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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 and Plan of Operations...................................5
Management Analysis of Condition..............................................15
Principal Shareholders........................................................19
Management....................................................................20
Certain Transactions..........................................................22
Description of Securities and Market for Common Equity
And Related Shareholder Matters...........................................22
Dividend Policy...............................................................24
Stock Transfer Agent..........................................................24
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 "Thermal
Spray" Gorham Report for 1999. Estimates for Japan and Europe are not available
in that report. The Gorham Report is published by Gorham Advanced Materials
Inc., 209 Mosherd St..,Gorham, Maine 04038. It can be purchased for $1,000 from
Gorham.
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 in sales, engineering and administration 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.
MANAGEMENT DISCUSSION AND PLAN OF OPERATIONS
The Company's goals are 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
its 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; it has developed a customer base
of over 300 industrial firms. Market acceptance is excellent and continues to
improve. The Company in Costa Rica is not profitable at this time.
The West Babylon operation of TTI has developed thermal spray alternative
technology to chrome plating technology. The latter is a toxic process not
connected with the thermal spray process; TTI developed equipment, processes and
operating parameters for the application of coatings superior to chrome plating
without any of the environmental pollution problems of the chrome plating
process.
The business in New York has also revolved around highway bridge corrosion.
The Company cannot compete in the U.S. 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
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
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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 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.
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
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 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 such 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 and through High Velocity sell to the corrosion market
its spray gun technology.
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 environmental problems because of its history of not having such
problems. Thermaltec has not had any environmental citation or violation of any
environmental law at any time in both the United States and Costa Rica. The
thermal spray equipment used in the process is not harmful to the environment
because such contains equipment environmental protection elements such as
filters and scrubbers. The cost of compliance is not material to the Company.
The cost of compliance is embedded in the cost of the equipment itself, and is
paid for when purchased.
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Planned Mergers:
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. A possible investment in Ix Partners was formally ended on
December 14, 2000. This investment would have been made only if the Edge
Management acquisition was consummated. (See Exhibit 10.8)
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 50 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 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.
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
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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.
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.
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Specific Technologies of Thermal Spraying
Wire Flame Spraying
Coating material in wire form is fed into an oxygen-fuel gas combustion
flame, melted, and then atomized and projected by compressed air onto a prepared
substrate (the object to be sprayed upon). This is the oldest of the thermal
spray processes used in industry today. This process, because of the inherent
nature of the gases used, achieves a relatively low velocity flame with a
temperature maximum of 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.
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.
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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.
Plan of Expansion Overseas
The company does not plan to expand its business in Latin America until its
Costa Rican facility is profitable. There can be no assurance that the Costa
Rican facility will ever be profitable. It is the Company's intention to staff
and support any Latin American expansion through Costa Rica. Engineers,
accountants, and marketing personnel for any foreign location would be trained
in 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 in other countries if the company
does expand to other countries. The company cannot guarantee that it will reach
this state, because it may not raise adequate monies to fund the operation in
the way necessary to produce profits.
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The company is optimistic but cannot prove that its profitability target
will be met somewhere within the next 12 months. The first reason for optimism
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 need for thermal
spray technology in developing countries. Such countries typically lack a
developed industrial infrastructure, and due to economic considerations, capital
equipment is used for relatively extended periods of time, and needs to be
refurbished from time to time. The Company believes, South American, Asian, and
other developing areas are 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 would be to
purchase a small machine or metal working shop in a key industrial city. The
company would then have a base of established local customers to promote to when
introducing thermal spraying. The company would deploy thermal spraying
equipment and supplies to the new location. 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 location from that point on. The estimate for the purchase of
an existing machine shop, and adding a thermal spraying capability to it would
be approximately $250,000 per location. There can be no assurance that the
requisite financing for funding new locations will be available to the company,
and if so, on terms that would allow the company to make a profit.
The company does not intend to start new 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.
