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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:
----------------------------------- --------------------------------
----------------------------------- --------------------------------
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 and Plan of Operations......................14
Principal Shareholders.......................................................20
Management...................................................................21
Certain Transactions.........................................................23
Description of Securities and Market for Common Equity
And Related Shareholder Matters..................................23
Dividend Policy..............................................................25
Stock Transfer Agent.........................................................25
Legal Matters................................................................25
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 thermal spray process is widely used to solve corrosion and wear
problems in Europe, North America and Japan. Estimated sales are $1,800,000,000
- $2,000,000,000 per year for just North America as published in the Gorham
Report for 1999. Estimates for Japan and Europe are not available. The
registrant's estimates have been replaced by the authoritative industry Gorham
Report published by Gorham Advanced Materials Institute, Gorham, Maine 04038.
Company Specific
The Company develops its 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. The Company maintains a full complement of
coating devices, and metal working finishing equipment.
The use of this service has value 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
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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 better analog of what to expect
in all phases of thermal spraying than is the New York location.
It is the Compnay's intent to continue to add resources to the Costa Rican
location.
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
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.
On May 19, 2000 the Company acquired all of the assets and liabilities of
High Velocity Technology, Inc. by merging it into Panama Industries Ltd., a
wholly-owned subsidiary of Thermaltec International, in a tax-free
reorganization qualifying under Section 368(a)(1)(A) of the Internal Revenue
Code. The President and sole shareholder of High Velocity, Robert J. Lalumiere
received in exchange for all of his stock in High Velocity 250,000 shares of the
Company's common stock and $90,000, $40,000 of which was paid at closing with
$15,000 paid in October 2000 and the balance of $35,000 still outstanding. Mr.
Lalumiere entered into an employment agreement, whereby he became the President
and Chief Executive Officer of Panama. The assets of High Velocity consisted
primarily of the machinery and equipment necessary to operate the thermal spray
equipment manufacturing business. The equipment manufactured and sold are (1) a
high velocity wire and powder torch, and (2) an EAS-WD ARC wire system. It had
over 60 customers and had sales of approximately $500,000 in 1999. Its business
was continued by Panama and integrated into Panama's operations.
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 Company's shop 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
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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.
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.
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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 agreed 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.
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 55000 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.
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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 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 in its Costa Rican operation utilizes all of the following
processes: wire flame spraying, powder flame spraying, electric arc spraying,
plasma spraying, high velocity oxygen/fuel, and high velocity air/kerosene. In
New York, the Company uses wire flame spraying, powder flame spraying and high
velocity air/kerosene.
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.
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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 today's 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 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 but cannot prove 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 oversee 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 the Camanco 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 level of $10,000 per month. For the immediate future,
our objective will be to attempt to reach a breakeven condition.
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
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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.
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 by the Company 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.
As described above in Comment 1, the business in New York has revolved
around the bridge business. We cannot compete in NY because larger and
better-financed competitors are receiving contracts for this business. These
competitors include the following:
Corrosion Restoration Technologies Zenith Company
612 N. Orange Ave. 104 Fourth Street
Jupiter, Fl 33458 Pittsburg, PA 15215
Erie Maintenance, Inc. Erie Interstate Contractors
999 Rein Rd. 5428 Genesse St.
Cheektowaga, NY 14225 Lancaster, NY 14086
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National Thermal Spray & Sandblasting Atlas Co.
10 Dunton Ave. 127 Skillen St.
Deer Park, NY 11729 Buffalo, NY 14207
Amstar of Western NY, Inc.
4246 Union Rd., Suite 209
Cheektowaga, NY 14225
NYS approval pertains to the bridge, coating business. We are an approved
vendor by NYS Department of Transportation (See Exhibit10.7) and if we receive a
coating contract, that contract is monitored daily by NYS inspectors. In Costa
Rica, all our work is by purchase order and is subject to period plant
inspections by safety and emission by government inspectors. The Company has
received no notice of violation or citations from such inspections.
The Company does not conduct research and development. It restricts itself
to the application of existing technology. The cost of applying existing
technology is recorded in cost of goods sold.
The cost of compliance with government regulation is embedded in the cost
of environmentally safe equipment. Governmental inspection requires assistance
by employees and such assistance is deemed to be not material by the Company.
As requested by you in Comment 3, Item 101(11), a new section called
Government Regulation has been added to the Description of Business Section.
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) 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
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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.
The September 30, 1999 accounts receivable balance includes $90 Thousand from
one contract for a bridge coating project; this was collected in March 2000. The
June 30, 2000 accounts receivable balance includes $47 Thousand from NYSERDA as
well as $93 Thousand acquired from High Velocity Technology. The NYSERDA balance
at June 30, 2000 includes $30 Thousand, which represents 10% retainage payable
upon completion of the project.
The decreases of sales to the two largest customers are being replaced by
revenues and is not expected to have an adverse effect on Company liquidity.
During the year ended September 30, 1999, Costa Rica accounted for 47% of
Company sales. During the nine months ended June 30, 2000, Costa Rica accounted
for 36% of Company sales. This shift in percentage of total revenues reflects
the inclusion of High Velocity Technology's revenues in June 2000.
Although we have 500 thermal spray service customers in Costa Rica, we have only
2 significant thermal spray customers in NY. The acquisition of High Velocity
has added over 50 new customers of thermal spray materials and equipment.
The % of revenues generated by:
9/30/99 6/30/2000
New York State Energy Research 5% 23%
And Development Authority (NYSERDA)
National Power and Light Co. less than 1% 0
La Nacion less than 1% 1%
The Company's revenue from NYSERDA is generated pursuant to a contract
resulting from a formal procurement. The remaining elements of the
Company's business is on a per purchase order basis. The NYSERDA contract
is being filed as Exhibit 10.6 in this amended filing.
The revenues generated by:
9/30/99 6/30/2000
NYSERDA $ 22,279 $47,626
Costa Rica 191,209 76,794
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.
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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:
As of June 30, 2000, the Company had 9 full-time employees in Costa Rica. In the
United States, there were 6 full-time employees in High Velocity Technology and
3 employees, of which 2 are part-time at the NY location.
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.
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.
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MANAGEMENT DISCUSSION AND ANALYSIS OF CONDITION AND 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. Based on
our experience the company believes, but cannot prove that TCR is one of the
leading thermal spray companies in Central America. 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.
Government Regulations
The Company, both in Latin America and in the U.S., is subject to Workers'
Compensation and Safety Laws. Thermaltec has all necessary licenses from all
governmental agencies to conduct business in both the US and Costa Rica. It has
not had any warnings or citations for any violations. To the best of its
knowledge, the Company complies with all emissions regulations and waste removal
regulations. The Company believes its only exposure would be in the area of
Workers' Compensation claims for which it is insured. The Company doesn't
reserve for possible problems in this area because of its history of not having
such problems.
The business in New York has revolved around the bridge business. We cannot
compete in NY because larger and better-financed competitors are receiving
contracts for this business. These competitors include the following:
Corrosion Restoration Technologies Zenith Company
612 N. Orange Ave. 104 Fourth Street
Jupiter, Fl 33458 Pittsburg, PA 15215
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Erie Maintenance, Inc. Erie Interstate Contractors
999 Rein Rd. 5428 Genesse St.
Cheektowaga, NY 14225 Lancaster, NY 14086
National Thermal Spray & Sandblasting Atlas Co.
