SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Nine Months Ended Commission File Number
March 31, 1997 33-87284-N4
THERMO-MIZER ENVIRONMENTAL CORP.
528 Oritan Avenue
Ridgefield, NJ 07657
Tel: 201-941-5805
Delaware 22-2312917
(State of Incorporation) (I.R.S. Employer Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [XX]
No
At April 30, 1997, the latest practicable date, there were 2,311,500 shares of
Common Stock outstanding, $.001 par value.
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Condensed Balance Sheets
March 31, 1997 and June 30, 1996. 3,4
Condensed Statements of Operations 5
for the nine months ended
March 31, 1997 and 1996.
Condensed Statements of Operations 6
for the three months ended
March 31, 1997 and 1996.
Condensed Statements of Cash Flows 7
for the nine months ended
March 31, 1997 and 1996
Condensed Statement of Stockholders' 8
Equity
Notes to Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 14
PART II. OTHER INFORMATION 19
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED BALANCE SHEETS
MARCH 31, 1997 and JUNE 30, 1996
ASSETS
3/31/97 6/30/96
(Unaudited)
Current Assets:
Cash $ 692,116 $ 2,181,092
Other time deposits 375,000 375,000
Contracts receivable-net of
allowance of $30,000 and $15,000 686,786 790,451
Inventories 355,042 315,452
Unbilled receivables 65,069 254,838
Prepaid expenses and other 143,039 189,240
---------- -----------
Total Current Assets 2,317,052 4,106,073
Property and Equipment - net 135,230 100,404
Other Assets 345,275 45,867
---------- ---------
Total Assets $ 2,797,557 $ 4,252,344
=========== ===========
See Notes to Condensed Financial Statements.
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/97 6/30/96
(Unaudited)
Current Liabilities:
Note payable - bank $ 375,000 $ 375,000
Accounts payable - trade 192,904 260,092
Billings in excess of costs 90,996
Accrued expenses and other 142,259 68,714
------- ----------
Total Current Liabilities 801,159 703,806
------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.001 par value,
25,000,000 shares authorized;
2,311,500 and 1,896,500 shares
issued and outstanding 2,311 1,896
Additional paid-in capital 3,584,336 3,243,151
Retained earnings (deficit) (1,430,249) 303,491
Less - Note receivable (160,000)
Total Stockholders' Equity 1,996,398 3,548,538
--------- ----------
Total Liabilities and Stockholders'
Equity $2,797,557 $ 4,252,344
=========== ===========
See Notes to Condensed Financial Statements.
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
Contract and Other Revenue $ 1,488,818 $ 1,604,011
Cost of Revenue 1,461,406 1,030,524
----------- ---------
Gross Profit (Loss) 27,412 573,487
----------- --------
Operating Expenses:
Personnel and related
costs 426,180 181,046
Selling and administrative 652,079 204,504
Occupancy 25,697 27,830
Product development 213,789 137,908
----------- ------------
Total operating expenses 1,317,745 551,288
---------- ----------
Operating Income (Loss) (1,290,333) 22,199
Other - net (430,407) (12,873)
---------- -------------
Income (Loss) Before Taxes (1,720,740) 9,326
Income Taxes (Benefit) 13,000 (5,246)
---------- -------
Net Income (Loss) $(1,733,740) $ 14,572
============ ===========
Earnings (Loss) Per Share $ (.84) $ .01
======= =======
Weighted Average Number of
Shares Outstanding 2,069,872 1,245,011
========= =========
See Notes to Condensed Financial Statements.
