405
Accounts receivable
Trade, net of allowance for uncollectible accounts
of $41,292 and $64,591, respectively 897,086 314,262
Notes receivable - trade 52,000 52,000
Notes receivable - other 76,622 76,622
Other current assets 12,220 18,998
Inventories 785,696 489,259
Prepaid interest 166,667 -
Prepaid expenses and other 518,659 161,308
------------------ ------------------
Total current assets 2,900,847 1,179,854
------------------ ------------------
Property and equipment 1,651,996 1,141,502
Less - accumulated depreciation 331,422 248,530
------------------ ------------------
1,320,574 892,972
------------------ ------------------
Other assets
Deposits 9,906 16,266
Deferred income tax benefit, net 912,317 795,309
Goodwill, net of accumulated amortization
of $105,435 and $95,602, respectively 1,535,607 815,010
Other intangibles, net of accumulated amortization
of $35,621 and $33,173, respectively 196,323 162,469
------------------ ------------------
2,654,153 1,789,054
------------------ ------------------
Total assets $ 6,875,574 $ 3,861,880
================== ==================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Current liabilities
Accounts payable $ 1,130,160 $ 445,118
Accrued expenses 262,171 45,396
Accrued payroll and payroll taxes 12,332 13,647
Current maturities of long-term debt
Notes payable 36,854 20,340
Capital leases 35,954 38,644
------------------ ------------------
Total current liabilities 1,477,471 563,145
------------------ ------------------
Long-term debt, net of current maturities
Notes payable 80,986 58,128
Capital lease obligations 132,623 73,079
Convertible note payable 666,667 -
------------------ ------------------
Total long-term debt, net of current maturities 880,276 131,207
------------------ ------------------
Total Liabilities 2,357,747 694,352
------------------ ------------------
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,
0 and 250 issued and outstanding, respectively - 250,000
Common stock, par value $.0001
Authorized 20,000,000 shares,
7,294,325 and 5,129,325 issued and outstanding, respectively 729 513
Additional paid-in capital 8,825,153 6,612,481
Deduct notes receivable associated with stockholder loan (584,811) (453,695)
Accumulated deficit (3,723,744) (3,242,271)
------------------ ------------------
Total stockholders' equity 4,517,827 3,167,528
------------------ ------------------
Total liabilities and stockholders' equity $ 6,875,574 $ 3,861,880
================== ==================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------------- -------------------------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
-------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Revenue
Sales $ 1,128,941 $ 712,347 $ 1,940,351 $ 1,470,631
Less cost of sales 778,702 474,147 1,351,845 966,856
-------------- ------------ ------------- -----------
Gross profit 350,239 238,200 588,506 503,775
Selling, general and administrative
expenses 667,854 408,424 1,185,314 748,069
-------------- ------------ ------------- -----------
Loss from operations (317,615) (170,224) (596,808) (244,294)
-------------- ------------ ------------- -----------
Other income (expense)
Interest income - 13,080 4,431 25,066
Interest expense (6,629) (2,215) (9,464) (6,894)
Other - 45,045 - 46,740
-------------- ------------ ------------- -----------
Total other income (expense) (6,629) 55,910 (5,033) 64,912
-------------- ------------ ------------- -----------
Loss before income taxes (324,244) (114,314) (601,841) (179,382)
Income taxes
Deferred income tax benefit 64,848 22,863 120,367 35,877
-------------- ------------ ------------- -----------
Net loss $ (259,396) $ (91,451) $ (481,474) $ (143,505)
============== ============ ============= ===========
Basic loss per common share $ (0.03) $ (0.03) $ (0.06) $ (0.05)
============== ============ ============= ===========
Weighted average number of
common shares outstanding 8,452,420 3,620,235 7,593,643 3,378,748
============== ============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
March 31, March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities
Net loss $ (481,474) $ (160,157)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 82,892 62,958
Amortization 12,281 40,746
Deferred income tax benefit (120,367) (35,877)
Changes in assets and liabilities, net of acquisitions
(Increase) decrease in accounts and notes receivable (104,256) 21,395
(Increase) in inventories (11,497) (109,438)
(Increase) in prepaid and other assets (321,436) (254,457)
Increase (decrease) in accounts payable 111,625 (100,618)
Increase (decrease) in accrued expenses (194,487) (294,050)
Common stock issued for services 300,000 -
--------------- ---------------
Net cash used in operating activities (726,719) (829,498)
--------------- ---------------
Cash flows from investing activities
Capital expenditures (70,495) (154,669)
Acquisitions (1,475,006) (66,340)
Expenditures for patent, net (41,200) (30,000)
--------------- ---------------
Net cash used in investing activities (1,586,701) (251,009)