10 Dunton Ave. 127 Skillen St.
Deer Park, NY 11729 Buffalo, NY 14207
Amstar of Western NY, Inc.
4246 Union Rd., Suite 209
Cheektowaga, NY 14225
NYS approval pertains to the bridge coating business. We are an approved
vendor by NYS Department of Transportation (See Exhibit 10.7) and if we receive
a coating contract, that contract is monitored daily by NYS inspectors. In Costa
Rica, all our work is by purchase order and is subject to periodic plant
inspections by government safety and emission inspectors. The Company has
received no notice of violation or citations from such inspections.
The Company does not conduct research and development. It restricts itself
to the application of existing technology. The cost of applying existing
technology is recorded in cost of goods sold. The cost of compliance with
government regulation is embedded in the cost of environmentally safe equipment.
Governmental inspection requires assistance by employees and such assistance is
deemed to be not material by the Company.
New York State Thruway Authority has approved and is currently using
thermal spray coatings as an acceptable method of corrosion protection of bridge
structural steel. Thermaltec is an approved applicator for New York State
Thruway Authority Bridge Metallizing Projects. (See Exhibit 10.7).
As part of its specifications for thermal spraying New York State has
adopted specifications established by the Society of Protective Coatings (SSPC)
and The American Society for Testing and Materials (ASTM). (See Exhibit 10.4).
The Company cannot independently prove that the thermal spraying process is
superior to any other process for bridge protection. The Company has no
knowledge of the procedures employed by SSPC and ASTM in establishing their
specifications relating to many of the aspects of the thermal spraying process
necessary for achieving a successful result. The Company is of the view that the
fact that New York State adopted these specifications suggests that thermal
spraying is effective, but is not proof that thermal spraying is a better
process than any other. Thermaltec has no unique patent rights to the
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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 has found itself to be unable to acquire contracts for the
coatings of bridges. We now act as technical consultants and suppliers of
equipment to those firms who have been awarded the coating contracts. The
Company is not actively pursuing additional work in the large ticket corrosion
protection field, instead placing its emphasis on broadening its customer base
in the US by acquiring High Velocity.
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 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"
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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, 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;
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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
market development is more appropriately obtained through the sale of equity. In
the long-term, if equity financing were not available the Company would be
forced to reduce its level of operations. Short-term financing has relied on
bank debt, officer debt and previous equity sales.
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.
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
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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,
primarily 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 $90 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 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.
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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 931,500 shares
(1) Director and Officer
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.
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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.
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
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- 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. Thomas Gardega has been an employee of the company
since September 1999. Mr. Gardega brings to the company a vast knowledge in the
thermal spray coatings industry. From 1989 to 1998, Mr. Gardega was responsible
as project manager for all field operations of electrical construction in the
State of South Carolina for Basic Electrical, Inc. including purchasing,
manpower acquisition, managing field office, project management and scheduling,
materials, equipment, permits, and meetings. Mr. Gardega has held a position in
the Metco division of Perkin Elmer (a publicly traded company), from 1978 to
1983 as special marketing representative and field service engineer. His
function included training, customer support, materials, and applicable
processes. From 1984 - 1989 he was President of National Thermal Spray Inc., a
developer and marketer of thermal coating systems. He graduated from Empire
State College in New York majoring in business administration.
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:
Capacities in which Aggregate
Name Remuneration was Received Period Remuneration
--------------------------------------------------------------------------------
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
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.
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CERTAIN TRANSACTIONS
Issuance of Stock:
On November 21, 1995, the Company issued 1,425,000 common shares to Andrew
Mazzone, the Company's founder. On November 21, 1995, the Company issued 75,000
common shares to Christopher De Prima, a promoter and affiliate of the Company.
The shares were issued pursuant to Section 4(2) of the Securities and Exchange
Act of 1933.
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 non-assessable.
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
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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:
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
March 31, 2000 9.125 0.69
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.
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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 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
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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
On June 30, 1998 the Company commenced an offer by means of a private placement
memorandum to sell up to 400,000 units at $1.00 a unit in 1000 unit blocks. Each
unit consisted of 1,000 purchasing units, comprise of one common share of the
Company and a warrant to buy one common share of the Company for $1, exercisable
on or before June 2, 2000. The offering terminated on September 30, 1998 and
272,000 units, or 272 blocks, were purchased. Thereafter, warrants were
exercised as follows: 1,000 on December 31, 1998; 9,000 on March 31, 1999;
10,000 on April 30, 1999; 58,200 on May 31, 1999; 30,000 on July 31, 1999; and
1,000 on March 6, 2000.
On February 1, 2000 the Company commenced an offer by means of a private
placement memorandum to sell up to 1,000,000 units at $1.00 per unit in 1,000
unit blocks. Each 1,000 unit block consisted of 1,000 shares, 650 B warrants
(each B warrant for the purchase of one common share at $1.50 per share,
exercisable on and after one year from the completion of the offering and
expiring on March 31, 2002)and 500 C warrants (each C warrant for the purchase
of one common share at $2.00 per share, exercisable on and after two years from
the completion of the offering and expiring on March 31, 2003). The offering
terminated on March 31, 2000 and 999,000 units, or 99 blocks, were purchased.
The B warrants will be exercisable on April 1, 2001 and the C warrants on April
1, 2002.
There was no underwriter and the Company did not offer any discounts or pay any
compensation in connection with either offering. Moreover, in both cases there
was not general solicitation or general advertising. Since the Company was not
subject to the reporting requirements of section 13 or section 15(d) of the
Exchange Act, in both instances the offer and sale of securities satisfied the
requirements of, and were exempt under, Section 504 of Regulation D under the
Securities Act and the applicable $1,000,000 cap was not exceeded. Thus, in both
cases permissible sales were made to investors, some of whom were not
"accredited investors" as that term is defined in Regulation D.
During the last three years the Company, relying on Section 4(2) of the
Securities Act, issued shares for services as follows: 16,001 shares on
September 30, 1997; 58,000 shares on July 30, 1998; 72,567 shares on April 30,
1999; 10,000 shares on January 25, 2000; 155,666 shares on February 18, 2000 and
55,000 shares on April 20, 2000.
The Company on December 2, 1997 issued 90,000 common shares in satisfaction of
an outstanding loan of $15,000.
The Company on December 29, 1998 issued 30,000 shares of common stock in
exchange for the cancellation of a shareholder loan.
The Company issued 250,000 shares of its stock in acquiring High Velocity
Technologies, Inc. in a taxfree reorganization. (See Page 5 of Form 10SB)
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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: November 17, 2000 By ______________________________________
Andrew Mazzone, President and
Chairman of the Board of Directors
Principal Financial Officer
Principal Accounting Officer
<PAGE>
Thermaltec International Corp.
68A Lamar Street
West Babylon, NY 11704
November 21, 2000
Steven C. Duvall
Assistant Director
U.S. Securities and Exchange Commission
Washington, DC 20549-0404
File No. 0-30734
Dear Mr. Duvall
Enclosed please find the responses of Thermaltec management to the Accounting
Comments included in your memo of October 27, 2000.
