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 June 30, 2000
-----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-21279
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THERMACELL TECHNOLOGIES, INC.
----------------------------
(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.)
440 Fentress Blvd., Daytona Beach, Florida 32114
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(Address of Principal Executive Offices)
(904) 253-6262
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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 June 30, 2000 was 6,147,104
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 Sheet -
June 30, 2000................................................. 1 - 2
Consolidated Statements of Operations -
Three months and nine months ended June 30, 2000 and 1999..... 3
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended June 30, 2000............................... 4
Consolidated Statements of Cash Flows -
Nine months ended June 30, 2000 and 1999...................... 5
Notes to Consolidated Financial Statements...................... 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8 - 12
Part II - Other Information
Item 1. Legal Proceedings................................................ 12
Signatures...................................................... 13
i
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
Assets
<TABLE>
June 30,
2000
---------------------
<S> <C>
Current assets
Cash $ 296,725
Accounts receivable
Trade, net of allowance for uncollectible accounts
of $178,812 436,431
Inventories 309,749
Prepaid expenses and other 302,312
---------------------
Total current assets 1,345,217
---------------------
Property and equipment 1,759,058
Less - accumulated depreciation 739,921
---------------------
1,019,137
---------------------
Other assets
Deposits 54,296
Prepaid interest 33,912
Intangibles, net of accumulated amortization
of $49,318 723,218
---------------------
811,426
---------------------
Total assets $ 3,175,780
=====================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30,
2000
---------------------
<S> <C>
Current liabilities
Accounts payable 1,397,773
Accrued expenses 737,053
Accrued payroll and payroll taxes 21,629
Current maturities of long-term debt
Notes payable 158,108
Capital leases 172,278
---------------------
Total current liabilities 2,486,841
---------------------
Long-term debt, net of current maturities
Notes payable 1,528,501
Capital lease obligations 114,042
---------------------
Total long-term debt, net of current maturities 1,642,543
---------------------
Total Liabilities 4,129,384
---------------------
Stockholders' equity
Common stock, par value $.0001
Authorized 20,000,000 shares,
6,147,104 issued and outstanding 614
Additional paid-in capital 11,883,617
Common stock subscribed (45,000)
Prepaid stock incentives (483,334)
Accumulated deficit (12,254,501)
Treasury stock (55,000)
---------------------
Total stockholders' equity (953,604)
---------------------
Total liabilities and stockholders' equity $ 3,175,780
=====================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
For the Three Months Ended For the Nine Months Ended
--------------------------------- ---------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenue
Sales $ 768,499 $ 1,310,625 $ 3,245,201 $ 3,250,976
Less cost of sales
Cost of sales 506,486 922,980 2,322,156 2,274,825
----------------- -------------- ---------------- ---------------
Gross profit 262,013 387,645 923,045 976,151
Selling, general and administrative
expenses 1,193,563 624,738 5,078,350 1,810,052
----------------- -------------- ---------------- ---------------
Loss from operations (931,550) (237,093) (4,155,305) (833,901)
----------------- -------------- ---------------- ---------------
Other income (expense)
Interest income - - - 4,431
Interest expense (104,825) (19,430) (267,510) (28,894)
Loss on closure of division - - (912,347) -
----------------- -------------- ---------------- ---------------
.