The Company's single location in San Jose Costa Rica covers all current thermal
spray activities generated in Costa Rica. At the present time the following new
activities have been undertaken in Costa Rica:
The company instituted a perpetual inventory system and cost accounting controls
in November 2000. The company is newly concentrating on the following
industries: paper, printing, palm oil, and pharmaceuticals. These industries
have a high volume of repetitive parts, which may require our services.
As of December 1, 2000, the company stationed an engineer on the premises of a
large paper company to provide Teflon coating engineering services. This is in
the early development stage.
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As of December 1, 2000, the company started developmental work with the
pharmaceutical industry using Teflon coating for blister wrap machines.
As of December 1, 2000, the company started to repair extrusion screws for the
palm oil industry in three plants for two types of oil.
As of November 1, 2000, the company has been providing our services to the
printing industry. This is in the preliminary phase.
Supporting these new activities and servicing our existing customers is all the
company plans to do for the next 12 months.
There can be no assurance that any of these new activities will be profitable.
There can be no assurance that our existing customer base will become profitable
with our present resources.
Competition:
The Company 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 for original
equipment 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 $1.0 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 contract shop volume would
not exceed $400,000 in sales in the next 12 months, or less than 1% of the
contract shop market.
In the Costa Rican market the competition for original equipment is
Eutectic Corporation of Flushing, NY. It is expected that they will sell $50,000
worth of equipment and supplies in Costa Rica. The company does not intend to
sell any original equipment in Costa Rica for reasons of not wanting to create
new contract shop competitors. In the contract shop side of the business the
company believes that combined competitive work does not exceed $100,000 per
year. Therefore, we estimate that the company has about 60% of the current
thermal spray business in Costa Rica.
Economic trends have caused the manufacturers of equipment and supplies to
lose profits to the contractors of the thermal spray process, who, in turn, use
such equipment and supplies to apply a coatings service for their customers.
Thermaltec International is a contractor. Competition also comes from
alternative coating processes such as brazing and welding. The competitors cited
are significantly larger than the company, in both money and technical
resources. Therefore, as a defensive strategy the company operates in niche
markets not currently attractive to larger competitors.
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Customers (United States)
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 States by acquiring
High Velocity Technology.
Revenue Replacement (United States)
During the process of bridge spraying it became necessary to rehabilitate the
design of the company's thermal spray torch and related equipment. Through the
redesign it became evident that there was considerable room for improvement of
the equipment. Thermaltec then decided to commercialize the equipment but
realized that it did not have the internal structure to do so.
The acquisition of High Velocity Technologies provided a vehicle to bring the
new equipment to the market in an efficient manner through its existing customer
and distributor base. The addition of High Velocity has added approximately 50
new customers and three new distributors in Europe, Japan and Australia. A
fourth (new distributor) is now under negotiation.
The addition of that firm to the Company's structure will 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 operation
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 estimated at $150,000
annually are being replaced by new revenues from High Velocity estimated at
$500,000 annually and is not expected to have an adverse effect on Company
liquidity.
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The $500,000 annual revenue estimate is based on not increasing the number of
new customers to the High Velocity current customer base and by taking a lower
sales figure than the average of the previous two years sales of High Velocity.
This estimate assumes a steady state of 50 customers, with customer losses being
made up by new customers. Any significant expansion of High Velocity revenues
would depend on obtaining new financing which may not be forthcoming and/or
available on terms that would allow for profitable expansion.
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 there are 300 thermal spray service customers in Costa Rica, there are
only 2 significant thermal spray customers in the United States. The acquisition
of High Velocity has added over 50 new customers of thermal spray materials and
equipment, and revenue of $538,000 for 1999 and $1,149,000 for 1998.
The following is the percent of sales that our largest customers contributed to
the company for the following periods (not including High Velocity):
The % of revenues generated by:
9/30/99 6/30/2000
New York State Energy Research 5% 23%
And Development Authority (NYSERDA) (US)
National Power and Light Co. (CR) less than 1% 0
La Nacion (CR) 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 following is the actual sales by location, by largest customers or in
the case of Costa Rica where there are no significant customers, the total:
The revenues generated by:
9/30/99 6/30/2000
NYSERDA (US) $ 22,279 $47,626
Costa Rica (Total) 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.
