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 Six Months Ended Commission File Number
December 31, 1996 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 |X|
No |_|
At January 31, 1997, the latest practicable date, there were 2,181,500 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
December 31, 1996 and June 30, 1996 3
Condensed Statements of Operations 5
for the six months ended
December 31, 1996 and 1995.
Condensed Statements of Operations 6 for the
three months ended December 31, 1996 and 1995.
Condensed Statements of Cash Flows 7
for the six months ended
December 31, 1996 and 1995
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 18
2
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 and JUNE 30, 1996
ASSETS
12/31/96 6/30/96
-------- -------
(Unaudited)
Current Assets:
Cash $1,029,060 $2,181,092
Other time deposits 375,000 375,000
Contracts receivable-net of allowance
of $25,000 and $15,000 668,029 790,451
Inventories 325,116 315,452
Unbilled receivables 144,369 254,838
Prepaid expenses and other 128,696 189,240
---------- ----------
Total Current Assets 2,670,270 4,106,073
Property and Equipment - net 182,449 100,404
Other Assets 268,185 45,867
---------- ----------
Total Assets $3,120,904 $4,252,344
========== ==========
See Notes to Condensed Financial Statements.
3
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
12/31/96 6/30/96
(Unaudited)
Current Liabilities:
Note payable - bank $ 375,000 $ 375,000
Accounts payable - trade 235,397 260,092
Billings in excess of costs 11,129
Accrued expenses and other 142,074 68,714
----------- -----------
Total Current Liabilities 763,600 703,806
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.001 par value,
25,000,000 shares authorized; 2,181,500
and 1,896,500 shares issued and
outstanding 2,181 1,896
Additional paid-in capital 3,569,466 3,243,151
Retained earnings (deficit) (1,054,343) 303,491
Less - Note receivable (160,000)
----------- -----------
Total Stockholders' Equity 2,357,304 3,548,538
----------- -----------
Stockholders' Equity-net $ 3,120,904 $ 4,252,344
=========== ===========
See Notes to Condensed Financial Statements.
4
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995.
(UNAUDITED)
1996 1995
---- ----
Contract and other revenues $ 961,000 $ 1,177,927
Cost of revenues 1,043,297 697,661
----------- -----------
Gross profit (loss) (82,297) 480,266
----------- -----------
Operating expenses:
Personnel and related costs 295,234 121,505
Selling and administrative expenses 431,777 107,876
Occupancy costs 15,749 16,991
Product development costs 125,246 95,734
----------- -----------
Total operating expenses 868,000 342,106
----------- -----------
Operating income (loss) (950,297) 138,160
Interest income (expense) 36,794 (14,608)
Nonoperating costs (444,331)
----------- -----------
Income (loss) before income taxes (1,357,834) 123,552
Income taxes - net 34,046
----------- -----------
Net income (loss) $(1,357,834) $ 89,506
=========== ===========
Earnings (loss) per share $ (.69) $ .08
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 1,974,532 1,125,000
=========== ===========
See Notes to Condensed Financial Statements.
5
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
(UNAUDITED)
1996 1995
---- ----
Contract and other revenues $ 472,390 $ 698,700
Cost of revenues 563,164 380,759
----------- -----------
Gross profit (loss) (90,774) 317,941
----------- -----------
Operating expenses:
Personnel and related costs 156,656 60,596
Selling and administrative expenses 234,767 54,302
Occupancy costs 15,743 16,991
Product development costs 51,010 69,384
----------- -----------
Total operating expenses 458,176 201,273
----------- -----------
Operating income (loss) (548,950) 116,668
Interest income (expense) 15,277 (7,778)
----------- -----------
Income (loss) before income taxes (533,673) 108,890
Income taxes - net 33,521
----------- -----------
Net income (loss) $ (533,673) $ 75,369
=========== ===========
Earnings (loss) per share $ (.26) $ .07
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 2,051,500 1,125,000
=========== ===========
See Notes to Condensed Financial Statements.
6
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED DECEMBER 31, 1996 AND 1995.
