UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934: For the fiscal year ending September 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934:
For the transition period from _________ to _________
Commission file number: pending
Thermaltec International Corporation
(Name of small business issuer in its charter)
Delaware 11-3255619
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
68A LaMar Street, Babylon, NY 11704
(Address of Principal executive offices) (Zip Code)
Issuer's telephone number (631) 643-2285
Securities registered under Section 12(b) of the "Exchange Act"
Common Share Par Value, $.0001 Electronic Quotation Service
(Title of each Class) (Registered Exchange)
Securities registered under Section 12(g) of the Exchange Act: N/A
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such a shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [_] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $300,859
The aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price of such common equity,
as of November 30, 2000 was $3,156,619.11
The number of shares outstanding of each of the issuer's classes of common
equity, as of November 30, 2000 was 4,333,301 shares
Transitional Small Business Disclosure Format (check one): Yes ____; No X
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Thermaltec International Corporation
Part I
Item 1. Description of Business
Business of the Company:
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.
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 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.
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The thermal spray process is widely used to solve corrosion and wear
problems in Europe, North America and Japan. Estimated sales are $1,800,000,000
- $2,000,000,000 per year for just North America as published in the Gorham
Report for 1999. Estimates for Japan and Europe are not available. The
registrant's estimates have been replaced by the authoritative industry Gorham
Report published by Gorham Advanced Materials Institute, Gorham, Maine 04038.
The Company develops its business primarily by training a sales force of
mechanical or metallurgical engineers, and having them call on leading
industrial companies in the markets 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 metalworking 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 three locations. The New York location has a full
complement of spray equipment, but very little machining and finishing
equipment. Thus a full demonstration in the New York location of the complete
thermal spray process is not as effective as in Costa Rica. In Costa Rica, a
true prototype demonstrating all facets of the process from spraying and machine
finishing is in place. Also, there are more trained personnel from sales,
engineering and administrative all of whom are Costa Rican citizens. Thus, the
Costa Rican "prototype" is a better analog of what to expect in all phases of
thermal spraying than is the New York location. Finally, the Company operates a
manufacturing business, High Velocity Technologies, Inc., based in Lebanon, New
Hampshire. This latter business is described in the section titled "Mergers &
Acquisitions".
Mergers & Acquisitions:
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
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all of his stock in High Velocity 250,000 shares of the Company's common stock
and $100,000, $50,000 of which was paid at closing with $15,000 paid in October
2000 and the balance of $35,000 still outstanding. Mr. Lalumiere entered into an
employment agreement, whereby he became the President and Chief Executive
Officer of Panama. The assets of High Velocity consisted primarily of the
machinery and equipment necessary to operate the thermal spray equipment
manufacturing business. The equipment manufactured and sold are (1) a high
velocity wire and powder torch, and (2) an EAS-WD ARC wire system. It had over
60 customers and had sales of approximately $500,000 in 1999. Its business was
continued by Panama and integrated into Panama's operations.
High Velocity is a manufacturer of thermal spray equipment and a
distributor of thermal spray supplies. As such, it is part of the thermal spray
business that supplies coating service shops such as the Company's shop in Costa
Rica. The company believes that its location in Costa Rica can serve as a
launching pad for promoting equipment and supplies in addition to promoting its
concept of thermal spray shops. In effect, the company can sell a prospective
thermal spray shop owner high velocity equipment and supplies along with its own
coating service expertise. The company now has more tools to promote its
overseas shop concept as previously described.
In addition, the company hopes to promote the High Velocity 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. (later
Comanco Communications Inc.) of Millville, NJ for the merger of Solar
Communications into TTI. The specific details of the merger and its timing were
released by SCG on December 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.
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.
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/Fuel)
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.
Other industrial uses are found in the Petrochemical industries, pumps,
paper and pulp manufacturing, power plants, electric motor repair, food
handling, and diesel engines.
There are over 4,000 different industrial applications for thermal
coatings.
Competition:
We may experience competition from a few different sources. First, the
traditional manufacturers of thermal spray equipment and supplies i.e. Sulzer
Metco, Westbury, NY, Eutectic Corporation, Flushing, NY, and Praxair Inc.,
Danbury, Connecticut, etc. Although primarily engaged in selling equipment and
supplies, the users of the thermal spray processes may ultimately shift their
strategy to become prime users also of the process.
In further characterizing the competition in thermal spraying, the two
largest original equipment manufacturers in the United States are Sulzer Metco
and Praxair. Between them they control over 65% of the market share in the U.S.
Their combined sales in the U.S. are estimated by the Company at over $160
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million. The company even with its acquisition of High Velocity Technology will
only obtain at best a $1.5 million estimated sales in the next 12 months or less
than 1% of the market share. The contract shop business is estimated at
$800,000,000 per year with over 200 companies competing in that market. The
company would estimate that its revenues would not exceed $400,000 in sales in
the next 12 months, or less than 1% of the contract shop market.
