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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
THERMALTEC INTERNATIONAL, CORP.
(Name of small business issuer in its charter)
Delaware 11-7255619
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
68A Lamar Street, W. Babylon, New York 11704
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (631) 643 - 2285
Securities to be registered under Section 12(b) of the Act:
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----------------------------------- --------------------------------
Securities to be registered under 12(g) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Shares par value $.OO1 OTC:BB
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(Title of Class)
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(Title of Class)
POTENTIAL PER5ONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED
IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY
VALID 0MB CONTROL NUMBER.
Total Number of Pages ______
Exhibit List - Page _____
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THERMALTEC INTERNATIONAL, CORP.
TABLE OF CONTENTS
Description of Business......................................................3
Management Discussion & Analysis or Plan of Operation.......................13
Principal Shareholders......................................................18
Management..................................................................19
Certain Transactions........................................................20
Description of Securities...................................................21
Dividend Policy.............................................................22
Stock Transfer Agent........................................................23
Legal Matters...............................................................23
Index to Financial Statements..............................................F-1
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DESCRIPTION OF BUSINESS
General
Thermaltec International was incorporated in November, 1994 under the laws
of the State of Delaware. It is engaged in the thermal spray coating industry
and its primary business objective to establish and support thermal spray
coating shops throughout Latin America. The company is filing this Form 10-SB to
be relisted on the OTC:BB. The company was delisted on April 19, 2000 for
failure to file a timely Form 10-SB. The inability to timely file was the result
of the company's prior merger activity where it was engaged in an S4
Registration which precluded a Form 10-SB filing. That prior merger was
unsuccessful and ended on December 15, 1999.
Thermal spraying is a technology used by Thermaltec International to coat a
substrate (surface) with various materials such as metals, alloys, carbides,
ceramics, and some plastics. The coating material utilized depends upon the
requirements of each specific application.
The coatings utilized by Thermaltec International are produced from
materials in the form of either wire or powder. The material is melted in a
flame or heat source, and projected onto a substrate by a mixture of air
flammable gases to form the coating. The air, flammable gases and coating are
brought together in a flame in the nozzle of the gun where the coating is melted
and sprayed forward onto the surface to be coated. The gases and molten coating
are cooled by the surface and the coating adheres to the surface.
Thermal spray coating technology can be utilized in any situation in which
metal surfaces are worn from use or exposed to erosion or corrosion. A few of
the most common applications include the rebuilding of mechanical parts, the
protection of pipes (inside and outside) from corrosion, and the repair of
crankshafts, turbine blades and pumps.
Thermal spraying is a generic term used to describe a number of different
technologies. Each sub-technology shares a common element in that molten or
semi-molten metal particles are propelled onto a substrate where they adhere to
form a coating. Each sub-technology involves trade-offs among coating quality,
deposition rates, and cost. Each of the thermal spray technologies is discussed
in greater detail below. Thermal spray technology is a subset of materials
science and surface coating engineering. Using thermal spray, technicians can
apply a thick or thin metal or ceramic coating on top of a
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metal substrate. The coating is bonded strongly to the substrate, because the
process projects molten particles onto the targeted surface at high - sometimes
hypersonic - velocities. The coatings are thus applied with a combination of
thermal and kinetic energies.
Since it is usually only the exposed surface of parts that are subjected to
stresses such as wear, erosion, or corrosion, it is possible using this
technology to economically protect such surfaces. The required protection can be
provided with thin coatings, using relatively little material. As a result, high
performance coatings and even exotic materials can be utilized at limited cost.
The process is technically accepted in the technologically advanced
societies such as Western Europe, and Japan based on Mr. Mazzone's experience in
the industry in terms of knowing the volume of sales in each of these areas.
$400 to $500 million in contract shop sales in North America, $600-$700 million
in Europe and $150-$200 million in Japan. These sales have been repeated for
over 30 years and have increased at a compound growth rate of approximately 6%
per year during that time. The company considers this proof of the viability of
the technology in those areas also the American Welding Society (AWS) publishes
specifications for this industry plus sponsors trade shows for the thermal spray
industry.
On the other hand, estimated sales in all Central America would be
$1,200,000 and in South America proper the sales would be estimated at
$45,000,000. Again, this is based upon Mr. Mazzone's access to industry studies
such as the Gorham Report, a publication issued about the thermal spray industry
published every four years.
Company Specific
We develop our business primarily by training a sales force of mechanical
or metallurgical engineers, and have them call on leading industrial companies
in the countries where its thermal spray shops are located. At the present time,
Costa Rica is the company's main prototype installation, New York is a smaller
prototype. In Costa Rica, Thermaltec International does business with over 300
customers. A typical method of operation would have an engineer call on a
customer who uses industrial machinery. Industrial equipment is subject to wear.
Thermaltec International's engineers would assess the wear problem, and
recommend a thermal spray solution. If needed, the worn part would be taken out
of service, and shipped to the thermal spray shop. A coating designed to solve
the problem would be applied, and then the part would be ground or machined to
original specification and returned to the customer. Often a 24 hour turnaround
can be achieved. We maintain a full complement of coating devices, and metal
working finishing equipment.
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The use of this service is valuable to third world industries because: (1) the
repair is generally cheaper than the cost of a new part, and the turnaround of
the refurbished part is much quicker than reordering a new one. (2) Downtime of
the customers' equipment is minimized. (3) The inventory of customers' spare
replacement parts can be minimized by the accessibility to the thermal spray
process. Pricing usually targets at 40% to 50% the cost of buying a new part.
Prices above and below that target are influenced by need for quick turnaround.
The company operates in two locations. The New York location has a full
complement of spray equipment, but very little machining and finishing
equipment. Thus a full demonstration in the New York location of the complete
thermal spray process is not as effective as in Costa Rica. In Costa Rica, a
true prototype demonstrating all facets of the process from spraying and machine
finishing is in place. Also, there are more trained personnel from sales,
engineering and administrative all of whom are Costa Rican citizens. This, the
Costa Rican "Prototype" is a good analog of what to expect in all phases of
thermal spraying than in the New York location.
It is our intent to continue to build its Costa Rican location into the
largest shop of its kind in Central America. We estimate that we will attain our
goal within this year. It is anticipated that the Costa Rican operation will be
profitable when it reaches a steady state sales figure of $250,000 U.S.
The assertion that we will be the largest coating shop of its kind in
Central America is already true in the physical sense. Our salesmen and
distributors have not located any shop in Central America with more thermal
spray equipment plus the optimum amount of finishing equipment to balance the
amount of coating equipment in order to have balanced physical production; than
the company has in Costa Rica. We cannot verify the sales or profitability of
other shops. But we conjecture that those smaller shops that are over 10 years
old may have larger sales with less equipment and may have larger profits. This
could happen if they have significant repeat business in certain areas such as
printing and paper rolls. The company does not have significant repeat business
in these areas at this time. Our time table of 12 months is counted from the
date of filing the Form 10-SB.
Planned Merger:
On the following dates, the company entered into nonbonding Letters of
Intent with the following companies to explore the possibility of acquisitions:
Edge Management, Inc. - 1/29/00
High Velocity Technology - 2/3/00
Viaplex Communications, Inc. - 2/4/00
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As of the present time, the company has ended negotiations with Edge
Management and announced termination of any proposed business combination. We
did so on the belief that the financial problems at Edge Management were too
large for Thermaltec to manage. The company has also decided after due diligence
not to acquire Viaplex Communications, but will engage Viaplex to do Internet
programming for the company. The company did acquire High Velocity Technology,
Inc. on May 19, 2000.
High Velocity is a manufacturer of thermal spray equipment and a
distributor of thermal spray supplies. As such, it is part of the thermal spray
business that supplies coating service shops such as the one in Costa Rica. The
company believes that its location in Costa Rica can serve as a launching pad
for promoting equipment and supplies in addition to promoting its concept of
thermal spray shops. In effect, the company can sell a prospective thermal spray
shop owner high velocity equipment and supplies along with its own coating
service expertise. The company now has more tools to promote its overseas shop
concept as previously described.
In addition, the company hopes to promote the high velocity equipment
technology to companies in the United States and Europe as a separate profit
center.
On December 11, 1998 -Thermaltec International, Corp. announced that it had
entered into a Letter of Intent with Solar Communications Group, Inc. (SCG) of
Millville, NJ for the merger of Solar Communications into TTI. The specific
details of the merger and its timing were released by SCG on Monday, Dec. 14. It
had been anticipated that, at the effective time of the merger, the shareholders
of Solar Communications would receive 67,500,000 shares of the common stock of
TTI representing approximately 96% of the outstanding shares of TTI common
stock.
Solar Communications and Camanco are the same entity. The confusion arose
because during the preceeding (S-4) filing, Solar was notified by an outside
company that its name violated a Trade Mark. Solar was then forced to change its
name. Camanco was a corporation owned by the principal in Solar, James Rossi,
who opted to use Camanco.
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Prior to the merger, TTI would take all necessary steps to transfer all of its
assets, ongoing business activities and liabilities to Panama Industries, Ltd. A
wholly owned subsidiary of TTI except for a minimal amount of cash and certain
net operating loss tax carry forwards. After the merger, TTI would conduct the
business formerly conducted by SCG, in the name of panama Industries, Ltd. The
stockholders of TTI (as of the date of May 28, 1999) would receive one share of
Panama Industries, Ltd. in addition to each share held in TTI.
Consummation of the merger would have been subject to a number of
conditions, including without limitation the completion of customary due
diligence, the receipt of all necessary governmental, regulatory, shareholder
and third party approvals, and the registration of the shares of TTI common
stock pursuant to a registration statement filed under Form S-4 of the
Securities Act of 1933, as amended, to be issued in conjunction with the merger
and all appropriate state regulatory authorities.
SCG, which is privately owned, was formed in 1996 to provide quality
communications alternatives to the business community. TTI is a metallurgical
engineering company specializing in the development of new solutions for the
prevention of surface wear on industrial equipment.
On December 13, 1999 TTI received notice from the Securities and Exchange
Commission that it would be obligated to register the shares of its Panama
Industries, Ltd. (Panama) spin off under the Securities Act of 1933. The Panama
spin off would have resulted from the proposed merger of TTI and Camanco
Communications, Inc. (formerly Solar Communications, Inc.). On December 9, 1999,
TTI requested that Camanco grant it a 45 day extension from December 31, 1999 to
February 15, 2000 to enable TTI to register the Panama shares.
Although TTI could not be assured that the registration would be completed
by February 15, 2000, since most of the information for Panama registration was
available as part of the TTI/Camanco merger process, TTI felt that this was a
reasonable expectation. TTI agrees that both parties put in a strong effort to
complete this merger, for its part TTI wanted to continue and complete the
merger process. As Camanco indicated in their press release of December 13,
1999, they exercised their right to terminate on December 31, 1999. TTI strongly
regrets that Camanco did not grant the requested extension.
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Specific Technologies of Thermal Spraying
Wire Flame Spraying
Coating material in wire form is fed into an oxygen-fuel gas combustion
flame, melted, and then atomized and projected by compressed air onto a prepared
substrate (the object to be sprayed upon). This is the oldest of the thermal
spray processes used in industry today. This process, because of the inherent
nature of the gases used, achieves a relatively low velocity flame with a
temperature maximum of 5500 (degrees) F. The process is simple to use and is
employed heavily in industry for rebuilding lightly worn surfaces, anticorrosion
and mild wear resistant application.
Powder Flame Spraying
Coating material in powder form is fed into an oxygen-fuel combustion
flame, melted, and projected by the gas stream onto a prepared substrate. The
key difference between this and wire flame spraying is that the coating material
is a powder; the powder form lends itself to a greater variety of formulations.
Electric Arc Spraying
Coating material in wire form is electrically charged when two wires are
brought together and an arc is struck between them. Compressed air atomizes the
molten material and projects it onto a prepared substrate. This process allows
for higher deposition rates, and higher quality coatings than traditional flame
spraying.