(UNAUDITED)
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $(1,357,834) $ 89,506
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Write-off of consulting agreement 95,000
Nonrecurring charges 104,375
Depreciation and amortization 16,987 7,314
(Increase) Decrease in net
operating assets 15,621 (73,645)
----------- -----------
Net cash provided by (used in)
operating activities (1,125,851) 23,175
----------- -----------
Cash flows (used in )investing activities:
Loan to APC (93,750)
Purchase of property and equipment (99,031) (13,131)
----------- -----------
Total (192,781) (13,131)
----------- -----------
Cash flows from (used in) financing activities:
Payments on debt (212,519)
Proceeds from debt 300,000
Deferred offering costs (91,478)
Sale of stock and warrants 166,600
----------- -----------
Net cash provided by (used in)
financing activities 166,600 (3,997)
----------- -----------
Net increase (decrease) in cash (1,152,032) 6,047
Cash and cash equivalents - beginning 2,181,092 59,313
----------- -----------
Cash and cash equivalents - ending $ 1,029,060 $ 65,360
=========== ===========
See Notes to Condensed Financial Statements.
7
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Additional Retained Note Total
Stock Paid-in Earnings Receivable
Capital (Deficit)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $ 1,896 $ 3,243,151 $ 303,491 $ 3,548,538
Issuances of common
stock and warrants 285 326,315 $ (160,000) 166,600
Net loss (1,357,834) (1,357,834)
----------- ----------- ----------- ----------- -----------
Balance, December 31,
1996 $ 2,181 $ 3,569,466 $(1,054,343) $ (160,000) $ 2,357,304
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying condensed interim financial statements for the six-month
periods ended December 31, 1996 and 1995 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 December 31, 1996 include retainages of $126,323,
substantially all of which is expected to be collected within 12 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.
9
<PAGE>
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.
Product Development Cost
Product development costs are charged to operations as incurred. During the
six-month period ended December 31, 1996, such charges include the cost of
engineering labor and overhead. All charges during the six-month period ended
December 31, 1995 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. 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 December 31, 1996 are
maintained with one bank. Such balances exceed the amount covered by the Bank's
depository insurance for individual depositors.
Reclassification
Certain accounts from 1995 have been reclassified to conform with the 1996
presentation.
NOTE 3--SIGNIFICANT NONRECURRING TRANSACTIONS
Nonrecurring transactions consist of:
Solay agreement $ 244,375
Write-off of Nationwide consulting agreement 95,000
Postemployment cost 40,000
Professional fees associated with transactions 67,510
Other (2,554)
---------
Total $ 444,331
=========
10
<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 entitles 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 are
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. The Class B
Warrants are not listed on any exchange and are, therefore, not readily
transferable.
Solay is entitled to exercise options for up to 300,000 units, of which it
exercised such option for 260,000 such units, 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 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 six-month period ended December 30, 1996.
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.
For financial reporting purposes, the Company has 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 six-month period ended December 31, 1996.
The transactions above 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. The issuance of the
options described above results in the exercise price of the Redeemable Warrants
being reduced from $6.00 to $4.01. In addition, each Redeemable Warrant, as
adjusted, will entitle the holder thereof to purchase 1.5 shares of Common Stock
at the adjusted purchase price of $4.01 per share, thereby increasing the number
of shares reserved for issuance in connection with the possible exercise of the
Redeemable Warrants to 2,587,500 from 1,725,000.
11
<PAGE>
Postemployment Benefits
The Company agreed to purchase an annuity for an officer who retired
during the six-month period ended December 31, 1996, the cost of which ($40,000)
was charged to operations.
NOTE 4--OTHER SIGNIFICANT TRANSACTIONS
American Process Control, Inc. Agreement
In August 1996, the Company made a noninterest-bearing loan of $93,750
(which is included in the Balance Sheet caption "Other Assets") to American
Process Control, Inc. ("APC"), the proceeds from which will be 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
December 15, 1996 and may be extended for a period of up to 90 days provided
that APC is making satisfactory progress on the development of a working model
of the Product. If APC successfully completes development of the Product as of
the final maturity date of the loan, the Company will receive 45% of APC's
common stock in full satisfaction of such loan and will also receive 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 will sell the Product to the Company at a price equivalent to 120%
of APC's manufacturing costs. If APC fails to complete a working copy of the
Product as of the final maturity date of the loan, the Company may seek recovery
of all amounts due thereunder. As of December 31, 1996, the Company believes
that satisfactory progress has been made and, therefore, has agreed to an
extension in the maturity date of the note.