In the Costa Rican market the competition for original equipment is
Eutectic Corporation of Flushing, NY. It is expected that they will sell $50,000
worth of equipment and supplies in Costa Rica. The company does not intend to
sell any original equipment in Costa Rica for reasons of not wanting to create
new contract shop competitors. In the contract shop side of the business the
company believes that combined competitive work does not exceed $100,000 per
year. Therefore, we estimate that the company has about 60% of the current
thermal spray business in Costa Rica.
As described above, the business in New York has in the past revolved
around the bridge business. We cannot compete in NY because larger and
better-financed competitors are receiving contracts for this business. These
competitors include the following;
Corrosion Restoration Technologies Zenith Company
612 N. Orange Ave. 104 Fourth Street
Jupiter, Fl 33458 Pittsburgh, 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
Customers:
For the year ended September 30, 2000, one customer, the New York State
Energy Research and Development Authority (NYSERDA), accounted for 16% of
Company sales and 25% of accounts receivable. 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. In order that the Company
may reduce reliance on a small number of customers, it has not actively pursued
additional work in the large-ticket corrosion-protection field, instead placing
its emphasis on broadening its customer base in the United States by acquiring
High Velocity Technology. The addition of that firm to the Company's structure
is expected to significantly reduce reliance upon any small list of relatively
large customers that the Company may have had in the past. The Company may
perform additional work for NYSERDA in the
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future, but it intends to emphasize the expansion of the High Velocity
Technology franchise as its first priority.
During the year ended September 30, 2000, Costa Rica accounted for 36% of
total Company sales; during the year ended September 30, 1999, Costa Rica
accounted for 47% of Company sales. This shift in percentage of total revenues
reflects the inclusion of High Velocity Technology's revenues since June 2000.
This trend is expected to continue in the future.
Although we have approximately 300 thermal spray service customers in Costa
Rica, we have only 2 significant thermal spray customers in New York. The
acquisition of High Velocity has added over 50 new customers of thermal spray
materials and equipment.
Intellectual Property:
We have not applied for any patents, trademarks or license as of this time.
The Company is not engaged and has not engaged in Research and Development
activities.
Suppliers to the Company:
We anticipate obtaining most of its equipment and coating materials from
several separate sources. The loss of any supplier will not have a long-term
adverse affect on our operations.
Employees:
As of September 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 New York location.
Item 2. Description of Property
We presently maintain three 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 monthly lease
payment is $1,100.
The Company operates a wholly owned subsidiary, High Velocity Technologies,
which has offices and a manufacturing facility located at 21 Technology Drive,
Lebanon, NH 03784. Such space consists of 1800 Sq. Ft., of which 360 Sq.Ft.are
devoted to office and 1440 Sq.Ft. are devoted to manufacturing and storage. The
monthly lease payment is $ 3,700.
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 7,100 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
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commenced in January 1997. The monthly rental is $2,023. 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
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders.
Part II
Item 5. Market for Common Equity and Related Stockholder 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 4,304,801 shares of common
stock outstanding. The number of shareholders as of 9/30/2000 is 747.
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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
There are approximately 2,938,551 shares of Common Stock outstanding that
are "restricted securities" as that term is defined in Rule 144 promulgated
under the Securities Act.
Price Ranges of Thermaltec Common Stock:
The price of Thermaltec shares is difficult to predict. The shares have had
a history of going as high as $18. We believe that the previously anticipated
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. Thermaltec's common
stock is at this time, quoted on the NASD "pink sheets"; it is expected to
resume trading on the OTC Bulletin Board under the symbol "THRM" when its
registration with the Securities and Exchange Commission becomes effective. The
Company has filed a 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 following table sets forth the range of the high and low bid quotations
of the Thermaltec common stock for the periods indicated:
THREE MONTHS ENDED: High Low
---- ---
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
June 30, 2000 3.20 1.00
September 30, 2000 3.30 1.55
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The above quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not necessarily represent actual
transactions.
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:
The Company has never declared or paid cash dividends on its common stock
and anticipates that all future earnings will be retained for development of its
business. The payment of any future dividends will be at the discretion of the
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.
Item 6. Management's Discussion and Analysis or Plan of Operation
Government Regulations:
The Company, both in Latin America and in the U.S., is subject to Workers'
Compensation and Safety Laws. Thermaltec has all necessary licenses from all
governmental agencies to conduct business in both the US and Costa Rica. It has
not had any warnings or citations for any violations. To the best of its
knowledge, the Company complies with all emissions regulations and waste removal
regulations. The Company believes its only exposure would be in the area of
Workers' Compensation claims for which it is insured. The Company doesn't
reserve for possible problems in this area because of its history of not having
such problems.
