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, 2001
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-21279
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THERMACELL TECHNOLOGIES, INC.
-----------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 59-3223708
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(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)
(386) 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 No X
---- ----
The number of shares outstanding of the Issuer's Common Stock, $.0001
Par Value, as of March 31, 2001 was 6,107,109.
Transitional Small Business Disclosure Format:
Yes No X
---- ----
THERMACELL TECHNOLOGIES, INC. AND SUBSIDIARIES
Index
Six Months Ended March 31, 2001 and 2000
(Unaudited)
Page
Part I - Financial Information ----
- ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet -
March 31, 2001............................................... 1
Consolidated Statements of Operations -
Three months and six months ended
March 31, 2001 and 2000...................................... 2
Consolidated Statements of Changes in Stockholders' Deficit
Six months ended March 31, 2001.............................. 3
Consolidated Statements of Cash Flows -
Six months ended
March 31, 2001 and 2000...................................... 4
Notes to Consolidated Financial Statements.....................5 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................10 - 14
Part II - Other Information
Item 1. Legal Proceedings............................................... 15
Signatures.............................................................. 17
i
ThermaCell Technologies, Inc. and Subsidiaries
Consolidated Balance Sheet
March 31, 2001 (Unaudited)
Assets
Current assets:
Cash $ 25,719
Accounts receivable, trade, net of allowance for uncollectible accounts of $10,000 42,005
Prepaid expenses and other 76,600
------------
Total current assets 144,324
------------
Property and equipment, net of accumulated depreciation 659,674
------------
Other assets:
Deposits 30,555
Prepaid expenses 3,025
Other intangibles, net of accumulated amortization of $250,135 586,205
------------
Total other assets 619,785
------------
$ 1,423,783
============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 680,416
Accrued expenses 795,624
Accrued payroll 14,964
Current maturities of long-term debt:
Notes payable 200,441
Capital leases 273,511
------------
Total current liabilities 1,964,956
------------
Long-term liabilities:
Accrued expenses 148,061
Notes payable, net of current maturities and discount 914,797
------------
Total long-term liabilities 1,062,858
------------
Stockholders' deficit:
Preferred stock, Series A; $.0001 par value; 5,000,000 shares authorized; 0
shares issued and outstanding
Preferred stock, Series B convertible; $1,000 stated value; 8.0% dividend;
1,500 shares authorized; 0 shares issued and outstanding
Common stock; $.0001 par value; 20,000,000 shares authorized; 6,147,109
shares issued; 6,107,109 shares outstanding 615
Additional paid-in capital 11,659,041
Common stock payable 1,079,960
Common stock receivable (72,500)
Accumulated deficit (14,216,147)
Treasury stock; 40,000 common shares (55,000)
------------
Total stockholders' deficit (1,604,031)
------------
$ 1,423,783
============
The accompanying notes are an integral part of the consolidated financial
statements.