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 $
6,720 of the Enersave cost through December 31, 1996.
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.
NOTE 5--INCOME TAXES
The Company has established reserves for the entire benefit associated
with the unused Federal income tax loss carryforwards.
12
<PAGE>
NOTE 6 --OPTIONS AND WARRANTS
The following table summarizes the total number of options and warrants
outstanding at December 31, 1996.
- --------------------------------------------------------------------------------
Description Options/Warrants Shares Reserved Range of Exercise
Outstanding for Issuance(1) Prices Per Share
- --------------------------------------------------------------------------------
Balance, July 1, 1,950,000 2,887,500 $4.01 to $8.25
1996
Solay Warrants 1,390,000 1,390,000 $1 to $3
Other Warrants 540,000 540,000 $1.16 to $3
Stock Options (2) 314,000 500,000 $1
--------- ---------
Balance, December 31, 1996 4,194,000 5,317,500 $1 to $8.25
========= =========
(1) Gives effect to the impact of all antidilution clauses included in the
related agreements.
NOTE 7--SUBSEQUENT EVENT
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). The acquisition is subject, among other things, to the Company
obtaining satisfactory financing. 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. Costs aggregating $35,289 associated
with this proposed transaction are included in the Balance Sheet caption "Other
Assets" at December 31, 1996.
13
<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 six-month period ended December 31, 1996,
sales to three customers comprised 48% of total sales (with individual customers
comprising 21%, 14%, and 13%, respectively, of total revenues).
In the year ended June 30, 1995, three customers accounted for 51% of
total revenue. All three customers were major pharmaceutical companies. For the
six-month period ended December 31, 1996, the two largest customers were
commercial-related. Margins on commercial work in the HVAC market have been
substantially below expectations. Due to a severe downturn in work related to
pharmaceutical clean room manufacturing facilities with the Company's previous
customers, the Company has had to shift it's attention to the broad commercial
market. The Company's inability in the short term to replace contracts related
to pharmaceutical clean room manufacturing facilities has resulted in lowered
sales and margins.
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.
14
<PAGE>
Results of Operations
Comparison of the Six Months Ended December 31, 1996 and 1995
A comparison of operating results between the periods follows:
<TABLE>
Caption 1996 % 1995 % Change %
<S> <C> <C> <C> <C> <C> <C>
Contract and other revenues $ 961,000 100% $1,177,927 100% $ (216,927) -18%
Cost of revenues 1,043,297 -109% 697,661 59% 345,636 50%
Gross profit (82,297) -9% 480,266 41% (562,563) -117%
Expenses:
Personnel and related costs 295,234 -31% 121,505 10% 173,729 143%
Selling and Administration expenses 431,771 -45% 107,876 9% 323,895 300%
Product development 125,246 -13% 95,734 8% 29,512 31%
Occupancy costs 15,749 -2% 16,991 1% (1,242) -7%
Total expenses 868,000 -90% 342,106 29% 525,894 154%
Operating income (loss) (950,297) -99% 138,160 12% (1,088,457) -788%
Interest (net) 36,797 4% (14,608) -1% 51,405 -352%
Non-recurring expense 444,331 -46% -- 444,331
Income (loss) before income taxes (1,357,831) -141% 123,552 10% (1,481,383)
Income tax (benefits) -- 34,046 3% (34,046)
Net income (loss) $(1,357,831) -141% $ 89,506 8% $(1,447,337)
</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 and product development which negatively impacted
earnings during the six months ended December 31, 1996. The investments included
(i) expanding the Company's product and software development capabilities, (ii)
hiring new financial, engineering, sales and marketing professionals, (iii)
conducting a sophisticated 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 six months ended December
31, 1996.