NYS approval pertains to the bridge coating business. We are an approved
vendor by NYS Department of Transportation and if we receive a coating contract,
that contract is monitored daily by NYS inspectors. In Costa Rica, all our work
is by purchase order and is subject to periodic plant inspections by government
safety and emission inspectors. The Company has received no notice of violation
or citations from such inspections.
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The cost of compliance with government regulation is embedded in the cost
of environmentally safe equipment. Governmental inspection requires assistance
by employees and such assistance is deemed to be not material by the Company.
New York State Thruway Authority has approved and is currently using
thermal spray coatings as an acceptable method of corrosion protection of bridge
structural steel. Thermaltec is an approved applicator for New York State
Thruway Authority Bridge Metallizing Projects.
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).
The Company has found itself to be unable to acquire, due to its limited
resources, contracts for the coatings of bridges. We now act as technical
consultants and suppliers of equipment to those firms who have been awarded the
coating contracts. The Company is not actively pursuing additional work in the
large ticket corrosion protection field, instead placing its emphasis on
broadening its customer base in the US by acquiring High Velocity.
Results of Operations:
Year Ending September 30, 2000 vs. September 30, 1999
For the year ended September 30, 2000, Thermaltec International had $ 301
thousand of consolidated sales, an decrease of 26% from the prior year, as the
inclusion of $ 141 thousand of sales from High Velocity Technology, Inc. ("HVT")
for the four months of operations was more than offset by the decline in
corrosion protection sales in the United States of $ 161 thousand. Gross margins
were 5 %, a decline from the 23% in the prior year, primarily reflecting $ 50
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 $1,246 thousand, $ 195 thousand more than the prior year; $ 410
thousand was the result of shares issued for services during the period. Of the
total expenses, $194 thousand were required to bring the unsuccessful Camanco
Communication merger process, begun in 1999, to a conclusion. In addition, the
Company incurred $60 thousand in pursuing other mergers. During the prior year,
expenses included approximately $ 450 thousand of administrative and legal costs
associated with the planned merger with Camanco Communications. Expenses other
than merger costs were $ 987 thousand during the year, an increase of $ 386
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 $44 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 Comanco merger.
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As stated above, the Company incurred approximately $60 thousand of
administrative and legal expenses during the year ending September 30, 2000 in
pursuing merger discussions and "due diligence" investigation of four
acquisition candidates, specifically High Velocity Technologies, Edge Management
Inc., I x Partners, Ltd. 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. During the year ended September 30, 2000, the Company chose to
withdraw from further negotiations with Edge Management Inc. and with Viaplex
Communications upon completion of the respective due diligence processes. On
December 14, 2000 the Company also chose to withdraw from further negotiations
with I x Partners.
For the Year Ending September 30, 1999 vs. September 30, 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 heavy rains
and widespread flooding adversely affected industrial operations. 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 and to the lower margin NYSERDA business. General and Administrative
expenses rose by 101%, due to the issuance of Company shares for services. The
need for these services arose from the substantial work needed to pursue the
merger with Camanco Communications, a New Jersey-based company. On December 11,
1998 the two companies announced their shared intention to merge operations. On
December 13, 1999 and after extensive efforts by the Company, Camanco announced
that it was withdrawing from the merger. During 1999, the Company incurred
approximately $450 thousand of expenses for legal, financial and marketing
services that were a direct consequence of the merger effort. The Company paid
for $411 thousand of these expenses with Company shares.
Liquidity and Financial Resources
As shown in the financial statements, the Company incurred a net loss of
$1.2 million during the year ended September 30, 2000 and has incurred
substantial net losses for each of the past two years. At September 30, 2000,
current liabilities exceed current assets by $ 247 thousand; at the same time,
total assets exceeded total liabilities by $ 367 thousand. These factors raise
substantial doubt about the Company's ability to continue as a going concern. It
is the intention of the Company's management to improve profitability by
significantly reducing operating expenses and to raise additional investment
capital to provide for continued operating funds. The ultimate success of these
measures is not reasonably determinable at this time.
13
<PAGE>
The Company has limited the amount of the 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
technical and market development is more appropriately obtained through the sale
of equity. Debt outstanding as of September 30, 2000 consists primarily of $16
thousand of a bank note and $49 thousand in equipment financing, as well as $107
thousand of debt assumed as a result of the acquisition of High Velocity. Since
inception, the Company has raised $2.6 million through the sale of common stock
other than stock issued in exchange for services.
The Company's payment terms for its receivables are thirty calendar days
after invoicing. At September 30, 2000, there were $32 thousand due from
NYSERDA, representing retainage under the terms of the original contracts for
Phase I and for Phase II. Upon completion of the project, the remaining balance
will be paid by NYSERDA. At September 30, 1999, there were $90 thousand due from
National Thermal Spay; these were 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 entirely its computer hardware
and accompanying software prior to the end of 1999. At the end of 1999, the
Company experienced no difficulties with the "Y2K" problem and, in the opinion
of management no cause for further concern exists.
