U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
-----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-21279
-------
THERMACELL TECHNOLOGIES, INC.
----------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 59-3223708
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
440 Fentress Blvd., Daytona Beach, Florida 32114
------------------------------------------------
(Address of Principal Executive Offices)
(904) 253-6262
--------------
(Issuer's Telephone Number)
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.
Yes X No
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par
Value, as of March 31, 2000 was 11,033,653
Transitional Small Business Disclosure Format:
Yes No X
--- ---
i
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARY
Index
Page
Part I - Financial Information ----
- ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
March 31, 2000................................................ 1 - 2
Consolidated Statements of Operations -
Three months and six months ended March 31, 2000 and 1999..... 3
Consolidated Statements of Changes in Stockholders' Equity
Six months ended March 31, 2000............................... 4
Consolidated Statements of Cash Flows -
Three months and six months ended March 31, 2000 and 1999..... 5
Notes to Consolidated Financial Statements...................... 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8 - 12
Part II - Other Information
Item 1. Legal Proceedings................................................ 12
Signatures...................................................... 13
Exhibit 11............................................................... 14
i
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
Assets
March 31,
2000
------------------
Current assets
Cash $ 26,065
Accounts receivable
Trade, net of allowance for uncollectible accounts
of $177,570 470,972
Inventories 380,356
Prepaid expenses and other 2,159
------------------
Total current assets 879,552
------------------
Property and equipment 1,698,368
Less - accumulated depreciation 735,328
------------------
963,040
------------------
Other assets
Deposits 62,087
Prepaid interest 33,912
Other intangibles, net of accumulated amortization
of $65,118 703,006
------------------
799,005
------------------
Total assets $ 2,641,597
==================
See notes to consolidated financial statements.
1
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
Liabilities and Stockholders' Equity
March 31,
2000
------------------
Current liabilities
Accounts payable $ 886,841
Accrued expenses 737,323
Accrued payroll and payroll taxes 22,427
Officer advance 89,415
Current maturities of long-term debt
Notes payable 34,588
Capital leases 101,963
------------------
Total current liabilities 1,872,557
------------------
Long-term debt, net of current maturities
Notes payable 1,437,049
Capital lease obligations 102,028
------------------
Total long-term debt, net of current maturities 1,539,076
------------------
Total Liabilities 3,411,633
------------------
Stockholders' equity
Common stock, par value $.0001
Authorized 20,000,000 shares,
11,033,653 issued and outstanding 1,103
Additional paid-in capital 10,481,987
Common stock subscribed 20,000
Accumulated deficit (11,218,126)
Treasury stock (55,000)
------------------
Total stockholders' equity (770,036)
------------------
Total liabilities and stockholders' equity $ 2,641,597
==================
See notes to consolidated financial statements.
2
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
For the Three Months Ended For the Six Months Ended
----------------------------------- ----------------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------------- ------------- -------------- ------------
Revenue
Sales $ 1,274,507 $ 1,128,941 $ 2,476,702 $ 1,940,351
Less cost of sales 925,342 778,702 1,815,670 1,351,845
--------------- ------------- -------------- ------------
Gross profit 349,165 350,239 661,031 588,506
Selling, general and administrative
expenses 2,733,163 667,854 3,884,786 1,185,314
--------------- ------------- -------------- ------------
Loss from operations (2,383,998) (317,615) (3,223,755) (596,808)
--------------- ------------- -------------- ------------
Other income (expense)
Interest income - - - 4,431
Interest expense (80,383) (6,629) (162,685) (9,464)
Loss on closure of division (912,347) - (912,347) -
--------------- ------------- -------------- ------------
Total other income (expense) (992,730) (6,629) (1,075,032) (5,033)
--------------- ------------- -------------- ------------
Loss before income taxes (3,376,728) (324,244) (4,298,787) (601,841)
Income taxes
Deferred income tax benefit - 64,848 - 120,367
--------------- ------------- -------------- ------------
Net loss $ (3,376,728) $ (259,396) $ (4,298,787) $ (481,474)
=============== ============= ============== ============
Basic loss per common share $ (0.33) $ (0.03) $ (0.43) $ (0.06)
=============== ============= ============== ============
Weighted average number of
common shares outstanding 10,171,153 8,452,420 9,971,153 7,593,643
=============== ============= ============== ============
See notes to consolidated financial statements.