--------------- ---------------
Cash flows from financing activities
Proceeds from issuance of common stock 2,212,888 81,526
Proceeds from issuance of Series B preferred stock - 1,500,000
Proceeds from issuance of notes payable 56,140 -
Proceeds from issuance of convertible note 500,000 -
Principal payments on notes payable - (8,807)
Principal advances on stockholder loan (131,116) -
Proceeds from payments on stockholder loan - 107,831
Costs associated with obtaining financing - (300,000)
--------------- ---------------
Net cash provided by financing activities 2,637,912 1,380,550
--------------- ---------------
Net increase in cash 324,492 300,043
Cash beginning 67,405 580,522
--------------- ---------------
Cash ending $ 391,897 $ 880,565
=============== ===============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
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 and six months ended March 31, 1999 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 March 31, 1999 and March 31, 1998 were 8,452,420 and
3,620,235, respectively. The weighted average number of shares outstanding for
the six month periods ended March 31, 1999 and March 31, 1998 were 7,593,643 and
3,378,748, 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 six month period ended March 31, 1999, the Company raised $250,000
and retired preferred stock for the issuance of 1,405,000 shares of common
stock. These funds were used for working capital purposes.
On March 24, 1999 the Company issued a 9% convertible promissory note in the
face amount of $666,667 for cash consideration of $500,000 before placement
fees. The note's maturity is March 1, 2003, and allows the holder to purchase
this Company's common stock at 105% of the market price at the time of
conversion.
5
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
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>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
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.
On January 22, 1999, the Company launched its www.paint-n-stuff.com e-commerce
web site that includes more than 10,000 name brand home, boating, and commercial
building paint, hardware supplies and other improvement items for contractors,
dealers and consumers. This represents the first time such a complete array of
these products has been offered on an internet site.
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 March 31, 1999 compared to three months ended March 31, 1998
Total consolidated revenue for the three months ended March 31, 1999 was
$1,128,941 compared to $712,347 for the same period of 1998, which represents an
increase of $416,594, or 58%. This increase was primarily attributed to the
additional revenues of two recent acquisitions: American Paints and
T-Coast/Sealco Systems, Inc. The revenues for the Company's existing business
declined for this period over the prior period. This decline resulted from the
seasonal factors within the Company's Florida markets that depressed sales for
the period that is typical for this time of year.
Gross profit margins were 31.0% and 33.4%, respectively, for the three month
period ended March 31, 1999, as compared to the prior period ended March 31,
1998. 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.
For the three months ended March 31, 1999, total selling, general and
administrative expenses were $667,854 as compared to $408,424 for the same
period of the previous year, an increase of $259,430, or 63%. 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 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 experienced a loss from operations of $317,615 for the three month
period ended March 31, 1999 as compared to a loss of $170,224 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>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
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 March 31, 1999 to represent that portion of
deferred taxes that may be realized in future periods.
The interest expense for the period ended March 31, 1999 was $6,629 as compared
to the prior year's quarter of $2,215. The interest expense for the current
period was incurred primarily for financing of vehicles as was the interest
expense for prior period. The prior period benefited from interest income of
$13,080 and the settlement of an outstanding payable that provided a one-time
income benefit of $45,045.
The basic loss, after income tax benefit, and basic loss per share were $259,396
and $0.03 per share respectively, for the three months ended March 31, 1999 as
compared to a basic loss and basic loss per share of $91,451 and $.03
respectively, for the same period in 1998. This loss represents a 284% increase
over the basic loss experienced in the year ago quarter. The loss per share for
the period was the same as the previous year ago period. The weighted average
shares outstanding for the quarter ended March 31, 1999 was 8,452,420 as
compared to 3,620,235 for the preceding year quarter ended March 31, 1998.