Inflation
The amounts presented in the financial statements do not provide for the
effect of inflation on the Company's operations or its financial position.
Amounts shown for machinery, equipment and leasehold improvements and for costs
and expenses reflect historical cost and do not necessarily represent
replacement cost. The net operating losses shown would be greater than reported
if the effects of inflation were reflected either by charging operations with
amounts that represent replacement costs or by using other inflation
adjustments.
Forward-looking Information
Certain statements in this document are forward-looking in nature and relate to
trends and events that may affect the Company's future financial position and
operating results. The words "expect" "anticipate" and similar words or
expressions are to identify forward-looking statements. These statements speak
only as of the date of the document; those statements are based on current
expectations, are inherently uncertain and should be viewed with caution. Actual
results may differ materially from the forward-looking statements as a result of
many factors, including changes in economic conditions and other unanticipated
events and conditions. It is not possible to foresee or to identify all such
factors. The Company makes no commitment to update any forward-looking statement
or to disclose any facts, events or circumstances after the date of this
document that may affect the accuracy of any forward-looking statement.
14
<PAGE>
Item 7. Financial Statements
Thermaltec International Corp. and Subsidiaries
Index to Financial Statements
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
Consolidated Balance Sheet as of September 30, 2000 F-3
Consolidated Statement of Operations and Comprehensive Income
for the periods ended September 30, 2000 and 1999 F-4
Consolidated Statements of Shareholders' Equity for the periods
ended September 30, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the periods ended
September 30, 2000 and 1999 F-6
Consolidated Notes to the Financial Statements F-7
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors of
Thermaltec International Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Thermaltec
International Corporation and Subsidiaries as of September 30, 2000 and the
related consolidated statements of operations and comprehensive income,
stockholders' equity and cash flows for the years ended September 30, 2000 and
1999. 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, 2000, and the
results of its operations and cash flows for the years ended September 30, 2000
and 1999, in conformity with generally accepted accounting principles.
As shown in the financial statements, the company incurred a net loss of
$1,230,225 for the year ended September 30, 2000 and has incurred substantial
net losses for each of the past 2 years. At September 30, 2000, current
liabilities exceeded current assets by $247,137. These factors, and others
discussed in Note 14, indicate that the company may be unable to continue in
existence. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the company
cannot continue existence.
Capraro, Centofranchi, Kramer & Co, P.C.
South Huntington, New York
December 12, 2000
F-2
<PAGE>
Thermaltec International Corp. and Subsidiaries
Consolidated Balance Sheet
As of September 30, 2000
Assets
Current Assets
Cash and Cash Equivalents ........................ $ 65,437
Trade Accounts Receivable ........................ 126,498
Inventories ...................................... 139,951
Prepaid Expenses and Other Current Assets ........ 46,117
-----------
Total Current Assets ............................. 378,003
-----------
Fixed Assets
Machinery and Equipment .......................... 399,715
Leasehold Improvements ........................... 40,120
-----------
Gross Fixed Assets .............. 439,835
Less: Accumulated Depreciation ................... (202,414)
-----------
Net Fixed Assets ................................. 237,421
-----------
Other Assets
Goodwill, Net .................................... 435,582
Organization Costs, Net of Amortization .......... 809
Other Assets ..................................... 21,844
-----------
Total Other Assets ............................... 458,235
-----------
Total Assets .................................................... $ 1,073,659
-----------
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Current Maturities of Long-Term Debt ................ $ 34,847
Notes Payable - Other ............................... 55,644
Vendor Accounts Payable ............................. 266,367
Other Current Liabilities ........................... 181,689
Due to Officer ...................................... 50,000
Due to Shareholder .................................. 36,593
-----------
Total Current
Liabilities ..................................................... 625,140
-----------
Long-Term Liabilities
Long-Term Debt less Current Maturities .............. 81,853
-----------
Total Liabilities ...................................... 706,993
-----------
Common Stock ........................................... 430
Additional Paid-in Capital ............................. 3,745,779
Retained Earnings (Deficit) ............................ (3,406,208)
Accumulated Other Comprehensive Income:
Foreign Currency Translation Adjustment ............. 26,665
-----------
Total Stockholders' Equity (Deficit) ................... 366,666
-----------
Total Liabilities and Stockholders' Equity (Deficit) ............ $ 1,073,659
-----------
See accompanying notes to financial statements
F-3
<PAGE>
Thermaltec International Corp. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the