3
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Common Stock
Common Stock Subscribed
--------------------- ------------------------
Number of Number of
Shares Amount Shares Amount
----------- -------- ---------- -----------
Balance September 30, 1999 9,433,653 $ 943 - $ -
Issuance of stock for payment of services 1,300,000 130 - -
Issuance of stock for acquisition 300,000 30 - -
Common stock subscribed - - 200,000 20,000
Payments associated with stockholder loan, net - - - -
Net loss for period ended March 31, 2000 - - - -
----------- -------- ---------- -----------
Balance March 31, 2000 11,033,653 $ 1,103 200,000 $ 20,000
=========== ======== ========== ===========
Additional
Paid-in Accumulated Notes Receivable, Treasury
Capital Deficit Stockholder Stock Total
---------- ------------- ----------- ----------- ------------
$ 9,519,168 $ (6,919,339) $ (147,035) $ (55,000) $ 2,398,736
797,849 - - - 797,979
164,970 - - - 165,000
- - - - 20,000
- - 147,035 - 147,035
- (4,298,787) - - (4,298,787)
---------- ------------- ----------- ----------- ------------
$ 10,481,987 $ (11,218,126) $ - $ (55,000) $ (770,036)
========== ============= =========== =========== ============
See notes to consolidated financial statements.
4
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
For the Six Months Ended
--------------------------------
March 31, March 31,
2000 1999
-------------- --------------
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities
Net loss $ (4,298,787) $ (481,474)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 121,420 82,892
Amortization 70,401 12,281
Write off of goodwill 1,115,826 -
Deferred income tax benefit - (120,367)
Loss on closure of division 912,347 -
Changes in assets and liabilities, net of acquisitions
(Increase) decrease in accounts and notes receivable 21,852 (104,256)
(Increase) decrease in inventories 161,577 (11,497)
(Increase) decrease in prepaid and other assets 174,561 (321,436)
Increase (decrease) in accounts payable (112,120) 111,625
(Decrease) increase in accrued expenses 598,597 (194,487)
Increase in officer advance 89,415 -
Common stock issued for services 797,979 300,000
-------------- --------------
Net cash used in operating activities (346,930) (726,719)
-------------- --------------
Cash flows from investing activities
Capital expenditures (135,258) (70,495)
Acquisitions (215,000) (1,475,006)
Expenditures for patent, net - (41,200)
-------------- --------------
Net cash used in investing activities (350,258) (1,586,701)
-------------- --------------
Cash flows from financing activities
Proceeds from issuance of common stock - 2,212,888
Common stock issued for acquisitions 165,000 -
Proceeds from common stock subscription 20,000 -
Proceeds from issuance of notes payable & capital leases 232,771 56,140
Proceeds from issuance of convertible note - 500,000
Principal payments on notes payable & capital leases (57,960) -
Principal advances on stockholder loan - (131,116)
Proceeds from payments on stockholder loan 303,269 -
-------------- --------------
Net cash provided by financing activities 663,080 2,637,912
-------------- --------------
Net increase (decrease) in cash (34,108) 324,492
Cash beginning 60,173 67,405
-------------- --------------
Cash ending $ 26,065 $ 391,897
============== ==============
See notes to consolidated financial statements.
5
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited financial statements should
be read in conjunction with the financial statements and the footnotes thereto
contained in Form 10-KSB for the fiscal period ended September 30, 1999 of
ThermaCell Technologies, Inc. (the "Company"), as filed with the Securities and
Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the six months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
Note 2 - Basic loss per share calculations
The computation of net earnings (loss) per common share has been based upon the
weighted average number of shares of outstanding common stock, which for the
three month periods ended March 31, 2000 and March 31, 1999 was 10,171,153 and
8,452,420, respectively. For the six month periods ended March 31, 2000 and
March 31, 1999 the weighted average number of shares outstanding was 9,971,153
and 7,593,643, respectively.