Total other income (expense) (104,825) (19,430) (1,179,857) (24,463)
----------------- -------------- ---------------- ---------------
Loss before income taxes (1,036,375) (256,523) (5,335,162) (858,364)
Income taxes
Deferred income tax benefit - 51,305 - 171,672
----------------- -------------- ---------------- ---------------
Net loss $ (1,036,375)$ (205,218) $ (5,335,162)$ (686,692)
================= ============== ================ ===============
Basic loss per common share $ (0.32)$ (0.09) $ (1.75)$ (0.36)
================= ============== ================ ===============
Weighted average number of
common shares outstanding 3,205,273 2,174,060 3,055,136 1,893,972
================= ============== ================ ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Deficit
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------- Additional
Number of Paid-in Accumulated
Shares Amount Capital Deficit
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Balance September 30, 1999 9,433,653 $ 943 $ 9,519,168 $(6,919,339)
Issuance of stock for payment of services 1,300,000 130 797,849 -
Issuance of stock for acquisition 300,000 30 164,970 -
Restatement of par value (8,275,240) (828) 828 -
Issuance of stock for payment of services 735,283 74 747,709 -
Common stock subscribed - - - -
Prepaid stock incentives - - - -
Payments associated with stockholder loan, net - - - -
Issuance of stock for cash 2,500,000 250 499,700 -
Conversion of note payable to stock 153,408 15 153,393
Net loss for period ended June 30, 2000 - - - (5,335,162)
--------- ------ --------- -----------
========= ====== ========= ===========
Balance June 30, 2000 6,147,104 $ 614 $ 11,883,617 $(12,254,501)
========= ====== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Prepaid Stock
Notes Receivable, Stock Subscription Treasury
Stockholder Incentives Receivable Stock Total
-------------- ----------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
$ (147,035) $ - $ - $ (55,000)$ 2,398,736
- - - - 797,979
- - - - 165,000
- - - - 0
- - - - 747,783
- - (45,000) - (45,000)
- (483,334) - - (483,334)
147,035 - 147,035
- - - - 499,950
153,408
- - - - (5,335,162)
-------------- ----------------- --------------- --------------- --------------
$ - $ (483,334) $ (45,000)$ (55,000)$ (953,604)
============== ================= =============== =============== ==============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
-----------------------------------
June 30, June 30,
2000 1999
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities
Net loss $ (5,335,162) $ (686,692)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 126,013 125,549
Amortization 79,601 27,562
Write off of goodwill 1,115,826 -
Deferred income tax benefit - (171,672)
Loss on closure of division 912,347 -
Changes in assets and liabilities, net of acquisitions
(Increase) decrease in accounts and notes receivable 56,393 90,053
(Increase) decrease in inventories 232,184 (215,416)
(Increase) decrease in prepaid and other assets (117,801) (727,059)
(Increase) decrease in prepaid stock incentives (483,334) -
Increase (decrease) in accounts payable 398,812 196,969
(Decrease) increase in accrued expenses 597,529 (15,415)
Prior period adjustment - (39,040)
Common stock issued for services 1,545,715 -
---------------- -----------------
Net cash used in operating activities (871,877) (1,415,161)
---------------- -----------------
Cash flows from investing activities
Capital expenditures (195,948) (71,160)
Acquisitions (215,000) (1,396,220)
Expenditures for patent, net (29,412) (577,956)
---------------- -----------------
Net cash used in investing activities (440,360) (2,045,336)
---------------- -----------------
Cash flows from financing activities
Proceeds from issuance of common stock 500,000 2,926,554
Common stock issued for acquisitions 165,000 -
Proceeds from common stock subscription (45,000) -
Proceeds from issuance of notes payable & capital leases 530,072 92,025
Proceeds from issuance of convertible note - 1,333,333
Conversion of Series B preferred to common stock - (250,000)
Issuance of common stock as payment for note payable 153,408
Principal payments on notes payable & capital leases (57,960) (19,806)
Principal advances on stockholder loan - (137,694)
Purchase of treasury stock - (55,000)
Proceeds from payments on stockholder loan 303,269 -
---------------- -----------------
Net cash provided by financing activities 1,548,789 3,889,412
---------------- -----------------
Net increase (decrease) in cash 236,552 428,915
Cash beginning 60,173 67,405
---------------- -----------------
Cash ending $ 296,725 $ 496,320
================ =================
</TABLE>
See notes to consolidated financial statements.
5
<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, 1999 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 and nine months ended June 30, 2000 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 June 30, 2000 and June 30, 1999 was 3,205,273 and
8,696,238, respectively. For the nine month periods ended June 30, 2000 and June
30, 1999 the weighted average number of shares outstanding was 3,055,136 and
7,575,889, respectively.
Note 3 - Equity Transactions
Please refer to Audited Consolidated Financial Statements consisting of the
Company's balance sheet as of September 30, 1999, and related statements of
operations, changes in stockholders' equity, and cash flows ended September 30,
1999, as audited by Cherry, Bekaert, & Holland, L.L.P., Certified Public
Accountants.
On February 14, 2000 the Company issued 850,000 shares of common stock to
employees, directors and consultants in a Regulation S-8 filing. These shares
represented compensation for the services performed and to be performed by
employees, directors, and consultant and was utilized to minimize cash
disbursements.