Year ended September 30,
1999 2000
----------- -----------
Sales $ 408,987 $ 300,859
Cost of Sales 316,257 285,089
----------- -----------
Gross Profit 92,730 15,770
General and Administrative Expenses 1,051,334 1,245,995
----------- -----------
Net Loss (958,604) (1,230,225)
----------- -----------
Other Comprehensive Income:
Foreign currency translation adjustments (1,330) 1,579
Total Comprehensive Income (Loss) ($ 959,934) ($1,228,646)
=========== ===========
Basic and Diluted Loss per Share ($ 0.38) ($ 0.37)
=========== ===========
Weighted Average Number of Shares Outstanding 2,490,420 3,296,761
=========== ===========
See accompanying notes to financial statements
F-4
<PAGE>
Thermaltec International Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other
Number of Paid-in Earnings Comprehensive
Shares Amount Capital (Deficit) Income(Loss) Total
-------------------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
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)
Warrants exercised during the year 108,200 11 106,938 106,949
Stock issued in lieu of cash repayment
of shareholder loan during the year 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)
Net Loss for the year ended 9/30/00 (1,230,225) (1,230,225)
Warrants exercised during the year 1,000 0 1,000 1,000
Stock issued in lieu of cash repayment
of shareholder loan during the year 198,000 20 197,980 198,000
Stock issued for services 233,833 23 409,493 409,516
Stock issued for employee awards 4,850 1 7,274 7,275
Stock sold during the year 834,000 83 833,917 834,000
Stock issued in lieu of cash repayment
of other loans 175,000 17 174,983 175,000
Stock issued for purchase of HVT 250,000 25 218,725 218,750
Other Comprehensive Income:
Foreign currency translation adjustment 1,579 1,579
---------- ----- ----------- ----------- ------- -----------
Balance September 30, 2000 4,304,801 $430 $ 3,745,779 ($3,406,208) $26,665 $366,666
========== ===== =========== =========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Thermaltec International Corp. and Subsidiaries
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
For the
Year ended September 30,
1999 2000
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($958,604) ($1,230,225)
--------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation & Amortization 23,712 39,810
Common Stock Issued for Services and Awards 642,718 416,791
(Increase) decrease in:
Accounts Receivables (97,952) 78,613
Inventories 45,309 (9,546)
Prepaid Expenses and Other Current Assets 7,800 (44,625)
Other Assets (1,970) (15,313)
Increase(decrease) in:
Accounts Payable 96,043 (65,730)
Accrued Expenses & Other Current Liabilities (51,577) 103,586
--------- -----------
Total Adjustments 664,083 503,586
--------- -----------
Net cash used in Operating Activities (294,521) (726,639)
--------- -----------
Cash Flows from Investing Activities:
Purchases of Fixed Assets (16,857) (10,685)
Cash paid in acquisition of subsidiary 0 (50,000)
--------- -----------
Net cash used in Investing Activities (16,857) (60,685)
--------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of shares, net of offering costs 106,949 835,000
Repayments of Long-Term Debt (18,830) (98,785)
Net Proceeds (repayments) of Shareholder Loans 350,263 (16,311)
--------- -----------
Net cash provided by Financing Activities 438,382 719,904
--------- -----------
Effect of exchange on cash (1,330) 1,579
--------- -----------
Net increase (decrease) in cash and cash equivalents 125,674 (65,841)
Cash & Cash Equivalents, Beginning of Period 5,604 131,278
--------- -----------
Cash & Cash Equivalents, End of Period $131,278 $65,437
========= ===========
</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, 2000 AND 1999
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.
PANAMA INDUSTRIES,LTD.
Panama Industries is a wholly owned subsidiary of TTI 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 TECHNOLOGIES, INC.
High Velocity Technologies, Inc. (HVT), located in West Lebanon, NH, is
a wholly owned subsidiary of Panama Industries, acquired on May 19,
2000. HVT manufactures and sells equipment and materials used in the
thermal spraying industry.
AMZ THERMALTEC, S.A.
AMZ THERMALTEC, S.A. (AMZ) is a wholly owned subsidiary of TTI located in
San Jose, Costa Rica. AMZ began operations in June 2000 and provides
thermal spray coatings to businesses and individuals throughout Costa Rica.
THERMALTEC DE COSTA RICA, S.A.
Thermaltec de Costa Rica, S.A. ("TCR") is a wholly owned subsidiary of TTI
located in San Jose, Costa Rica. TCR began operations during fiscal 1995,
and provides thermal spray coatings to businesses and individuals
throughout Costa Rica.
PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet of the Company as of September 30, 2000
reflects the balances of High Velocity Technologies, Inc. (HVT); the
Results of Operations for the year ended September 30, 2000 include the
results of HVT for the approximately four months 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.
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.
F-7
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
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
re-estimate 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 that 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.
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,
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.
F-8
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
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 companies, AMZ and
TCR use the Costa Rican Colon 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
other comprehensive 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.