Note 3 - Equity Transactions
Please refer to Audited Consolidated Financial Statements consisting of the
Company's balance sheet as of September 30, 1999, and related statements of
operations, changes in stockholders' equity, and cash flows ended September 30,
1999, as audited by Cherry, Bekaert, & Holland, L.L.P., Certified Public
Accountants.
On February 14, 2000 the Company issued 850,000 shares of common stock to
employees, directors and consultants in a Regulation S-8 filing. These shares
represented compensation for the services performed and to be performed by
employees, directors, and consultant and was utilized to minimize cash
disbursements.
On February 2, 2000, the company issued 300,000 shares of common stock to
complete the acquisition of Silab Resarch Center, Inc., a Daytona Beach, Florida
based research and development facility.
On March 29, 2000, the board of directors authorized a 1-for-4 reverse stock
split effective April 14, 2000.
Note 4 - Contingencies
On June 10, 1999, the Company and Innovation Associates, Inc. ("IA") reached an
agreement to settle litigation that was commenced by IA for trade secrets
misappropriation among other matters. As part of the settlement, the Company
agreed to license certain patents relating to microspheres that are owned by IA.
Consideration for such license was the payment of $25,000 and the issuance of
$500,000 worth of the Company's common stock that was legended. A requirement
with the issuance of this common stock was that registration of these securities
occur within 180 days of the signing of the agreement. The Company did not
register these shares within the prescribed period and is obligated to issue
additional shares of common stock having a value of $125,000. The Company plans
to issue 29,412 shares of common stock to satisfy this payment obligation. The
Company plans to utilize the IA patents to strengthen its patent position in
this area.
6
On February 4, 1999, a complaint was filed in the United States District Court,
Middle District of Florida by Mr. Russell Haraburda and Eden Group, Inc. against
John Pidorenko, the Company's then president, and the Company for monies
purportedly due for arranging financing for the Company prior to its IPO in
March of 1997. The Company does not believe any monies are due Mr. Haraburda or
his firm. In addition, the Company has been assigned two promissory notes of the
Eden Group, Inc. that are unpaid. The Company will vigorously challenge any
demand for payment by Mr. Haraburda and will seek full payment under its
promissory notes from the Eden Group. A trial in the summer of 2000 is
anticipated.
7
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-QSB, that are not purely
historical, are forward-looking information and statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These include statements regarding the Company's
expectations, intentions, or strategies regarding future matters. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements contained in this Form 10-QSB. The forward-looking
statements contained here in are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments regarding, among other things, the Company's ability to secure
financing or investment for capital expenditures, future economic and
competitive market conditions, and future business decisions. All these matters
are difficult or impossible to predict accurately and many of which may be
beyond the control of the Company. Although the Company believes that the
assumptions underlying its forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this form 10-QSB will prove to be
accurate.
GENERAL
The Company was incorporated in Florida in August 1993, for the purpose of
developing, manufacturing and marketing insulating materials and coatings using
partially evacuated glass microspheres ("shells"). The Company's technology
utilizes the insertion of the shells in various materials and products that
improve the thermal resistive characteristics of such products.
The Company's business strategy is to (i) expand the marketing and distribution
of ThermaCool(TM) paints and coatings, (ii) develop and manufacture the
Company's own shells and (iii) expand the shell technology to other products,
such as drywall, gypsum board, home siding materials, and space foam insulation,
among others.
On November 30, 1995, the Company acquired the assets of C.F. Darling Paint &
Chemicals, Inc., a paint manufacturing company, located in New Port Richey,
Florida. The Company acquired these assets so that it would have a facility to
produce and develop paints and coatings for its ThermaCool(TM) product line.
On March 19, 1997, the Company completed a public offering for 1,375,000 Units,
each Unit consisting of one share of Common Stock, $.0001 par value, and one
Series A Redeemable Common Stock Purchase Warrant, at a price of $4.00 per Unit.