1
ThermaCell Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------- ------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------
Sales $ 395,258 $ 504,751 $ 862,891 $ 1,009,631
Cost of sales 281,578 435,870 727,473 875,908
---------------------------------------------------------------------
Gross profit 113,680 68,881 135,418 133,723
Selling, general and administrative
expenses 577,135 2,644,188 793,290 3,403,488
---------------------------------------------------------------------
Loss from operations (463,455) (2,575,307) (657,872) (3,269,765)
Interest expense (125,619) (74,133) (192,562) (155,387)
---------------------------------------------------------------------
Loss from continuing operations
before income taxes (589,074) (2,649,440) (850,434) (3,425,152)
Income (loss) from operations of
discontinued division 9,269 (727,288) 13,400 (873,634)
---------------------------------------------------------------------
Net loss $ (579,805) $ (3,376,728) $ (837,034) $ (4,298,786)
=====================================================================
Earnings (loss) per share:
Basic loss per common share from
continuing operations $ (.08) $ (1.04) $ (.12) $ (1.37)
Basic income (loss) per share from
discontinued operations .00 (.29) .00 (.35)
---------------------------------------------------------------------
Net loss per share $ (.08) $ (1.33) $ (.12) $ (1.72)
=====================================================================
Weighted average number of common
shares outstanding 7,649,094 2,542,788 6,979,912 2,492,788
=====================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
2
ThermaCell Technologies, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
Six Months Ended March 31, 2001 (Unaudited)
Common Stock Additional
------------------- Paid-In
Shares Amount Capital
--------------------------------------------------
Balance, September 30, 2000 6,147,109 $ 615 $ 11,659,041
Common stock paid for, not issued
Net loss for the period
--------------------------------------------------
Balance, March 31, 2001 6,147,109 $ 615 $ 11,659,041
==================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Common Common
Stock Stock Accumulated Treasury
Payable Receivable Deficit Stock Total
- --------------------------------------------------------------------------------------------
$ 105,500 $ (72,500) $ (13,379,113) $ (55,000) $ (1,741,457)
974,460 974,460
(837,034) (837,034)
- --------------------------------------------------------------------------------------------
$ 1,079,960 $ (72,500) $ (14,216,147) $ (55,000) $ (1,604,031)
============================================================================================
3
ThermaCell Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
March 31,
--------------------------------
2001 2000
--------------------------------
Operating activities
Net loss $ (837,034) $ (4,298,786)
--------------------------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 91,468 191,822
Interest and penalties on note conversion 200,203
Amortization of discount on notes payable 116,371
Decrease in:
Accounts receivable 83,671 21,852
Inventory 161,577
Officer advance 6,900 89,415
Prepaid and other assets 38,300 174,561
Write-off of goodwill 1,115,826
Loss on closure of division 912,347
Increase (decrease) in:
Accounts payable (133,739) (112,120)
Accrued expenses 171,843 598,597
Common stock issued for services 797,979
--------------------------------
Total adjustments 575,017 3,951,856
--------------------------------
Net cash used by operating activities (262,017) (346,930)
--------------------------------
Investing activities
Purchase of property and equipment (15,161) (135,258)
Acquisitions (215,000)
Disbursement of cash in trust account 27,500
--------------------------------
Net cash provided (used) by investing activities 12,339 (350,258)
--------------------------------
Financing activities
Proceeds from issuance of notes payable 169,481 232,771
Proceeds from common stock subscription 107,127 20,000
Principal payments on capital leases and notes payable (14,090) (57,960)
Proceeds from payments on stockholder loan 303,269
Common stock issued for acquisitions 165,000
--------------------------------
Net cash provided by financing activities 262,518 663,080
--------------------------------
Net increase (decrease) in cash 12,840 (34,108)
Cash at beginning of period 12,879 60,173
--------------------------------
Cash at end of period $ 25,719 $ 26,065
================================
Supplemental disclosure of cash flow information:
During the period ended March 31, 2001, the Company converted $566,667 of
notes payable, plus accrued interest and penalties, into 6,883,595 shares of
common stock that had not been issued as of March 31, 2001.
The accompanying notes are an integral part of the consolidated financial
statements.
4
ThermaCell Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2001 and 2000 (Unaudited)
1. Consolidated Financial Statements
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the six months ended March 31, 2001 and 2000, (b) the financial
position at March 31, 2001, and (c) cash flows for the six-month periods ended
March 31, 2001 and 2000, have been made.
The unaudited consolidated financial statements and notes are presented as
permitted by Form10-QSB. Accordingly, certain information and note disclosures
normally included in consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted. The accompanying consolidated financial statements and notes
of ThermaCell Technologies, Inc. and Subsidiaries (the "Company") should be read
in conjunction with the audited consolidated financial statements and notes of
the Company for the fiscal year ended September 30, 2000. The results of
operations for the three- and six-month period ended March 31, 2001 are not
necessarily indicative of those to be expected for the entire year.
The accompanying consolidated financial statements include the accounts of
ThermaCell Technologies, Inc. and its subsidiaries, Atlas Chemical Co. ("Atlas")
and T-Coast Pavers ("T-Coast"), after elimination of material, inter-company
accounts, and transactions.
Certain minor reclassifications have been made to the 2000 consolidated
financial statements to conform to the classifications used in 2001.