On February 2, 2000, the company issued 300,000 shares of common stock to
complete the acquisition of Silab Resarch Center, Inc., a Daytona Beach, Florida
based research and development facility.
On March 29, 2000, the board of directors authorized a 1-for-4 reverse stock
split effective April 14, 2000.
On May 25, 2000 the board of directors authorized the issuance of 2,500,000
shares of common stock to PAMG, LLC. in exchange for $500,000 in cash.
In April 2000, the Company effected a one-for-four reverse stock split. All
references to the number of common shares and per common share amounts have been
restated to reflect the reverse stock split.
6
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
Note 4 - Contingencies
On June 10, 1999, the Company and Innovation Associates, Inc. ("IA") reached an
agreement to settle litigation that was commenced by IA for trade secrets
misappropriation among other matters. As part of the settlement, the Company
agreed to license certain patents relating to microspheres that are owned by IA.
Consideration for such license was the payment of $25,000 and the issuance of
$500,000 worth of the Company's common stock that was legended. A requirement
with the issuance of this common stock was that registration of these securities
occur within 180 days of the signing of the agreement. The Company did not
register these shares within the prescribed period and is obligated to issue
additional shares of common stock having a value of $125,000. The Company issued
29,412 shares of common stock to satisfy this payment obligation. The Company
plans to utilize the IA patents to strengthen its patent position in this area.
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 then 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. A trial in the fall of 2000 is
anticipated.
7
<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 were 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
that 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 was classified as a purchase transaction.
This facility was subsequently closed during August of 1999.
8
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
On October 15, 1998, the Company agreed to acquire T-Coast Pavers/Sealco
Systems, Inc., which had annual revenues of about $2 million. ThermaCell
acquired these associated businesses effective December 1, 1998 for 300,000
shares of its common stock valued at $300,000 and an employment agreement with
its founder and key executive, with 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 for 572,000 common shares on December 1, 1998.
American Paints was operated until March 30, 2000 at which time it was closed to
avoid future operating losses.
The Company has sustained significant operating losses since its inception.
Management's strategy of expanding into 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 June 30, 2000 compared to three months ended June 30, 2000
Total consolidated revenue for the three months ended June 30, 2000 was $768,499
compared to $1,310,625 for the same period of 1999, which represents a decrease
of $542,126, or 41%. This decrease was primarily attributed to the closure of
the American Paints facility in Pompano Beach, Florida. This facility was close
to reduce operating losses. Former customers of American Paints are being
supplied by the Atlas Chemical facility in Miami.
Gross profit margins were 34.1% and 29.6%, respectively, for the three-month
period ended June 30, 2000, as compared to the prior period ended June 30, 1999.
This increase is the result of a change in the mix of paint and coatings
products sold by the Company, and in part, by higher contribution margin from
the Atlas Chemicals operation.
For the three months ended June 30, 2000, total selling, general and
administrative expenses were $1,193,563 as compared to $624,738 for the same
period of the previous year, an increase of $568,825 or 91%. This increase is
the result of costs incurred in closing the American Paints operation and costs
associated with the development of the microsphere manufacturing facility in
Daytona Beach. Higher technical personnel costs, including stock incentive
arrangements, have contributed to the substantial increase. Management believes
that this endeavor will benefit the Company over the long term and will provide
a substantial economic return.
The Company experienced a loss from operations of $931,550 for the three-month
period ended June 30, 2000 as compared to a loss of $237,093 for the same prior
year period. This increase in the operating loss over that of the preceding year
period reflects the lower revenue from the Company's closing of the American
Paints operation and the higher S. G & A expense which included personnel costs
associated with preparing the Daytona facility for microsphere production.
Management anticipates that future levels of sales and lower future S, G & A
expenses will result in improvement in operating performances and eventually
profitable operations.
During the period ended June 30, 2000 interest expense increased to $104,825
compared to $19,430 in the year ago period ended June 30, 1999, an increase of
$85,395. The increase is attributable to the convertible subordinated debt issue
that the Company received during the fiscal year ended September 30, 1999. A
conversion into common stock of $100,000 of principal was elected during the
present quarter ended June 30, 2000.
9
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
There was provision for income tax benefit for the present quarter ended June
30, 2000 as there was in the prior year ago period of $51,305.