In addition, the underwriter exercised its over-allotment purchase option and
purchased 206,250 additional Units at the initial per Unit public offering price
less the underwriting discounts and commission. The net proceeds from this
offering were more than $4.7 million.
On July 28, 1997, the Company acquired all the outstanding common stock,
representing 100% ownership, of Atlas Chemical Company, a paint manufacturer and
distributor, located in Miami, Florida. The Company acquired this firm so that
it would have a larger manufacturing facility to both expand production of
paints and coatings and to obtain an established marketing distribution channel
that included major accounts such as Builders Square, Ace Hardware, among
others.
On March 2, 1998, the Company acquired the assets of Ladehoff Paints, Inc., a
paint manufacturer and distributor located in Mesa. Arizona. The total purchase
price was $115,000. This acquisition is classified as a purchase transaction.
This facility was closed during August of 1999.
8
On October 15, 1998, the Company agreed to acquire T-Coast Pavers/Sealco
Systems, Inc., which had annual revenues of about $2 million. ThermaCell
acquired these associated businesses effective December 1, 1998 for 300,000
shares of its common stock valued at $300,000 and in an employment agreement
with its founder and key executive, a payment of an additional 300,000 shares
over the three year employment period. This company provides paver installation
and driveway sealant and coating services primarily to contractors in Southeast
Florida.
The Company acquired American Paints, Inc., a Pompano Beach, Florida paint
manufacturer and distributor for 572,000 common shares on December 1, 1998.
American Paints was operated until March 30, 2000 at which time it was closed to
avoid future operating losses.
The Company has sustained significant operating losses since its inception.
Management's strategy of expanding into the ThermaCool(TM) product line,
developing a commercially viable manufacturing process for shells and expansion
into new markets for its shell technology may result in the Company incurring
additional losses due to the costs associated with these strategies. The Company
expects to incur losses until it is able to increase its sales, expand its
product line and increase its distribution capabilities to a sufficient revenue
level to offset ongoing operating and expansion costs.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to three months ended March 31, 1999
Total consolidated revenue for the three months ended March 31, 2000 was
$1,274,507 compared to $1,128,941 for the same period of 1999, which represents
an increase of $145,566, or 13%. This increase was primarily attributed to the
additional revenues of two acquisitions: American Paints and T-Coast/Sealco
Systems, Inc. The revenues for the Company's existing business declined for this
period over the prior period. This decline resulted from the loss of customers
at Atlas Chemicals that impacted its revenues for the period.
Gross profit margins were 27.4% and 31.0%, respectively, for the three-month
period ended March 31, 2000, as compared to the prior period ended March 31,
1999. This decrease is the result of a change in the mix of paint and coatings
products sold by the Company, and in part, by lower contribution margin from the
America Paints and Sealco acquisitions. Sealco has traditionally had gross
profit margins in the 16% range. The Company expects that with buying
efficiencies and the opportunity to provide all coating and sealant needed for
the Sealco operations, that business' overall gross profit margin can be
improved.
For the three months ended March 31, 2000, total selling, general and
administrative expenses were $2,733,163 as compared to $667,854 for the same
period of the previous year, an increase of $2,065,309 or 309%. This substantial
increase is the result of the write-off of goodwill related to all of the
company's previous acquisitions amounting to $1,115,826, together with the
severance compensation with the company's former president in the amount of
$600,000, and fees and compensation and fees paid in the company's common stock
to employees, consultants, and directors in the total amount of $467,500.
The company accounts for its long-lived assets in accordance with the Financial
Accounting Standards Board Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement No.
121"). The company reviews for impairment of long-lived assets and goodwill
related to those assets to be held and used in the business whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In the recent second quarter of this Fiscal Year, management
identified impairment of its goodwill values for prior acquisitions. It was
determined by present management that to be in compliance with FASB121 that
mandates the continual valuation review of the company's assets that it was
appropriate for the company to completely reduce the goodwill carry values
because of the substantial doubts of the company continuing as a going concern.