Plasma Spraying
Coating material in powder form is fed into a heat source created by using
a high intensity electric arc, which disassociates and ionizes into a plasma
gas, either of hydrogen or nitrogen. The plasma gas is used as a carrier to
transfer the heat available in the arc to the particles of material being
sprayed. The melted particles are projected at high velocity by the plasma gas
stream onto a prepared substrate. The plasma process was developed in the late
1950's and was a technological development that allowed tremendous growth in the
thermal coatings industry. Because of the high temperatures involved, virtually
any material can be sprayed, and the high temperatures produce good coatings.
Plasma spraying is currently utilized by industry and in particular, the
aerospace industry where total sales are over $1,000,000,000 worldwide.
HVOF (High Velocity Oxygen/Fuel)-- HVAF (High Velocity Air/Kerosene)
Coating material is fed into a mini rocket chamber and mixed with either
air and kerosene (HVAF) or oxygen and propane (HVOF). A high velocity combustion
flame, melts, and then projects the material
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onto a prepared substrate. This process was developed in the mid-1980's and is
the latest development in thermal spray technology. The extremely high particle
velocity (4000' per second) achieved in this process causes the particles to
flatten upon impact with the substrate, resulting in high density, high bond
strength coatings that are essentially stress free and of very low porosity.
The Company uses all of these technologies in its operation.
Industries Using Thermal Sprayed Coatings
Industry Key Applications
-------- ----------------
Chemical Processing Solving corrosion problems in processing equipment.
Textiles Used on mill components such as guides and pins.
Medical/Dental Titanium and hydroxyapatite coatings on medical and
dental implants to prolong life and reliability.
Iron and Steel making Rolls, conveyors, thermal barriers.
Electronics Dielectric coatings and coatings on recording heads
to improve quality and prolong life.
Agricultural A wide variety of erosion and corrosion resistant
coatings for machine parts.
Aerospace Wear resistant and thermal barrier coatings for the
operating parts of turbojet engines.
Automotive Wear resistant coatings for cylinders and
transmission parts. Corrosion resistant coatings,
oxygen sensor coatings to regulate fuel air flow.
Railroad Traction motors.
There are over 4,000 different industrial applications for thermal
coatings.
Some Other Industrial Uses Are Found In:
The Petrochemical industries, pumps, paper and pulp manufacturing, power
plants, electric motor repair, food handling, and diesel engines.
Plan of Expansion Overseas
The company does not plan to expand its business until its Costa Rican
facility is profitable. This is expected to take one year from todays date. It
is the intention to staff and support Latin American expansion through Costa
Rica. Engineers, accountants, and marketing support will come from Costa Rica.
It is important that the Costa Rican operation be a model site in equipment,
technology, and
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marketing, and administration in order to serve as a demonstration site to
prospective customers. The company cannot guarantee that it will reach this
state, because it may not raise adequate monies to fund the operation in the
required way.
The company is optimistic that its profitability target will be met
somewhere within the next 12 months. The first reason was the appointing of a
new general manager from the U.S. to overseas operations on a daily basis. Prior
to this the company managed its Costa Rican operation at long distance and with
an inability to provide strong management because of a lack of money, and
distractions of a merger. All practices and personnel not consistent with
profitability were terminated. The company has reduced the costs of running of
the Costa Rican company to $12,000 per month. The company needs $15,000 per
month of sales to breakeven. Last year the sales were over $15,000 per month,
but the cost was $17,000 a month. After the reorganization this year, sales
slowed to below the new cost level of $10,000, but orders are now picking up to
a rate of $14,000 to $6,000 per month. We have every reason to expect, but could
not prove at this time that orders will rise and level off to $20,000 per month
before the next 12 months are completed.
In the opinion of the company's management, there is a substantial need for
thermal spray technology in developing countries. Such countries typically lack
a developed industrial infrastructure, and due to economic considerations,
equipment is used for relatively extended periods of time, and needs to be
refurbished from time to time. South American, Asian, and other developing areas
are best suited for the company's stand-alone thermal spray shop concept.
When and if the company is in a positive cash position to expand its
operation in Latin America, the preferred method of expansion will be to
purchase a small but active machine or metal working shop in a key industrial
city. The company will then have a base of established local customers to
promote to when introducing thermal spraying. The company would deploy thermal
spraying by means of a "Drop Ship" containerized system, allowing instant
capability to thermal spray for new customers. The company would send personnel
from its Costa Rican facility to assist the launching of the thermal spraying
process at a new facility. The method of operation would be identical with that
of the Costa Rican pilot plant from that point on. The estimate for the purchase
of an existing shop, and adding a thermal spraying capability to it would be
approximately $250,000 per location. There can be no assurance that the Costa
Rican pilot plant would reach a status that would induce a prospective machine
shop owner to sell to the company on favorable terms. There can be no assurance
that the requisite financing for funding new locations will be available to the
company, and if so, on terms that would allow the company to make a profit. The
company does not intend to start these proposed shops from the ground up as it
did in Costa Rica. It did so in Costa Rica to gain experience in all areas of
the business in order to select the optimum method of expansion.
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Competition:
We may experience competition from a few different sources. First, the
traditional manufacturers of thermal spray equipment and supplies i.e. Sulzer
Metco, Westbury, NY, Eutectic Corporation, Flushing, NY, and Praxair Inc.,
Danbury, Connecticut, etc. Although primarily engaged in selling equipment and
supplies, the users of the thermal spray processes may ultimately shift their
strategy to become prime users also of the process.
In further characterizing the competition in thermal spraying, the two
largest original equipment manufacturers in the United States are Sulzer Metco
and Praxair. Between them they control over 65% of the market share in the U.S.
Their combined sales in the U.S. are estimated at over $160 million. The company
even with its acquisition of High Velocity Technology will only obtain at best a
$1.5 million estimated sales in the next 12 months or less than 1% of the market
share. The contract shop business is estimated at $800,000,000 per year with
over 200 companies competing in that market. The company would estimate that its
revenues would not exceed $400,000 in sales in the next 12 months, or less than
1% of the contract shop market.
In the Costa Rican market the competition for original equipment is
Eutectic Corporation of Flushing, NY. It is expected that they will sell $50,000
worth of equipment and supplies in Costa Rica. The company does not intend to
sell any original equipment in Costa Rica for reasons of not wanting to create
new contract shop competitors. In the contract shop side of the business the
company believes that combined competitive work does not exceed $100,000 per
year. Therefore, we estimate that the company has about 60% of the current
thermal spray business in Costa Rica.
Economic trends have caused the manufacturers of equipment and supplies to
lose profits to the contractors of the thermal spray process, who, in turn, use
such equipment and supplies to apply a coatings service for their customers.
Thermaltec International is a contractor. Competition also comes from
alternative coating processes such as brazing and welding. The competitors cited
are significantly larger than the company, in both money and technical
resources. Therefore, as a defensive strategy the company operates in niche
markets not currently attractive to larger competitors.
Customers
For the year ended September 30, 1999 one customer in the corrosion-protection
field accounted for 39% of the Company's sales and 63% of its accounts
receivable. During the nine months ended June 30, 2000 another customer, the New
York State Energy Research and Development Authority (NYSERDA)
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accounted for 23% of Company sales and 26% of accounts receivable. In order that
the Company may reduce reliance on a small number of customers, it has not
actively pursued additional work in the large-ticket corrosion-protection field,
instead placing its emphasis on broadening its customer base in the United
States by acquiring High Velocity Technology. The addition of that firm to the
Company's structure will significantly reduce reliance upon any small list of
relatively large customers that the Company may have had in the past. The
Company may perform additional work for NYSERDA in the future, but it intends to
emphasize the expansion of the High Velocity Technology franchise as its first
priority.
Intellectual Property
We have not applied for any patents, trademarks or license as of this time.
The Company is not engaged and has not engaged in Research and Development
activities.
Suppliers to the Company:
We anticipate obtaining most of its equipment and coating materials from
several separate sources. The loss of any supplier will not have a long term
adverse affect on our operations.
Employees:
At present, we have 18 employees, of whom 16 are full-time. Andrew Mazzone,
the Company's President, Secretary and Treasurer/Director, and the chairman of
the company has an unwritten arrangement to conduct our affairs at minimal
compensation for at least one more year.
Facilities:
We presently maintain two locations as stated below. We have other area
locations in mind for the future, but have not targeted any other specific
location.
USA
Our executive offices and shop are located at 68A Lamar Street, W. Babylon,
NY 11704. Such space consists of 2,000 Sq. Ft. of which 300 Sq. Ft. are devoted
to office and 1,700 Sq. Ft. are devoted to the spray shop. The company has just
signed a one year lease. The term is July 1, 2000 to June 20, 2001. The monthly
amount is $1,100.
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San Jose, Costa Rica
We maintain a wholly owned subsidiary, Thermaltec de Costa Rica, Pavas at
75 Oeste del Liceo, Antiqua Fab Rosago, Ultima bodega, San Jose, Costa Rica,
Telephone 011-506-290-7591. The facility is 8,000 Sq. Ft. with 900 Sq. Ft. set
aside for offices and 7,1000 Sq. Ft. is dedicated to spray and machine shop
areas. The equipment is owned by the Company. The building and property is not
owned, but rented. The lease expires in 2002. There is no renewal after 2002
built into the lease. The lease is for five years, which commenced in January
1997 with a monthly rent of $1,500. Cost of living increases are built into the
lease agreement. The location has four large lathes, four medium lathes, three
large grinders, three milling machines, four drilling machines and other
miscellaneous machine tools, two blast containers, a three-station spray room,
15 thermal spray guns including wire, powder arc, HV, and plasma (previously
described) and miscellaneous work handling equipment.
The business is subject to minor seasonal variations in Costa Rica. Such
variations are influenced by planting and harvesting sugar and coffee with
resulting shut down and repair of equipment being cyclical in nature.
MANAGEMENT DISCUSSION OF ANALYSIS OF CONDITION OR PLAN OF OPERATIONS
We have established as our goals the development of facilities for thermal
spray coating, machine overhaul and other business enterprises in North America
and Central America.
The two business operations are the machine overhaul business of Thermaltec
de Costa Rica, S.A. (TCR) and the operation at West Babylon, New York. TCR is
the industry leader in thermal spray in Central America and is poised to expand
into other related fields in the Central American market. It is fully
operational and is staffed with metallurgists and machinists; they have
developed a customer base of over 300 industrial firms. Market acceptance is
excellent and continues to improve. In Central America, there are no shops that
have the amount of equipment in place that we have. As former president of
Sulzer Metco, our president has been privy to all thermal spray shops in Latin
America. At the time of leaving that company, there would have been three shops
in Mexico with larger sets of equipment, but Mexico is not part of Central
America. Central America proper is composed of Guatemala, Honduras, Belize, El
Salvador, Nicaragua, Costa Rica and Panama. We could not find any shops our size
in visits of our personnel or representatives. We do not claim to be the most
profitable shop.
The West Babylon operation of TTI has developed thermal spray alternative
technology to chrome plating. The latter is a toxic process; TTI had developed
equipment, processes and operating parameters for the application of coatings
superior to chrome plating. This is being done without the environmental
pollution problems of the plating process. Thermaltec has not had any
environmental citation or violation of any environmental law at any time in both
the United States and Costa Rica.
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The West Babylon staff has also demonstrated the ability of the thermal
spray process to protect the infrastructure of bridges and pumping stations from
corrosion by the application of anodically protective coatings. The Company is
moving to seek and acquire several major contracts.
The Water Authority of Connecticut and the New York State Department of
Transportation have specified the thermal spray coatings on bridges in New York
State. The specification was made by joint efforts of New York State (See
attached specification) and Thermaltec International. There are nine bridges
coated using this process. Three bridges were done by Thermaltec in conjunction
with another non affiliated company. We are currently acting as a consultant on
a large New York bridge, the Castleton, where we are supplying specialized
equipment to do the job. New York State has satisfied itself that this coating
is a superior alternative to conventional paint and polymers for bridge
protection. The process is now generally accepted by forward thinking state
agencies. Thermaltec has no unique patent rights to the technology, but has
"know-how" engineered into its spray guns allowing for faster than conventional
spray rates. Conventional spray rates would be 35 pounds per hour, our equipment
can spray twice as fast. Because we are a small company, unless we can partner
with a much larger company we would not get the major share of the work that our
missionary work has made possible.