The Company has focused, in the recent quarter ended March 31, 1999, on
consolidating its recently acquired American paint operations with its Miami
based production facility. Presently all paints are manufactured at that Miami
location. The third quarter of this fiscal year will benefit from the higher
sales contributions of the two recent acquisitions that should result in overall
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. 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
continues to be 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.
Six months ended March 31, 1999 compared to six months ended March 31, 1998
Total revenue for the six months ended March 31, 1999 was $1,940,351 compared to
$1,470,631 for the same period of 1998, which represents an increase of
$469,720, or 32%. The increase was primarily the result of the sales
contribution of the American Paints and T-Coast acquisitions.
Gross profit margins were 30% and 34%, respectively, for the six-month period
ending March 31, 1999 as compared to the prior period ending March 31, 1998.
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.
For the six months ended March 31, 1999, total selling, general and
administrative expenses were $1,185,314 as compared to $748,069 for the same
period of the previous year, an increase of approximately $437,245, or 58%. This
increase is primarily the result of the Company's recent acquisitions and once
the expected consolidation of operations is completed, S G & A expenses are
expected to become a lower percentage of sales. Management anticipates that
further increases in sales while controlling its S G & A expense levels, will
result in an improvement in its future operating performance.
8
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
The Company continued to experience a loss from operations of $596,808 for the
six month period ending March 31, 1999 as compared to a loss of $244,294 for the
same prior year period.
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 ending March 31, 1999 to represent that portion of
deferred taxes that may be realized in the future.
The net loss, after income taxes benefit but before dividends on preferred
stock, and net loss per share was $481,474 for the six months ended March 31,
1999 as compared to a net loss of $143,505 for the same period in 1998. This
represented an increase in the loss of $337,969 for this period as compared to
the year before six-month period ended March 31, 1998. The basic earnings or net
loss after preferred dividends on preferred stock, and the basic per share
earnings or net loss attributable to common shares were $481,474 and $0.06 for
the six months ended March 31, 1999 as compared to a net loss of $143,505 and
$0.05 on the same basis for the same period in 1998. The diluted earnings per
share are $0.06 and $0.05 for these respective periods.
This current six-month period loss per share was higher even though there is a
dilutive effect with more common shares being outstanding. During these two
comparable periods, the weighted average shares outstanding increased from
3,378,748 to 7,593,642. This increase is attributed to the Company's financing
undertaken during 1998 and the exchange of convertible preferred stock into
common stock and the dilutive effect of exercisable stock options.
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 six months ended, the Company received $250,000 and
completed conversion of all convertible preferred stock for the issuance of
1,405,000 shares of common stock. In addition, the Company issued a 9%
redeemable convertible promissory note in the face amount of $666,667 for
consideration of $500,000 before placement expenses. This convertible note has a
March 1, 2002 maturity date. Conversion for stock is at a 5% premium to the
market price of the Company's common stock three days prior to the election to
convert. These funds were used for working capital purposes.
The issuance of common stock during the period was to acquire the equity
interest of the holder who held the preferred stock position and to provide the
Company with $250,000 in funding. The Company received a release from former
preferred stock investor on March 4, 1999 that any obligations that the Company
had were satisfied by the holders of the 1.4 million shares that were issued.
Net cash used in operating activities for the six months ended March 31, 1999
was $726,719 compared to net cash used of $829,498 for the six months ended
March 31, 1998. This decrease in cash used by operating activities is despite
the higher net loss and the increase in prepaid assets were offset by higher
levels of accounts payables and accrued expenses.
Cash used in investing activities for the six months ended March 31, 1999 and
1998 were $1,586,701 and $251,009, respectively. The principal use of funds was
for two acquisitions- American Paints and T-Coast/ Sealco Systems completed
during this period. In addition, capital expenditures for the recent period
decreased to $70,495 from $154,669 over the prior year's period. There was no
acquisition in the year ago period. The recent period includes a expenditure for
patents while in the year ago period there was no such expenditure.