As a consequence of this analysis, goodwill of $1,115,826 was expensed in the
current period ended March 31, 2000.
9
In an effort to become profitable, the Company has taken major steps to reduce
it administrative overhead that included administrative personnel. This
initiative also included the closing of its American Paints facility that
resulted in a one-time charge of $912,347 for this closure in the period ended
March 31, 2000. Customers of American Paint will continue to be served by the
Atlas Chemical facility in Miami that will continue in operation and should
benefit from the increased production volume.
The Company experienced a loss from operations of $2,383,998 for the three-month
period ended March 31, 2000 as compared to a loss of $317,615 for the same prior
year period. This increase in the operating loss over that of the preceding year
period reflects the lower gross margin contribution from the Company's revenues
and the substantially higher S. G & A expense which included the write-down of
goodwill. Management anticipates that after this quarter, higher level of sales
and lower future S, G & A expenses will result in improvement in future
operating performances and eventually profitable operations.
During the period ended March 31, 2000 interest expense increased to $80,383
compared to $6,629 in the year ago period ended March 31, 1999, an increase of
$73,754. The increase is attributable to the convertible subordinated debt issue
that the Company received during the fiscal year ended September 30, 1999. No
conversion has been elected during the present quarter ended March 31, 2000.
There was provision for income tax benefit for the present quarter ended March
31, 2000 as there was in the prior year ago period in the amount of $64,848.
The basic loss and basic loss per share were $3,376,728 and $0.33 per share
respectively, for the three months ended March 31, 2000 as compared to a basic
loss and basic loss per share of $259,396 and $.03 respectively, for the same
period in 1999. This loss represents a 12- fold increase over the basic loss
experienced in the year ago quarter. The loss per share for the period was
substantially higher than the previous year ago period. The weighted average
shares outstanding for the quarter ended March 31, 2000 was 10,171,153 as
compared to 8,452,420 for the preceding year quarter ended March 31, 1999.
With the recent management changes within the Company, an effort has been
undertaken to focus in the recent quarter ended March 31, 2000, on increasing
the production volume of paint and coating manufacture in the Atlas Chemicals'
Miami production facility. Presently, all paints are manufactured at that Miami
location. In addition, management has reduced the number of stock keeping units
of paint and coating products to focus on more efficiently produce the more
significant paint and coating products. Once the Miami facility is profitable,
management will seek to aggressively market its paint and coatings products to a
larger customer base while maintaining an emphasis on profitability. This
strategy will be to expand within Florida markets and then the Sunbelt Region of
the United States. Management continues to be optimistic about the benefits of
its near-term strategy.
The Company anticipates improvement in raw material purchasing economies that
will result in cost savings in its purchases in manufacturing. This benefit will
be realized in the third and fourth quarters of this fiscal year. The Company
also anticipates improvement in gross profit margins during the balance of this
fiscal year resulting from improved purchasing economies and the sale of fewer,
but more profitable products.
Six months ended March 31, 2000 compared to six months ended March 31, 1999
Total revenue for the six months ended March 31, 2000 was $2,476,702 compared to
$1,940,351 for the same period of 1999, which represents an increase of
$536,351, or 28%. The increase was primarily the result of the sales
contribution of the American Paints and T-Coast acquisitions.
10
Gross profit margins were 27% and 30%, respectively, for the six-month period
ending March 31, 2000 as compared to the prior period ending March 31, 1999.
This decrease is the result of a change in the mix of paint and coatings
products sold by the Company, and in part, by lower contribution margin from the
America Paints and T-Coast acquisitions. T-Coast has traditionally had gross
profit margins in the 16% range.
For the six months ended March 31, 2000, total selling, general and
administrative expenses were $3,884,786 as compared to $1,185,314 for the same
period of the previous year, an increase of approximately $2,699,472, or 227%.