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
Contract and Other Revenue $ 527,818 $ 426,084
Cost of Revenue 418,109 337,383
--------- -------
Gross Profit 109,709 88,701
---------- -----------
Operating Expenses:
Personnel and related costs 130,946 59,541
Selling and administrative 219,416 96,629
Occupancy 10,840 10,840
Product development 88,543 37,654
--------- --------
Total operating expenses 449,745 204,664
-------- ---------
Operating Loss (340,036) (115,963)
Other- net (22,871) 1,735
---------- ----------
Loss Before Taxes (362,907) (114,228)
Income Tax (Expense)
Benefit (13,000) 39,294
----------- -----------
Net Loss $ (375,907) $ (74,934)
----------- -----------
Loss Per Share $ (.17) $ (.05)
------------ -----------
Weighted Average Number of
Shares Outstanding 2,260,551 1,485,033
------------- -----------
See Notes to Condensed Financial Statements
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
OPERATING ACTIVITIES:
Net income (loss) $(1,733,740) $ 14,572
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Write-off of consulting agreement 95,000
Nonoperating expenses 104,375
Depreciation and amortization 38,124 9,225
Loss on asset disposal 28,546
Decrease (increase) in net operating (378,074)
assets 98,022
-------------
Total
(1,369,673) (354,277)
INVESTING ACTIVITIES:
Loan to APC (114,298)
Purchase of equipment (85,816) (15,570)
Deferred business acquisition costs (100,789)
------------
Total (300,903) (15,570)
------------
FINANCING ACTIVITIES:
Payments of debt (311,839)
Proceeds from borrowings 181,600 3,222,600
--------- ----------
Total 181,600 3,285,761
NET INCREASE (DECREASE) IN CASH (1,488,976) 2,915,914
CASH - BEGINNING 2,181,092 59,313
--------- --------
CASH - ENDING $ 692,116 $ 2,975,227
-------- -----------
See Notes to Condensed Financial Statements.
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additional Retained
Common Paid-in Earnings Note
Stock Capital (Deficit) Receivable Total
Balance, July 1, 1996 $ 1,896 $3,243,151 $ 303,491 $3,548,538
Issuance of equity
securities 415 341,185 $ (160,000) 181,600
-------- ----------- -----------
Net loss (1,733,740) (1,733,740)
----------- -----------
Balance, March 31,
1997 $2,311 $ 3,584,336 $(1,430,249) $ (160,000) $ 1,996,398
======
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying condensed interim financial statements for the three
and nine-month periods ended March 31, 1997 and 1996 are unaudited and include
all adjustments considered necessary by management for a fair presentation. The
results of operations realized during an interim period are not necessarily
indicative of results to be expected for a full fiscal year. These financial
statements should be read in conjunction with the information filed as part of
the Company's Annual Report on Form 10-KSB.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's principal accounting and financial reporting
policies is as follows:
Revenue Recognition
Contract revenues are recognized on the percentage-of-completion method by
multiplying total contract revenue by the estimated percentage of contract
completion. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
Revenue recognized in excess of amounts billed to customers is included in the
Balance Sheet caption "Unbilled receivables" and is expected to be billed within
one year.
Inventories
Inventories consist principally of parts and components for use in contracts and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out cost flow assumption.
Accounts Receivable
Accounts receivable at March 31, 1997 include retainages of $167,290 (compared
with $51,532 at June 30, 1996), substantially all of which is expected to be
collected within 12 to 18 months.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods based upon
the estimated useful lives of the related assets as follows:
Furniture and fixtures 5 years Vehicles 7 years Machinery and equipment 5-7
years Expenditures for repairs and maintenance are charged to expense as
incurred.
Statement of Cash Flows
For the purposes of this statement, investments and time deposits having an
initial term of 90 days or less are considered to be cash equivalents.
<PAGE>
Product Development Cost
Product development costs are charged to operations as incurred. During the
nine-month period ended March 31, 1997, such charges include the cost of
engineering labor and overhead. All charges during the nine-month period ended
March 31, 1996 were paid to consultants and contractors.
Earnings (Loss) Per Share
Earnings (loss) per common and common equivalent share are calculated by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the period, after giving retroactive effect
to the .75 to 1 reverse stock split effected in January 1996. The assumed
exercise of outstanding warrants would have been antidilutive and, therefore,
were excluded from the calculation.