REPORTING COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" for the year ended September 30, 1999.
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.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For the period ended:
September 30,
1999 2000
-------- --------
Cash paid for:
Interest Expense: $ 33,191 $ 22,320
Income Taxes - -
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 year ended September 30, 2000, the Company issued 233,833 shares
of stock as payment for services in the amount of $409,516.
During the year ended September 30, 2000, the Company had non-cash
investing and financing activities that resulted from the acquisition of a
subsidiary whose net liabilities exceeded net assets, summarized as
follows:
Goodwill Acquired $450,772
Less non - cash transactions:
Excess of liabilities over assets acquired 132,022
Note payable to former shareholder 50,000
Stock issued for acquisition of subsidiary 218,750
--------
Payment to acquire Subsidiary $ 50,000
========
During the year ended September 30, 2000, the Company had a non-cash
financing activity of $373,000 when it issued shares of stock for repayment
of shareholder and various other loans.
During the year ended September 30, 2000, the Company had a non-cash
investing and financing activity of $30,000 when it financed the purchase
of machinery.
F-9
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
3. INVENTORIES
For the year ended:
September 30,
2000
-------------------
Inventories consist of the following;
Raw Materials $124,754
Machinery Held for Resale 15,197
--------
Total Inventories 139,951
========
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
For the year Ended:
Estimated useful September 30,
Life-years 2000
---------------- -------------------
<S> <C> <C>
Machinery, equipment and furniture 5-10 339,715
Leasehold improvements 5-31.5 40,120
439,835
Less accumulated depreciation and amortization 202,414
--------
Net property and equipment $237,421
========
</TABLE>
Depreciation for the years ended September 30, 2000 and 1999 was $ 27,354,
and, $15,823, respectively.
5. GOODWILL
On May 19, 2000, the Company acquired all of the outstanding stock of High
Velocity Technologies, Inc. The purchase price exceeded the net book value
of HVT on the date of acquisition by $ 450,772. The Goodwill is being
amortized over a ten-year period.
6. NOTES PAYABLE - OTHER
This balance represents two demand notes to unrelated parties and a term
note to a former customer of HVT, which is presently in default. The
Company upon the acquisition of HVT assumed these obligations.
7. LONG TERM DEBT
<TABLE>
<CAPTION>
For the Year Ended
September 30,
2000
------------------
<S> <C>
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 $16,499
Notes payable, HVT, with terms expiring through September, 2005
The loans provide for monthly payments of principal and interest 51,274
at rates from 9-10%
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% 48,927
-------
116,700
Less current maturities 34,847
-------
Long term debt $81,853
=======
</TABLE>
F-10
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
As of September 30, 2000, annual maturities of long-term debt outstanding
are as follows:
September 30,
2001 $34,847
2002 37,333
2003 25,704
2004 9,591
2005 and thereafter 9,225
--------
Total $116,700
========
8. DUE TO OFFICER/SHAREHOLDER
Due to officer represents a demand note payable to the President of High
Velocity Technologies. This loan has no maturity and bears no interest.
Due to Shareholder represents the net amount due to the majority
shareholder of the Company as of September 30, 2000. This loan has no
maturity and bears no interest.
9. SALES TO MAJOR CUSTOMERS
For the year ending September 30, 2000, one customer accounted for 16% of
the Company's sales and 25% of the Company's accounts receivable. For the
year ending September 30, 1999, one customer accounted for 39% of the
Company's sales and 63% of accounts receivable.
10. 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 $13,200.
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 $52,276 and $30,196, for the years ended September 30, 2000 and 1999,
respectively.
Future minimum lease obligations under non-cancelable leases are as
follows:
For the year ending:
September 30,2001 $35,376
September 30,2002 24,276
September 30,2003 8,092
-------
Total $67,744
=======
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with the President of
High Velocity Technologies for a minimum term of five years. The agreement
also employs him as the President of Panama Industries, at an initial base
annual salary of $ 80,000 plus performance incentives.
Future minimum payments under this employment agreement are as follows:
For the year ending:
September 30, 2001 $80,000
September 30, 2002 80,000
September 30, 2003 80,000
September 30, 2004 80,000
September 30, 2005 53,360
--------
Total $373,360
========
F-11
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
11. COMMON STOCK
<TABLE>
<CAPTION>
For the Year Ended
September 30,
2000
------------------
<S> <C>
Common stock is as follows:
Common stock, $.0001 par value, 10,000,000 shares authorized.
Shares issued and outstanding 4,304,801
Par Value $ 430
</TABLE>
Common Stock:
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
During the year ending September 30, 2000, the Company issued 233,833
shares for services to outside consultants as follows:
Marketing services 53,209 shares $81,929
Administrative services 180,624 shares $327,587
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 year ending September 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.