This substantial increase is the result of the write-off of goodwill related to
all of the company's previous acquisitions amounting to $1,115,826, together
with the severance compensation with the company's former president, in the
amount of $600,000, and compensation and fees paid in the company's common stock
to employees, consultants, and directors in the total amount of $467,500.
Management anticipates that future S, G & A expenses as a percentage of sales
will be at lower levels than has been historically experienced by the company by
its present actions. By controlling its S G & A expenses, management expects to
improve future operating performance.
The company accounts for its long-lived assets in accordance with the Financial
Accounting Standards Board Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement No.
121"). The company reviews for impairment of long-lived assets and goodwill
related to those assets to be held and used in the business whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In the recent second quarter of this Fiscal Year, management
identified impairments of its goodwill value for its prior acquisitions. It was
determined by present management that to be in compliance with FASB121 that
mandates the continual valuation review of the company's assets that it was
prudent for the company to completely reduce the goodwill carry values because
of the substantial doubts of the company continuing as a going concern.
The Company experienced a loss from operations of $3,223,755 for the six-month
period ending March 31, 2000 as compared to a loss of $596,808 for the same
prior year period that amounted to a $2,626,947 loss increase, or 440%. This
loss is attributed to the higher level of S G & A expense including the
write-down of goodwill for the six month period ended March 31, 2000 as compared
to the prior year's six month period.
During the six-month period ended March 31, 2000 interest expense increased to
$162,685 compared to $9,464 in the year ago six-month period ended March 31,
1999, an increase of $153,221. The increase is attributable to the convertible
subordinated debt issue that the Company received during the fiscal year ended
September 30, 1999. In the prior period ended March 31, 1999 the company had
interest income in the amount of $4,4431. There was not any interest income in
the current period.
Based upon management's current estimates of future taxable income, management
has determined that a valuation allowance of one hundred percent (100%) is
appropriate during the current six month period ended March 31, 2000. In the
prior year ago six-month period, a fifty percent valuation allowance was used to
represent that portion of deferred taxes that may be realized in the future.
The basic loss was $4,298,787 for the six months ended March 31, 2000 as
compared to a net loss of $481,474 for the same period in 1999. This represented
an increase in the loss of $3,817,313 for this period as compared to the year
before six-month period ended March 31, 1999. The basic loss per share was $0.43
for the six months ended March 31, 2000 as compared to a $0.06 per share for the
same six months period in 1999. There is not a diluted loss per share
presentation as it would be anti-dilutive for both these periods.
This current six-month period loss per share was higher even though there is a
dilutive effect with more common shares being outstanding. During these two
comparable periods, the weighted average shares outstanding increased from
7,593,642 to 9,971,153, or 31%. This increase is primarily attributed to the
11
conversion of preferred stock held by the Company's former president that was
converted to common stock. Such conversion permitted that officer to repay the
Company for advances and loans that he had previously taken and thereby provide
working capital for the Company.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has largely funded its operations and its product
development activities with funds provided by issuing securities and from
borrowings. During the six months ended, the Company received $232,771 from
borrowings and $303,269 of proceeds from the repayment of stockholder loans.
This represented approximately 80% of the $663,080 of net cash provided by
financing activities.
Net cash used in operating activities for the six months ended March 31, 2000
was $346,930 compared to net cash used of $726,719 for the six months ended
March 31, 1999. This decrease in cash used by operating activities is despite
the higher net loss that was offset by the write-off of goodwill in the amount
of $1,115,826, the loss on closure of a division in the amount of $912,347, the
issuance of common stock in the amount of $797,979 for services, and the
increase in accrued expenses of $598,597.
Cash used in investing activities for the six months ended March 31, 2000 and
1999 were $350,258 and $1,586,701, respectively. The principal use of funds in
the six-month period ended March 31, 2000 was the acquisition of Silabs Inc. and
the balance for capital expenditures. In addition, capital expenditures for the
recent period increased to $135,258 from $70,495 over the prior year's period.
There were two acquisitions amounting to $1,475,006 in the year ago period as
compared to one for $215,000 in the present period.