Accounting Comments
High Velocity Technology, Inc. Financial Statements
1. The unaudited interim financial statements for High Velocity Technology, Inc.
as of March 31, 2000 and for the three months ended March 31, 2000 and March 31,
1999 have been included in the High Velocity section of the revised submission,
as requested by you; please see pages F-24, F-25, F-26, F-27 and F-28 in the
amended Form 10-SB.
Thermaltec-Unaudited Pro Forma Financial Statements
2. The pro forma balance sheets for December 31, 1999 and June 30, 2000 have
been removed from the revised submission, as requested by you; please see pages
F-32, F-33 and F-34 in the amended Form 10-SB.
3. The pro forma adjustment to the statement of operations for the year ended
September 30, 1999 was an elimination of the effects of a sale (and associated
gross profit) of $405 of spare parts by High Velocity to Thermaltec, made during
that period. There was no equivalent transaction during the nine months ended
June 30, 2000. Such transactions would have been eliminated from the
consolidated statements of operations, if the two compaines had been
consolidated during the periods in question. Please see pages F-32 and F-33 in
the amended Form 10-SB.
The pro forma statement of operations for the year ended September 30, 1999 and
for the nine months ended June 30, 2000 have been revised to include charges for
the amortization of goodwill, as if the acquisition had taken place prior to the
periods in question. The goodwill is being amortized over a ten year life; this
is consistent with the
<PAGE>
life assigned to the goodwill that arose upon the actual acquisition of High
Velocity in May, 2000. Please see pages F-32, F-33 and F-34 in the amended Form
10-SB.
4. The data disclosed in the High Velocity historical column in the pro forma
statement of operations for the nine months ended June 30, 2000 has been revised
to include data for the period October 1, 1999 through May 19, 2000 as requested
by you. Please see pages F-33 and F-34 in the amended Form 10-SB.
Very truly yours,
Andrew B. Mazzone
<PAGE>
I.
Index to Financial Statements
Thermaltec International Corporation and Subsidiaries
TABLE OF CONTENTS
Page
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
II.
HIGH VELOCITY TECHNOLOGY, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
YEARS ENDED DECEMBER 31, 1999 AND 1998
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
<PAGE>
Notes to Financial Statements........................................F-20 - F-23
III.
HIGH VELOCITY TECHNOLOGY, INC
INTERIM UNAUDITED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Unaudited Interim Balance Sheet as of March 31, 2000.................F-24 - F-25
Unaudited Interim Statement of Operation for the three months
Ended March 31, 2000 and 1999..................................F-26
Unaudited Interim Statement of Shareholder Equity for the
Three months ended March 31, 2000..............................F-27
Unaudited Interim Statement of Cash Flows for the three
Months ended March 31, 2000..................................F-28
Notes to Financial Statements........................................F-29 - F-31
IV.
PRO-FORMAS
Unaudited Condensed Pro-Forma Consolidated Statement of
Operations For the year ending September 30, 1999...............F-32
Unaudited Condensed Pro-Forma Consolidated Statement of Operations
For the Nine-month Period Ending June 30, 2000..................F-33
Unaudited Pro-Forma Condensed Consolidated
Financial Statements............................................F-34
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>
HIGH VELOCITY TECHNOLOGIES, INC
BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 18,538
Marketable securities --
Accounts receivable 46,976
Inventories 60,004
--------
Total Current Assets 125,518
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $93,311 79,841
OTHER ASSETS
Other assets 2,250
--------
TOTAL ASSETS $207,609
========
See accompanying notes to financial statements.
F24
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC
BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 18,829
Notes payable 20,000
Accounts payable and accrued expenses 170,689
Taxes payable 10,472
Customer deposits --
---------
Total Current Liabilities 219,990
OTHER LIABILITIES
Due to Officer 26,613
Long-term debt, net of current portion 74,186
---------
Total Liabilities 320,789
---------
STOCKHOLDERS' EQUITY
Common stock, no par value,
1,000,000 shares authorized
510,000 shares issued and outstanding 54,152
Retained earnings (deficit) (167,332)
---------
Total Stockholders' Equity (Deficit) (113,180)
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 207,609
=========
See accompanying notes to financial statements.
F25
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
--------- -------
Sales, net $ 222,850 157,325
Cost of goods sold 150,110 139,075
--------- -------
Gross profit 72,740 18,250
Selling, general and administrative expenses 85,911 59,309
--------- -------
Income(loss) before other income(expense) (13,171) (41,059)
--------- -------
Other income(expenses):
Interest expense (2,288) (3,515)
Total other income (expenses) (15,459) (44,574)
--------- -------
Income (loss) before income taxes (benefit) (15,459) (44,574)
Income taxes (benefit) -- --
--------- -------
Net Income (loss) $ (15,459) $ (44,574)
========= =========
See accompanying notes to financial statements.
F26
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Number of Retained
Common Common Earnings
Shares Stock (Deficit) Total
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance - December 31, 1999 510,000 $ 54,152 $(151,873) $ (97,721)
Net (loss) for the three months ended March 31, 2000 (15,459) (15,459)
------- --------- --------- ---------
Balance- March 31, 2000 510,000 $ 54,152 $(167,332) $(113,180)
======= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F27
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (15,459) (44,574)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,342 6,191
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable (4,656) 5,076
Inventories 50,622 26,194
Increase (Decrease) in:
Accounts payable and accrued expenses (19,621) 3,209
Taxes payable 8,942 (11,636)
-------- --------
Net cash provided (used) by operating activities 24,170 (15,540)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments made for property and equipment -- (3,613)
-------- --------
Net cash provided (used) by investing activities -- (3,613)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- --
Repayment of notes payable (10,000) --
Repayment to officer (4,083) --
Loan advances (repayments), net (8,102) (14,420)
-------- --------
Net cash provided (used) by financing activities (22,185) (14,420)
-------- --------
NET INCREASE (DECREASE) IN CASH 1,985 (26,347)
CASH AND CASH EQUIVALENTS - BEGINNING 16,553 54,839
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 18,538 $ 28,492
======== ========
</TABLE>
See accompanying notes to financial statements.
F28
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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.
(continued)
F29
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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
2000 1999
---- ----
Cash paid for:
Interest 4,116 2,286
Income taxes -- --
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
Estimated useful March 31,
life - years 2000
--------
Machinery, equipment and furniture 5-10 $137,526
Leasehold improvements 5-31.5 19,024
Other Various 16,602
--------
173,152
Less: accumulated depreciation and amortization (93,311)
--------
Net property and equipment $ 79,841
========
Depreciation and amortization expense was $ 4,342 and $ 6,191 for the three
months ended March 31, 2000 and 1999, respectively.
4. NOTES PAYABLE
The Company has two $10,000 notes with individuals. Both were due on
October 19, 1999. Both notes accrue interest at 12% per annum. As of March
31, 2000, both notes were in default of payment and have been classified as
current liabilities.
(continued)
F30
<PAGE>
HIGH VELOCITY TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
5. LONG-TERM DEBT
2000
----
Various term loans expiring 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 $ 93,015
Less current maturities (18,829)
--------
Long-term debt $ 74,186
========
As of March 31, 2000, annual maturities of long-term debt for the next five
years and thereafter are as follows:
December 31,
2000 $ 18,829
2001 24,363
2002 25,340
2003 7,805
2004 8,537
Thereafter 8,141
--------
Total $ 93,015
========
F31
<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 45,072 1,478,773
----------- ----------- ----------- -----------
Income (loss) Before Other Income(loss) (958,604) (345,955) (45,276) (1,349,835)
----------- ----------- ----------- -----------
Other Income(loss) (1,330) 182,547 0 181,217
----------- ----------- ----------- -----------
Net Income (loss) ($ 959,934) ($ 163,408) ($ 45,276) ($1,168,618)
=========== =========== =========== ===========
</TABLE>
* Includes Goodwill Amortization of $45,072.