MANAGEMENT ANALYSIS OF CONDITION
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
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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" 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
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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; 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
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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. Specifically the activity in the corrosion business for bridge
protection has been suspended as far as seeking contract work for applying
thermal spray coatings on bridges. The company will continue to supply from its
High Velocity subsidiary thermal spray equipment to contractors who do apply
such coatings. In the United States, the Company will still seek developmental
contracts from State agencies in the thermal spray coatings field from its New
York location only. The Company maintains resident expertise in contract
engineering. The Company has a good record of performance with NYSERDA,
therefore, the Company may be in a position to seek another project from this
agency. A possible project that the company would undertake would be development
of an energy efficient plasma operated spraying device. (See page 9 for
explanation of Plasma). Such work would consist of developing a prototype for
such a device. Then by means of series of interative modifications to the
prototype, an optimum design configuration would evolve which maximized the
output variable; the number of pounds of ceramic coating deposited per hour. The
output variable would be measured against the input variables of gases,
electricity and consumed physical parts to obtain an overall spray cost per
pound. A lowered cost per pound deposited per hour would be the measurement of
success compared to such devices now available on the market. Projects as
described are available from NYSERDA, and subject to presenting an acceptable
technical and economic design concept, the company may be awarded such project
work. The Company would do the developmental work for such a project leaving
other organizations to commercialize the project if successful and marketable.
The purpose of taking such a project, if available, would be to contribute to
offsetting Company overhead. The Company may seek such a project on completion
of current work for NYSERDA. The Company will continue to develop and sell
thermal spray equipment through its High Velocity subsidiary, including, but not
limited to special equipment developed for the bridge corrosion market. The
Company will not undertake in the United States any other activities other than
those described above. It will not engage in franchising of any kind of its
services or products. The company will continue to depend on its ability to
borrow monies from its officers and/or raise new equity monies to maintain
current levels
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of operation. There can be no assurance that such monies would be available when
needed. If funds were not available if needed, the Company would reduce
operations to balance attainable revenues. The Company intends to operate in
Costa Rica as described: "Plan of expansion" page 10 of this document.
On May 31, 1999, the Company authorized the sale of 1,000,000 shares of
common stock to be offered in private transactions of 1,000 Units, representing
1,000 shares per Unit. Each Unit consisted of 1,000 Common shares and 650 B
Warrants and 500 C Warrants for the purchase of additional shares of the
Company. Such offering was filed with the State of New York Department of Law.
The Company utilized an exemption from the registration provisions under
Regulation D Rule 504, as amended, and sold in those states which permit the
offering to take place. The termination date of the offering was March 31, 2000.
The exercise price of the Warrants is $1.50 per B Warrant share and $2.00 per C
Warrant share, exercisable commencing one year from the date of the subscription
agreement for the B Warrant and two years from the date of the subscription
agreement for the C Warrant. The B Warrants will expire March 31, 2002 and the C
Warrants will expire March 31, 2003. 999,999 shares were subscribed in the
offering. There were 649,350 B Warrants and 499,500 C Warrants subscribed. On
April 13, 2000, 999,000 shares were issued.
The Company's payment terms for its receivables are thirty calendar days
after invoicing. At June 30, 2000, there were $47 thousand due from NYSERDA,
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"
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"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.
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
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No Principal shareholder owns any securities which can be converted into
common stock within sixty days.
1,425,000 shares were issued to Andrew Mazzone on November 21, 1995; 75,000
shares were issued on the same date to Christopher De Prima. Mr. Mazzone sold,
in 1998, 225,000 shares each to Kevin Klein and to Laura Klein in private
transactions.
MANAGEMENT
There is currently one (1) occupied seat on the Board of Directors. The
following table sets forth information with respect to the directors and
executive officers.