2. Going Concern
The accompanying consolidated financial statements have been prepared on a going
concern basis that contemplates the realization of assets and liabilities. In
the ordinary course of business, operating losses have been incurred each year
since inception, resulting in an accumulated deficit of approximately
$14,216,000 and negative working capital of approximately $1,821,000 as of March
31, 2001, and total liabilities exceeding total assets by approximately
$1,604,000 as of March 31, 2001. In addition, the Company has certain default
judgments against it. Currently, management is soliciting additional equity
investors to fund these losses. However, these conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements of the Company do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
5
ThermaCell Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2001 and 2000 (Unaudited)
2. Going Concern (continued)
In addition, the Company is involved in several lawsuits for outstanding
obligations from vendors, leasing companies, and certain professionals for
services provided. There are default judgements that have been granted because
the Company has not had the financial resources to appropriately defend itself
as representation was declined or withdrawn. It is uncertain whether the Company
will be able to pay these obligations in the future. Due to the financial and
legal problems the Company is experiencing, the Board of Directors has decided
to file for protection under Chapter 11 of the U.S. Bankruptcy Code. This filing
occurred during November 2001. The Company has arranged for debtor-in-possession
financing with its largest stockholder. The Company's intent is to submit a plan
of reorganization that requests creditors to accept its shares and to have the
debtor-in-possession funding source also accept the Company's shares as part of
this reorganization. Current stockholders will be substantially diluted if the
reorganization plan is confirmed. There is no assurance that the Company's plans
to reorganize will be successful or approved. Management believes the shell
technology is viable and that there are substantial markets for its products.
The organization proceedings, if successful, will help the Company achieve its
objectives and retain some stockholder value.
3. Change in Control of Company
During the period ended March 31, 2001, Augustine Capital Fund, L.C. (the
"Augustine Fund") elected to convert $566,667 of the Company's convertible notes
payable into 6,883,595 shares of common stock, which is recorded as common stock
payable in the consolidated financial statements. As a result of this
conversion, the Augustine Fund is in a position to control the affairs of the
Company as the issuance of these shares represents more than 50 percent voting
control of the Company's common stock.
4. Segment Information
The Company operates in two primary business segments that are identified based
on products and services.
The Company, through its wholly owned subsidiary, T-Coast, installs brick pavers
in driveways and sidewalks.
6
ThermaCell Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2001 and 2000 (Unaudited)
4. Segment Information (continued)
The Company, through its wholly owned subsidiary, Atlas, manufactures and
distributes paints and coatings. The paint division was discontinued during the
year ended September 30, 2000.
The Company is preparing to manufacture and sell microscopic evacuated glass
spheres (microcells) in the current fiscal year. During the current year, the
Company incurred expenses in perfecting the manufacturing process. Corporate
general and administrative expenses are included in this division. This segment
is identified as ThermaCell Technologies.