F32
<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) Ajdustment(3) Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 211,051 $ 391,184 $ 602,235
Cost of Goods Sold 209,250 232,754 442,004
----------- ----------- ----------- -----------
Gross Profit 1,801 158,430 0 160,231
Selling,General & Administrative Expense 852,873 211,091 33,804 1,097,768
----------- ----------- ----------- -----------
Income (loss) Before Other Income(loss) (851,072) (52,661) (33,804) (937,537)
Other Income(loss) (9,084) 0 (9,084)
----------- ----------- ----------- -----------
Net Income (loss) ($ 860,156) ($ 52,661) ($ 33,804) ($ 946,621)
=========== =========== =========== ===========
</TABLE>
(1) Includes operating results of High Velocity Technology, Inc. after May
19,2000.
(2) Operating results of High Velocity Technology Inc. from October 1, 1999
through May 19, 2000.
(3) Includes Goodwill Amortization for the period October 1, 1999 through May
19, 2000
F33
<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 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 same period.
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 eight-month period from October 1, 1999
through May 19, 2000 are separately presented in the pro-forma statement.
For comparative purposes, the pro-forma statement of operations for the
year ended September 30, 1999 and for the nine-month period ending June 30, 2000
reflect a charge for goodwill amortization based upon an excess of purchase
price for High Velocity Technologies in excess of book value of $450,772. The
goodwill is being amortized on a straight-line basis over a life of ten years.
F34
<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 Previously filed
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 replacing
Specification previously filed
--------------------------------------------------------------------------------
10.5 Dividend Letter Panama Industries Previously filed
--------------------------------------------------------------------------------
10.6 NYSERDA Contract This Filing Page
--------------------------------------------------------------------------------
10.7 NY State Contracter This Filing Page
Authorization Letter
--------------------------------------------------------------------------------
11.1 Statement re: Computation Previously filed
of per share earnings
--------------------------------------------------------------------------------
27.1 Financial Data Schedule Previously filed
--------------------------------------------------------------------------------
<PAGE>
ITEM 25570.9664XX - BLAST CLEANING AND ZINC/ALUMINUM THERMAL SPRAYING OF
STRUCTURAL STEEL
1. DESCRIPTION:
1.01 Scope of Work
The Contractor shall provide all labor, materials, equipment and means
to perform the removal of all existing paint from all structural steel
indicated on the plans and the application of a Zinc-Aluminum (85-15)
thermal sprayed coating (TSC) to same areas. A protective metalizing
sealer shall also be applied as specified.
1.02 Qualifications
A. Contractor Qualifications - The Contractor or Subcontractor shall
have a minimum five (5) years of previous experience in providing
surface preparation for metalizing and metalizing application
services in the field. The Contractor or Subcontractor must have
performed at least one similar project within the past two (2)
years. Also, due to the complexities associated with the
application of thermal spraying, the Contractor or Subcontractor
shall provide documentation of successful completion of projects
that incorporated the use of thermal spraying. The Contractor
shall provide, to the Authority, a list of previous clients and
projects including the names, addresses and telephone numbers
within 14 days of when bids are opened. Determination of the
Contractor's satisfactory qualification will be at the sole
direction of the Authority.
B. Thermal-Spray Applicator Qualifications - Before starting any
work, all thermal-spray applicators shall be qualified by the
Engineer to apply a TSC in strict accordance with the following.
Determination of the applicator's satisfactory qualification will
be at the discretion of the Engineer.
1. The applicator must complete a practical test demonstrating
the ability to set up and operate thermal-spray equipment.
The applicator shall also possess basic knowledge of the TSC
process and terminology and shall be able to demonstrate
sufficient skill by passing standard Bend and Cut Tests as
per Working Draft #3 of the "Guide for the Application of
Thermal Spray Coatings (Metalizing) of Aluminum, Zinc, and
Their Alloys and Composites for the Corrosion Protection of
Steel."
2. Requalification may be requested at any time at the
discretion of the Engineer to retest the proficiency of the
applicator and/or the quality of the workmanship. The
Engineer may, at any time, revoke an applicator's previously
granted qualification.
1.03 Maintenance Obligation and Maintenance Bonds
For a two year period following the acceptance of the Coating System,
the Contractor shall correct any and all defects in workmanship and/or
materials determined to exist by the Chief Engineer of the Authority.
Such correction shall be done within 30 days of notification by the
Authority, and shall be carried out at no cost the Authority. Said
defects shall include, but not be limited to, visible signs of
rusting, cracking, peeling and debonding of the coating system.
To secure the performance of this maintenance obligation, the
Contractor shall provide to the Authority a Maintenance Bond that
shall: (A) be in the amounts specified in the Table of Maintenance
Bonds set forth in Section 5.03; (b) extend for a two period from the
acceptance of the Coating System as specified in the Method of
measurement; (c) be in a form, and from a company, acceptable to the
Authority; and (d) guarantee against all defects in workmanship and
materials.
Page 1 of 15
<PAGE>
1. DESCRIPTION: (cont'd)
1.04 Reference Documents
A. The following Society for Protective Coatings (SSPC)
specifications form a part of this specification: Refer to the
latest edition of specifications at time of bid opening.
1. SSPC-Vis 1 "Visual Standards for Abrasive Blast Cleaned
Steel" (standard reference photographs)
2. SSPC-SP5 "White Metal Blast Cleaning"
3. SSPC-SP3 "Power Tool Cleaning"
4. SSPC-SP11 "Power Tool Cleaning to Bare Metal"
5. SSPC-SP1 "Solvent Cleaning"
6. SSPC Paint Application Specification No. 1 "Shop, Field, and
Maintenance Painting" (SSPC PA1)
7. SSPC-PA2 "Measurement of Dry Paint Thickness with Magnetic
Gages"
8. SSPC-AB1 "Abrasive Specification No. 1"
9. SSPC-QP1, "Standard Procedure for Evaluating Qualifications
of Painting Contractors: Field Application to Complex
Structures"
10. SSPC-QP2, "Standard Procedure for Evaluating the
Qualifications of Painting Contractors to Remove Hazardous
Paint"
11. Working Draft #3 of "Guide for the Application of Thermal
Spray Coatings (Metalizing) of Aluminum, Zinc and Their
Alloys and Composites for the Corrosion Protection of
Steel".
B. The following American Society for Testing and Materials (ASTM)
specifications form a part of this specification:
1. ASTM D4417 "Test Method for Field Measurement of Surface
Profile of Blasted Steel".
2. ASTM D4285 "Standard Test Method for Indicating Oil or Water
in Compressed Air"
3. ASTM D4940-89 "Standard Test Method for Conductimetric
Analysis of Water Soluble Ionic Contamination of Blasting
Abrasives"
4. ASTM C136 "Standard Test Method for Sieve or Screen Analysis
of Fine and Coarse Aggregates"
5. ASTM C633 "Test Method for Adhesive/Cohesive Strength of
flame Sprayed Coatings".