The company is not actively pursuing additional work in the large ticket
corrosion protection filed, instead placing its emphasis on broadening its
customer base in the U.S. by acquiring High Velocity Technology. In Costa Rica
the company is not pursuing any major contracts at this time.
Results of Operations
Nine Months Ending June 2000 vs. June 1999
For the nine months ended June 30, 2000, Thermaltec International had $ 211
thousand of consolidated sales, an increase of 3% from the prior year's
comparative period, as the inclusion of $ 71 thousand of sales from High
Velocity Technology, Inc.("HVT") for the month of June more than offset the
decline in business in Costa Rica. Gross margins were 1%, a decline from the
29% in the prior year, primarily reflecting $52 thousand of cost overruns and
rework at Thermaltec de Costa Rica (TCR). The Company expects that gross margins
will improve significantly as improved efficiencies at TCR take effect and as
the higher-margin revenues of HVT assume a greater share of total Company
revenues. Selling, general and administrative expenses were $853 thousand, $508
thousand more than the prior period, of which $392 thousand was the result of
shares issued for services during the period. Of these expenses, $194 thousand
were required to bring the Camanco (formerly know as Solar Communications)
merger process, begun in 1999 to a conclusion. In addition, the Company incurred
$46 thousand in pursuing other mergers. During the comparative period of the
prior year, expenses included approximately $51 thousand of administrative and
legal costs associated with the planned merger with Camanco Communications.
Expenses other than
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merger costs were $613 thousand during the first nine months, an increase of
$319 thousand from the year ago period, as the Company incurred $277 thousand of
costs in technical training and expansion for its Costa Rican subsidiary and
approximately $29 thousand in costs for registration and filing of Form 10-SB.
No shares were issued to principals of the registrant for services in connection
with the Camanco merger. As stated above, the Company incurred approximately $46
thousand of administrative and legal expenses during the nine months ending
June 30, 2000 in pursuing merger discussions and "due diligence" investigation
of three acquisition candidates, specifically High Velocity Technologies, Edge
Management Inc., and Viaplex Communications. The acquisition of High Velocity
was consummated on May 19, 2000 by the exchange of 250 thousand shares of
Thermaltec common stock and $100 thousand in cash for all of the assets of High
Velocity. The Company chose to withdraw from further negotiations with Edge
Management Inc. and with Viaplex Communications upon completion of the
respective due diligence processes.
1999 vs. 1998
During 1999, sales rose by 48% to $409 thousand, primarily due to the
completion of a $161 thousand contract for the anti-corrosion coating of a
bridge for the New York State Department of Transportation. In addition, the
Company was awarded the second phase of research for the New York State Energy
Research & Development Authority. The total amount awarded was $89 thousand, of
which $21 thousand was billed during the fiscal year. These sales more than
offset a decline in business activity in the Costa Rica market where industrial
operations were adversely affected by heavy rains and widespread flooding. Gross
profit margins were reduced from 44% to 23%, reflecting the shift in sales mix
from high-margin industrial repairs to the highly competitive anti-corrosion
coating business; the Company expects that average gross profit margins will
improve as business conditions in Costa Rica return to normal. General and
Administrative expenses rose by 100%, due to the issuance of Company shares for
services. The need for these services arose from the substantial work needed to
pursue the merger with Camanco Communications, a New Jersey-based company. On
December 11, 1998 the two companies announced their shared intention to merge
operations. On December 13, 1999 and after extensive efforts by the Company,
Camanco announced that it was withdrawing from the merger. During that period,
the Company incurred approximately $450 thousand of expenses for legal,
financial and marketing services that were largely a direct consequence of the
merger effort. The Company paid for $411 thousand of these expenses with Company
shares. No shares were issued to principals of the registrant for services in
connection with the Camanco merger.
1998 vs. 1997
During 1998, sales declined by 38% from the prior years' level to $276
thousand, primarily reflecting the winding down of the first phase of a coatings
research project for the New York State Energy Research & Development Authority,
(NYSERDA) begun in February 1996. The project called for Thermaltec to develop
alternative metallurgical coating processes to chrome plating. The latter
process,
Page 15
<PAGE>
Used for both high-hardness coatings and for decorative purposes, is highly
toxic and presents industry with severe problems of air pollution, ground water
contamination and toxic waste disposal. Thermaltec's assigned goal was to
investigate existing technologies that had a potential for replacing the
technology of chrome plating and to work with technology partners to develop new
equipment and operating parameters. Phase I of the project was completed in
December of 1997, for a project total of $495 thousand in billings; the second
phase of the project, with a total funding of $89 thousand, did not begin until
March 1999, resulting in a one year depression in the Company's sales.
Offsetting the decline in the United States, revenues in Costa Rica expanded by
$78 thousand as that company expanded its penetration of the industrial,
agricultural, and power generation markets.
Operating expenses during 1998 increased by 16% despite the overall decline
in sales, as the Company continued to invest in the building of its
infrastructure in Costa Rica. The Company continued to carry the expenses of the
operations in the Dominican republic and in Puerto Rico until they were
terminated in February and May of 1998, respectively. Operating expenses at
Thermaltec de Costa Rica were reduced for the year by $17 thousand, reflecting
the non-repetition of one-time moving costs in the prior year of the Costa Rican
operation to a larger facility.
Liquidity and Financial Resources
The Company has not yet achieved profitability since its inception in 1994.
As a result, it has limited the amount of debt it has raised to cover only the
acquisition of assets with reliably predictable benefits, such as production
machinery. The Company is of the opinion that the financing necessary to fund
research and market development is more appropriately obtained through the sale
of equity. Debt outstanding as of June 30, 2000 consists primarily of $19
thousand of a bank note and $181 thousand in equipment financing. Additional
liquidity has been provided by shareholder loans as of June 30, 2000 of $212
thousand. Since inception, the Company has raised $2.4 million through the sale
of common stock other than stock issued in exchange for services.
The Company has a deficiency in working capital and has accumulated a
significant retained deficit. Despite this, in the opinion of management, the
Company remains viable. Its staff in the United States and in Costa Rica has
developed considerable expertise in the application of coatings and in
developing enhanced techniques and operating parameters. The Company intends
through its acquisition of and integration with High Velocity Technology, to
combine complementary skills to develop a highly competitive engineering
enterprise. The Company is not anticipating further contracts for applying
corrosion protection coatings on bridges for the New York State Department of
Transportation and is installing improved processes, quality control and cost
accounting systems at Thermaltec de Costa Rica.
Page 16
<PAGE>
On May 31, 1999, the Company authorized the sale of 1,000,000 shares of
common stock to be offered in private transactions of 1,000 Units, representing
1,000 shares per Unit. Each Unit consisted of 1,000 Common shares and 650 B
Warrants and 500 C Warrants for the purchase of additional shares of the
Company. Such offering was filed with the State of New York Department of Law.
The Company utilized an exemption from the registration provisions under
Regulation D Rule 504, as amended, and sold in those states which permit the
offering to take place. The termination date of the offering was March 31, 2000.
The exercise price of the Warrants is $1.50 per B Warrant share and $2.00 per C
Warrant share, exercisable commencing one year from the date of the subscription
agreement for the B Warrant and two years from the date of the subscription
agreement for the C Warrant. The B Warrants will expire March 31, 2002 and the C
Warrants will expire March 31, 2003. 999,999 shares were subscribed in the
offering. There were 649,350 B Warrants and 499,500 C Warrants subscribed. On
April 13, 2000, 999,000 shares were issued.
The Company's payment terms for its receivables are thirty calendar days
after invoicing. At June 30, 2000, there were $47 thousand due from NYSERDA,
representing retainage under the terms of the original contracts for Phase I and
for Phase II. Upon completion of the project, the remaining balance will be paid
by NYSERDA. At September 30, 1999, there were $162 thousand due from National
Thermal Spray; this was collected in March, 2000.
Year 2000 Compliance
The operations of the Company have not been highly vulnerable to disruption
due to the "Y2K" problem. The Company replaced its entire computer hardware and
accompanying software prior to the end of 1999. At the end of 1999, the Company
experienced no difficulties with the "Y2K" problem and, in the opinion of
management no cause for further concern exists.
Inflation
The amounts presented in the financial statements do not provide for the
effect of inflation on the Company's operations or its financial position.
Amounts shown for machinery, equipment and leasehold improvements and for costs
and expenses reflect historical cost and do not necessarily represent
replacement cost. The net operating losses shown would be greater than reported
if the effects of inflation were reflected either by charging operations with
amounts that represent replacement costs or by using other inflation
adjustments.
Forward-looking Information
Certain statements in this document are forward-looking in nature and
relate to trends and events that may affect the Company's future financial
position and operating results. The words "expect" "anticipate" and similar
words or expressions are to identify forward-looking statements. These
statements speak only as of the date of the document; those statements are based
on current expectations, are inherently uncertain and should be viewed with
caution. Actual results may differ materially from the
Page 17
<PAGE>
forward-looking statements as a result of many factors, including changes in
economic conditions and other unanticipated events and conditions. It is not
possible to foresee or to identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events or circumstances after the date of this document that may affect the
accuracy of any forward-looking statement.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 2000, by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act") who is known by the Company
to own beneficially 5% or more of the Common Stock, (ii) each director of the
Company, and (iii) all directors and executive officers as a group. Unless
otherwise indicated, all persons listed below have sole voting power and
investment power with respect to such shares. Total number of shares originally
authorized was 10,000,000 shares of common stock, each of which had a $.0001 per
share par value. The corporation had amended its authorized shares to
100,000,000 as a part of the Solar Merger. After the termination of that merger,
the company re-amended its certificate back to 10,000,000 shares authorized at
$.0001 per share par value.
Out of a total of 4,078,785 shares of Common Stock which have been issued
and are outstanding, as of June 30, 2000 the principal shareholders own
1,381,500 shares of Common Stock as follows:
Shares Beneficially Owned
Number Present
------ -------
Andrew Mazzone(1) 931,500 22.8%
513 Dryden Street
Westbury, NY 11590
Laura Klein 225,000 5.5%
2 North Broadway
Apt. 4F
White Plains, NY 10601
Kevin Klein 225,000 5.5%
52 Webster Ave.
Apt. 20
New Rochelle, NY 10801
Directors and Officers as a group 708,500 shares
-------------
(1) Director and Officer
Page 18
<PAGE>
No Principal shareholder owns any securities which can be converted into
common stock within sixty days. 1,425,000 shares were issued to Andrew Mazzone
on November 21, 1995; 75,000 shares were issued on the same date to Christopher
De Prima. Mr. Mazzone sold, in 1998, 225,000 shares each to Kevin Klein and to
Laura Klein in private transactions.
MANAGEMENT
There is currently one (1) occupied seat on the Board of Directors. The
following table sets forth information with respect to the directors and
executive officers.
DATE SERVICE
NAME AGE OFFICE COMMENCED
-------- ----- ---------- ----------
Andrew Mazzone* 59 Chairman, President December, 1995
/Secretary/Treasurer
*Indicates Board Member
All directors will hold office until the next annual stockholder's meeting
and until their successors have been elected or qualified or until their death,
resignation, retirement, removal, or disqualification. Vacancies on the board
will be filled by a majority vote of the remaining directors. Officers of the
Company serve at the discretion of the Board of Directors.
The Officers and Directors of the Company are set forth below.
Andrew Mazzone
Chairman, CEO & President
Mr. Mazzone has been the chairman of the company since its inception. From
1970 until February 15, 1995, Mr. Mazzone was employed by Metco, Westbury, NY, a
subsidiary of the Perkin Elmer Corp. The Company was acquired by a foreign
holding corporation, which changed the Company's name to Sulzer Metco. Mr.