The following table presents information about the results of operations of the
Company's business segments for the six months ended March 31, 2001:
Paint ThermaCell Paver
Division Technologies Division Consolidated
------------------------------------------------------
Sales $862,891 $ 862,891
Less cost of sales 727,473 727,473
-------------------------------------------------------
Gross profit 135,418 135,418
Selling, general and administrative $ 620,738 172,552 793,290
-------------------------------------------------------
Loss from operations (620,738) (37,134) (657,872)
Other expenses:
Interest expense (188,183) (4,379) (192,562)
-------------------------------------------------------
Loss from continuing operations
before income taxes (808,921) (41,513) (850,434)
Income from discontinued operations $ 13,400 13,400
-------------------------------------------------------
Net income (loss) $ 13,400 $(808,921) $(41,513) $(837,034)
=======================================================
The following table presents information about the results of operations of the
Company's business segments for the six months ended March 31, 2000:
Paint ThermaCell Paver
Division Technologies Division Consolidated
------------------------------------------------------------
Sales $ 40,000 $ 969,631 $ 1,009,631
Less cost of sales 24,437 851,471 875,908
-------------------------------------------------------------
Gross profit 15,563 118,160 133,723
7
ThermaCell Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2001 and 2000 (Unaudited)
4. Segment Information (continued)
Paint ThermaCell Paver
Division Technologies Division Consolidated
------------------------------------------------------------
Selling, general and administrative
expenses 3,261,212 142,276 3,403,488
-------------------------------------------------------------
Loss from operations (3,245,649) (24,116) (3,269,765)
Other expenses:
Interest expense (149,388) (5,999) (155,387)
-------------------------------------------------------------
Loss from continuing operations
before income taxes (3,395,037) (30,115) (3,425,152)
Loss from discontinued operations $ (873,634) (873,634)
-------------------------------------------------------------
Net loss $ (873,634) $(3,395,037) $(30,115) $(4,298,786)
=============================================================
5. Discontinued Operations
The Company adopted a plan to abandon or dispose of 100 percent of the assets of
its paint division during the year ended September 30, 2000. Accordingly, the
results of operations of the paint division for the periods presented are
reported as a component of discontinued operations, with the prior year
reclassified in the consolidated statements of operations. The estimated loss on
the disposal of discontinued operations of approximately $2,900,000 was recorded
during the year ended September 30, 2000 and represents the estimated loss on
the disposition of the segment assets and operations through the disposal date
of November 24, 2000.
Summarized results of the paint division are as follows:
2001 2000
-------------------------------
Net sales $ 156,856 $ 1,467,070
===============================
Operating income (loss) $ 13,400 $ (873,634)
===============================
Income (loss) from discontinued operations $ 13,400 $ (873,634)
===============================
The remaining assets and liabilities of the paint division consist of the
following in the March 31, 2001 consolidated balance sheet:
Current assets $ 3,259
Current liabilities (504,685)
------------
Net liabilities of discontinued operations $ (501,426)
============
8
ThermaCell Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2001 and 2000 (Unaudited)
6. New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of SFAS No. 142, which is
effective for the Company on January 1, 2002. The Company has not evaluated the
effect, if any, that the adoption of SFAS No. 142 will have on the Company's
consolidated financial statements.
7. Subsequent Event
The Company entered into a Stock Purchase Termination Agreement that is
effective as of April 1, 2001, which unwinds the purchase of T-Coast. Under this
agreement, T-Coast returned 300,000 shares to the Company and the parties
entered into mutual general releases. Maurice Malacarne, the stockholder of
T-Coast, agreed to resign from the Company's Board of Directors.
The following table presents information about the results of operations of the
Company's business segments for the six months ended March 31, 2001 and 2000,
respectively, as if the unwinding of T-Coast occurred at October 1, 2001:
Consolidated 2001 2000
--------------------------------------------------- -----------------------------
Sales $ 0 $ 40,000
Less cost of sales 0 24,437
-----------------------------
Gross profit 0 15,563
Selling, general and administrative 620,738 3,261,212
-----------------------------
Loss from operations (620,738) (3,245,649)
Other expenses:
Interest expense (188,183) (149,388)
-----------------------------
Loss from continuing operations before income taxes (808,921) (3,395,037)
Income from discontinued operations 13,400 (873,634)
-----------------------------
Net loss $ (795,521) $ (4,268,671)
=============================
9
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
We were incorporated in Florida in August 1993, for the purpose of developing,
manufacturing, and marketing insulating materials and coatings using partially
evacuated glass microspheres (sometimes referred to as "shells"). The process of
evacuation removes air and other gases from the sphere and thereby creates a
vacuum. A shell is a very small glass sphere (generally the size of a grain of
salt) made by crushing glass particles. The insertion of shells into various
materials and products ("shell technology") can substantially improve the
thermal resistive characteristics of such materials and products resulting in
improved insulation ("R") values. The more a shell is evacuated, the higher the
thermal resistive characteristics of the product or material to which the shells
are added.
Our management believes that there is a broad range of applications for
introduction in products of evacuated or partially evacuated shells, the effect
of which is improved energy efficiency of such products because of the inherent
insulating characteristics provided by the glass spheres. Our strategy is to
commercially exploit the use of its shell technology to improve the "R" values
of a number of products. In fiscal three-month period 1995, we completed the
development of our first product line that consisted of paints and coatings
containing shells in order to reduce heat transmission and improve the
insulation values of the products. The products were marketed under the
ThermaCool(TM) label. There have been little sales activities to promote this
product since its introduction due to financial limitations.