During the year ended September 30, 2000, the Company issued 373,000 shares
of common stock in lieu of cash repayment of shareholder loans.
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 750 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. 999,000 shares were subscribed in the offering. There were
649,350 B Warrants and 499,500 C Warrants subscribed. On April 13, 2000,
999,000 shares were issued of which 834,000 shares were sold and 165,000
shares were issued as repayment of various loans described above.
On June 13, 2000, 250,000 shares were issued as partial payment for the
purchase of High Velocity Technology, Inc.
12. INCOME TAXES
No provision for income taxes was recorded during the years ended September
30, 2000 and 1999, due to net losses being incurred. At September 30, 2000,
the Company had net operating loss carryforwards for tax purposes of
approximately $ 2,838,000, which would expire in 2015.
F-12
<PAGE>
THERMALTEC INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
The Company's effective tax rate in 1999 and 2000 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:
1999 2000
---- ----
Net operating loss carryforwards $760,900 $1,192,200
Less: valuation allowance 760,900 1,192,200
---------- ----------
Total Deferred $ -- $ --
========== ==========
At September 30, 2000 and 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.
13. GEOGRAPHIC INFORMATION
The Company's revenues from external customers is derived from the
following geographic markets:
For the year ended
September 30:
1999 2000
---- ----
United States $217,778 $193,943
Costa Rica 191,209 106,916
-------- --------
Total $408,987 $300,859
======== ========
14. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $1,230,225 for the year
ended September 30, 2000 and has incurred substantial net losses for each
of the past two years. At September 30, 2000 current liabilities exceed
current assets by $247,137. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot
continue in existence.
15. SUBSEQUENT EVENTS/MERGERS AND ACQUISITIONS
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. (Ix). 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 was to be
effected by the exchange of 200,000 shares of Thermaltec common stock. The
completion of the acquisition was subject to the usual due diligence
process. Upon the completion of the due diligence process on December 14,
2000, the Company chose to withdraw from further negotiations with I x .
As of September 30, 2000 the Company does not have any other mergers or
acquisitions pending.
F-13
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
The Company has no change in or disagreements with Accountants on Accounting and
Financial Disclosure.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
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.
Andrew B. Mazzone:
Mr. Mazzone has been the Chairman of the company since its inception. From
1970 until February 15, 1995, Mr. Mazzone was employed by Metco, Westbury, NY, a
subsidiary of the Perkin Elmer Corp. The Company was acquired by a foreign
holding corporation, which changed the Company's name to Sulzer Metco.
Mr. Mazzone, as President, resigned from Sulzer Metco after the acquisition of
the Company. Mr. Mazzone did so to pursue his belief that there is an
unexploited opportunity in the thermal spray industry to set up industrial
thermal spray shops around the world, excluding the areas of Europe and the
United States. In this endeavor, he left Sulzer Metco on good terms and with the
understanding that his strategy, if successful, would mean even more business
for Sulzer Metco Corporation. Some of the highlights of Andrew Mazzone's Metco
career include positions as Director of Logistics, Director of Sales and
Marketing, Director of Manufacturing, Executive Vice President and President.
Mr. Mazzone has degrees from Babson College, Babson Park, Massachusetts in
finance and an advanced degree in economics, with a specialty in economic
history. Mr. Mazzone will devote full time to the efforts of the Company. The
Company has no employment agreement with Mr. Mazzone at this time.
16
<PAGE>
Sulzer/Metco is one of the largest manufacturers of thermal spray supplies and
equipment in the world. Sulzer/Metco primarily supply's contract shops, of which
the company is one, equipment, replacement parts and spray materials which are
the tools necessary for a contract shop to use in supplying thermal spray
coating service.
President-1993 Executive Vice President-1991 Director of Manufacturing-1990
Director of Sales and Marketing-1987 Director of Logistics-1984
Other Significant Employees:
Thomas Gardega, age 46, is the General Manager of Thermaltec de Costa Rica.
Thomas Gardega has been an employee of the company since September 1999.
Mr. Gardega brings to the company a vast knowledge in management in the thermal
spray coatings industry and the electrical industry. From 1989 to 1998,
Mr. Gardega was responsible as project manager for all field operations of
electrical construction in the State of South Carolina for Basic Electrical,
Inc. From 1998 until joining the Company, Mr. Gardega had retired from the
industry. 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. From 1984 - 1989 he was President of
National Thermal Spray Inc., a developer and marketer of thermal coating
systems. He graduated from Empire State College in New York majoring in business
administration. The Company has no employment agreement with Mr. Gardega at this
time.
Robert J. Lalumiere, age 47, is the President and Chief Executive Officer
of Panama Industries. He entered into an employment agreement with the Company
in May 2000 at the time of the acquisition of High Velocity Technologies.