6. ASTM D4541, "Test Method for Pull-Off Strength of Coating
Using Portable Adhesion Testers".
1.05 Superintendence by the Contractor
A. The Contractor shall keep a competent resident superintendent on
the job at all times. The superintendent shall be the
Contractor's representative at the site and shall have the
authority to act on behalf of the Contractor. All communications
given to the superintendent shall be binding upon the Contractor.
B. The Contractor shall have a representative on staff with five (5)
years of metalizing experience who shall be on site for initial
startup application and final inspection.
Page 2 of 15
<PAGE>
1. DESCRIPTION: (cont'd)
1.06 Safety
A. Safety [] Safety requirements for this project shall be followed
in strict accordance with all pertinent specifications and
special notes contained within the contract documents.
B. Lead Paint Removal [] The Contractor shall note that the existing
coating may contain lead.
C. Precautions shall be exercised at all times for the protection of
persons and property. The safety provisions of the applicable
Federal, State and Local laws and building construction codes
shall be used.
1. Safety clothing, including shoes with non-sparking soles,
shall be worn by all Contractor personnel. Personnel shall
be equipped with proper respiratory protection.
Explosion-proof lighting, fans, pumps, sprayers,
flashlights, etc., shall be used in all spraying areas.
Smoking, matches, lighters, or other spark/flame producing
items shall not be permitted in the spraying or storage
areas. Spraying equipment shall be properly grounded.
2. Safe, Secure rigging and scaffolding shall be employed and
must meet all current OSHA requirements.
D. Nothing in any paragraph of this specification shall be construed
as relieving the Contractor from full responsibility for safe
execution of the work at all times.
1.07 Use of Premises
A. The Contractor shall confine apparatus, storage of materials, and
work operations to the limits prescribed by ordinances or
permits, or as may be directed by the Owner, and shall not
unreasonably encumber the premises or any other functions or
activities.
B. The Contractor shall not load any structure or permit any part
thereof to be loaded to such an extent as to endanger its safety.
A structural impact analysis evaluating the integrity of the
containment and all loads imposed on the structure shall be
performed. The Contractor shall provide documentation ensuring
compliance with this section, with the signature of a New York
State Professional Engineer prior to beginning of work.
C. The Contractor shall comply with and enforce any instructions of
the Owner, or local laws regarding signs, advertising, fire and
smoking.
D. The Contractor shall keep the premises reasonably clean. Upon
completion of the work, he shall remove all temporary
construction facilities and unused materials provided for the
work. Trash and combustible materials shall not be allowed to
accumulate on the premises.
1.08 Submittals
A. The Contractor shall provide the following written submittals to
the Engineer before starting any work:
1. MSDS sheets.
2. Documentation of previous similar work experience.
Page 3 of 15
<PAGE>
3. Documentation of SSPC QP1 and QP2 qualification.
1. DESCRIPTION: (cont'd)
1.08 Submittals (cont'd)
4. Work schedule.
5. QA/QC Plan including the application process. This should
include equipment capabilities, materials, application
procedures, and quality control checkpoints for (a)
surface-preparation, (b) spraying, (c) adhesion, (d) coating
thickness measurements.
1.09 Definitions:
A. Thermal spray shall include the surface preparation and
application of a Zinc-Aluminum alloy coating to metal surfaces.
Zinc-Aluminum (85-15) Thermal Spraying will be referred to as
spraying.
B. White Metal Blast Cleaning shall mean the preparation of surfaces
to be coated in accordance with standards and specifications for
"White-Metal Blast Cleaning," SSPC-SP5 as published by SSPC.
C. Hand Tool Cleaning shall mean the preparation of all surfaces to
be coated in accordance with standards and specifications for
"Hand Tool Cleaning," SSPC-SP2 as published by SSPC.
D. Power Tool Cleaning shall mean the preparation of all surfaces to
be coated in accordance with standards and specifications for
"Power Tool Cleaning," SSPC-SP3 and "Power Tool Cleaning to Bare
Metal" SSPC-SP11.
E. Paint and sealers if required shall be as specified in the
contract documents.
F. Surface Preparation shall mean the cleaning and/or pretreating of
surfaces to be sprayed as specified in the contract documents and
shall include the removal of all debris.
G. Field Spraying shall mean the coating of metal surfaces at the
construction site.
H. Zinc-Aluminum Coating shall include cleaning and preparing the
entire surface, recoating all steel on existing installations or
structures in service, and sealing the TSC if specified.
I. Society for Protective Coatings (SSPC) - Surface Preparation
(SP). Specifications referred to herein may be obtained through
the Council at SSPC, 40 24th Street, 6th Floor, Pittsburgh, PA
15222-4656 (412) 281-2331.
J. Environmental Protection shall mean the containment, collection,
and removal of existing paint chips, corrosion residues, spent
abrasives, and any newly applied paint (herein after referred to
as waste materials) that result from blasting and other cleaning
and coating operations performed in the field.
K. Inaccessibility shall mean the inability to use a standard
application method because of restrictions such as reduced
clearance, insufficient hand space or too narrow an opening. It
shall not mean that the element is too high or that the rigging
or scaffolding will be difficult. The Engineer will make a final
determination as to what will be deemed inaccessible.
Page 4 of 15
<PAGE>
1. DESCRIPTION: (cont'd)
1.09 Definitions: (cont'd)
L. Debris shall mean anything on the structure that isn't an
inherent part of the structure or coating system.
M. Flash Rusting - Rusting that occurs on metal within minutes to a
few hours after blast-cleaning or other cleaning is completed.
The speed with which flash-rusting occurs may be indicative of
soluble-salt contaminants on the surface, high humidity, or both.
2. MATERIALS:
2.01 All equipment used for cleaning and spraying shall meet the
requirements as specified in the Contract. Zinc-Aluminum alloy shall
be manufactured for thermal spraying and shall be of the following
composition:
Fe - 0.020% Max.
Cu - 0.004% Max.
Cd - 0.004% Max.
Pb - 0.004% Max.
Al - 14.0 - 16.0%
Ti - 0.002% Max.
Zn - Balance
The Contractor shall provide certificates of alloy composition for the
wire.
2.02 The coating shall be as specified in the Contract and shall be applied
according to same or the manufacturer's recommendations, whichever is
more restrictive.
2.03 The abrasive selected for blast cleaning shall be identified by the
Contractor and approved by the Engineer prior to use. The abrasive
shall be sized to achieve a 2-4 mil profile. The abrasive shall have a
sharp, hard cutting surface and shall be clean, dry and free of oil or
soluble salt contaminants. Silica sand and/or shot are not allowed.
2.04 All material shall be delivered to the site in sealed, original,
labeled containers and stored in accordance with the manufacturer's
recommendations.
2.05 All material and equipment used for environmental protection shall be
approved by the Engineer. Any material or equipment that is determined
to be deficient or that becomes damaged to the extent that it no
longer fulfills the requirements of this specification shall be
replaced or repaired to the satisfaction of the Engineer, at the
Contractor's expense, with the replacement material and/or equipment
meeting the requirements of the contract documents.
2.06 The Contractor shall provide Material Safety Data Sheets to the
Engineer for all materials used at the job site. The Contractor shall
also supply the Engineer with the manufacturer's current technical
data for the material furnished.