DATE SERVICE
NAME AGE OFFICE COMMENCED
Andrew Mazzone* 59 Chairman, President December, 1995
/Secretary/Treasurer
*Indicates Board Member
All directors will hold office until the next annual stockholder's meeting
and until their successors have been elected or qualified or until their death,
resignation, retirement, removal, or disqualification. Vacancies on the board
will be filled by a majority vote of the remaining directors. Officers of the
Company serve at the discretion of the Board of Directors.
The Officers and Directors of the Company are set forth below.
Andrew Mazzone
Chairman, CEO & President
Mr. Mazzone has been the chairman of the company since its inception. From
1970 until February 15, 1995, Mr. Mazzone was employed by Metco, Westbury, NY, a
subsidiary of the Perkin Elmer Corp. The Company was acquired by a foreign
holding corporation, which changed the Company's name to Sulzer Metco. Mr.
Mazzone, as President, resigned from Sulzer Metco after the acquisition of the
Company. Mr. Mazzone did so to pursue his belief that there is an unexploited
opportunity in the thermal spray industry to set up industrial thermal spray
shops around the world, excluding the areas of Europe and the United States. In
this endeavor, he left Sulzer Metco on good terms and with the understanding
that his strategy, if successful, would mean even more business for Sulzer Metco
Corporation. 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. Some of the highlights of Andrew Mazzone's Metco
career include positions as Director of Logistics,
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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.
Highlight dates of Mr. Mazzone's service with Metco are as follows:
Director of Logistics 1984
- Director of Sales and Marketing 1987
- Director of Manufacturing 1990
- Executive Vice President 1991
- President 1993
Between February 15, 1995 and December 1995, Mr. Mazzone was unemployed and
traveling to various countries to search for a starting location for a thermal
spray shop.
Other Significant Employees
The other significant employee is Thomas Gardega, age 46, the General
Manager of our Costa Rican facility. Thomas Gardega has been an employee of the
company since September 1, 1999. Mr. Gardega brings to the company a vast
knowledge in management in the thermal spray coatings industry and the
electrical industry. From April 17, 1989 to November 30, 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. From November 30, 1998
until joining the company Mr. Gardega had been retired. 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 - April 17, 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
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Director Compensation
Our director receives no compensation for his services as director.
Director and Officer Insurance
We are exploring the possibility of obtaining directors and officers ("D &
O") liability insurance. We have obtained several premium quotations but have
not entered into any contract with any insurance company to provide said
coverages. There is no assurance that we will be able to obtain such insurance.
CERTAIN TRANSACTIONS
Issuance of Stock:
On November 21, 1995, the Company issued 1,425,000 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.
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Price Ranges of Thermaltec Common Stock
The price of Thermaltec shares is difficult to predict. The shares have had
a history of going as high as $17. We believe, that the proposed merger with an
Internet company, combined with the fact that there is a thin float, gave the
stock its volatility. With approximately 1,000,000 shares (est.) in the float,
it apparently doesn't take much trading to produce a "bandwagon effect". The
company has published limited news releases in its history, specifically 5
during the proposed merger process with Solar, and two subsequent to that. It
announces only when it has significant news. The company surmises that investors
were gambling on the Internet, not investing in this stock.
Thermaltec's common stock was quoted on the OTC Bulletin Board under the
symbol "THRM". The following table sets forth the range of the high and low bid
quotations of the Thermaltec common stock on the OTC Bulletin Board for the
periods indicated:
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
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held of record by 46 persons. Each warrant entities the registered holder
thereof to purchase one share of Thermaltec common stock at a price of $1.00 per
share, subject to adjustment in certain circumstances on or before January 31,
2001. Any common stock issued pursuant to the excise of a warrant would be a
restricted security. Such shares may not be sold unless registered under the
Securities Act of 1933 or sold pursuant to an exemption from registration such
as the exemption provided by Rule 144.