On November 30, 1995, we acquired the assets of C.F. Darling Paint & Chemicals,
Inc., a paint manufacturing company, located in New Port Richey, Florida
("Darling Paint") for approximately $250,000 in cash. We also assumed the real
estate lease for the Darling Paint facility and acquired those assets to have a
facility to produce and develop paints and coatings for its ThermaCool(TM)
product line which incorporates its shell technology. Prior to this acquisition,
we purchased paints and coatings from independent paint and coating
manufacturers.
On March 19, 1997, we successfully completed a public offering for 1,375,000
Units, with 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 commissions.
On July 28, 1997, we acquired all the outstanding common stock, representing
100% ownership of Atlas Chemical Co., 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 and distribution channel which included
major accounts such as Ace Hardware, Lowes, and others. This facility was closed
on November 24, 2000 because of the lack of funds to maintain the operation. All
personnel were terminated on that date.
10
We acquired T-Coast Pavers/Sealco Systems, Inc. on December 1, 1998 for 300,000
shares of its common stock, then valued at $300,000 and an employment agreement
with its founder and key executive for the payment of an additional 300,000
shares over the three three-month period employment period. This company
provides paver installation and driveway sealant and coating services primarily
to contractors in Southeast Florida. We have entered into a Stock Purchase
Termination Agreement, which is effective April 1, 2001, which unwinds the
purchase of this company. Under this agreement, the 300,000 shares are returned
to us and the parties entered into mutual general releases. Maurice Malacarne,
the shareholder of T-Coast Pavers/Sealco Systems, Inc. agreed to resign from our
board of directors.
On December 1, 1998, we acquired American Paints, Inc., a Pompano Beach, Florida
paint manufacturer and distributor for 572,000 common shares. American Paints'
operations were consolidated into the Company's Atlas manufacturing facility to
reduce duplicate costs in April 2000.
Our management's long-term 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. Other markets in which the Company may utilize its technology
include refrigeration and cooling systems, automotive and transportation
applications and cups and thermoses. There is no assurance that the Company will
continue to be successful in penetrating the market with its ThermaCool(TM)
product line, developing commercially viable manufacturing techniques, or
addressing other markets.
The Company was a developmental stage enterprise during its initial three
three-month periods of operation for the fiscal three-month periods through
December 31, 1997. During this development stage period, management devoted the
majority of its efforts to research and development, financing, marketing and
activities related to starting up production of its proprietary technology.
These activities were funded by investments from stockholders and borrowings
from unrelated third parties. Since fiscal three-month period 1998, the Company
has been an operating stage enterprise based upon the several acquisitions that
were completed. With acquisitions, particularly Atlas Chemical, we evolved from
the development stage to an operating enterprise whose principal line of
business was the sale of paints and coatings within the paint industry. With the
closing of Atlas Chemical during November 2000, the Company is not presently
manufacturing any paint or coating products. Furthermore, the Company's
ThermaCool(TM) coating is not presently being manufactured.
We have not been able to generate sufficient sales during our operating history
to fund our ongoing operating expenses or our continuing product development
activities. The successful IPO completed in March 1997 allowed the Company to
repay its then outstanding indebtedness and provided working capital. In fiscal
three-month period 1994, the Company completed the development of its first
product line. The Company has sustained significant operating losses since its
inception resulting in an accumulated deficit of $14,216,147 at March 31, 2001.
Management's restructuring strategy of developing a commercially viable
manufacturing process for microshells and expansion into 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 lines, and increase
its distribution capabilities to a sufficient revenue level to offset ongoing
operating and expansion costs.
Management's previous strategies of expanding the ThermaCool(TM) product line,
developing a commercially viable manufacturing process for shells, and expansion
into new markets for its shell technology would have resulted in substantial
additional losses due to the costs associated with these strategies.