2.07 Containment and Protection of Surfaces Not to be Coated
A. The coating being removed contains lead. Engineering controls and
containment shall be
Page 5 of 15
<PAGE>
implemented to prevent the escape of dust and paint debris from
the work area.
2. MATERIALS: (cont'd)
2.07 Containment and Protection of Surfaces Not to be Coated (cont'd)
B. The Contractor shall use extreme diligence to assure that
vehicles, equipment, hardware, fixtures, materials, etc. are
protected against abrasion damage, paint spillage, overspray,
etc., and shall make full restitution for damages caused within
thirty (30) days of when it is ascertained that the damages have
been caused by the Contractor's operations.
C. Protective coverings, shields, or masking shall be used to
protect the following items from impact or damage from surface
preparation or the spraying work:
1. Protective coverings shall be installed on nameplates,
identification plates, or other items designated by the
NYSTA project Engineer to prevent damage created by the
surface preparation or painting work of the Contractor.
2. All protective coverings shall be maintained by the
Contractor during the entire period the work is being
performed, and all coverings shall be removed by the
Contractor upon completion of the work.
2.08 The protective sealer shall be applied as per manufacturers
recommendations and as specified under section 3.08 of this
specification.
3. CONSTRUCTION DETAILS:
3.01 General
A. At least 5 working days prior to the start of work, the
Contractor shall provide the Engineer with a Blasting and Coating
schedule fully delineating a schedule of operations and one copy
of the manufacturer's current technical data for the material
furnished. No changes to the coating schedule or system will be
permitted without the express written approval of the Chief
Engineer.
B. Deteriorated Steel - The CONTRACTOR shall immediately make the
Engineer aware of any steel encountered which is cracked or
deteriorated due to extensive loss of section and/or holes
through the members. The Engineer shall keep an inventory of the
areas for future repairs, marking the areas on a set of shop
drawings provided by the OWNER.
3.02 Surface Preparation
A. Slag, Flux, Weld Spatter - Slag, flux deposits, and weld spatter
shall be removed. Any resulting burrs, sharp edges, or
projections shall be ground to a satisfactory condition for
spraying.
B. Sharp Edges - Sharp edges such as those created by flame cutting
and shearing shall be ground to remove the hardened carbonized
surface. The rolled edges of angles, channels, lacing bars and WF
or I-beams do not normally require further grinding.
C. Compressed Air Cleanliness - The air supply used for blast
cleaning and blowing down surfaces prior to spraying shall be
free of moisture and oil contamination. The air cleanliness shall
be verified with the white blotter test in accordance with ASTM
D4285 at least once per shift for each compressed air system.
Sufficient freedom from oil and moisture is confirmed if soiling
or discoloration are not visible on the paper.
Page 6 of 15
<PAGE>
3. CONSTRUCTION DETAILS: (cont'd)
3.02 Surface Preparation (cont'd)
If air contamination is evidenced, the CONTRACTOR shall change
filters, clean traps, add moisture separators or filters, or make
such adjustments as necessary to achieve clean, dry air.
D. Prior to blast cleaning, bird droppings shall be removed by power
washing, hand tool cleaning or other acceptable means and shall
be contained and disposed of in accordance with applicable State,
Federal and Local Laws.
Containment methods shall be Contractor's option and shall
effectively capture all debris that falls from the bridge.
E. Ambient Conditions - Final surface preparation which exposes bare
steel shall not be performed under damp environmental conditions
or when the surface temperature is less than 5(degree)F greater
than the dew point temperature of the surrounding air.
F. Abrasives shall conform to the following:
1. For each new shipment of abrasive, a random sample shall be
tested by the Engineer for the presence of ionic
contamination by determining total concentrations of
water-soluble ionic contaminants in accordance with ASTM
D4940 "Standard Test Method for Conductimetric Analysis of
Water-Soluble Ionic Contamination of Blasting Abrasive."
2. SSPC-AB1 specifies that conductivity levels shall not exceed
1,000 microsiemen. Conductivity levels above 1,000
microsiemen will not be immediate cause for rejection of the
abrasive, but conductivity test results will be used as a
factor in determining whether the abrasive is contaminating
the steel. If the Engineer determines that the abrasive is
contaminating the steel, it will be cause for rejection of
the abrasive.
3. This test shall be performed on the abrasive work mix at the
beginning of each work day that abrasive blast cleaning is
scheduled, unless otherwise ordered by the Engineer. Refer
to ASTM D4940 for approximate length of time involved with
performing conductivity test.
G. Remediation of Chloride
1. The Contractor shall propose surface preparation procedures
and processes which will remove chloride from the surfaces
in addition to removing the paint, rust, and mill scale.
2. Methods of chloride removal may include, but are not limited
to, steam cleaning or high pressure washing (>3,000 psi) and
scrubbing after initial paint removal, abrasive blast
cleaning the steel and allowing it to rust overnight
followed by reblasting, or blast cleaning with blends of
fine and coarse abrasives (e.g., 50/50 blend of G25 and G40
grit).
The proposed procedures for chloride remediation shall be
explained in detail in the
Page 7 of 15
<PAGE>
Surface Preparation/Spraying Plan.
3. CONSTRUCTION DETAILS: (cont'd)
3.02 Surface Preparation (cont'd)
When remediation methods include water and detergents or
other additives are added to the water, treated surfaces
shall be rinsed with potable water before the detergent
water dries. The Contractors proposed method shall be
submitted in outline format with their bid.
3. Upon completion of surface preparation, use the KTA SCAT
Kit, or approved equal, to test representative surfaces
which were previously rusted (i.e., pitted steel) for the
presence of remaining chlorides. A minimum of 3 such tests
shall be utilized in each representative area.
4. If chlorides are detected at levels greater than 15 mg/cm2,
continue to clean the affected areas until acceptable
results are achieved.
5. Following successful chloride testing, reclean the surface
to achieve the required surface preparation criteria.
H. The existing (old) coating, all mill scale and rust, shall be
completely removed from corroded/pitted and non-pitted surfaces
in accordance with SSPC-SP5 "White Metal Blast Cleaning" to
achieve an angular surface profile of 2-4mils*. The angular
profile measurements will be taken on smooth non-pitted areas.
The photographs of SSPC-Vis 1 may be used as an aid in defining
the final surface appearance. On surfaces with rust scale build
up, the rust scale shall be removed by power tool cleaning in
accordance with SSPC-SP3 prior to White Metal Blast Cleaning the
surfaces. White Metal Blast Cleaning is required in order to
remove all residual staining, as the stains permitted by
SSPC-SP10 (Near-White) cannot be visually distinguished from
flash-rust due to the presence of chlorides. The intent of this
specification is to eliminate chlorides as evidenced by
flash-rust. The Engineer or his representative will be present at
the site whenever work is being done to verify that all aspects
of the surface preparation and spraying application
specification, as well as the environmental and workers health
and safety specifications are being observed. This in no way
excludes the Contractor from ensuring that all aspects of said
specifications are being observed.
The existing steel surface may be rough due to pitting. Surface
profile measurements for compliance with the 2-4 mil angular
profile specification requirement will be made in non-pitted
areas. Smoothing of the pitted steel is not required. If areas
containing excessive profile are encountered, additional spray
thickness will be required.