Mazzone, as President, resigned from Sulzer Metco after the acquisition of the
Company. Mr. Mazzone did so to pursue his belief that there is an unexploited
opportunity in the thermal spray industry to set up industrial thermal spray
shops around the world, excluding the areas of Europe and the United States. In
this endeavor, he left Sulzer Metco on good terms and with the understanding
that his strategy, if successful, would mean even more business for Sulzer Metco
Corporation. Some of the highlights of Andrew Mazzone's Metco career include
positions as Director of Logistics, Director of Sales and Marketing, Director of
Manufacturing, Executive Vice President and President. Mr. Mazzone has degrees
from Babson College, Babson Park, Massachusetts in finance and an advanced
degree in economics, with a specialty in economic history. Mr. Mazzone will
devote full time to the efforts of the Company.
Page 19
<PAGE>
Sulzer/Metco is one of the largest manufacturers of thermal spray supplies
and equipment in the world. Sulzer/Metco primarily supply's contract shops, of
which the company is one, equipment, replacement parts and spray materials which
are the tools necessary for a contract shop to use in supplying thermal spray
coating service.
- Director of Logistics 1984
- Director of Sales and Marketing 1987
- Director of Manufacturing 1990
- Executive Vice President 1991
- President 1993
Other Significant Employees
Other significant employees are Thomas Gardega, age 46, the General Manager
of our Costa Rican facility.
Executive Compensation
No Officer/Director has been compensated with salaries or other form of
remuneration except the President, Andrew B. Mazzone who received the following
compensation:
<TABLE>
<CAPTION>
Capacities in which Aggregate
Name Remuneration was Received Period Remuneration
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew Mazzone Chief Engineer, NYSERDA For the year $26,202.00
Project and Project Manager ended 9/30/99
As Salary
For the 9 months $15,510.00
Ended 6/30/00
</TABLE>
Director Compensation
Our director receives no compensation for his services as director.
Director and Officer Insurance
We are exploring the possibility of obtaining directors and officers ("D &
O") liability insurance. We have obtained several premium quotations but have
not entered into any contract with any insurance company to provide said
coverages. There is no assurance that we will be able to obtain such insurance.
CERTAIN TRANSACTIONS
Issuance of Stock:
On November 21, 1995, the Company issued 1,500,000 shares to the Company's
founders, promoters, and affiliates of the Company in the names of Andrew
Mazzone and Christopher De Prima. The issuance to the shares were pursuant to
Section 4(2) of the Securities Act of 1933.
Page 20
<PAGE>
DESCRIPTION OF SECURITIES AND MARKET FOR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
General
We are authorized to issue 10,000,000 shares of Common Stock, at a par
value $.0001 per share. As of 6/30/2000 there are 4,078,785 shares of common
stock outstanding. The number of shareholders as of 6/30/2000 is 741.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of Common Stock are
entitled to receive ratably such dividends when, as and if declared by the Board
of Directors out of funds legally available therefore. In the event we have a
liquidation, dissolution or winding up, the holders of Common Stock are entitled
to share ratably in all assets remaining which are available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock offered hereby, when issued in exchange for the consideration
set forth in this Prospectus, will be, fully paid and nonassessable.
There are approximately 1,815,000 shares of Common Stock outstanding that
are "restricted securities" as that term is defined in Rule 144 promulgated
under the Securities Act.
Price Ranges of Thermaltec Common Stock
The price of Thermaltec shares is difficult to predict. The shares have had
a history of going as high as $17. We believe, that the proposed merger with an
Internet company, combined with the fact that there is a thin float, gave the
stock its volatility. With approximately 1,000,000 shares (est.) in the float,
it apparently doesn't take much trading to produce a "bandwagon effect". The
company has published limited news releases in its history, specifically 5
during the proposed merger process with Solar, and two subsequent to that. It
announces only when it has significant news. The company surmises that investors
were gambling on the Internet, not investing in this stock.
Thermaltec's common stock was quoted on the OTC Bulletin Board under the
symbol "THRM". The following table sets forth the range of the high and low bid
quotations of the Thermaltec common stock on the OTC Bulletin Board for the
periods indicated:
Page 21
<PAGE>
High Low
---- ---
THREE MONTHS ENDED
December 31, 1996 $ 1.500 $ 1.245
March 31, 1997 1.563 .494
June 30, 1997 1.000 .347
September 30, 1997 .874 .500
December 31, 1997 1.284 .688
March 31, 1998 .968 .341
June 30, 1998 1.063 .500
September 30, 1998 .751 .247
December 31, 1998 4.926 .235
March 31, 1999 5.770 2.509
June 30, 1999 17.465 6.015
September 30, 1999 8.625 7.625
December 30, 1999 .87 .68
The above quotations represent prices between dealers and do not include retail
markup, markdown or commission. They do not necessarily represent actual
transactions.
The Company is filing this Form 10SB to be relisted on the OTC:BB. The
company was delisted on April 19, 2000 for failure to file a timely 10SB. The
inability to timely file was the result of the company's prior merger activity
where it was engaged in an S4 Registration which precluded a 10SB filing. That
prior merger was unsuccessful and on December 15, 1999.
Thermaltec A Warrants
As of June 30, 2000, there were 162,400 Thermaltec common stock purchase
warrants outstanding held of record by 46 persons. Each warrant entities the
registered holder thereof to purchase one share of Thermaltec common stock at a
price of $1.00 per share, subject to adjustment in certain circumstances on or
before January 31, 2001. Any common stock issued pursuant to the excise of a
warrant would be a restricted security. Such shares may not be sold unless
registered under the Securities Act of 1933 or sold pursuant to an exemption
from registration such as the exemption provided by Rule 144.
Liquidation
In the event of a liquidation of the Company, all stockholders are entitled
to a pro rata distribution after payment of any claims. Warrant holders will not
be entitled to liquidation rights, and will not be treated as stockholders prior
to the exercise of the warrants.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and
anticipate that all future earnings will be retained for development of our
business. The payment of any future dividends will be at the discretion of our
Board of Directors and will depend upon, among other things, future earnings,
capital
Page 22
<PAGE>
requirements, the financial condition of the Company and general business
conditions.
STOCK TRANSFER AGENT
Our transfer agent and registrar of the common stock is Manhattan Transfer
Registrar Co., P.O. Box 361, Holbrook, NY 11741.
LEGAL MATTERS
There is no past, pending or, to our knowledge, threatened litigation or
administrative action which has or is expected by our management to have a
material effect upon our business, financial condition or operations, including
any litigation or action involving our officer, director or other key personnel.
There have been no changes in the company's accountants, or disagreements with
its accountants since its inception.
Indemnification of Officer and Director
At present we have not entered into individual indemnity agreements with our
Officer or Director. However, our By-Laws and Certificate of Incorporation
provide a blanket indemnification that we shall indemnify, to the fullest extent
under Delaware law, our director and officer against certain liabilities
incurred with respect to their service in such capabilities. In addition, the
Certificate of Incorporation provides that the personal liability of our
director and officer and our stockholders for monetary damages will be limited.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our director, officer and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and we will be governed by the final adjudication of
such case.
Recent Sales of Unregistered Securities
Unregistered Securities Sold
The following sets forth information relating to all previous sales of common
stock by the Registrant which sales were not registered under the Securities Act
of 1933.
Page 23
<PAGE>
First Private Placement Offering:
On February 9, 1995, the Company authorized the sale and placement of
1,000,000 shares of common stock to be offered in private transactions for
1,000,000 in Units of $1,000 for 1 Unit which consists of 1,000 shares ($1.00
per share). Such offering, as contained herein, utilizes the exemption from the
registration under Regulation D Rule 504, and certain States Rules where the
offering took place. The offering terminated with the sale of 525,259 shares of
common stock.
Second Private Placement:
In September of 1998 the Company sold Units in a private placement pursuant
to Regulation D 504. Each purchasing Unit consisted of 1,000 shares of Common
Stock, and 1000 stock purchasing warrants at a price of $1,000 per purchasing
Unit. The shares underlying the warrants were exercisable at $1.00 per warrant
share. The offering terminated with sale of 272,000 units.
Offering:
On May 31, 1999, the Company authorized the sale of 1,000,000 shares of
common stock to be offered in private transactions of 1,000 Units, representing
1,000 shares per Unit. Each Unit will consist of 1,000 common shares and 650 B
Warrants and 500 C Warrants for the purchase of additional shares of the
Company. Such offering was filed with the State of New York Department of Law.
The Company utilized an exemption from the registration provisions under
Regulation D Rule 504, as amended, as sold in certain States that permit the
offering to take place. The termination date of the offering was March 31, 2000.
The exercise price of the Warrants is $1.50 per B Warrant share and $2.00 per C
Warrant share, exercisable commencing one year from the date of the subscription
agreement for the B Warrants and two years from the date of subscription
agreement for the C Warrant. The B Warrants will expire March 31, 2002, and the
C Warrants will expire March 31, 2003. 999,000 shares were subscribed in the
offering. There were 649,350 B Warrants and 499,500 C Warrants subscribed. On
April 13, 2000, 999,000 shares were issues.
Warrants:
There is no cost basis on the warrants to the purchasers of the Units
offered as referred to in the Offering aforementioned. The exercise price for
the warrants is $1.50 per B warrant share and $2.00 per C warrant share
exercisable commencing one year from the termination date of the offering for
the B warrant and two years from the termination date of the offering for the C
warrant. The warrants will expire two years after the date where they can first
be exercised. The warrants are detachable from the Units immediately upon
issuance. Stockholders will be notified of the official termination date of the
offering. This date will define the beginning time period of the respective
warrant exercise rights. All investors had the opportunity to ask questions and
receive answers from all of our officers, directors and employees. In addition,
they had access to review all of our corporate records and material contracts
and agreements.
Page 24
<PAGE>
Other Transacation:
<TABLE>
<CAPTION>
Class of
Date Shares # Shares Persons Type
---- -------- -------- ----
<S> <C> <C> <C> <C>
As of 9/30/97 Common 16,001 Consultants Payment for services
-----------------------------------------------------------------------------------------------
As of 9/30/98 Common 288,600 Shareholders Sold Shares
-----------------------------------------------------------------------------------------------
Common 58,000 Consultants Payment for services
-----------------------------------------------------------------------------------------------
As of 9/30/99 Common 108,200 Warrant Holders Convert Warrants
-----------------------------------------------------------------------------------------------
Common 30,000 Shareholders Exchange for Debt
-----------------------------------------------------------------------------------------------
Common 72,567 Consultants Payment for services
-----------------------------------------------------------------------------------------------
As of 6/30/00 Common 155,666 Consultants Payment for services
-----------------------------------------------------------------------------------------------
Common 1,000 Warrant Holders Convert Warrants
-----------------------------------------------------------------------------------------------
Common 834,000 Shareholders Sold Shares
-----------------------------------------------------------------------------------------------
Common 165,000 Creditors Convert Loans to Shares
-----------------------------------------------------------------------------------------------
Common 65,001 Consultants Payment for services
-----------------------------------------------------------------------------------------------
Common 250,000 Acquiree Purchase of HVT
-----------------------------------------------------------------------------------------------
</TABLE>
Page 25
<PAGE>
TABLE OF CONTENTS
I.
Index to Financial Statements
Thermaltec International Corporation and Subsidiaries
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT................................................. F-2
Consolidated Balance Sheets as of June 30, 2000 and
September 30, 1999, 1998 and 1997....................................... F-3
Consolidated Statements of Operations and Comprehensive Income
for the periods ending June 30, 2000 and
September 30, 1999, 1998 and 1997....................................... F-4
Consolidated Statements of Stockholders' Equity for the periods
Ending June 30, 2000 and September 30, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flow for the periods ending
June 30, 2000 and September 30, 1999, 1998 and 1997..................... F-6
Consolidated Notes to the Financial Statements............................... F-7 - F-13
</TABLE>
II.
HIGH VELOCITY TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors'........................................................ F-14
Balance Sheest as of December 31, 1999 and 1998.............................. F-15 -F16
Statements of Operations for the years ended
December 31, 1999 and 1998................................................. F-17
Statements of Stockholders' Equity for the
Years ended December 31, 1999 and 1998.................................... F-18
Statements of Cash Flows for the years ended
December 31, 1999 and 1998................................................ F-19
Notes to Financial Statements................................................ F-20 - F-23
</TABLE>
<PAGE>
III.