Due to the financial and legal problems we are experiencing, our board of
directors has decided to file for protection under Chapter 11 of the U.S.
Bankruptcy Code. This filing occurred in November 2001. We have arranged for
debtor-in-possession financing with our largest shareholder. Our intent is to
submit a plan of reorganization, which requests creditors to accept our shares
11
and to have the debtor-in-possession funding source also accept our shares as
part of this reorganization. Current shareholders will be substantially diluted
if the reorganization plan is confirmed. There is no assurance our plans to
reorganize will be successful or approved. Management believes that the shell
technology is viable and that there are substantial markets for its products.
The organization proceedings, if successful, will help ThermaCell achieve its
objectives and retain some shareholder value.
RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE THREE-MONTH
PERIOD ENDED MARCH 31, 2000
Sales
Total sales for the three-month period ended March 31, 2001, were $395,258
compared to $504,751 for the same period ending in 2000, which represented a
decrease of $109,493, or 22%. This decrease was a result of our limited capital
to expand and properly fund our Sealco/T-Coast Pavers operation. Our Paver
segment represented the majority of our sales during the three-month periods
ended March 31, 2001 and 2000.
Cost of Sales
Cost of sales for the three-month period ended March 31, 2001, decreased
$154,292 or 35% to $281,578 from $435,870 in the same period of 2000. Cost of
sales as a percentage of sales decreased to 71% from 86% for three-month period
2001 as compared to 2000. This decrease is attributed to obtaining higher
margined contracts while maintaining a lower cost of sales in our Sealco/T-Coast
Pavers operation during the recent three-month period. Consequently, the gross
profit margin increased to 29% for three-month period 2001 from 14% for the
prior three-month period. Our Paver segment represented the majority of our cost
of sales during the three-month periods ended March 31, 2001 and 2000.
Selling, General and Administrative Expenses
For the three-month period ended March 31, 2001, total selling, general, and
administrative expenses were $577,135 as compared to $2,644,188 for the
three-month period ended March 31, 2000, a decrease of $2,067,053 or 78%. This
decrease is primarily related to consulting fees paid with our common stock
during the three-month period ended March 31, 2000.
Interest Expense
Interest expense, net of interest income, increased 69%, or $51,486 to $125,619
for the three-month period ended March 31, 2001 from $74,133 in the previous
three-month period ended March 31, 2000. This increase is the result of interest
expense and penalties incurred on our convertible debentures.
Loss on Discontinued Operations
During three-month period ended December 31, 2000, the company closed its Atlas
Chemicals operation in Miami, Florida because of the lack of working capital.
This closing resulted in a charge of $2,848,852 during the fiscal year ended
September 30, 2000. During the three-month period ended March 31, 2001, we
generated income, net of all expenses, from this discontinued division of
$9,269.
Net Loss
The net loss and the net loss per share was $579,805 and $0.08 respectively, for
the three-month period ended March 31, 2001, as compared to a net loss and net
loss per share of $3,376,728 and $1.33, respectively, for the three-month period
ending March 31, 2000. The decrease in loss is, in part, attributed to the
Company's lower level of selling, general and administrative costs over the
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prior three-month period and the charge for discontinued operations in the prior
three-month period with no similar charge in the current period. On a weighted
average basis, there were 7,649,094 shares outstanding for three-month period
ending March 31, 2001 as compared to 2,542,788 shares outstanding for
three-month period ended March 31, 2000.
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE SIX-MONTH PERIOD
ENDED MARCH 31, 2000
Sales
Total sales for the six-month period ended March 31, 2001, were $862,891
compared to $1,009,631 for the same period ending in 2000, which represented a
decrease of $146,740, or 15%. This decrease was a result of our limited capital
to expand and properly fund our Sealco/T-Coast Pavers operation. Our Paver
segment represented the majority of our sales during the six-month periods ended
March 31, 2001 and 2000.