* The profile depth shall be measured per ASTM D4417, Method B or
C or both.
3.03 Abrasive Metering Valves and Solvent Restrictions
A. Abrasive Metering Valves
1. Prior to the start of abrasive blasting, the Contractor
shall demonstrate to the satisfaction of the Engineer that
on each operating nozzle, a working metering valve is in
place and is functioning properly. During blasting
operations, each valve shall be adjusted to produce the
minimum amount of abrasive and dust.
Page 8 of 15
<PAGE>
3. CONSTRUCTION DETAILS: (cont'd)
3.03 Abrasive Metering Valves and Solvent Restrictions
A. Abrasive Metering Valves (cont'd)
2. All metal surfaces to be coated shall receive a White Metal
Blast Cleaning as defined in SSPC-SP5.
3. The blast cleaned surfaces shall conform to SSPC Vis 1.
Additional hand and/or power tool cleaning as defined in
SSPC-SP-11 may be required in areas of difficult access with
heavy scale build up.
4. Where oil and grease are present, these shall be removed in
accordance with SSPC-SP1 "Solvent Cleaning". This cleaning
shall be performed prior to abrasive blasting. If
contamination remains after blasting, the surface shall be
recleaned with solvent.
5. All cleaned steel surfaces shall be inspected by and
approved by the Engineer or Inspector prior to the
application of coatings. Surfaces which do not meet these
specification requirements as determined by the Engineer or
Inspector, shall be recleaned at the Contractor's expense
until the surfaces meet the spec. requirements.
B. Solvent Restrictions
1. The quantity of solvent permitted on the job site shall be
only the reasonable amount necessary for cleaning equipment,
wiping dirt and grease from surfaces to be coated and for
cleaning spatters.
2. All solvents used for cleaning operations shall conform to
all applicable Federal, State and local laws regulations or
codes. Special attention shall be paid to Volatile Organic
Compound regulations.
3. Unauthorized use of solvents shall result in rejection and
the TSC shall be removed and the surfaced re-sprayed in
conformance with the specifications and to the satisfaction
of the Engineer, at the Contractor's expense.
3.04 Spraying Application
A. Surface Preparation - The surface shall exhibit the specified
degree of preparation immediately prior to spraying. Any rust
which has formed shall be removed to comply with this degree of
cleaning prior to spraying. When approved by the NYSTA project
Engineer, localized touch-up of deficient areas may be
accomplished in accordance with SSPC-SP11 and 2 - 4 mil profile
in lieu of blast cleaning. In the event any cleaned surfaces are
left to stand overnight, they shall be recleaned to the above
specified SSPC Standards.
B. Surface Cleanliness - All surfaces to be coated shall be
thoroughly cleaned prior to each application to remove dirt,
dust, or other interference material. Cleaning methods shall be
by vacuuming only, unless other means are approved by the
Engineer. Special worker protection and containment measures will
be required to avoid health and safety problems
Page 9 of 15
<PAGE>
associated with lead contamination.
3. CONSTRUCTION DETAILS: (cont'd)
3.04 Spraying Application (cont'd)
C. Grease/Oil - If grease or oil are/or become deposited on the
surface, they shall be removed by solvent cleaning in accordance
with SSPC-SP1 prior to the application of the next coat.
D. Ambient/Weather Conditions - TSC shall not be applied to surfaces
containing frost or applied in rain, fog, or similar conditions.
Coatings shall be applied in accordance with the coating
manufacturer's written recommendations.
E. Zinc-Aluminum Coating Application Methods
1. The TSC shall be applied in a neat and workmanlike manner
and shall be applied uniformly and shall be free of ridges
or other defects. The TSC shall be applied by thermal spray
employing multiple passes to achieve a thickness of 0.008 to
0.010 inches (8-10 mils) as specified in the contract
documents. No single pass shall deposit more than 0.004
inches. Thickness measurements shall be taken frequently.
2. The TSC, when applied, shall be even and uniform. All
subsequent coats shall be perpendicular to previous coats.
3. On the areas which are inaccessible to the thermal spray
equipment, a zinc silicate coating shall be applied as close
in proximity to the area as possible.
F. Spraying
1. Thermal Spray equipment shall be capable of applying
Zinc-Aluminum (85-15) in a fine, even spray so as to produce
a uniform film at the specified thickness. Spray equipment
shall be as recommended by the Contractor.
2. TSC shall be done by experienced and qualified applicators
who meet requirements set forth in Section 1.02 of this
specification. Thermal spray operators shall apply the
coating in a manner that promotes uniform coverage and
prevents discontinuity of the applied coating. The spray gun
shall be moved uniformly across and perpendicular (90
degrees) to the receiving surface. To insure a uniform
coating, each spray pass should lap the other by 50%. Any
defects shall be immediately corrected.
3. Spraying distance shall be as recommended by the equipment
manufacturer.
4. Special care shall be exercised to avoid contamination of
surrounding areas or property by over spraying. Containment
tarps should be used when spray application is performed.
G. Tests
1. Adhesion Tests - Adhesion strength shall be 700 psi minimum
with approved measuring equipment as per ASTM D4541. All
adhesion test locations shall be re-metalized in accordance
with this specification at no additional cost. Measurements
Page 10 of 15
<PAGE>
shall be taken every 500 square feet. If adhesion is less
than 700 psi, the coating shall be removed and re-applied at
the Contractor's expense.
3. CONSTRUCTION DETAILS: (cont'd)
3.04 Spraying Application (cont'd)
2. Bend Tests - Proper equipment set up, calibration, and
operating procedures shall be verified by passing a standard
bend test every three days or as required by the Engineer at
the beginning of each work shift that TSC is to be applied.
3. Cut Tests - Standard cut tests shall consist of a single cut
1.5 (40 mm) long through the TSC to the substrate without
severely cutting the substrate. A cut shall be made with a
hammer and sharp chisel at a shallow angle. The bond of the
TSC is considered unsatisfactory if any part of the TSC
along the cut lifts from the substrate. Cut tests shall be
performed every 500 square feet. Unsatisfactory coatings
shall be removed and re-applied at the Contractor's expense.
H. Ventilation - The work area shall be properly ventilated to
assure proper worker protection and safety.
3.05 Termination of Coating Operations
The Engineer is empowered to terminate coating operations, temporarily
or permanently, if the Engineer determines that any of the following
conditions exist:
A. Satisfactory results are not being obtained.
B. The measured film thickness is not within the required range.
C. Areas not specifically designated to be coated are likely to be
or are being affected by the application method.
D. The application method is causing damage to public or private
property.
If the Engineer permanently terminates TSC operations, he may do so by
verbal order but he shall notify the Contractor, in writing of his
reasons for termination, within 48 hours of termination. The Engineer
may temporarily terminate coating operations by verbal orders. TSC
operations which are terminated due to damage to public or private
property shall not be resumed until the Contractor takes appropriate
measures to protect such property and demonstrates to the Engineer's
satisfaction that such property damage will not reoccur.
3.06 No TSC shall begin until cleaned steel surfaces have been inspected
and approved by the Engineer or Inspector. All structural steel
members, railings, fascia, downspouts, and other miscellaneous steel
items which have been previously coated shall be cleaned and coated in
accordance with these specifications unless specifically excluded by
the plans, or specifications, or by the Engineer.