Warranty Costs
The Company's policy is to warrant parts on new installations for one year from
start-up of the system. The cost of parts used in installations is generally not
a material component of the total installation costs. The Company's policy is to
expense related warranty costs, which have not been material, as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. The principal assumptions inherent in the accompanying
financial statements relate to estimated percentages of contract completion and
the realizability of deferred costs associated with planned business
combinations. Actual results may differ from those estimates.
Revenue, Credit and Cash Concentration
A significant portion of the Company's revenue is derived from a small number of
systems contracts performed for customers located principally in the New York
Metropolitan Area. Accordingly, a substantial portion of the Company's accounts
receivable is due from customers in the pharmaceutical or commercial real estate
industry operating in the New York Metropolitan area.
Substantially all of the Company's cash balances at March 31, 1997 are
maintained with one bank. Such balances exceed the amount covered by the Bank's
depository insurance for individual depositors.
Reclassification
Certain accounts from 1996 have been reclassified to conform with the 1997
presentation.
<PAGE>
NOTE 3--OTHER SIGNIFICANT TRANSACTIONS
Other - net consists of the following for the nine months ended March 31, 1997
and 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996
----
Solay agreement $ 244,375
Write-off of Nationwide
consulting agreement 95,000
Postemployment cost 40,000
Professional fees
associated with
nonrecurring
transactions 67,510
Interest - net (42,472) $12,873
Disposal of equipment 28,546
Other (2,552)
-----------
Total $ 430,407 $ 12,873
=========
</TABLE>
<PAGE>
Solay, Inc. Consulting Agreement and Issuance of Nonqualified Options
On July 30, 1996, the Company entered into a one-year financial
consulting agreement with Solay, Inc. ("Solay") under which Solay agreed to
provide the Company with financial public relations and acquisition-related
services in consideration for a payment of $165,000 and an option (the "Option")
granting Solay the right to purchase 550,000 units at an exercise price of $1
per unit. Each unit consists of one share of common stock and two Class B
warrants. Each Class B warrant entitled the holder thereof to purchase one share
of common stock at an exercise price equal to the greater of (i) $3 per share or
(ii) 120% of the offering price of a share of common stock in a secondary public
offering which results in gross proceeds of at least $3,000,000. The Class B
warrants were exercisable for a period of five years commencing on the earlier
of (i) one year from the date that the option was granted or (ii) the
consummation of an acquisition, as defined, by the Company. The Company
registered all securities covered by the Option in a Registration Statement on
Form S-8. In February 1997, the Company modified the terms of the option such
that it cancelled 470,000 Class B Warrants and Solay's right to purchase 30,000
Class B Warrants issued one share of Common Stock for each five Class B Warrants
cancelled.
Solay is entitled to exercise options for up to 300,000 shares, of
which it exercised such option for 260,000 such shares, including 160,000 for
which it issued a note to the Company in the principal amount of $160,000. The
note is interest-free and is nonrecourse to Solay, except to the extent that an
officer of the Company repays a note due by such officer to Solay. The remainder
of the Option becomes exercisable at the earlier of (i) the consummation by the
Company of an acquisition, as defined, or (ii) 18 months from the date of grant.
The Option expires five years from the date of grant. Solay granted an
irrevocable proxy to vote all shares purchased and held by Solay pursuant to the
Option to the Company's President. Such proxy terminates at the time that the
shares are sold, exclusive of a transfer pursuant to a pledge of the shares.
As part of the agreement with Solay, Nationwide Securities, Inc.
("Nationwide"), the underwriter for the Company's initial public offering in
March 1996, agreed to terminate the underwriting agreement effectively
eliminating all restrictive covenants set forth therein and severing the
relationship between the Company and Nationwide. Accordingly, the Company also
wrote off the unamortized portion, amounting to $95,000, of the Nationwide
consulting agreement during the nine-month period ended March 31, 1997.
The Company issued nonqualified options for 180,000 units to officers
and directors. The units covered by these nonqualified options are identical to
the units included in the Option issued to Solay, except that they are
exercisable at estimated fair market value at the date of grant. ($1.16) The
holders of the Class B Warrants have been granted the right to receive one share
of Common Stock in exchange for each five Class B Warrants. The conversion of
the Class B Warrants results in the exercise price per share becoming $.83.