Cost of Sales
Cost of sales for the six-month period ended March 31, 2001, decreased $148,435
or 17% to $727,473 from $875,908 in the same period of 2000. Cost of sales as a
percentage of sales decreased to 84% from 87% for six-month period 2001 as
compared to 2000. This decrease is attributed to obtaining higher margined
contracts while maintaining a lower cost of sales in our Sealco/T-Coast Pavers
operation during the recent six-month period. Consequently, the gross profit
margin increased to 16% for six-month period 2001 from 13% for the prior
six-month period. Our Paver segment represented the majority of our cost of
sales during the six-month periods ended March 31, 2001 and 2000.
Selling, General and Administrative Expenses
For the six-month period ended March 31, 2001, total selling, general, and
administrative expenses were $793,290 as compared to $3,403,488 for the
six-month period ended March 31, 2000, a decrease of $2,610,198 or 77%. This
decrease is primarily related to consulting fees paid with our common stock
during the six month period ended March 31, 2000. Our ThermaCell Technologies
segment represented selling, general, and administrative expenses of $620,738
and $3,261,212 during the six-month periods ended 2001 and 2000, respectively.
Our Paver segment represented selling, general, and administrative expenses of
$172,552 and $142,276 during the six-month periods ended 2001 and 2000,
respectively.
Interest Expense
Interest expense, net of interest income, increased 24%, or $37,175 to $192,562
for the six-month period ended March 31, 2001 from $155,387 in the previous
six-month period ended March 31, 2000. This increase is the result of interest
expense and penalties incurred on our convertible debentures.
Loss on Discontinued Operations
During six-month period ended December 31, 2000, the company closed its Atlas
Chemicals operation in Miami, Florida because of the lack of working capital.
This closing resulted in a charge of $2,848,852 during the fiscal year ended
September 30, 2000. During the six-month period ended March 31, 2001, we
generated income, net of all expenses, from this discontinued division of
$13,400.
Net Loss
The net loss and the net loss per share was $837,034 and $0.12 respectively, for
the six-month period ended March 31, 2001, as compared to a net loss and net
loss per share of $4,298,786 and $1.72, respectively, for the six-month period
ending March 31, 2000. The decrease in loss is, in part, attributed to the
Company's lower level of selling, general and administrative costs over the
prior six-month period and the charge for discontinued operations in the prior
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six-month period with no similar charge in the current period. On a weighted
average basis, there were 6,979,912 shares outstanding for six-month period
ending March 31, 2001 as compared to 2,492,788 shares outstanding for six-month
period ended March 31, 2000. Our ThermaCell Technologies segment represented a
net loss of $808,921 and $3,395,037 during the six-month periods ended 2001 and
2000, respectively. Our Paver segment represented a net loss of $41,513 and
$30,115 during the six-month periods ended 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its capital requirements and its business
operations, including product development activities with funds provided by the
sale of its securities and from borrowings. During six-month period ended March
31, 2001, the Company received $276,608 from various investors. During this
period, only limited other capital, as discussed below, was received by the
company to conduct its operations. Consequently, without the availability of
adequate funding the company was forced to close some of its operations that
included consolidating the American Paints business into the Miami location of
Atlas Chemical, and thereafter the Atlas operation itself.
During the fiscal year ended September 30, 2000, the Company arranged the
placement of an additional $315,000 from the holder of the 9% Redeemable
Convertible Promissory notes that provided financing in fiscal year ended
September 30, 1999. In that financing, the Company issued two warrants to
purchase 50,000 shares each of the Company's common stock at $2.00 per share.
This placement was discounted from face value with the Company receiving
approximately $900,000 after placement costs and expenses. Those funds were used
for the relocation of its corporate offices to Daytona, Florida, establishment
of its microsphere manufacturing facility at that location, and to supplement
its working capital.
During March 2001, conversion of $566,667, a portion of the debt held by the
Augustine Fund, who holds all remaining convertible debt was completed into
6,883,595 shares of common stock which represents more than 50% voting control
of the outstanding common stock of the company. With this conversion, the
principals of Augustine Capital are in a position to control the affairs of the
company. Augustine Capital has agreed, subject to certain additional due
diligence, to provide additional capital to the company.