The basic loss and basic loss per share were $1,036,375 and $0.32 per share
respectively, for the three months ended June 30, 2000 as compared to a basic
loss and basic loss per share of $205,218 and $.09 respectively, for the same
period in 1999. This loss represents a 405% increase over the basic loss
experienced in the year ago quarter. The loss per share for the period also
increased 255% over the year ago period. The weighted average shares outstanding
for the quarter ended June 30, 2000 was 3,205,273 as compared to 2,174,060 for
the preceding year quarter ended June 30, 1999. The Company had a four shares
for one share reverse split that was effective on April 14, 2000.
With the Company's recent management changes, a continuing effort has been
undertaken to focus in the recent quarter ended June 30, 2000, on increasing the
production volume of paint and coating manufacture in the Atlas Chemicals' Miami
production facility. Presently, all paints are now manufactured at that Miami
location. In addition, management has completed a reduction in the number of
stock keeping units of paint and coating products and is focusing on more
efficiently producing significant paint and coating products. The Miami facility
is not presently profitable, but once that facility is profitable, management
will seek to aggressively market its paint and coatings products to a larger
customer base while maintaining an emphasis on profitability. This strategy will
be to expand within Florida markets and then the Sunbelt Region of the United
States. Management continues to be optimistic about the benefits of its
near-term strategy.
Nine months ended June 30, 2000 compared to nine months ended June 30, 1999
Total revenue for the nine months ended June 30, 2000 was $3,245,201 compared to
$3,250,976 for the same period of 1999, which represents a decrease of $5,775,
or 2.8%. This decrease was primarily the result of the closing of the American
Paints facility. This closing was made to curtail losses that were being
incurred at that location.
Gross profit margins were 28% and 30%, respectively, for the nine-month period
ending June 30, 2000 as compared to the prior period ending June 30, 1999. 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 T-Coast acquisitions. T-Coast has traditionally had gross profit
margins in the 16% range.
For the nine months ended June 30, 2000, total selling, general and
administrative expenses were $5,078,350 as compared to $1,810,052 for the same
period of the previous year, an increase of approximately $3,268,298, or 181%.
This substantial increase is the result of the write-off of goodwill related to
all of the company's previous acquisitions amounting to $1,115,826, together
with the severance compensation with the company's former president, in the
amount of $600,000, and compensation and fees paid in the company's common stock
to employees, consultants, and directors in the total amount of $467,500.
Management anticipates that future S, G & A expenses as a percentage of sales
will be at lower levels than has been historically experienced by the company by
its present actions. By controlling its S G & A expenses, management expects to
improve future operating performance.
The company accounts for its long-lived assets in accordance with the Financial
Accounting Standards Board Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement No.
121"). The company reviews for impairment of long-lived assets and goodwill
related to those assets to be held and used in the business whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In the recent second quarter of this Fiscal Year, management
identified impairments of its goodwill value for its prior acquisitions. It was
determined by present management that to be in compliance with FASB121 that
mandates the continual valuation review of the company's assets that it was
prudent for the company to completely reduce the goodwill carry values because
of the substantial doubts of the company continuing as a going concern. This was
done in the second quarter of this fiscal year.
10
<PAGE>
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
The Company experienced a loss from operations of $4,155,305 for the nine month
period ending June 30, 2000 as compared to a loss of $833,901 for the same prior
year period that amounted to a $3,321,404 loss increase, or 398%. This loss is
attributed to the higher level of S G & A expense including the write-down of
goodwill for the nine-month period ended June 30, 2000 as compared to the prior
year's nine-month period.
During the nine-month period ended June 30, 2000 interest expense increased to
$267,510 compared to $28,894 in the year ago nine-month period ended June 30,
1999, an increase of $238,616. The increase is attributable to the convertible
subordinated debt issue that the Company received during the fiscal year ended
September 30, 1999. In the prior period ended June 30, 1999, the company had
interest income in the amount of $4,431. There was not any interest income in
the current period.
Based upon management's current estimates of future taxable income, management
has determined that a valuation allowance of one hundred percent (100%) is
appropriate during the current nine-month period ended June 30, 2000. In the
prior year ago nine-month period, a fifty percent valuation allowance was used
to represent that portion of deferred taxes that may be realized in the future.
This allowance amounted to $51,305.