For financial reporting purposes, the Company ascribed a value of $.05
to each Class B Warrant. The aggregate difference between the fair market value
of a share of common stock on the date of grant ($1.0623) and the value ascribed
to each share of common stock included in the units described above ($.90) for
the Solay Options amounts to $89,375 and was accounted for as an expense during
the nine-month period ended March 31, 1997.
The transactions above, together with certain other issuances of
<PAGE>
securities in consideration for services received, result in a modification of
the exercise price of the Redeemable Warrants issued as part of the Company's
initial public offering under the antidilution provisions of the warrant
agreement. Such issuances result in the exercise price of the Redeemable
Warrants being reduced from $6.00 (the price in effect on the date of issuance)
to $3.76 at April 30, 1997. In addition, each Redeemable Warrant, as adjusted,
will entitle the holder thereof to purchase 1.6 shares of Common Stock at the
adjusted purchase price of $3.76 per share.
Postemployment Benefits
The Company agreed to purchase an annuity for an officer who retired
during the nine-month period ended March 31, 1997, the cost of which ($40,000)
was charged to operations.
NOTE 4--OTHER SIGNIFICANT TRANSACTIONS
American Process Controls, Inc. Agreement
In August 1996, the Company made a noninterest-bearing loan of $93,750
(which w3as subsequently increased to $114,298 and is included in the Balance
Sheet caption "Other Assets") to American Process Controls, Inc. ("APC"), the
proceeds from which were used to fund the development of a working
temperature-activated steam trap alarm device (the "Product"). The loan, which
is collateralized by all of APC's assets, was due on March 15, 1997 at which
time APC was unable to repay it. The Company has the right to receive 45% of
APC's common stock in full satisfaction of such loan and plus the (i) exclusive
right to sell the Product in the Heating, Ventilation and Air Conditioning
market and (ii) nonexclusive right to sell the product in all other markets. APC
is required to sell the Product to the Company at a price equivalent to 120% of
APC's manufacturing costs. The Company believes that additional costs must be
incurred to complete the Product's design and testing and has advised APC that
it is currently unwilling to advance such funds. The Company has proposed that
APC obtain alternative financing in sufficient amount as to repay the amounts
due to the Company and complete the Product. No assurance can be given that APC
will be successful in such efforts.
Enersave Agreement
In July 1996, the Company and Enersave, Inc. ("Enersave") entered into
an agreement under which the Company acquired, for $100,000 (which is included
in the Balance Sheet caption "Other Assets"), all of Enersave's rights to
provide all necessary performance metering and billing services pursuant to
certain energy service contracts between Enersave and certain public utility
companies. The acquisition price will be amortized based on actual billings. For
financial reporting purposes, the Company will not recognize any income on these
billings until the entire investment has been recovered. The Company has
amortized $15,680 of the Enersave cost through March 31, 1997.
Stock Option Plan
In December 1996, the shareholders approved a stock incentive plan
under which the Company may issue incentive stock options, nonqualified stock
options and stock appreciation rights. The Company has granted options covering
314,000 shares of Common Stock, of which 163,000 options are vested and the
remaining vest ratably over four years. The maximum number of shares which may
be issued under this plan is 500,000.
<PAGE>
NOTE 5--INCOME TAXES
The Company has established reserves for the entire benefit associated
with the unused Federal income tax loss carryforwards
NOTE 6 --OPTIONS AND WARRANTS
At March 31, 1997 there are a total of 3,111,000 options and warrants
outstanding requiring a total of 4,332,000 shares to be reserved for possible
issuance in the event that all such options and warrants are exercised.
NOTE 7--PROPOSED BUSINESS COMBINATIONS
On January 6, 1997 the Company signed a letter of intent to acquire the
business of Laminaire Corporation, located in Rahway, New Jersey, for $2,975,000
(payable $1,975,000 in cash and $1,000,000 in the form of a convertible note
payable). Laminaire is a manufacturer and distributor of cleanroom products and
also produces a variety of electronic circuit boards.