9
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Cash provided by financing activities for the six months ended March 31, 1999
was $2,637,912 as compared to cash used in financing activities of $1,380,550
for the six months ended March 31, 1998. During the recent period, the Company
issued common stock with an aggregate value of $2,212,888 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 March 31, 1999, the Company had net working capital of $1,423,376 as
compared to $616,709 at fiscal year ended September 30, 1998. This increase in
net working capital of $806,667 is primarily due to in higher levels of accounts
receivable and inventories while this increase was more than offset by higher
levels of accounts payable and accrued expenses. The Company's ratio of current
assets to current liabilities was 2.0 at March 31, 1999 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 the 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
significantly curtail its planned operations to achieve breakeven operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During May 1999, the attorneys for the Company and Innovation Associates,
Inc.("IA") reached an agreement to settle litigation that was commenced by IA
for trade secrets misappropration among other matters. As part of the settlement
of this litigation, the Company has agreed to license certain patents relating
to microspheres that are owned by IA. Consideration for such license is the
payment of $25,000 and the issuance of $500,000 worth of the Company's common
stock. Such common stock shall bear a legend as to marketability until it is
registered. With this licensing of IA's patents, the litigation will be
dismissed. The Company intends to utilize the IA patents with its own
microsphere technologies to strengthen its patent position in this area.
On February 23, 1999, the Company was notified that the Kevin Horrell litigation
against the Company and Mr. John Pidorenko, the Company's president, was
dismissed. Prior to this notice, Mr. Pidorenko, transferred 40,000 shares of the
Company's common stock, he personally owned, to Mr. Horrell. A complete
settlement of this matter has been made.
On March 1, 1999, the Company reached a settlement agreement with David Feingold
and his law firm of Feingold & Kam, RAM Capital Partners, Ltd., Diversified
Lending Company and RAF Enterprises regarding compensation and the issuance of
the Company's common stock, among other matters. As a result of this settlement,
the Company's obligations to the investor who held a convertible preferred stock
position was satisfied. Other than the Company issuing common stock during
November 1998, no further consideration was paid.
10
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
On February 4, 1999, a complaint was filed in the United States District Court,
Middle District of Florida by Mr. Russell Haraburda and Eden Group, Inc. against
John Pidorenko, the Company's president, and the Company for monies purportedly
due 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 or his firm. In
addition, the Company has been assigned two promissory notes of the Eden Group,
Inc. that are unpaid. The Company will vigorously challenge any demand for
payment by Mr. Haraburda and will seek full payment under its promissory notes
from the Eden Group.
Item 5. Other Information
On March 18, 1999, Mr. Donald Huggins was appointed to the board of directors.
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 5/17/99
/s/ Gerald Couture
---------------------------------
Gerald Couture
Vice-President, Finance and CFO
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31, March 31,
---------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares outstanding: 7,294,325 3,375,578 7,294,325 3,375,578
Weighted average shares outstanding w/o options 7,294,325 3,153,568 6,557,214 3,145,415
Incremental shares attributed to outstanding options 2,113,333 700,000 1,991,667 350,000
Weighted average number of shares repurchased (955,238) (233,333) (955,238) (116,667)
--------------- --------------- ---------------- ----------------
Weighted average shares outstanding 8,452,420 3,620,235 7,593,643 3,378,748
Net loss $ (259,396) $ (108,103) $ (481,474) $ (160,157)
Net loss per share $ (0.03) $ (0.03) $ (0.06) $ (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> SEP-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 391,897
<SECURITIES> 0
<RECEIVABLES> 897,086
<ALLOWANCES> 41,292
<INVENTORY> 785,696
<CURRENT-ASSETS> 2,900,847
<PP&E> 1,651,996
<DEPRECIATION> 331,422
<TOTAL-ASSETS> 6,875,574
<CURRENT-LIABILITIES> 1,477,471
<BONDS> 0
0
500
<COMMON> 729
<OTHER-SE> 4,516,698
<TOTAL-LIABILITY-AND-EQUITY> 6,875,574
<SALES> 1,940,351
<TOTAL-REVENUES> 1,940,351
<CGS> 1,351,845
<TOTAL-COSTS> 1,351,845
<OTHER-EXPENSES> 1,185,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,033
<INCOME-PRETAX> (601,841)
<INCOME-TAX> (120,367)
<INCOME-CONTINUING> (481,474)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (481,474)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