The basic loss was $5,335,162 for the nine-months ended June 30, 2000 as
compared to a net loss of $686,692 for the same period in 1999. This represented
an increase in the loss of $4,648,470 for this period as compared to the year
before nine-month period ended June 30, 1999. The basic loss per share was $1.75
for the nine-months ended June 30, 2000 as compared to a $0.36 per share for the
same nine-months period in 1999. There is not a diluted loss per share
presentation as it would be anti-dilutive for both these periods.
This current nine-month period loss per share was higher even though there is a
dilutive effect with more common shares outstanding. During these two comparable
periods, the weighted average shares outstanding increased from 1,893,972 to
3,055,136, or 61%. This increase is primarily attributed to the conversion of
preferred stock held by the Company's former president into common stock. The
conversion permitted that officer to repay the Company for advances and loans
that he had previously taken and thereby provide working capital for the
Company.
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 nine-months ended June 30, 2000, the Company received
$455,000 from the issuance of common stock, $530,072 from borrowings and
$303,269 of proceeds from the repayment of stockholder loans. This represented
approximately 83% of the $1,548,789 of net cash provided by financing
activities.
Net cash used in operating activities for the nine-months ended June 30, 2000
was $871,877 compared to net cash used of $1,415,161 for the nine-months ended
June 30, 1999. This decrease in cash used by operating activities is despite the
higher net loss that was offset by the write-off of goodwill of $1,115,826, the
loss on closure of a division in the amount of $912,347, and the issuance of
common stock in the amount of $1,545,715 for services.
Cash used in investing activities for the nine-months ended June 30, 2000 and
1999 were $440,360 and $2,045,336, respectively. The principal use of funds in
the nine-month period ended June 30, 2000 was the acquisition of Silabs Inc. for
$215,000 and the expenditure of $195,948 for fixed assets. Capital expenditures
for the recent period increased to $195,948 from $71,160 over the prior year's
period. There were two acquisitions amounting to $1,396,220 in the year ago
period as compared to one for $215,000 in the present period.
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THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Cash provided by financing activities for the nine-months ended June 30, 2000
was $1,548,789 as compared to $3,889,412 for the nine-months ended June 30,
1999. During the nine-months ended June 30, 2000, the Company received $455,000
from the issuance of common stock, $530,072 from borrowings and $303,269 of
proceeds from the repayment of stockholder loans. This represented approximately
83% of the $1,548,789 of net cash provided by financing activities. The year ago
period included $2,926,554 from the issuance of common stock together with
$1,333,333 from the issuance of a convertible notes.
As of June 30, 2000, the Company had net working capital deficit of $1,141,624
and a current working capital ratio of 0.54. Management has completed the first
tranche of its equity funding with PAMG, LLC. Within this funding, the Company
issued 2,500,000 shares of common stock for $500,000. This shares bear a
restrictive legend. Management expects to complete the second tranche of this
funding within the next few weeks. This funding will improve it net working
capital position. The total equity infusion is expected to be for $1,000,000.
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.
Management believes that additional capital will be needed to fund its present
plan to manufacture its microshell technology products, as well as, new paint
and coating products. Management 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 capital expenditures
until 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 nine-months to supplement the $1,000,000 funding with PAMG, LLC. Should
such funding not be available, the Company would have to further curtail its
present operations to achieve breakeven operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On June 10, 1999, the Company and Innovation Associates, Inc. ("IA") reached an
agreement to settle litigation that was commenced by IA for trade secrets
misappropriation among other matters. As part of the settlement, the Company
agreed to license certain patents relating to microspheres that are owned by IA.
Consideration for such license was the payment of $25,000 and the issuance of
$500,000 worth of the Company's common stock that was legended. A requirement
with the issuance of this common stock was that registration of these securities
occur within 180 days of the signing date of the agreement. The Company did not
register these shares within the prescribed period and is obligated to issue
additional shares of common stock having a value of $125,000. The Company issued
29,412 shares of common stock to satisfy this payment obligation. The Company
plans to utilize the IA patents to strengthen its patent position in this area.
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 then 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. A trial in the Fall of 2000 is
anticipated.
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THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 5. Other Information
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On March 29, 2000 the board of directors authorized a 1-for-4 reverse
stock split effective April 14, 2000.
Item 6. Exhibits and reports on Form 8K
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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 8/25/2000 /s/ Peter Thomas
---------------------------
Peter Thomas
President