It has annual sales in excess of $6,000,000.
On March 21, 1997, the Company signed a letter of intent to acquire the
business and substantially all of the assets of AdvanTech Corporation
("AdvanTech") for $1,000,000, consisting of $650,000 in cash and a $350,000
note, plus the assumption of AdvanTech's recorded liabilities. The Note is
convertible, at the option of the holder, into shares of the Company's Common
Stock at a price per share of $.6875. AdvanTech, based in Fairfield, New Jersey,
installs environmental control systems and distributes a wide variety of
hardware and software products used in such systems.
Both proposed acquisitions are subject, among other things, to the
Company obtaining satisfactory financing. The Company has signed a term sheet
with a placement agent under which it has agreed to issue up to $3,500,000 of
convertible preferred stock to eligible investors. The offering will be
conducted on a "best efforts" basis. No assurances can be given that the Company
will be successful in its efforts to obtain financing. The Company has no
commitment or understanding with respect to any other financing.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.
Information set forth herein contains "forward-looking statements"
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The Company cautions readers that
important factors may affect the Company's actual results and could cause such
results to differ materially from forward-looking statements made by or on
behalf of the Company. Such factors include, but are not limited to, changing
market conditions, the impact of competitive products, pricing, acceptance of
the Company's products in development and other risks detailed herein and in
other filings that the Company makes with the Securities and Exchange
Commission.
General
The Company's operations are currently dominated by systems contracts
with customers in the pharmaceutical and chiller control industries.
Fluctuations in sales, revenues and operating results can and do occur because
of the timing of such contracts since certain larger contracts require greater
amounts of vendors' materials and use of subcontractors than do other contracts.
Generally, gross margins are lower on those contracts which require the purchase
of significant amounts of vendor materials and services compared with contracts
which are more engineering or labor intensive. In addition, the Company's
engineering staff is capable of serving a significant volume of business. Thus,
engineering costs do not fluctuate at the same rate as revenues. This means that
if revenues increase, gross profits will increase at a faster rate than revenue.
The reverse is true if revenues were to decrease below the breakeven point.
Because of the Company's historical emphasis on systems sales, a
substantial portion of its revenue is derived from a relatively few number of
contracts. In general, the Company has between 45 and 50 open contracts in a
fiscal quarter of which fewer than ten comprise more than 50 percent of revenues
for that quarter. This also means that a small number of customers make up a
large percentage of sales. For the nine-month period ended March 31, 1997, sales
to three customers comprised 48% of total sales (with individual customers
comprising 27%, 11%, and 10%, respectively, of total revenues).
The Company is implementing a strategy to reduce its dependence on
large contracts by increasing its focus on product sales and service. Its
product development efforts have resulted in the recent introduction of two new
products, and several others are under development. No assurance can be given
that the Company will be successful in these efforts. However, if these efforts
are successful, certain historical relationships between costs and revenues may
not be indicative of such relationships in the future.