The Company continues to experience operating losses. The Company's net working
capital and stockholders' deficit are $1,820,632 and $1,604,031 respectively, at
March 31, 2001. The Company has not historically generated sufficient revenues
from operations to self-fund its capital requirements. Management is focusing on
raising additional capital to fund it present development. Management expects
that it will be able to arrange for additional financial resources to properly
execute its strategic plan although no assurances can be given that it will be
successful in such endeavors. If it is not successful in this endeavor, then it
will choices will be limited. The Company does not have sufficient working
capital to meet its immediate needs.
Due to the financial and legal problems we are experiencing, our board of
directors has decided to file for protection under Chapter 11 of the U.S.
Bankruptcy Code. This filing occurred in November 2001. We have arranged for
debtor-in-possession financing with our largest shareholder. Our intent is to
submit a plan of reorganization, which requests creditors to accept our shares
and to have the debtor-in-possession funding source also accept our shares as
part of this reorganization. Current shareholders will be substantially diluted
if the reorganization plan is confirmed. There is no assurance our plans to
reorganize will be successful or approved. Management believes that the shell
technology is viable and that there are substantial markets for its products.
The organization proceedings, if successful, will help ThermaCell achieve its
objectives and retain some shareholder value.
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SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company believes it will experience some, but not a material change in
seasonal demand for its products and services in the paver business.
INFLATION
Inflation has not proven to be a factor in the Company's business since its
inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of SFAS No. 142, which is
effective for the Company on January 1, 2002. The Company has not evaluated the
effect, if any, that the adoption of SFAS No. 142 will have on the Company's
consolidated financial statements.
NO REVIEW
The consolidated financial statements for the three months and six months ended
March 31, 2000 are not reviewed by an independent auditor.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is subject to a number of lawsuits and claims arising out of the
conduct of its business. Management believes that the probable resolution of
such matters may materially affect the financial position, results of operations
or cash flows of the Company.
On October 4, 2000, a judgment was rendered by the United States District Court
Middle District of Florida in a trial regarding claims made by Mr. Russell
Haraburda and Eden Group, Inc. against John Pidorenko, the Company's former
president, and the Company for monies purportedly due for arranging financing
for the Company prior to its IPO in March of 1997. The judgment concluded that
no monies or other consideration was due Mr. Haraburda or Eden Group. The
Company's claims regarding two promissory notes of the Eden Group, Inc., Mr.
Haraburda's firm, that are unpaid were also denied. Subsequently, Mr. Russell
Haraburda and Eden Group, Inc. appealed the decision to the United State Court
of Appeals for the Eleventh Circuit. The company also appealed the decision
regarding the obligations of Eden Group, Inc. under the promissory notes. No
decision has been rendered as of the date of this filing.
Due to the financial and legal problems we are experiencing, our board of
directors has decided to file for protection under Chapter 11 of the U.S.
Bankruptcy Code. This filing occurred in November 2001. We have arranged for
debtor-in-possession financing with our largest shareholder. Our intent is to
submit a plan of reorganization, which requests creditors to accept our shares
and to have the debtor-in-possession funding source also accept our shares as
part of this reorganization. Current shareholders will be substantially diluted
if the reorganization plan is confirmed. There is no assurance our plans to
reorganize will be successful or approved. Management believes that the shell
technology is viable and that there are substantial markets for its products.
The organization proceedings, if successful, will help ThermaCell achieve its
objectives and retain some shareholder value.
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Item 5. Other Information
-----------------
Our common stock and warrants were listed and traded on NASDAQ under the symbols
VCLL and VCLLW, respectively, until February 23, 2000 at which time they were
de-listed for non-compliance. Subsequently, our securities were listed on the
NASD BB:OTC until February 23, 2001 at which time they were removed and
thereafter listed in the Pink Sheets.
Item 6. Exhibits and reports on Form 8k
-------------------------------
Exhibit 10.1
Stock Purchase Termination Agreement, by and among Thermacell
Technologies, Inc. and Maurice Malacarne, Judy Malacarne and T-Coast
Pavers/Sealco Systems, Inc.
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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: 11/19/2001
/s/ James Hagarman
------------------
James Hagarman
President
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