PRO-FORMAS
<TABLE>
<CAPTION>
<S> <C>
Unaudited Condensed Pro-Forma Consolidated Balance Sheet
As of September 30, 1999................................................ F-24
Unaudited Condensed Pro-Forma Consolidated Statement of Operations
For the year ending September 30, 1999.................................. F-25
Unaudited Condensed Pro-Forma Consolidated Balance Sheet
As of June 30, 2000..................................................... F-26
Unaudited Condensed Pro-Forma Consolidated Statement of Operations
For the Nine-month Period Ending June 30, 2000.......................... F-27
Unaudited Pro-Forma Condensed Consolidated
Financial Statements.................................................... F-28
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF CAPRARO, CENTROFRANCHI, KRAMER & CO. P.C.]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors of
Thermaltec International Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Thermaltec
International Corporation and Subsidiaries as of September 30, 1999, 1998 and
1997 and the related consolidated statements of operations and comprehensive
income, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Thermaltec
International Corporation and Subsidiaries as of September 30, 1999, 1998 and
1997, and the results of its operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Capraro, Centofranchi, Kramer & Co., P.C.
Capraro, Centofranchi, Kramer & Co., P.C.
South Huntington, New York
February 9, 2000, except for note 13,
as to which the date is February 15, 2000
F-2
<PAGE>
Thermaltec International Corp.and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
as of
as of as of as of 6/30/00
9/30/97 9/30/98 9/30/99 (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 4,792 $ 5,604 $ 131,278 $ 318,080
Trade Accounts Receivable 71,869 61,496 159,448 182,896
Inventory 30,182 65,088 19,779 124,098
Prepaid and Other Current Assets 7,686 9,292 1,492 60,328
----------- ----------- ----------- -----------
Total Current Assets 114,529 141,480 311,997 685,402
----------- ----------- ----------- -----------
Fixed Assets
Machinery and Equipment 176,121 145,523 185,879 264,883
Leasehold Improvements 51,104 40,120 40,120 40,120
----------- ----------- ----------- -----------
Gross Fixed Assets 227,225 185,643 225,999 305,003
Less: Accumulated Depreciation (46,284) (65,926) (81,749) (104,348)
----------- ----------- ----------- -----------
Net Fixed Assets 180,941 119,717 144,250 200,655
----------- ----------- ----------- -----------
Other Assets
Goodwill, Net 447,016
Organization Costs, Net of Amortization 12,193 7,889 -- 809
Other Assets 339 3,120 5,090 3,513
----------- ----------- ----------- -----------
Total Other Assets 12,532 11,009 5,090 451,338
----------- ----------- ----------- -----------
Total Assets $ 308,002 $ 272,206 $ 461,337 $ 1,337,395
=========== =========== =========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Notes Payable $ 42,114 $ 44,495 $ 25,639 $ 92,148
Vendor Accounts Payable 68,067 79,958 176,001 271,154
Other Liabilities 71,513 89,309 37,732 152,993
Shareholder Loan 103,667 105,642 425,904 211,507
----------- ----------- ----------- -----------
Total Current Liabilities 285,361 319,404 665,276 727,802
----------- ----------- ----------- -----------
Long-Term Liabilities
Long-Term Debt Less Current Maturities 40,745 20,764 44,290 107,390
----------- ----------- ----------- -----------
Total Liabilities 326,106 340,168 709,566 835,192
----------- ----------- ----------- -----------
Common Stock 205 239 261 408
Additional Paid-In Capital 787,796 1,122,762 1,902,407 3,512,848
Retained Earnings (Deficit) (814,695) (1,217,379) (2,175,983) (3,027,055)
Accumulated Other Comprehensive Income:
Foreign Currency Translation Adjsutment 8,590 26,416 25,086 16,002
----------- ----------- ----------- -----------
Total Stockholders' Equity (Deficit) (18,104) (67,962) (248,229) 502,203
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) $ 308,002 $ 272,206 $ 461,337 $ 1,337,395
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Thermaltec International Corp.and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
<TABLE>
<CAPTION>
(Unaudited)
For the For the For the For the
year ending year ending year ending 9 mos ending 9 mos ending
9/30/97 9/30/98 9/30/99 6/30/99 6/30/00
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 442,264 $ 275,846 $ 408,987 $ 204,950 $ 211,051
Cost of Sales 250,176 154,511 316,257 145,170 209,250
----------- ----------- ----------- ----------- -----------
Gross Profit 192,088 121,335 92,730 59,780 1,801
General and Administrative Expenses 451,807 524,019 1,051,334 345,382 852,873
----------- ----------- ----------- ----------- -----------
Net Loss (259,719) (402,684) (958,604) (285,602) (851,072)
----------- ----------- ----------- ----------- -----------
Other Comprehensive Income:
Foreign Currency translation adjustments 8,338 17,826 (1,330) 16,078 (9,084)
----------- ----------- ----------- ----------- -----------
Total Comprehensive Income (Loss) ($251,381) ($384,858) ($959,934) ($269,524) ($860,156)
=========== =========== =========== =========== ===========
Basic and Diluted Loss per Share ($0.13) ($0.19) ($0.38) ($0.12) ($0.29)
=========== =========== =========== =========== ===========
Weighted Average Number of Shares Outstanding 2,046,750 2,105,489 2,490,420 2,455,791 3,017,551
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Thermaltec International Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended September 30, 1997,1998,1999 and
the Nine Months Ending June 30, 2000
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------------- Additional Retained Other
Number of Paid-In Earnings Comprehensive
Shares Amount Capital (Deficit) Income Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 2,034,750 $203 $771,797 ($554,976) $252 $217,276
Net Loss for the
year ended 9/30/1997 (259,719) (259,719)
Stock Issued for services during
the year ended 9/30/97 16,001 2 15,999 16,001
Other Comprehensive Income:
Foreign Currency Translation
Adjustment 8,338 8,338
----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 1997 2,050,751 205 787,796 (814,695) 8,590 (18,104)
Net Loss for the
year ended 9/30/1998 (402,684) (402,684)
Stock sold during the year
ended 9/30/98 288,600 28 276,972 277,000
Stock issued for services 58,000 6 57,994 58,000
Other Comprehensive Income:
Foreign Currency Translation
Adjustment 17,826 17,826
----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 1998 2,397,351 239 1,122,762 (1,217,379) 26,416 (67,962)
Net Loss for the
year ended 9/30/99 (958,604) (958,604)
Stock sold during the year 0 0 0 --
ended 9/30/99
Warrants exercised during the year
ended 9/30/99 108,200 11 106,938 106,949
Stock issued in lieu of cash repayment
of shareholder during the year
ended 9/30/99 30,000 3 29,997 30,000
Stock issued for services 72,567 8 642,710 642,718
Other Comprehensive Income:
Foreign Currency Translation
Adjustment (1,330) (1,330)
----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 1999 2,608,118 261 1,902,407 (2,175,983) 25,086 (248,229)
UNAUDITED
Net Loss for the
nine months ending 6/30/00 (851,072) (851,072)
Other Comprehensive Income:
Foreign Currency Translation Adjustment (9,084) (9,084)
Stock issued for services, 2/18/00 155,666 16 332,721 332,737
Warrants exercised 3/6/00 1,000 0 1,000 1,000
Stock sold and issued 4/13/00 834,000 83 833,917 834,000
Stock issued for Other loans 4/14/00 165,000 17 164,984 165,000
Shares issued for services June 2000 65,001 7 59,095 59,102
Shares issued on 6/13/00 for purchase 250,000 25 218,725 218,750
of HVT on 5/19/00
----------- ----------- ----------- ----------- ----------- -----------
Balance June 30, 2000 4,078,785 408 3,512,848 (3,027,055) 16,002 502,203
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Thermaltec International Corp.and Subsidiaries
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
(Unaudited)
For the year For the year For the year For the
ending ending ending 9 mos ending 9 mos ending
9/30/97 9/30/98 9/30/99 6/30/99 6/30/00
--------- ----------- ----------- --------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($259,719) ($402,684) ($958,604) ($285,602) ($851,072)
--------- ----------- ----------- --------------------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation & Amortization 30,665 34,901 23,712 23,152 22,599
Common Stock Issued for Services 16,001 58,000 642,718 77,567 391,837
Loss on Disposal of Assets -- 19,680 -- 3,375 --
(Increase) decrease in:
Receivables (19,183) 10,373 (97,952) (19,543) (23,448)
Inventories 23,829 (5,416) 45,309 (29,488) (104,319)
Prepaid and other current assets (7,686) (1,606) 7,800 3,680 (58,837)
Other Assets (25) (2,781) (1,970) (329) 769
Goodwill -- (447,016)
Increase (decrease) in:
Accounts Payable (9,272) 11,891 96,043 26,538 95,153
Accrued Expenses and Other
Current Liabilities 9,475 58,409 (51,577) 54,785 115,261
--------- ----------- ----------- --------------------------
Total Adjustments 43,804 183,451 664,083 139,737 (8,001)
--------- ----------- ----------- --------------------------
Net cash used in operating activities (215,915) (219,233) (294,521) (145,865) (859,073)
--------- ----------- ----------- --------------------------
Cash Flows from Investing Activities:
Purchases of Fixed Assets & Leasehold Improvements (125,502) (18,543) (16,857) 0 (79,004)
--------- ----------- ----------- --------------------------
Cash Flows from Financing Activities:
Proceeds from sale of shares net of offering costs -- 277,000 106,949 78,200 1,218,751
Proceeds of sale of shares not yet issued -- -- -- -- 0
Proceeds from issuance of Notes Payable 15,953 -- -- -- --
Repayments of Notes Payable -- (17,600) (18,830) (6) 129,609
Net proceeds (repayments) of Shareholder Loans 103,667 (38,638) 350,263 106,522 (214,397)
--------- ----------- ----------- --------------------------
Net cash provided by financing activities 119,620 220,762 438,382 184,716 1,133,963
--------- ----------- ----------- --------------------------
Effect of Exchange on Cash 8,337 17,826 (1,330) 16,078 (9,084)
Net increase (decrease) in cash and cash equivalents (213,460) 812 125,674 54,929 186,802
Cash & Cash Equivalents, Beginning of Period 218,252 4,792 5,604 5,604 131,278
--------- ----------- ----------- --------------------------
Cash & Cash Equivalents, End of Period $4,792 $5,604 $131,278 $60,533 $318,080
========= =========== =========== ==========================
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30,2000 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION/REPORTING ENTITIES
The consolidated financial statements of Thermaltec International Corp. and
Subsidiaries (the "Company") include the following entities:
THERMALTEC INTERNATIONAL CORP.
Thermaltec International Corp. ("TTI") was incorporated in 1994 under the
laws of the state of Delaware. TTI was organized for the purpose of
engaging in the sale of thermal sprayed coatings to individual customers in
the United States and other countries. TTI also serves as the parent
company, which acts as a holding company for its subsidiaries and provides
administrative support to the operations of the Company. In May 1999, all
operating assets and liabilities of Thermaltec were transferred into Panama
Industries.
THERMALTEC DE COSTA RICA, S.A.
Thermaltec de Costa Rica, S.A. ("TCR") is a wholly-owned subsidiary located
in San Jose, Costa Rica. TCR began operations during fiscal 1995, and
provides thermal spray coatings to businesses and individuals throughout
Costa Rica.
METAL COATINGS, INC.
Metal Coatings, Inc. ("MCI") was a majority-owned subsidiary located in San
Juan, Puerto Rico. MCI began significant operations during fiscal 1997, and
provided thermal spray coatings to businesses and individuals throughout
Puerto Rico. On May 31, 1998 the operations of MCI ceased, and the
remaining assets and liabilities were assumed by TTI. No material expenses
were associated with the closure.
THERMALTEC DOMINICAN, S.A.
Thermaltec Dominicana, S.A. ("TDR") was a majority-owned subsidiary located
in Santo Domingo in the Dominican Republic. TDR began significant
operations in October 1996 and provided thermal spray coatings, as a market
test, to businesses and individuals in the Santo Domingo metropolitan area.
In February 1998, the operations of TDR ceased and the assets and
liabilities were assumed by TTI. No material expenses were associated with
the closure.
PANAMA INDUSTRIES, LTD.