<PAGE>
Results of Operations
Comparison of the Nine Months Ended March 31, 1997 and 1996
A comparison of operating results between the periods follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Caption 1997 % 1996 % Change %
Contract and
other revenues $ 1,488,818 $1,604,011 ($115,193) -7.2%
Cost of revenues 1,461,406 98.2% 1,030,524 64.2% 430,882 41.8%
Gross profit 27,412 1.8% 573,487 35.8% -546,075 -95.2%
Expenses
Personnel and
related costs 426,180 28.6% 181,046 11.3% 245,134 -95.2%
Administration
expenses 652,079 43.8% 204,504 12.7% 447,575 -95.2%
Product
development
costs 213,789 14.4% 137,908 8.6% 75,881 55.0%
Occupancy costs 25,697 1.8% 27,830 2.7% -2,133 -7.7%
Total Expenses 1,317,745 88.5% 551,288 34.4% 766,457 18.3%
Operating income -1,290,333 -86.7% 22,199 1.4% -1,312,532
Other-Net -430,405 -28.9% -12,873 -0.8% -443,278
Income before
income taxes -1,720,738 -115.6% 9,326 0.6% -1,730,064
Income Taxes-Net -13,002 -0.9% -5,246 -0.3% -18,248
Net Income ($1,733,740) -116.5% $14,572 0.9% ($1,748,312)
</TABLE>
The Company completed an initial public offering of its common stock
and warrants in March 1996. Thereafter, it commenced implementing a strategy
designed to make it a product and service, rather than a systems driven
business. This strategy required it to make a variety of investments in human
resources; management systems; marketing and product development which
negatively impacted earnings during the nine months ended March 31, 1997. The
investments included (i) expanding the Company's product and software
development capabilities, (ii) hiring new financial, engineering, sales and
marketing professionals, (iii) conducting an analysis of the Company's
marketplace, and (iv) acquiring the rights to certain new products which fit
well into the Company's overall strategy. Many of these investments were made
late in fiscal 1996 and resulted in an increase in operating expenses for the
nine months ended March 31, 1997.
The Company believed that it would begin to realize the benefits of
these investments during fiscal 1997. However, the nine months ended March 31,
1997 were adversely impacted by two sets of circumstances. First, certain of the
Company's principal customers significantly and unexpectedly reduced their
capital spending. These cutbacks resulted in the Company's actual volume of work
for the period being significantly below the level planned and was insufficient
to cover its overhead. The Company has increased it selling efforts and
augmented its marketing resources which has resulted in a significant increase
in its bidding and proposal activity. Although Management is confident about the
Company's prospects for being awarded certain of these proposed contracts, no
assurance can be given that it will be successful in
<PAGE>
this regard. Secondly, the Company introduced a new product in fiscal 1997 and
performed two major contracts which incorporated such product. The Company
required longer than expected to correct certain problems which arose in
connection with the operation of this new product which resulted in it incurring
a substantial loss during the period on one of these contracts and significantly
reduced margins on the other. Throughout this period the Company did not make a
meaningful penetration into the targeted Continuous Emission Monitoring business
or obtain significant contracts from new customers despite increased marketing
efforts.
In January 1997, the Company made reductions in its workforce to permit
it to approach breakeven at lower levels of sales activity. The Company also
believes that it has identified and corrected the problems associated with its
new product and that similar problems will not recur on future installations of
this product. Nevertheless, the Company is not receiving a sufficient quantity
of new orders to permit its core business to operate profitably.
The Company's strategy is to reduce its dependence on large contracts
by increasing its focus on product sales. No assurance can be given that the
Company will be successful in these efforts. The Company has also signed a
letter of intent to acquire Laminaire Corporation (see Note 7 to "Notes to
Condensed Financial Statements" and "Liquidity and Capital Resources" below).
Management believes that the acquisition of Laminaire, a product-driven
manufacturer and distributor of cleanroom products which also produces a variety
of electronic circuit boards and annual sales in excess of $6,000,000,
represents a critical element in its efforts to make this transition and
stabilize its financial condition The Company has also signed a letter of intent
to acquire AdvanTech Corporation, which operates in the same general area of the
controls industry as does the Company's core business. The Company believes that
the completion of these acquisitions will add management depth and provide a
sufficient volume of business to permit revenues from the control business to
increase, although there can be no assurance. The Company believes that its
technology will also complement the products and services of the two potential
acquirees. The acquisitions are subject to the Company obtaining satisfactory
financing.
If the Company is unable to complete the acquisition of Laminaire
Corporation, it will have to reassess its entire business strategy, including an
evaluation of the value of each asset and the overall viability of the niche in
the controls industry in which it operates, to determine the best way to
maximize shareholder value.