Mr. Lalumiere has been the President of High Velocity Technologies for the last
five years. He also was their Chief Engineer for Product Development.
Item 10. Executive Compensation
No Officer/Director has been compensated with salaries or other form of
remuneration except the President, Andrew B. Mazzone who received the following
compensation:
<TABLE>
<CAPTION>
Capacities in which Aggregate
Name Remuneration was Received Period Remuneration
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew Mazzone Chief Engineer, NYSERDA For the year $26,202
Project and Project Manager ended 9/30/99
As Salary
For the year $24,222
Ended 9/30/00
</TABLE>
Director Compensation:
Our director receives no compensation for his services as director.
17
<PAGE>
Director and Officer Insurance:
The Company has no directors and officers ("D & O") liability insurance.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 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 4,304,801 shares of Common Stock, which have been issued
and are outstanding, as of September 30, 2000 the principal shareholders own
1,381,500 shares of Common Stock as follows:
Shares Percent
------ -------
Andrew Mazzone(1) 1,039,500 24.1%
513 Dryden Street
Westbury, NY 11590
Laura Klein(2) 225,000 5.2%
2 North Broadway
Apt. 4F
White Plains, NY 10601
Kevin Klein(2) 225,000 5.2%
52 Webster Ave.
Apt. 20
New Rochelle, NY 10801
Directors and Officers as a group: 1,039,500 shares
(1) Director and Officer
1,425,000 shares were issued to Andrew Mazzone on November 21, 1995;
Mr. Mazzone sold, in 1998, 225,000 shares each to Kevin Klein and to
Laura Klein in private transactions.
(2) Kevin and Laura Klein are brother and sister; both disclaim beneficial
ownership to each other.
18
<PAGE>
Item 12. Certain Relationships and Related 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.
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 year ending September 30, 2000, a total of 1,000 warrants
had been exercised for an equal number of shares. The registration fee was
waived.
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 750 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. 999,000 shares were subscribed in the
offering. There were 649,350 B Warrants and 499,500 C Warrants subscribed. On
April 13, 2000, 999,000 shares were issued of which 834,000 shares were sold and
165,000 shares were issued as repayment of various loans described above
There was no underwriter and the Company did not offer any discounts or pay
any compensation in connection with either offering. Moreover, in both cases
there was not general solicitation or general advertising. Since the Company was
not subject to the reporting requirements of section 13 or section 15(d) of the
Exchange Act, in both instances the offer and sale of securities satisfied the
requirements of, and were exempt under, Section 504 of Regulation D under the
Securities Act and the applicable $1,000,000 cap was not exceeded. Thus, in both
cases permissible sales were made to investors, some of who were not "accredited
investors" as that term is defined in Regulation D.
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.
19
<PAGE>
During the year ended September 30, 2000, the Company issued 373,000 shares
of common stock in lieu of cash repayment of shareholder loans and various other
loans.
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
During the year ending September 30, 2000, the Company issued 233,833 shares for
services to outside consultants as follows:
Marketing services 53,209 shares $81,324
Administrative services 180,624 shares $327,593
On June 13, 2000, 250,000 shares were issued as payment for the purchase of High
Velocity Technology, Inc.
Item 13. Exhibits
Index to Exhibits
--------------------------------------------------------------------------------
SEC REFERENCE TITLE OF DOCUMENT
NUMBER
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (1)
--------------------------------------------------------------------------------
3.2 Amendment to Articles of (1)
Incorporation
--------------------------------------------------------------------------------
3.3 Additional Amendment to (1)
Articles of Incorporation
--------------------------------------------------------------------------------
3.4 Bylaws (1)
--------------------------------------------------------------------------------
10.1 Lease Agreement on the premises (1)
Babylon, NY
--------------------------------------------------------------------------------
10.2 Lease Agreement on the premises (1)
Costa Rica
--------------------------------------------------------------------------------
10.3 New York State Thruway (1)
--------------------------------------------------------------------------------
Authority Thermal Spraying
--------------------------------------------------------------------------------
Specification (Expanded)
10.4 NYSERDA Contract (1)
--------------------------------------------------------------------------------
10.5 NY State Contracter (1)
Authorization Letter
--------------------------------------------------------------------------------
11.1 Statement re: Computation (1)
of per share earnings
--------------------------------------------------------------------------------
27.1 Financial Data Schedule This Filing Page
--------------------------------------------------------------------------------
(1) These documents are hereby incorporated by reference to Form 10SB filed
November 21, 2000.
--------------------------------------------------------------------------------
20
<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.
THERMALTEC INTERNATIONAL, CORP.
Date: January 12, 2001 By /s/ Andrew Mazzone
----------------------------------------
Andrew Mazzone, President and
Chairman of the Board of Directors
Principal Financial Officer
Principal Accounting Officer
22