The Company believed that it would begin to realize the benefits of these
investments during fiscal 1997. However, the six months ended December 31, 1996
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 optimistic about
the Company's prospects for being awarded certain of these proposed contracts,
no assurance can be given that it will be successful in this regard. In January
1997, the Company made several reductions in its workforce to permit it to
approach breakeven at lower levels of sales activity. Secondly, the Company
introduced new products in 1996 and performed a major contract which
incorporated one such product. The Company required longer than expected to
correct certain problems which arose in connection with the operation in this
new product which resulted in it incurring a substantial loss during the period
on a major contract. Management believes that this was an isolated situation and
that the problem has been corrected. It is quite typical to experience problems
when new products are introduced. In this case the impact of the problem was
greater than would normally be the case because of the simultaneous decrease in
overall sales activities. The Company believes that it has "debugged" this new
product, which is important to its future, and that similar problems should not
recur on future installations.
15
<PAGE>
The Company is implementing a strategy to reduce its dependence on large
contracts by increasing its focus on products sales. Its product development
efforts have resulted in the recent introduction of two new products, and
several other products are under development. 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, will
accelerate its transition.
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, and (iv) acquiring the rights to certain new products
which fit well into the Company's overall strategy. 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 1995. 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.
The costs referred to above were incurred, by necessity, in advance of
realizing benefits therefrom. The new resources have permitted the Company to
increase its product development efforts, develop advertising and promotional
materials, participate in important industry tradeshows and increase its
proposal activities. The Company believes that the benefits from these efforts
will commence in the middle of 1997, although no assurance thereof can be given.
In addition, operating results were significantly impacted by several
transactions which took place during the six months ended December 31, 1996 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 six-month period ended
December 31, 1995 A detailed listing and description of these charges, which
include noncash items aggregating $199,375, is set forth in Note 3 to the
Condensed Financial Statements included elsewhere herein. Management does not
anticipate incurring similar charges in the future.
Interest-net consists of interest income on time deposits less interest
expense incurred on a $375,000 note payable to a bank.
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. In January 1997,
the Company decided that it must reduce the level of negative cash flow
resulting from operating losses and, accordingly, reduced the level of its
staff. These employees will not
16
<PAGE>
be rehired or replaced until justified by the level of sales. If necessary,
Management intends to continue reducing overhead costs until the Company is
operating at a breakeven point from a cash flow perspective although there can
be no assurance that break even from operations can be achieved. At December 31,
1996, the Company's backlog was $730,569 compared with $780,029 at June 30,
1996. The Company expects to complete substantially all of the backlog within 12
months. The decrease in the backlog resulted from the completion of certain
contracts without being awarded or winning new contracts of comparable amount.
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). The acquisition is subject, among other things, to the Company
obtaining satisfactory financing. The Company is actively seeking the financing
necessary to complete this transaction.
The Company is obligated for a $375,000 bank loan dated March 8, 1996
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 April 1, 1997. The 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.
17
<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 which is also
described in Note 7 to the interim condensed financial statements filed as part
of this report.
18
<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)
JON J. DARCY
-----------------------
Jon J. Darcy
President, Chief Executive Officer and
Chief Financial Officer
Date: February 10, 1997
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at June 30, 1996 and the Statement of Operations for the
fiscal year then ended and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,404,060
<SECURITIES> 0
<RECEIVABLES> 693,029
<ALLOWANCES> 25,000
<INVENTORY> 325,116
<CURRENT-ASSETS> 2,670,270
<PP&E> 542,048
<DEPRECIATION> 359,599
<TOTAL-ASSETS> 3,120,904
<CURRENT-LIABILITIES> 763,600
<BONDS> 0
0
0
<COMMON> 2,181
<OTHER-SE> 2,355,123
<TOTAL-LIABILITY-AND-EQUITY> 3,120,904
<SALES> 0
<TOTAL-REVENUES> 961,000
<CGS> 0
<TOTAL-COSTS> 1,043,247
<OTHER-EXPENSES> 868,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,794
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,357,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,357,834)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)
</TABLE>