Panama Industries is a wholly-owned subsidiary incorporated in March 1998.
It was inactive and not part of the consolidated group until May 1999. At
that time, all operating assets and liabilities of Thermaltec International
were transferred into Panama Industries.
HIGH VELOCITY TECHNOLOGY, INC.
High Velocity Technology, Inc. (HVT), located in West Lebanon, NH, is a
wholly owned subsidiary of Thermaltec, acquired on May 19, 2000. HVT
manufactures and sells equipment and materials used in the thermal spraying
industry.
PRINCIPLES OF CONSOLIDATION
The consolidated Balance Sheet of the Company as of June 30, 2000 reflects
the balances of High Velocity Technology, Inc. (HVT); the Results of
Operations for the nine-month period ending June 30, 2000 include the
results of HVT for the approximately one month that the business was a
wholly owned subsidiary of the Company.
All material inter-company transactions have been eliminated in the
consolidated financial statements.
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
REVENUE RECOGNITION
Revenues from contracts which have terms greater than one month and are
fixed-price contracts are recognized on the percentage-of-completion
method, measured by the percentage of actual cost incurred to date, to the
estimated total cost for each contract. On those contracts which are not
fixed-price in nature and which contractually require the billing of actual
costs and expenses incurred during the period, revenue is recognized as the
actual amount invoiced during the period.
Estimated costs and revenues are based upon engineering estimates of the
work performed to date relative to the total work required under the
contract. Changes in contract estimates which result in changes in
estimated profit are applied to the cumulative work accomplished on the
project. The re-calculated gross profit on the contract is applied to the
revenues recorded to date for the entire life of the contract; the gross
profit for the year is determined by subtracting from the cumulative gross
profit the gross profit reported in a prior year. On those projects where a
reestimate indicates that a loss on the entire project is likely, the full
amount of the loss is recorded, in the period when the likelihood of loss
is first identified.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company includes cash
on deposit, money market funds, amounts held by brokers in cash accounts
and funds temporarily held in escrow to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable have been adjusted for all known uncollectible
contracts; an allowance for doubtful contracts has not been provided, as
the amount is not considered material.
INVENTORIES
Inventories and prepaid supplies consist of various materials and supplies
utilized on construction contracts and are valued at the lower of cost
(first-in, first-out) or market
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property
and, those which substantially increase useful lives, are capitalized.
Maintenance, repairs, and minor renewals are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and resulting gains
or losses are included in income. Depreciation is provided by both
straight-line and accelerated methods over the estimated useful lives of
the assets.
GOODWILL AND INTANGIBLE ASSETS
The Company recognizes the excess of purchase price over book value for
acquired subsidiaries as Goodwill on the consolidated balance sheet. The
Company is amortizing goodwill on a straight-line basis over ten years.
Organization Costs are being amortized on a straight-line basis over sixty
months.
EARNINGS (LOSS) PER SHARE
The Company has adopted SFAS No. 128, "Earnings per Share", which requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS") by all publicly traded entities, as well as
entities that have made a filing or are in the process of filing with a
regulatory agency in preparation for the sale of securities in a public
market.
Basic EPS is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding
during the period. The computation of Diluted EPS gives effect to all
dilutive potential common shares during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings.
INCOME TAXES
The Company has adopted Financial Accounting Standards Board Statement No.
109, "Accounting for Income Taxes". The Company files a consolidated
Federal tax return, which includes all of the subsidiaries. Accordingly,
F-8
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
Federal Income taxes are provided on the taxable income of the consolidated
group. State income taxes are provided on a separate company basis, if and
when taxable income, after utilizing available carryforward losses, exceeds
certain levels.
DEFERRED INCOME TAXES
Deferred tax assets arise principally from net operating losses and capital
losses available for carryforward against future years' taxable income.
FOREIGN EXCHANGE
Thermaltec International and its subsidiary Panama Industries treat the
U.S. Dollar as the functional currency: the subsidiary company Thermaltec
de Costa Rica uses the Costa Rican currency of Colones as its functional
currency. Accordingly, gains and losses resulting from the translation of
accounts designated in other than the functional currency are reflected in
the determination of net income and have been immaterial.
RECLASSIFICATIONS
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current-year financial statements.
INTERIM FINANCIAL INFORMATION
The financial information presented for the nine-month period ended June
30, 2000 is unaudited but in the opinion of management, reflects all of the
adjustments necessary for a fair presentation of such financial statements.
The results of operations for the nine-month period ended June 30, 2000 are
not necessarily indicative of the operating results to be expected for the
year ended September 30, 2000.
REPORTING COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" for the year ended September 30, 1999; all
prior periods have been restated for purposes of comparison. This Statement
establishes standards for reporting and displaying comprehensive income and
its components in a full set of general-purpose financial statements. This
statement requires the classification of items of comprehensive income by
their nature in a financial statement and the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet.
The Company has a substantial deficiency in working capital and has
accumulated a significant shareholders' deficit Despite this, in the
opinion of management the Company remains viable. Its staff in the United
States and Costa Rica have developed considerable expertise in the
application of coatings and in developing enhanced techniques and operating
parameters. Since its inception, the Company has raised $2.5 million
through the sale of common stock other than stock issued in exchange for
services. The Company intends through its acquisition of and integration
with High Velocity Technology, to combine complementary skills to develop a
highly competitive engineering enterprise.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For the period ended:
September 30, June 30,
1997 1998 1999 2000
---- ---- ---- ----
Cash paid for:
Interest Expense: $10,070 $23,695 $33,191 $15,701
Income Taxes $ 967 $ 959 -- --
During the year ended September 30, 1999, the Company issued 30,000 shares
of stock in lieu of cash repayment of a shareholder loan.
During the year ended September 30, 1999, the Company had non-cash
investing and financing transactions relating to purchases of new equipment
totaling $23,500.
During the nine months ending June 30, 2000, the Company issued 220,667
shares of stock as payment for services.
F-9
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
3. INVENTORY
For the period ended:
September 30, June 30,
1997 1998 1999 2000
---- ---- ---- ----
Inventory consists of the
following:
Raw Materials $ 30,182 $ 28,209 $ 19,779 $121,575
Machinery held for
Resale -- $ 36,879 -- 2,523
-------- -------- -------- --------
Total Inventory $ 30,182 $ 65,088 $ 19,779 $124,098
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
For the period Ended:
Estimated useful September 30, June 30,
Life-years 1997 1998 1999 2000
---------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Machinery, equipment and furniture 5-10 $176,121 $145,523 $185,879 $264,883
Leasehold improvements 5-31.5 51,104 40,120 40,120 40,120
-------- -------- -------- --------
227,225 185,643 225,999 305,003
Less accumulated depreciation and
amortization 46,284 65,926 81,749 104,348
Net property and equipment -- -- -- --
$180,941 $119,717 $144,250 $200,655
======== ======== ======== ========
</TABLE>
Depreciation for the years ended September 30, 1999, 1998 and 1997 was
$15,823 $30,597 and $26,362, respectively. For the nine months ended June
30, 2000, depreciation was $18,843.
5. GOODWILL
As a result of the purchase of High Velocity Technology, Inc. on May 19,
2000, the Company has recorded, in consolidation, goodwill of $450,772 less
accumulated amortization of $3,756 in the month of June.
6. LONG TERM DEBT
<TABLE>
<CAPTION>
For the period Ended:
September 30, June 30,
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Line of credit -- bank, $25,000
available, payable on demand.
In September 1999, this was converted
into a term loan $ 24,977 $ 24,977 $ 0 $ 0
Note payable -- bank, due in monthly
installments of $687 plus interest at
prime plus 3%, expiring September, 2002.
This note is secured by substantially all
of the Company's assets 0 0 24,749 18,562
Various equipment notes with terms
expiring December, 1999 through September,
2003. The loans provide for monthly
payments of principal and interest.
Interest rates range from 15-18%. 57,882 40,282 45,180 180,976
-------- -------- -------- --------
82,859 65,259 69,929 199,538
Less current maturities 42,114 44,495 25,639 92,148
-------- -------- -------- --------
Long term debt $ 40,745 $ 20,764 $ 44,290 $107,390
======== ======== ======== ========
</TABLE>
7. SHAREHOLDER LOAN
This amount represents the total due to certain shareholders of $425,904,
$105,642, and $103,667 as of September 30, 1999, 1998 and 1997,
respectively. At June 30, 2000, the total due was $211,507. This loan has
no maturity and bears no interest.
F-10
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
8. SALES TO MAJOR CUSTOMERS
For the year ending September 30, 1999, one customer accounted for 39% of
the Company's sales and 63% of accounts receivable. For the year ending
September 30, 1998, one customer accounted for 10% of the Company's sales
and 7% of accounts receivable. For the year ending September 30, 1997, one
customer accounted for 32% of sales and 47% of the Company's accounts
receivable balance. During the nine months ended June 30, 2000, one
customer accounted for 23% of sales and 26 % of accounts receivable.
9. COMMITMENTS AND CONTINGENCIES LEASES
TCR is currently obliged under a lease through January 2003 for its office
space and shop space in Costa Rica. The lease calls for an annual rent of
$24,276, due in monthly payments.
TTI was obliged under a lease for its office space in West Babylon, NY,
which expired July 1998 for a minimum annual rental of $13,200. TTI
currently occupies this space on a month-to-month basis at a minimum annual
rental of $13,800.
HVT is currently obliged under a lease through December 31, 2000 for its
office space and shop space in West Lebanon, NH. The lease calls for
monthly lease payments of $3,700.
Total rental expense under cancellable and noncancellable operating leases
was $30,196, $24,920 and $ 13,900 for the years ended September 30, 1999,
1998 and 1997, respectively. For the nine months ending June 30, 2000,
total rental expense was $28,107.
Future minimum lease obligations under non-cancelable leases are as
follows:
For the year ending,
September 30, 2000 $ 35,376
September 30, 2001 35,376
September 30, 2002 24,276
September 30, 2003 8,092
--------
Total $103,120
--------
10. COMMON STOCK
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock is as follows: -- -- -- --
Common stock, $.0001 par value,
10,000,000 shares authorized
Shares issued and outstanding 2,050,751 2,397,351 2,608,118 4,078,785
Par Value $205 $239 $261 $408
</TABLE>
Common Stock:
During the year ended September 30, 1997, the Company issued 16,001 shares
to outside providers of marketing services.
During the year ended September 30, 1998, the Company issued 58,000 shares
for services to outside consultants, as follows:
Number of Shares Amount
---------------- ------
Marketing services 27,000 shares $27,000
Technical services 25,000 shares 25,000
Financial services 4,000 shares 4,000
Registrar services 2,000 shares 2,000
During the year ended September 30,1999, the Company issued 72,567 shares
to outside consultants, as follows:
Marketing services 35,067 shares $326,937
Legal services 21,000 shares 219,188
Financial & Administrative
Services 16,500 shares 96,593
F-11
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
During the nine months ending June 30, 2000, the Company issued 220,667
shares for services to outside consultants as follows:
Marketing services 43,041 shares $ 67,850
Administrative services 177,626 shares 323,987
For the year ended September 30, 1998, the Company completed the issuance
of 271,600 shares of common stock at various prices of $0.75 to $1.50 per
share and carried with them a warrant granting the right to purchase, for
each share purchased, an additional share of Thermaltec common stock at a
price of $1.00 per share. The warrants expire on January 31, 2001. At
September 30, 1999 a total of 108,200 warrants had been exercised for an
equal number of shares. The proceeds from the sale of these shares, net of
registration fees, totaled $106,949. During the nine months ending June 30,
2000, a total of 1,000 warrants had been exercised for an equal number of
shares. The registration fee was waived.