Cash provided by financing activities for the six months ended March 31, 2000
was $663,080 as compared to $2,637,912 for the six months ended March 31, 1999.
During the present six months period, the Company received $232,771 from
borrowings and $303,269 of proceeds from the repayment of stockholder loans.
This represented approximately 80% of the $663,080 of net cash provided by
financing activities. The year ago period included $2,212,888 from the issuance
of common stock together with $500,000 from the issuance of a convertible note.
As of March 31, 2000, the Company had net working capital deficit of $993,005
and a current of 0.47. Management is seeking to obtain funding to remedy its
working capital deficiency. It has recently finalized the terms of a funding
with PAMG, LLC, a Florida based company, for an equity infusion of up to
$1,000,000. The first tranche of this funding in the amount of $500,000 is
scheduled to close on June 3, 2000. PAMG has advanced the Company some funds for
its working capital needs in anticipation of this closing. The Company is not
presently profitable and continues to fund itself from the proceeds of
securities placements. Once the Company achieves profitability, it will then be
in a position to fund itself on an operating basis.
Management believes that additional capital will be needed to fund its present
plan to manufacture its microshell technology products, as well as, new paint
and coating products. Management is optimistic that such funds will be available
from investment or financing sources to provide for this expansion plan. Should
funds not be readily available, management intends to defer capital expenditures
until a later time when appropriate funding can be arranged. The Company is in
need of additional funding to provide for its working capital requirements over
the next six months despite the $1,000,000 funding anticipated with PAMG, LLC.
Should such funding not be available, the Company would have to further curtail
its present operations to achieve breakeven operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
12
On June 10, 1999, the Company and Innovation Associates, Inc. ("IA") reached an
agreement to settle litigation that was commenced by IA for trade secrets
misappropriation among other matters. As part of the settlement, the Company
agreed to license certain patents relating to microspheres that are owned by IA.
Consideration for such license was the payment of $25,000 and the issuance of
$500,000 worth of the Company's common stock that was legended. A requirement
with the issuance of this common stock was that registration of these securities
occur within 180 days of the signing date of the agreement. The Company did not
register these shares within the prescribed period and is obligated to issue
additional shares of common stock having a value of $125,000. The Company plans
to issue 29,412 shares of common stock to satisfy this payment obligation. The
Company plans to utilize the IA patents to strengthen its patent position in
this area.
On February 4, 1999, a complaint was filed in the United States District Court,
Middle District of Florida by Mr. Russell Haraburda and Eden Group, Inc. against
John Pidorenko, the Company's then president, and the Company for monies
purportedly due for arranging financing for the Company prior to its IPO in
March of 1997. The Company does not believe any monies are due Mr. Haraburda or
his firm. In addition, the Company has been assigned two promissory notes of the
Eden Group, Inc. that are unpaid. The Company will vigorously challenge any
demand for payment by Mr. Haraburda and will seek full payment under its
promissory notes from the Eden Group. A trial in the summer of 2000 is
anticipated.
Item 5. Other Information
-----------------
On March 1, 2000, John Pidorenko resigned as president and chief executive
officer of the company and as a member of the board of directors.
On March 6, 2000, Peter Thomas was appointed President of the company to
fill the vacancy created by the resignation of Mr. Pidorenko. Mr. Maurice
Malacarne was appointed Executive Vice President of the company. On that date,
Peter Leighton was also appointed to the board of directors to fill the vacancy
created with the resignation of Mr. Pidorenko.
On March 29, 2000 the board of directors authorized a 1-for-4 reverse stock
split effective April 14, 2000.
Item 6. Exhibits and reports on Form 8-K
--------------------------------
Form 8-K filed on May 2, 2000, containing information regarding the
termination of Cherry Bekaert & Holland, L.L.P. as the company's auditors and
the appointment of Pender Newkirk & Company as successor independent
accountants.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant had
duly caused the report to be signed on its behalf by the undersigned thereunto
duly authorized.
ThermaCell Technologies, Inc.
Dated 5/22/2000
/s/ Peter Thomas
----------------
Peter Thomas
President