Liquidation
In the event of a liquidation of the Company, all stockholders are entitled
to a pro rata distribution after payment of any claims. Warrant holders will not
be entitled to liquidation rights, and will not be treated as stockholders prior
to the exercise of the warrants.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and
anticipate that all future earnings will be retained for development of our
business. The payment of any future dividends will be at the discretion of our
Board of Directors and will depend upon, among other things, future earnings,
capital 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
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<PAGE>
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and we will be governed by the final adjudication of
such case.
Recent Sales of Unregistered Securities
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.
Specifically, the class investors who participated in each of the company's
offerings of June 30, 1998 and February 1, 2000 consisted entirely of officers
and employees of the Company, business associates of the company, and individual
persons known to the Company. Family members and friends of family members of
Mr. Mazzone were also investors, as were many of the original investors in the
Company's first offering in 1995. In a majority of cases, the same investors so
described subscribed to both offerings.
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
Page 26
<PAGE>
$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. Thus, as
required by Item 701(b) of Regulation S-B, the securities were sold to
accredited and non-accredited investors. Restrictions on resale were
communicated by a legend on the stock certificate and by a letter from the
transfer agent.
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.
For the fiscal year ending September 30, 1998 a total of 58,000 shares were
issued at a fair market value of $1 a share based on the restrictions on resale
as follows: 27,000 shares in consideration for marketing services, 25,000 shares
for technical services, 4,000 shares for financial services and 2,000 shares to
the registrar.
For the fiscal year ending September 30, 1999 a total of 72,567 shares were
issued at an aggregate fair market value of $642,715 based on the restrictions
on resale as follows: 35,067 shares in consideration for marketing services at
an aggregate value of $326,937; 21,000 for legal services at an aggregate value
of $219,188 and 16,500 shares for financial and administrative services at an
aggregate value of $96,590.
For the 9 months ending June 30, 2000 a total of 220,667 shares were issued at
an aggregate fair market value of $391,837 based on the restrictions on resale
as follows: 43,041 shares in consideration for marketing services at an
aggregate value of $67,850 and 177,626 shares for administrative services at an
aggregate value of $323,987.
The Company on December 2, 1997 issued 90,000 common shares in satisfaction of
an outstanding loan of $15,000. After a review of the transaction, it was
determined that the exemption under Section 4(2) of the 1933 Act was applicable.
The Company on December 29, 1998 issued 30,000 shares of common stock in
exchange for the cancellation of a shareholder loan. After a review of the
transaction, it was determined that the exemption under Section 4(2) of the 1933
Act was applicable.
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). After
a review of the transaction, it was determined that the exemption under Section
4(2) of the 1933 Act was applicable.
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 Previously filed
Authority Thermal Spraying
Specification (Expanded)
--------------------------------------------------------------------------------
10.5 Dividend Letter Panama Industries Previously Filed
--------------------------------------------------------------------------------
10.6 NYSERDA Contract Previously Filed
--------------------------------------------------------------------------------
10.7 NY State Contracter Previously Filed
Authorization Letter
--------------------------------------------------------------------------------
10.8 Ix Partners cancellation Previously Filed
Letter
--------------------------------------------------------------------------------
11.1 Statement re: Computation Previously Filed
of per share earnings
--------------------------------------------------------------------------------
27.1 Financial Data Schedule Previously Filed
--------------------------------------------------------------------------------
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THERMALTEC INTERNATIONAL, CORP.
Date: January 17, 2001 By /s/ Andrew Mazzone
-----------------------------------
Andrew Mazzone, President and
Chairman of the Board of Directors
Principal Financial Officer
Principal Accounting Officer
<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. Upon completion of the due diligence process on December
14, 2000, the Company chose to withdraw from further negotiations with I(x)
Partners.
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.
F-24
<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.
F-25
<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.
F-26
<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.
F-27
<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.
F-28
<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)
F-29
<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)
F-30
<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
========
F-31
<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.
F-32
<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
F-33
<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.
F-34