Operating expenses are not comparable between periods because the 1996
period includes the costs associated with. (i) expanding the Company's software
development capabilities, (ii) hiring new financial, engineering, sales and
marketing professionals, (iii) conducting a sophisticated analysis of the
Company's marketplace, (iv) acquiring the rights to certain new products which
fit well into the Company's overall strategy, and (v) additional marketing
expenses. In addition, the Company incurred costs associated with being a public
company, including additional insurance, professional fees, shareholder and
board of director costs. There were substantially no comparable costs incurred
in 1996. The Company also hired several new engineers and incurred the customary
time and costs associated with training.
Product development costs increased because the Company hired four
engineers who devote a significant portion of their time to developing or
enhancing software and other new products and enhancements to existing products.
In addition, significant development efforts were necessary to identify and
correct the problems encountered with a newly introduced product.
<PAGE>
In addition, operating results were significantly impacted by several
transactions which took place during the nine months ended March 31, 1997 and
related to the engagement of a financial public relations and acquisition
consultant, the issuance of nonqualified stock options and the cancellation of
the Underwriting Agreement with Nationwide. Management believes that each of
these expenditures and transactions had the potential to contribute positively
to future shareholder value, although no assurance thereof can be given. There
were no similar investments or transactions during the nine-month period ended
March 31, 1996 A detailed listing and description of these charges, which
include noncash items aggregating $227,921, is set forth in Note 3 to the
Condensed Financial Statements included elsewhere herein. Management does not
anticipate incurring similar charges in the future
The Company has established reserves for the entire benefit associated
with the unused income tax loss carryforwards because the Company must realize
income in the future to utilize such carryforwards.
Liquidity and Capital Resources
The Company completed an initial public offering of its common stock
and warrants in March 1996. The net proceeds therefrom ($3,114,500) have been
used, in part, to fund the Company's strategies and operating losses. Despite
its plans and efforts, the Company's operating losses have created a significant
impairment in the Company's liquidity and cash balances. In January 1997, the
Company concluded that it must reduce the level of cash drain resulting from
operating losses and, accordingly, reduced the level of its staff. These
employees will not be rehired or replaced until the level of sales justifies
doing so. However, operating losses have continued. If necessary, Management
intends to continue reducing costs and the scope of its operations until the
Company is operating at a breakeven point from a cash flow perspective, although
no assurances can be given that it will be successful.
At March 31, 1997, the Company's backlog was $935,500 compared with
$780,000 at June 30, 1996. The Company expects to complete substantially all of
the backlog within 12 months. The increased level of backlog is not sufficient
to permit a return to profitability because a substantial portion of such
backlog relates to material and subcontractor-provided work on which margins are
less than engineering-related work.
The Company's plans to become profitable are strongly dependent upon
its ability to complete two acquisitions,. The proposed acquirees will
accelerate the Company's transition to a products driven business and also
provide needed management and organizational depth for its traditional controls
business. At the same time, the Company anticipates that its technology will
provide added benefits and functionality to these acquirees' products and
services. All three entities will be consolidated into one facility if the
proposed acquisitions are completed.
On January 6, 1997 the Company signed a letter of intent to acquire the
business of Laminaire Corporation, located in Rahway, New Jersey, for $2,975,000
(payable $1,975,000 in cash and $1,000,000 in the form of a convertible note
payable). Laminaire is a manufacturer and distributor of cleanroom products and
also produces a variety of electronic circuit boards.
It has annual sales in excess of $6,000,000.
On March 21, 1997, the Company signed a letter of intent to acquire
<PAGE>
the business and substantially all of the assets of AdvanTech Corporation
("AdvanTech") for $1,000,000, consisting of $650,000 in cash and a $350,000
note, plus the assumption of AdvanTech's recorded liabilities. The Note is
convertible, at the option of the holder, into shares of the Company's Common
Stock at a price per share of $.6875. AdvanTech, based in Fairfield, New Jersey,
installs environmental control systems and distributes a wide variety of
hardware and software products used in such systems.