3.07 The coating of metal surfaces shall include, but not be limited to the
following:
A. The proper preparation of all surfaces.
B. The application and protection of the TSC.
Page 11 of 15
<PAGE>
3. CONSTRUCTION DETAILS: (cont'd)
3.07 (cont'd)
C. The protection from spatter or spillage of pedestrian, vehicular,
marine or other traffic upon, beneath or adjacent to the coated
surfaces. Payment for this work will be made under the item
Environmental Ground Protection and/or Environmental Waterway
Protection.
D. The protection against disfigurement of all portions of bridges
and other structures as well as highway appurtenances.
Disfigurement may be caused by abrading, scoring, spattering,
overspraying, splashing and smirching of coatings or cleaning
materials.
E. The prevention of spillage of any pollutants into any waterway or
body of water.
F. The supplying of all equipment, tools, tackle, scaffolding, labor
and materials necessary to complete the entire work.
3.08 Protective Metalizing Sealers
A Protective Metalizing Sealer shall be applied to all exposed
metalized surfaces. Acceptable metalizing sealers shall be one of the
following:
Metalizing Sealer - 9876 Contact: Keeler & Long
Metalizing Sealer - U-1-5227 P.O. Box 460
Watertown, Conn. 06795
Phone: 1-800-238-8596
Diamond Clad B65T105 Sherwin Williams
Or 820 Emerson Street
Rochester, NY 14613
Approved Equal Phone: (716) 254-8630
3.09 Metal surfaces to which unauthorized coatings have been applied and
those surfaces not coated in accordance with the contract shall be
recleaned of those unauthorized coatings and recoated in accordance
with these specifications and to the satisfaction of the Engineer.
3.10 Coating requirements for structural steel members embedded in,
partially embedded in, or in contact with cast-in-place, or
pneumatically projected concrete are as follows;
A. Fully embedded steel, defined as a steel member completely
surrounded by concrete, shall not be coated.
B. Partially embedded steel, defined as a steel member with a
portion fully surrounded by concrete, shall have its exposed
surfaces coated.
C. A steel member, or portion of a steel member, neither fully, nor
partially embedded, but still in contact with concrete shall have
all its exposed surfaces coated unless otherwise noted.
Page 12 of 15
<PAGE>
3.11 Machine finished surfaces shall be protectively treated in accordance
with subsection 1304, Protective Coating for Machined Surfaces, of the
New York State Steel Construction Manual.
3. CONSTRUCTION DETAILS: (cont'd)
3.12 Structural steel which is to be welded shall not be coated until all
welding is complete. If welding is to be done in the shop only, the
welds shall be cleaned and then coated in the shop. Steel which is to
be field welded shall be left uncoated for a minimum of three inches
from the weld area.
3.13 After the Engineer has approved the preparation in each area and
determines that overspray damage protective measures are adequate, the
coating shall be applied without runs, sags or other objectionable
properties to that prepared steel surface.
3.14 Schedule: The coating shall be applied before flash rusting occurs to
the cleaned surface (max 4 hours). The subsequent coats, if any, shall
be applied to the receiving surface in conformance with the
manufacturer's recommended schedule for recoating, or 30 days,
whichever is more restrictive, except as noted above.
3.15 After installation of any new steel, all areas where the coating has
become damaged or deteriorated shall be thoroughly cleaned , roughened
and "touched-up" or recoated with the appropriate number of coats as
directed by and to the satisfaction of the Engineer.
3.16 Whenever a structure spans over a railroad, ballast and tracks shall
be protected in accordance with NYSDOT Standard Specification 105-09,
Work Affecting Railroads.
3.17 Preparation of Chipped or Damaged Coating - All damaged coating shall
be repaired to the satisfaction of the Engineer prior to project
completion.
3.18 The coating system shall be permitted to cure under suitable ambient
conditions for the period of time required by the coating manufacturer
prior to exposure to the elements. Premature exposure to rain, fog,
dew, mist, etc., which, in the opinion of the Engineer, affects the
appearance or integrity of the coating shall be repaired or removed
and replaced by the CONTRACTOR at no extra cost to the Authority.
3.19 Identification of Coating System
A. The following information shall be identified by stenciling on
the bridge at each end of each structure. Actual location to be
determined by the Engineer and shall not be visible to passing
traffic. Include: (1) surface preparation, (2) Coating material,
(3) Total mill thickness, (4) Contract # and date of application.
Use lettering which is a minimum of 1" high and stenciled in
black or other contrasting color.
B. The CONTRACTOR shall furnish the paint, stencils, and other
materials required for this identification. Hand lettering is not
acceptable.
3.20 Clean-Up/Disposal/Hazardous Waste
A. Housekeeping, clean-up, and disposal of the debris shall be in
strict accordance with the requirements described in the
pertinent specifications and special notes contained in the
contract documents.
Page 13 of 15
<PAGE>
3. CONSTRUCTION DETAILS: (cont'd)
3.20 Clean-Up/Disposal/Hazardous Waste (cont'd)
B. The project Engineer or his designated representative will
inspect all phases of work to insure that it is in accordance
with these Specifications. The inspector will inspect surface
preparation, pre-spraying cleanliness, application procedures,
mill thickness and adhesion. As a minimum, the CONTRACTOR shall
facilitate this inspection by providing access to safe, secure
rigging for this inspection.
C. The presence or activity of any NYSTA inspections shall not
relieve the CONTRACTOR of his responsibility to provide adequate
inspections of his own to assure compliance with this
specification.
4. METHOD OF MEASUREMENT:
4.01 Payment will be made at the lump sum price bid.
5. BASIS OF PAYMENT:
5.01 The lump sum price bid shall include the cost of all labor, materials
and equipment necessary to complete the work. All work shall be done
in a manner satisfactory to the Engineer.
5.02 For the purpose of progress payments, the lump sum price bid for the
item shall be apportioned as noted below:
Payments will be made in accordance with this Specification as
follows:
Blasting and Coating: Eighty (80) percent of the lump sum price bid
will be paid for satisfactorily blasting and coating the entire
structure with Zinc-Aluminum at a 0.008-0.010 inch thickness.
Twenty (20) percent of the lump sum price bid will be paid upon
delivery to, and approval by the Authority of the required Maintenance
Bond described in Section 1.03 above.
5.03 Basis of Acceptance:
The Contractor shall delineate each area to be cleaned and coated
during each day's work. The Engineer shall approve the cleaning
operations in this area prior to application of each coat. Any residue
beyond that allowed by the pictorial standards shall be cause for
rejection of the cleaning. Any areas cleaned outside the designated
area shall be recleaned when the area is delineated for cleaning,
regardless of elapsed time or surface condition. Once the appropriate
protective coating is applied, the Engineer shall determine the dry
film thickness, prior to acceptance of the area.
Access to the structure for inspection purposes must be maintained by
the Contractor until acceptance. Thickness determinations will be made
by the Engineer or Inspector in accordance with coating application.
Any evidence of less than the specified thickness shall be cause for
rejection in which case the Contractor shall recoat, including
recleaning if necessary, at his own expense.
Page 14 of 15
<PAGE>
5. BASIS OF PAYMENT: (cont'd)
----------------------------------------------------------------------
TABLE OF MAINTENANCE BONDS
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BRIDGE # LOCATION ITEM NUMBER MAINTENANCE BOND
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Page 15 of 15