During the year ended September 30, 1999, the Company issued 30,000 shares
of common stock in lieu of cash repayment of a shareholder loan
On May 31. 1999. the Company authorized the sale of 1,000,000 shares of
common stock to be offered in private transactions of 1,000 Units,
representing 1,000 shares per Unit. Each Unit consisted of 1,000 Common
shares and 650 B Warrants and 500 C Warrants for the purchase of additional
shares of the Company. Such offering was filed with the State of New York
Department of Law. The Company utilized an exemption from the registration
provisions under Regulation D Rule 504. as amended, and sold in those
States which permit the offering to take place. The termination date of the
offering was March 31, 2000. The exercise once of the Warrants is $1.50 per
B Warrant share and $2.00 per C Warrant share, exercisable commencing one
year from the date of the subscription agreement for the B Warrant and two
years from the date of the subscription agreement for the C Warrant. The B
Warrants will expire March 31, 2002 and the C Warrants will expire March
31, 2003. 999,000 shams were subscribed in the offering. There were 649,350
B Warrants and 499,500 C Warrants subscribed. On April 13, 2000, 999,000
shares were issued.
On June 13, 2000, 250,000 shares were issued as payment for the purchase of
High Velocity Technology, Inc.
11. INCOME TAXES
No provision for income taxes was recorded during the years ended September
30, 1999, 1998 and 1997, due to net losses being incurred. The Company does
not anticipate having taxable income at September 30, 2000 and has not
provided for a tax liability on an interim basis. At September 30, 1999,
the Company had net operating loss carryforwards for tax purposes of
approximately $ 1,800,000, which would expire in 2014.
The Company's effective tax rate in 1997, 1998 and 1999 differs from the
federal statutory rate as a result of a full valuation allowance being
provided against gross deferred tax assets.
Deferred tax assets consist of the following components at:
September 30:
1997 1998 1999
---- ---- ----
Net operating loss carryforwards $252,200 $382,000 $760,900
Less: valuation allowance 252,200 382,000 760,900
-------- -------- --------
Total deferred $ -- $ -- $ --
======== ======== ========
At September 30, 1999, 1998 and 1997 and at December 31, 1999, the Company
provided a full valuation allowance against the gross deferred tax asset
since, in management's judgment, it is more likely than not, such benefits
will not be realized.
F-12
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
12. GEOGRAPHIC INFORMATION
The Company's revenues from external customers is derived from the
following geographic markets:
For the nine
For the year ended months ended
September 30: June 30:
1997 1998 1999 2000
---- ---- ---- ----
United States
(excluding Puerto Rico) $341,604 $ 91,560 $217,778 $134,257
Costa Rica 100,660 179,367 191,209 76,794
Puerto Rico -- 4,919 -- --
Dominican Republic -- -- -- --
-------- -------- -------- --------
Total $442,264 $275,846 $408,987 $211,051
======== ======== ======== ========
13. SUBSEQUENT EVENTS/MERGERS AND ACQUISITIONS
On December 11, 1998 the Company entered into an agreement with Solar
Communication Group, Inc. (later renamed Camanco Communications, Inc.) of
Millville, New Jersey. Under the terms of this agreement, the Company was
to increase its number of authorized shares to 70,000,000. The Company
would then acquire all of the outstanding shares of Camanco in exchange for
59,500,000 of its shares, with the current shareholders of the Company
retaining their existing shares in the Company. The current owners of
Camanco would then become the majority shareholders of the Company; this is
a process that is sometimes referred to as a "reverse merger". The
consummation of the merger was subject to a number of conditions, including
the completion of customary due diligence, the receipt of all necessary
governmental, regulatory, shareholder and third party approvals as well as
the registration of the shares of the Company's common stock to be issued
in conjunction with the merger with the SEC and with all appropriate state
regulatory authorities.
On December 13, 1999 Camanco exercised its option under the agreement to
terminate the process.
On January 31, 2000, the Company signed a letter of intent to acquire the
assets of Edge Management Inc. Edge Management is a privately-held firm in
the Professional Employers Organization industry; it has current annual
revenues of $43 million. Upon completion of the due diligence process, the
Company chose to withdraw from further negotiations with Edge Management
Inc.
On January 31, 2000, the Company signed a letter of intent to acquire one
million shares, representing 10% of the outstanding shares of i/X/
Partners, Ltd. I/X/ based in Salem, NH, is active in the field of
information technology, with a special emphasis on developing and enhancing
real-time data processing systems by means of the Internet. The acquisition
will be effected by the exchange of 200,000 shares of Thermaltec common
stock. The completion of the acquisition is subject to the usual due
diligence process. As of June 30, 2000, the due diligence process was
ongoing.
On February 4, 2000, the Company signed a letter of intent to acquire the
assets of High Velocity Technology Inc., a privately held company in the
thermal spray industry. The acquisition was consummated on May 19, 2000 by
the exchange of 250,000 shares of Thermaltec common stock and $100,000 in
cash for all of the assets of High Velocity.
On February 14, 2000, the Company signed a letter of intent to acquire the
assets of Viaplex Communications, Inc. an Information Technology
professional services company with specialized expertise in the design,
implementation and support of enterprise multi-service networks and
applications. Upon completion of the due diligence process, the Company
chose to withdraw from further negotiations with Viaplex.
F-13
<PAGE>
[LETTERHEAD OF CAPRARO, CENTOFRANCHI, KRAMER & CO. P.C.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
High Velocity Technologies, Inc.
We have audited the accompanying balance sheets of High Velocity Technologies,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Velocity Technologies,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Capraro, Centofranchi, Kramer and Co., P.C.
Capraro, Centofranchi, Kramer and Co., P.C.
South Huntington, New York
August 16, 2000
F-14
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC
BALANCE SHEETS
DECEMBER 31,
ASSETS
1999 1998
-------- --------
CURRENT ASSETS
Cash $ 16,553 $ 54,839
Marketable securities -- 20,125
Accounts receivable 42,320 62,872
Inventories 110,626 202,538
-------- --------
Total Current Assets 169,499 340,374
-------- --------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $88,969 and $71,602
for 1999 and 1998, respectively 84,183 126,619
-------- --------
OTHER ASSETS
Due from Officer -- 16,992
Other assets 2,250 2,250
-------- --------
Total Other Assets 2,250 19,242
-------- --------
TOTAL ASSETS $255,932 $486,235
======== ========
See accompanying notes to financial statements.
F-15
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC
BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
--------- ---------
CURRENT LIABILITIES
Current portion of long-term debt $ 26,931 $ 32,440
Notes payable 30,000
Accounts payable and accrued expenses 190,310 148,145
Taxes payable 1,530 13,167
Customer deposits -- 75,000
--------- ---------
Total Current Liabilities 248,771 268,752
OTHER LIABILITIES
Due to Officer 30,696 --
Long-term debt, net of current portion 74,186 83,938
--------- ---------
Total Liabilities 353,653 352,690
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value,
1,000,000 shares authorized
510,000 and 1,000,000 shares
issued and outstanding 54,152 122,010
Retained earnings (deficit) (151,873) 11,535
--------- ---------
Total Stockholders' Equity (Deficit) (97,721) 133,545
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 255,932 $ 486,235
========= =========
See accompanying notes to financial statements.
F-16
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
----------- -----------
Sales, net $ 538,070 $ 1,149,418
Cost of goods sold 501,658 722,500
----------- -----------
Gross profit 36,412 426,918
Selling, general and administrative expenses 382,367 372,766
----------- -----------
Income (loss) before other income(expense) (345,955) 54,152
----------- -----------
Other income (expenses):
Interest expense (14,935) (8,506)
Unrealized gain on investments in marketable
securities -- 9,625
Interest income 874 614
Gain on sale of technology 70,000
Gain on sale of assets 2,025
Gain on exchange of marketable securities
for treasury stock 12,875
----------- -----------
Total other income (expenses) 170,839 1,733
----------- -----------
Income (loss) before income taxes (benefit) (175,116) 55,885
Income taxes (benefit) (11,708) 11,708
----------- -----------
Net Income (loss) $ (163,408) $ 44,177
=========== ===========
See accompanying notes to financial statements.
F-17
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Number of Retained
Common Common Earnings
Shares Stock (Deficit) Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance - December 31, 1997 510,000 $ 10 $ (32,642) $ (32,632)
Issuance of common stock 490,000 122,000 122,000
Net Income for the year ended December 31, 1998 44,177 44,177
---------- ---------- ---------- ----------
Balance - December 31, 1998 1,000,000 $ 122,010 $ 11,535 $ 133,545
Purchase and retirement of treasury stock (490,000) (67,858) (67,858)
Net (loss) for the year ended December 31, 1999 (163,408) (163,408)
---------- ---------- ---------- ----------
Balance - December 31, 1999 510,000 $ 54,152 $ (151,873) $ (97,721)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (163,408) 44,177
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 26,571 41,319
Unrealized gain on marketable securities -- (9,625)
Realized gain on disposal of property and equipment (2,025) --
Realized gain on marketable securities (112,875) --
Gain on sale of technology (70,000) --
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable 20,552 35,758
Inventories 91,912 (118,242)
Marketable securities 133,000 (10,500)
Other assets -- 691
Increase (Decrease) in:
Accounts payable and accrued expenses 42,165 (60,671)
Customer deposits (37,500) 25,350
Taxes payable (11,636) 13,166
--------- ---------
Net cash provided (used) by operating activities (83,244) (38,577)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of technology 70,000 --
Payments made for property and equipment (8,402) (84,672)
Proceeds from sales of property and equipment 26,292 --
--------- ---------
Net cash provided (used) by investing activities 87,890 (84,672)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 122,000
Proceeds from notes payable 30,000 --
Advances from (repayments to) officer 47,688 (9,238)
Loan advances (repayments), net (52,762) 55,790
Acquisition of treasury stock (67,858) --
--------- ---------
Net cash provided (used) by financing activities (42,932) 168,552
--------- ---------
NET INCREASE (DECREASE) IN CASH (38,286) 45,303
CASH AND CASH EQUIVALENTS - BEGINNING 54,839 9,536
--------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 16,553 $ 54,839
========= =========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
High Velocity Technologies, Inc. ("HVT" or the "Company") was incorporated
in 1993 under the laws of the State of New Hampshire. HVT was organized for
the purpose of engaging in the manufacture and sale of thermal spray
coating equipment to customers in the United States and other countries.
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates include those relating to inventories and
accounts receivable.
REVENUE RECOGNITION
Revenue from customer orders is recognized on the accrual basis of
accounting when units manufactured, or their components, are completed and
shipped.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash on
deposit, money market funds and amounts held by brokers in cash accounts to
be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable have been adjusted for all known uncollectible sales
and an allowance for doubtful accounts has not been provided, as the amount
is not considered material.
INVESTMENTS
The Company adopted Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company has classified all investment securities as trading securities
which are measured at fair value in the financial statements with
unrealized gains and losses included in earnings.
INVENTORY
Inventory consists of raw materials, work-in-progress, finished goods and
used equipment. Raw materials and used equipment are valued at the lower of
cost (first-in, first-out) or market. Work-in-progress and finished goods
are valued using a process costing analysis that includes capitalized labor
and overhead where appropriate.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
Maintenance, repairs, and minor renewals are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation are removed from the accounts and resulting gains
or losses are included in income. Depreciation is provided by both
straight-line and accelerated methods over the estimated useful lives of
the assets.
INTANGIBLE ASSETS
Organization costs are being amortized on a straight-line basis over sixty
months.
See accompanying notes to financial statements.
F-20
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INCOME TAXES
The Company adopted Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". The Company provides for Federal and state
income taxes if and when taxable income, after utilizing available
carryforward losses, exceeds certain levels.
2. SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998
------------ ----------
Cash paid for:
Interest 14,935 8,506
Income taxes -- --
Additionally, the Company had non-cash financing activities during the year
ended December 31, 1999 of $37,500 resulting from the conversion of a
customer advance balance to long-term debt.
3. MARKETABLE SECURITES
At December 31, 1998, marketable securities represented one position in a
trading account, including an unrealized gain of $9,625, which was included
in earnings for the year then ended. The investment was disposed of in
1999.
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated useful December 31,
life - years 1999 1998
---------------- --------- ----------
<S> <C> <C> <C>
Machinery, equipment and furniture 5-10 $ 137,526 $ 162,595
Leasehold improvements 5-31.5 19,024 19,024
Other Various 16,602 16,602
--------- ---------
173,152 198,221
Less: accumulated depreciation and amortization (88,969) (71,602)
--------- ---------
Net property and equipment $ 84,183 $ 126,619
========= =========
</TABLE>
Depreciation and amortization expense was $ 26,571 and $ 41,319 for the
years ended December 31, 1999 and 1998, respectively.