Both proposed acquisitions are subject, among other things, to the
Company obtaining satisfactory financing. The Company has signed a term sheet
with a placement agent under which it has agreed to issue up to $3,500,000 of
convertible preferred stock to eligible investors. The offering will be
conducted on a "best efforts" basis. No assurances can be given that the Company
will be successful in its efforts to obtain financing. The Company has no
commitment or understanding with respect to any other financing.
The Company is obligated for a $375,000 bank loan which is
collateralized by a certificate of deposit. Such loan bears interest at the rate
of 5.85 percent per annum and is due on June 1, 1997. T0he proceeds of this bank
loan were used to repay indebtedness due principally to trusts for family
members of Company officers. The bank loan is at a rate more favorable to the
Company than the loans which were repaid.
Seasonality
The demand for the Company's products is not seasonal. However, lengthy
stretches of inclement weather can create delays in the performance of some
systems contracts.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"), which encourages companies to account for
stock-based compensation programs and transactions on a fair value-based method,
as defined therein. If the fair value-based method is not adopted, SFAS No. 123
requires pro forma footnote disclosure of net operating results and earnings per
share as if the fair value-based method had been adopted. The Company issued
stock options for the first time during the three-month period ended September
30, 1996 (see "Notes to Condensed Financial Statements") and expects to account
for such options based on their intrinsic values with disclosure about the
impact of such options if they had been accounted for at fair value. Based on
information available to date, the Company does not expect the impact of
applying SFAS No. 123 to be material. SFAS No. 123 is effective for transactions
occurring after December 15, 1995.
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," changes the reporting requirements for earnings per share ("EPS") for
publicly traded companies by replacing primary EPS with basic EPS and modifying
the disclosures associated with this change. The Company is required to adopt
this standard in fiscal 1998 and is currently evaluating the impact thereof. It
believes that for the three and nine-month periods ended March 31, 1997 that
earnings per share would be substantially the same if the new standard had been
in effect during those periods. However, because of the existence of outstanding
options and warrants, there would be
<PAGE>
differences if the Company reports positive earnings and/or the Company's stock
price increases.
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
See Note 3 to the Condensed Financial Statements
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of
Shareholders
At its Annual Meeting of Shareholders held on December 12, 1996, the
shareholders voted on and approved (i) adoption of a stock option plan; (ii)
staggering the terms of members of the Board of Directors and (iii) the
recommended slate of Directors.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
On January 19, 1997, the Company filed a report on Form 8-K which
described the letter of intent to acquire Laminaire Corporation.
On April 5, 1997, the Company filed a report on Form 8-K which
described the letter of intent to acquire AdvanTech Corporation.
Both of these matters are disclosed in Note 7 to the interim condensed
financial statements filed as part of this report.
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THERMO-MIZER ENVIRONMENTAL CORP.
(Registrant)
/s/ Jon J. Darcy
JON J. DARCY
Jon J. Darcy
President, Chief Executive Officer
and Chief Financial Officer
Date: May 12, 1997
<PAGE>
steven\thermomi\039710q.509
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at March 31, 1997 and the Statement of Operations for
the nine months then ended and is qualified in its entirety by reference to such
financial statements and the noted therto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Mar-31-1997
<CASH> 692,116
<SECURITIES> 0
<RECEIVABLES> 686,786
<ALLOWANCES> 30,000
<INVENTORY> 355,042
<CURRENT-ASSETS> 2,317,052
<PP&E> 135,230
<DEPRECIATION> 38,124
<TOTAL-ASSETS> 2,797,557
<CURRENT-LIABILITIES> 801,159
<BONDS> 0
0
0
<COMMON> 2,311
<OTHER-SE> 1,996,398
<TOTAL-LIABILITY-AND-EQUITY> 2,797,557
<SALES> 0
<TOTAL-REVENUES> 1,488,818
<CGS> 1,461,406
<TOTAL-COSTS> 1,317,745
<OTHER-EXPENSES> 430,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,472)
<INCOME-PRETAX> (1,720,740)
<INCOME-TAX> 13,000
<INCOME-CONTINUING> (1,733,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,733,740)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