5. NOTES PAYABLE
The Company has three $10,000 notes with individuals. One note was due on
August 4, 1999 and the other two were due on October 19, 1999. All three
notes accrue interest at 12% per annum. As of December 31, 1999, all three
notes were in default of payment and have been classified as current
liabilities. The $10,000 note due August 4, 1999 was subsequently paid,
including accrued interest, in the first quarter of 2000.
See accompanying notes to financial statements.
F-21
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Various term loans expiring March, 2000
through November, 2005. The loans provide for monthly payments
of principal and annual interest with rates ranging from 8-9%
The loans are secured by substantially all assets
of the Company $ 101,117 $ 116,378
Less current maturities (26,931) (32,440)
--------- ---------
Long-term debt $ 74,186 $ 83,938
========= =========
</TABLE>
As of December 31, 1999, annual maturities of long-term debt for the next
five years and thereafter are as follows:
December 31,
------------
2000 $ 26,931
2001 24,363
2002 25,340
2003 7,805
2004 8,537
Thereafter 8,141
---------
Total $ 101,117
=========
7. SALES TO MAJOR CUSTOMERS
During 1999, four customers, collectively, accounted for approximately 69%
of the Company's sales, each of which were in excess of 10% of the
Company's sales. During 1998, two customer s accounted for approximately
24% and 10% of the Company's sales. In addition, as of December 31, 1999
and 1998, four customers accounted for approximately 86% and 81%, of the
accounts receivable balance, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES
HVT is obligated for its New Hampshire office and manufacturing facility
under the terms of a non-cancelable lease that expires in September, 2001.
Monthly rental payments are approximately 3,450 plus a 5% annual escalation
and monthly charges for utilities. The total minimum monthly payments
through the end of the lease term are approximately $76,500.
The following is a schedule by year of future minimum lease obligations
under all noncancellable operating leases:
For the year ending December 31,
2000 $ 42,911
2001 33,656
-------
$ 76,567
Total rental expense under this non-cancelable lease was $49,381 and
$43,458 for the years ended December 31, 1999 and 1998, respectively.
See accompanying notes to financial statements.
F-22
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
9. COMMON STOCK / STOCK SPLIT
In 1998, the Company issued 49 shares of common stock, which represented a
49% interest in HVT, to an individual for $122,000. During April, 1999, the
Company approved and effected a 10,000 for 1 stock split. In June, 1999,
the Company acquired the 490,000 post-split common shares in exchange for
its investment in tradable securities plus related common stock warrants.
The acquired shares where immediately retired to treasury as authorized and
unissued. (See also SUBSEQUENT EVENTS, Sale of Business)
10. INCOME TAXES
A credit provision for income taxes was recorded for the year ended
December 31, 1999 to the extent of prior year accrual for federal and state
income taxes. At December 31, 1999, the Company had a net operating loss
carryforward for income tax purposes of approximately $163,000, which would
expire in 2015.
Income tax expense for the year ended December 31,1998 was $11,708.
The Company's effective tax rate for 1999 differs from the federal
statutory rate as a result of a valuation allowance being provided against
the gross deferred tax asset.
Deferred tax asset consisted of the following components at December 31,
1999:
1999
--------
Net operating loss carryforwards $ 65,000
Less: valuation allowance (65,000)
--------
Total deferred tax asset $ --
========
At December 31, 1999, the Company provided a full valuation allowance
against the gross deferred tax asset since, in management's opinion, it is
more likely than not, such benefits may not be realized during the
carryforward period.
11. SUBSEQUENT EVENT
In May, 2000, the remaining shareholder of the Company agreed to sell 100%
of his interest in HVT for cash plus common stock of the acquiring company.
12. GOING CONCERN
These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a
reasonable length of time. The accompanying financial statements show that
current liabilities exceed current assets by approximately $79,000 and that
total liabilities exceed total assets by approximately $98,000.
The Company has received a formal financing arrangement with its new Parent
Company for up to $170,000 of funding to cover the payment of existing
short-term notes and outstanding trade payables. Through June 30, 2000, the
Company has received advances of approximately $127,000 against such
financing arrangement. Based on this fact, Management believes that there
is sufficient reason for the Company to be considered as a going concern.
See accompanying notes to financial statements.
F-23
<PAGE>
Unaudited Condensed Pro-Forma
Consolidated Balance Sheet
As of September 30, 1999
<TABLE>
<CAPTION>
Historical Pro-Forma
------------------------------- -----------------------------
Thermaltec High Velocity
International Technology
Corp. Inc. Adjustments Consolidated
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets $311,997 $169,499 ($204) $481,292
Other Assets 149,340 86,433 0 235,773
--------- --------- --------- ---------
TOTAL ASSETS $461,337 $255,932 ($204) $717,065
========= ========= ========= =========
Current Liabilities 665,276 248,771 0 914,047
Other Liabilities 44,290 104,882 0 149,172
Stockholders' Equity(Deficit) (248,229) (97,721) (204) (346,154)
--------- --------- --------- ---------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY(DEFICIT) $461,337 $255,932 ($204) $717,065
========= ========= ========= =========
</TABLE>
F-24
<PAGE>
Unaudited Condensed Pro-Forma
Consolidated Statement of Operations
For the Year Ending September 30, 1999
<TABLE>
<CAPTION>
Historical Pro-Forma
------------------------------ --------------------------------
Thermaltec High Velocity
International Technology
Corp. Inc. Adjustments Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $408,987 $538,070 ($405) $946,652
Cost of Goods Sold 316,257 501,658 (201) 817,714
----------- ----------- ----------- -----------
Gross Profit 92,730 36,412 (204) 128,938
Selling,General & Administrative Expense 1,051,334 382,367 0 1,433,701
----------- ----------- ----------- -----------
Income (loss) Before Other Income(loss) (958,604) (345,955) (204) (1,304,763)
----------- ----------- ----------- -----------
Other Income(loss) (1,330) 182,547 0 181,217
----------- ----------- ----------- -----------
Net Income (loss) ($959,934) ($163,408) ($204) ($1,123,546)
=========== =========== =========== ===========
</TABLE>
F-25
<PAGE>
Unaudited Condensed Pro-Forma
Consolidated Balance Sheet
As of June 30, 2000
<TABLE>
<CAPTION>
Historical Pro-Forma
---------------------------------- ----------------------------------
Thermaltec High Velocity
International Technology
Corp. Inc. (1) Adjustments Consolidated
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Current Assets $685,402 $685,402
Other Assets 651,993 651,993
TOTAL ASSETS 1,337,395 0 0 1,337,395
Current Liabilities 727,802 727,802
Other Liabilities 107,390 107,390
Stockholders' Equity(Deficit) 502,203 502,203
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY(DEFICIT) $1,337,395 $0 $0 $1,337,395
</TABLE>
(1) All Balance Sheet amounts for High Velocity Technology, Inc. are included
in the consolidated historical balances for Thermaltec International Corp.,
from the May 19, 2000 date of acquisition forward.
F-26
<PAGE>
Unaudited Condensed Pro-Forma
Consolidated Statement of Operations
For the Nine-month Period Ending June 30, 2000
<TABLE>
<CAPTION>
Historical Pro-Forma
---------------------------------- ---------------------------------
Thermaltec High Velocity
International Technology
Corp.(1) Inc.(2) Adjustments Consolidated
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $211,051 $280,563 $491,614
Cost of Goods Sold 209,250 171,805 381,055
----------- ----------- ----------- -----------
Gross Profit 1,801 108,758 0 110,559
Selling,General & Administrative Expense 1,114,097 161,759 1,275,856
----------- ----------- ----------- -----------
Income (loss) Before Other Income(loss) (1,112,296) (53,001) 0 (1,165,297)
Other Income(loss) 9,244 18,700 27,944
----------- ----------- ----------- -----------
Net Income (loss) ($1,103,052) ($34,301) $0 ($1,137,353)
=========== =========== =========== ===========
</TABLE>
(1) Includes operating results of High Velocity Technology, Inc.after May 19,
2000.
(2) Operating results of High Velocity Technology Inc. from January 1, 2000
through May 19, 2000.
F-27
<PAGE>
UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro-forma condensed consolidated financial
statements give effect to the merger of High Velocity Technology Inc. into
Thermaltec International Corp., which occurred on May 19, 2000.The pro-forma
financial statements are presented for illustrative purposes only, and therefore
are not necessarily indicative of the operating results and financial positions
that might have been achieved had the transaction occurred as of an earlier
date, nor are they necessarily indicative of operating results and financial
positions which may occur in the future.
The condensed historical statements of operations for the periods presented
are derived from the historical financial statements of High Velocity Technology
Inc. and Thermaltec International Corp. and should be read in conjunction with
their financial statements, which are included elsewhere herein. The historical
financial statements have been prepared in accordance with generally accepted
accounting principles and, in the opinion of the respective managements of High
Velocity Technology Inc. and Thermaltec International Corp., include all
adjustments necessary for a fair presentation of financial information for such
periods.
A pro-forma condensed balance sheet is provided as of September 30, 1999,
giving effect to the transaction as if it had been consummated on that date. For
the sake of illustration, the balance sheet for Thermaltec International Corp.
as of that date has been combined with that of High Velocity Technology Inc. as
of December 31, 1999. In each case, these dates represent the closing date of
each firm's most recent fiscal year. The pro-forma balance sheet for the
consolidated group for the interim date of June 30, 2000 contains only the
consolidated accounts of Thermaltec International Corp., since those accounts
already include those of High Velocity Technology Inc., which was a wholly-owned
subsidiary of Thermaltec International Corp. as of that date.
A pro-forma condensed consolidated statement of operations is provided for
the year ended September 30, 1999, giving effect to the transaction as if it had
been consummated on that date. For the sake of illustration, the statement of
operations of Thermaltec International Corp. for the year ended that date has
been combined with that of High Velocity Technology Inc. for the year ended
December 31, 1999. In each case, these dates represent the closing date of each
firm's most recent fiscal year. The pro-forma statement of operations for the
consolidated group for the interim period ended June 30, 2000 contains the
nine-month fiscal year-to-date results of Thermaltec International Corp.,
including the results of operations of High Velocity Technology Inc. for the one
month of operations since the merger;in addition, and for illustrative purposes,
the results of operations of High Velocity Technology Inc. for the five-month
period from January 1, 2000 through May 19, 2000 are separately presented in the
pro-forma statement.
F-28
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THERMALTEC INTERNATIONAL, CORP.
-------------------------------
Date By /s/ Andrew Mazzone
------------------- ----------------------------------------
Andrew Mazzone, President and
Chairman of the Board of Directors
Principal Financial Officer
Principal Accounting Officer
<PAGE>
ITEM 27 - EXHIBITS
Index to Exhibits
--------------------------------------------------------------------------------
EXHIBITS
SEC REFERENCE TITLE OF DOCUMENT LOCATION
NUMBER
--------------------------------------------------------------------------------
3.1 Articles of Incorporation Previously filed
--------------------------------------------------------------------------------
3.2 Amendment to Articles of Previously filed
Incorporation
--------------------------------------------------------------------------------
3.3 Additional Amendment to This Filing Page
Articles of Incorporation
--------------------------------------------------------------------------------
3.4 Bylaws Previously filed
--------------------------------------------------------------------------------
10.1 Lease Agreement on the premises Previously filed
Babylon, NY
--------------------------------------------------------------------------------
10.2 Lease Agreement on the premises Previously filed
Costa Rica
--------------------------------------------------------------------------------
10.3 Letters of Intent Previously filed
--------------------------------------------------------------------------------
10.4 New York State Thruway This Filing Page
Authority Thermal Spraying
Specification
--------------------------------------------------------------------------------
10.5 Dividend Letter Panama Industries This Filing Page
--------------------------------------------------------------------------------
11.1 Statement re: Computation Previously filed
of per share earnings
--------------------------------------------------------------------------------
27.1 Financial Data Schedule Previously filed
